Video Games are now $70. Is It Time for Dynamic Pricing?

The first confirmed MSRP for a next gen game has been revealed, and it hasn’t been without controversy. NBA 2K21 has been announced with a starting suggested retail price of $69.99, up $10 from new game prices since 2005’s Call of Duty 2 on the Xbox 360. Reaction has been mixed. Observant buyers note that the value of video games is at an all time high, and even at $70, bloated run times for a large number of AAA releases mean the value is still hovering around $1-$3 per hour. To compare, the typical movie at 2 hours long and average ticket price of around $9 would equate to a $4.50/hr cost.

Detractors however, note $70 is still expensive for most buyers today, and publishers have introduced other revenue streams to make up for development cost creep such as micro-transactions and more expensive launch “editions.”

The facts are, with inflation, $60 in 2005 is about $78 today (31% inflation rate), so new games are still cheaper than they were in 2005. However, another important figure to look at is the Median Wage increase from 2005 to today. According to the 2016 US Cenus (Table A-1) the Median Household Income increased from $46,326 in 2005 to $59,000 in 2016. If we use the previous 4 year increase (2012-2016) of 15% to estimate 2020s, we get about $67,800. This means in the 15 years since 2005, the Median Household Income has increased roughly 46%, well outpacing the 31% cumulative inflation rate. This sounds like $70 games are a bargain, yet there is one more number to look at.

The market demographic for video games is estimated to be made up of 82% of players under the age of 34. With this knowledge, it is important to look at the median increase in individual earnings for ages 18-34. According to the Buereu of Labor and Statistics, the annual median income of earners aged 16-34 in 2005 was $28,750.

Using a 50 week year, average of men and women, and average of the 3 groups between age 16-34

Using this same source, in 2020, the median annual income of earners aged 16-34 is $32,566, an increase of 13%.

To summarize, in the 15 years since the MSRP of a new game has been $60, the median annual income of the vast majority of video game players has increased by 13%. The market price of goods and services (CPI) has increased 31%, and the price of new games in 2020 has gone up 16%. Video games are cheaper than they were in 2005 when comparing dollar to dollar, but in 2020, $70 has to compete with other goods as part of a smaller disposable income pool for the average video game player.

What Is Dynamic Pricing?

Dynamic Pricing is simply the ability of a vendor to alter pricing based on demand. Lets use Sony’s Digital Only Playstation 5 and the PSN store as our vendor when discussing the viability of dynamic pricing as a means to ease the financial burden on the consumer throughout the next generation.

How Dynamic Pricing Looks for Video Games

You may not know it, but dynamic pricing is used all the time, particularly with online retailers. Retailers like Amazon already use data and analytics to determine the current demand for a product, and price the item accordingly. When Amazon buys a lot of product from the manufacturer, they sell it at the suggested retail price (MSRP), and when demand drops, they lower the price to clear out inventory. Here is an example of the price changes occurring over the life a typical video game, such as Ubisoft’s The Division 2.

The Division 2 launched in February of 2019, and saw drops to $50 and $45 within the first 3 months

As noted, Ubisoft’s The Division 2 dropped in price within 2 months, and aside from a few short stints back to MSRP, remained at lower prices before hitting its low point for Black Friday of 2019.

Here is another example, as Ubisoft games tend to have a reputation for dropping quickly.

Sony Santa Monica’s God of War, released on April 20th of 2018, spent a few weeks at $45 in August, with a permanent drop to $40 for Black Friday of 2018.
Dynamic pricing algorithms determine when demand is low, and product needs to be moved. The price lowers for a short time to increase sales, and the price returns after the brief window.

How Dynamic Pricing could look for PSN

PSN and Amazon has a major difference that changes the economics of dynamic pricing. Amazon largely deals in physical game media, while PSN is of course digital games only. PSN does not have “product” it needs to move, and prices do not need to come down to sell copies.

However, PSN holds digital game sales for much the same reason dynamic pricing alters prices. Shortly after a games launch, its perceived value drops. New games release, often bigger, better looking, and will modern features. PSN sales allow older games to drop below MSRP in hopes of selling more copies, and generating revenue for Sony and the games publisher beyond the initial months following launch.

So what if PSN did not have “sales,” and games prices were changing every few months, even weeks? What if Insomniac’s Ratchet and Clank: A Rift Apart launched at $70 in March of 2021, dropped to $60 in April for a few days, dropped to $55 for a week in May, and settled at $50 from June to October? The “top price” would slowly drop over the first year, with mini “sales” bringing an uptick in sales. This is what dynamic pricing could look like, easing the burden on consumers willing to wait, and providing a steadier revenue stream for the publisher.

Are there any negatives?

Naysayers of dynamic pricing could take issue with the speed of price changes, especially those who buy just before a drop (who hasn’t purchased a game on PSN, only to have it be in that weekends flash sale for $10 cheaper?). One way to combat this would be to set drops during the first year to be $5 at a time, or hold a price for a week at least. Bigger, scheduled sales can still occur, Black Friday being a good example.

Other positives?

Publishers would have an added incentive to increase the demand of their games, so an increase in free DLC could occur to keep prices high. Regular events and in game rewards could achieve a similar result. Patient gamers would be able to pick up a game for the current $60 MSRP pretty quickly, offsetting the jump this generation.

It’s time for dynamic pricing to enter the digital games market, and a $10 increase in MSRP, combined with a stagnant economy makes for a excellent time to introduce it.