In general, we like to think we know how much something is worth. The decision is based less on logic than on emotion, an intangible instinct. When it comes to video games, we know when a game is under or, in most cases, overpriced. Unfortunately, this ability to designate price versus value is disrupted by inflation.
Inflation has recently become a serious problem all over the world. No country is immune and there are real fears that higher interest rates, pent up demand and budget cuts could trigger stagflation or, even worse, a global recession. Reports of stable commodities rising in price become a daily occurrence.
At the time of writing, inflation rates in the UK are at their highest level in four decades and are just south of hitting double digits. We see the effects of inflation everywhere. Commodity and food prices are all on the rise. McDonald’s raised prices for the first time in 14 years. Amazon Prime will raise its price for the first time in eight years. Even technology, which typically sees prices fall over time, isn’t immune. Meta has announced that it will increase the price of its two-year-old Quest 2 VR headsets by $100 (although there are other reasons besides inflation that are specific to Meta’s business for which it is doing this) .
And video games? Besides collectors of retro video games and consoles, when the price of older video game technology goes up, you know there’s a problem. Could we see the $69.99 price for new PS5 and Xbox Series games increase? For the moment this is not the case, but everything is possible. If energy costs and the cost of goods continue to rise, how long will publishers absorb rising production prices before passing it on to you and me?
Unfortunately, this article can’t answer those questions, but it got me thinking: How much do video games cost today? Let’s drop that intangible gut feeling for now and get going with some hard facts and figures. How much do new games cost today compared to those of yesteryear?
Thanks to an article by Robert Grosso for TechRaptor, we can gauge the price of new console games over time. Below are my charts based on this analysis.
Over time, the price of new games has increased with a cycle of about 5-7 years, as shown in Chart 1. The price increase seems to occur during major upgrades in the life cycle of the game. console (for example, when game technology evolves to new graphics enhancements or when optical drives have been added). For example, between 1993 and 2001 the average cost of a new console game was $49.99, but in 2005 with the release of the Xbox 360 and PS3 it rose to $59.99. $.
It is obvious that the prices have increased over time. We should expect that given the prowess of modern consoles, the cost of making games, and the rate of inflation that naturally follows. In Chart 2, here are those same exit prices but adjusted for the equivalent of the 2022 price, using a US inflation calculator.
This means that a 1977 Atari 2600 game would cost the equivalent of just under $200 today. Over time, the price of games drops in relative terms. Xbox One and PS4 games that sold for $59.99 in 2013 would now sell for $76.30 if game publishers followed inflationary pressures. Even $69.99 games released in 2020 would cost $80.13 today (if game prices were kept at a constant rate with inflation). That’s a 14% increase.
This means that although the average price of new video games has increased in absolute terms, they have become cheaper over the years in relative terms. Between 1977 and 2020, the average relative price of games has fallen by nearly 2% each year.
In Chart 3, these two prices, the absolute and the relative, are shown side by side.
If new game prices were adjusted for 2022, new games for the 1977 Atari 2600 would be four times as expensive today, new games for the 1993 Atari Jaguar would be twice as expensive today, and new games for the Xbox 360 and PS3 would cost 50% more if released today. The relative price curve begins to weaken around the 1990s and moves closer and closer to absolute prices by the time we reach 2020 consoles, the Xbox Series, and the PS5. This implies that technological improvements in game manufacturing, economies of scale, efficiency and cheaper production values were most felt four decades ago. The good news is that the trend is down.
Outside of raw materials and energy supplies, further price increases for everyday products (and services sold) keep their price up for years to come. It helps in forecasting the costs of good manufacturing, consumer demand and investment planning. It is in times of high inflation that this sense of certainty can be shaken. Full game customers usually know the price of a new game before buying it and publishers are reluctant to adopt higher prices for their manufacturer’s suggested retail price (MSRP) because of this unspoken connection to their clients. Inflationary pressures on the cost of manufacturing games are absorbed for years until the price of new games must rise to meet these economic realities.
Pricing for new Xbox Series and PS5 games (AAA games) is $69.99 today. Suppose this is based on the calculation that these prices are the best operating costs, make money for publishers, and are the optimal price for waiting for demand. Let’s say $69.99 is the “most efficient” price to sell new games. As a fun exercise, let’s go back and see how much it would have been in the past.
Chart 4 illustrates what a $69.99 game would look like today in the past.
In 1977, a $69.99 game would have paid $340 today. It wasn’t until 2012 that new games reportedly reached the equivalent of $100.
Although this is a fun exercise, it reinforces the power of analyzing prices in relative terms and not in absolute terms. The problem is that people don’t operate or think in ‘relative terms’, we think in ‘absolute’. When prices rise, we evaluate the new price against the old one and judge the level of overcharge for personal wealth. It is with this human behavior in mind that we find another beneficial trend. The absolute prices of all video games also decrease over time.
Chart 5 shows the absolute prices of full physical games between 2018 and 2021. The data comes from game sales data from the ISFE, processed by the Belgian video game market research company Sparkers.
For the Switch, PS4, and Xbox One, all three consoles saw lower game prices. There are many reasons for this, for example, more cheaper catalog games are being sold and as new PS5 and Xbox Series consoles have come to market, the demand for new games for older systems decreased. Given these factors, it doesn’t change the fact that the average price trend is going in one direction, down. This phenomenon was also observed in the prices of digital full games, as shown in Chart 6.
To make matters even more favourable, the average annual income from employment in the UK increased with a CAGR of +1.9% (see chart 7) between 2018 and 2021. In contrast, the average combined physical and digital (excluding first-party Nintendo games) of Switch, PS4 and Xbox One games declined with a negative CAGR of -6.4%. As people got richer, game prices, by comparison, should have been cheaper.
So what does all of this mean given what is happening with high inflation today? For many consumers, games still seem expensive, even if they are more affordable, because of the sense of “value” they offer.
Where players once paid $60, they are now being asked to pay $70 for what is arguably the same game in terms of graphics or gameplay. It also doesn’t help that social media is pressuring gamers to buy games from day one, video game publishers are posting record profits, many games come with extra DLC or of microtransaction spending, and free games can make paying for anything feel high.
It would be a brave publisher if it were to raise its MSRP above $69.99 for new games (for the Xbox Series or PS5), but that doesn’t mean it won’t happen, especially if the inflation is consistently high a year from now. It would be safer for publishers to increase game prices with the launch of a new console, as opposed to a mid-life price increase, but given everything going on today, nothing is no longer a certainty.
I will end the article on an optimistic note. Some economists predict that the worst inflationary pressures are behind us, hopefully for the good of us all, they are right.
If you would like to learn more about Sparkers and GSD and how they can help you with video game analytics, please visit the sparkers.com website or contact [email protected]