Thursday, October 1, 2009

Price Cuts Boost Video Games

If you are in the video game business, how do you compete with The Beatles Rock Band? When it was released on September 9, most in the industry expected it to be the biggest video game release in history, but sales are far ahead of those lofty expectations. The publisher warned last week that the limited edition package of the game is likely to sell out before the Christmas shopping season arrives.

Most of the video game industry, though, is still trying to sell the previous generation of video games, which are based on a lower level of interactivity, and they’re hard to sell when customers can choose the new games instead. Video game sales in August were 1/6 less than a year before, and Movie Gallery was discouraged enough to decide to close the Game Crazy video game departments in 200 of its stores.

Faced with all these challenges, game publishers and stores have come to the conclusion that low-interactivity games will not be able to command quite the same prices that they have sold for in the past. Experiments with price cuts have showed that customers are responding to price cuts around 20 percent. The game hardware makers that tried price cuts at the end of August were the only ones that showed a year-over-year increase in sales that month. And now, new games with lower price points are crowding out the game releases that are sticking to the previous price points.

The move to lower price points is likely to stick, but this puts new pressure on game developers. Already hard pressed to develop profitable games, they will be under that much more pressure if 20 percent of their revenue goes away. Developers will have to come up with more productive ways to develop games, and they will probably have to make fewer of them.