E for Everyone, Except Me

The Escapist co-founder Alexander Macris has penned an interesting article about the skyrocketing cost of video game development development and why it’s harmful to “niche” gamers and the industry as a whole. He also provides some solid dollar figures to help put things into perspective:

I’m the first to admit that I have very distinct taste in games. I stopped playing the X-Com franchise when it became real-time, for instance. I still cherish the dream that MMOGs could be simulations like Ultima Online and Star Wars Galaxies, and not massively multiplayer amusement parks like World of Warcraft. I liked Baldur’s Gate more than Mass Effect. I thought Bethesda evolved their designs in the wrong direction when they made the world smaller in Oblivion than it was in Morrowind and Daggerfall.

Indeed, it’s hard not to feel like every facet of game design has evolved away from my tastes. It used to be that dozens of high-end games were released to my liking every year. Now there is or are maybe one or two. I know that there are hundreds of thousands of people who think like me, and who have their own quirky sub-set of tastes. Why don’t we matter to the game industry anymore?

As with everything, economics is the answer.

All game developers, and even most gamers, are aware that it costs more to create a videogame for the latest generation of consoles than it took for prior generations. But how much more? While hard data is hard to come by, a variety of estimates are available on the web that support the following approximations:

‘¢ 1994: 4th generation premium videogames cost $200,000 to develop and retailed for $60-$80
‘¢ 1999: 5th generation premium videogames cost $1,000,000 to develop and retailed for $40-$60
‘¢ 2004: 6th generation premium videogames cost $5,000,000 to develop and retailed for $40-$60
‘¢ 2009: 7th generation premium videogames cost $25,000,000 to develop and retailed for $60-$80

We thus see a long-term trend analogous to Moore’s Law, in which the development cost of videogames has quintupled every five years. Meanwhile, the retail price of games has hardly moved – indeed, it shifted downward for the better part of a decade, as CDs and DVDs replaced cartridges, only to return to $60 price points in the seventh generation.

Let’s assume that the publisher has a net margin of 20% of the retail price, after paying the developer, console manufacturer and retailer their cuts. Let’s also assume that the marketing budget of a game is always equal to the development budget, and assume an average $50 price point over the life of a game. What results?

‘¢ 1994: 4th gen videogames had to sell to 16,000 customers to break even
‘¢ 1999: 5th gen videogames had to sell to 80,000 customers to break even
‘¢ 2004: 6th gen videogames had to sell to 400,000 customers to break even
‘¢ 2009: 7th gen videogames had to sell to 2,000,000 customers to break even