De­bunk­ing the ar­gu­ment that pub­lish­ers need mi­cro­trans­ac­tions to break even.

HWM (Malaysia) - - FEATURE - By Ian Chee

Ever since mi­cro­trans­ac­tions (MTX from this point on) started to be in­cluded in AAA games where they don’t be­long, there’s been a de­bate on whether or not games have be­come too ex­pen­sive to make that ne­ces­si­tates the pres­ence of MTX in premium games. While the answer is about as ob­vi­ous as be­ing smashed in the face with a rusty morn­ing star, there are – un­sur­pris­ingly – plenty of apol­o­gists who, against all ev­i­dence, think that MTX in such games is jus­ti­fied. So let’s take a look at a num­ber of facts that dis­prove the no­tion that games are too ex­pen­sive to make, re­quir­ing MTX to break even. This will also, ob­vi­ously, in­clude loot boxes, since they are ba­si­cally MTX on ’roids. You keep us­ing the word ‘too’, I don’t think it means what you think it means First, let’s get to the se­man­tics of the ar­gu­ment. “Games are too ex­pen­sive to make.” Em­pha­sis on the word ‘too’, which im­plies that with­out MTX, pub­lish­ers will not be able to even break, err… even. While the cost of mak­ing games have def­i­nitely been on the rise to keep up with the vis­ual fidelity and me­chan­i­cal com­plex­ity that gamers de­mand these days, has it re­ally come to a point that no num­ber of sales will be able to turn a profit?

Trends will be the next thing that we’ll have to look at to de­bunk the myth that games are too ex­pen­sive to make. And to start, think of all other forms of me­dia or en­ter­tain­ment that you can com­monly con­sume, like mu­sic and movies. And then, com­pare them to video games.

For as far as the past decade and a half, the price of your stan­dard CD al­bum or sin­gle would be be­tween RM39 and RM49. This is still true today and, some­times for an ad­di­tional RM20 (and other times for no ad­di­tional cost), you get a sup­ple­men­tary DVD for bonus con­tent in the form of mu­sic videos or be­hind-the-scenes look at the record­ing process.

The same goes for movies – 15 years ago, DVDs were priced be­tween RM60 to RM80, and that’s the cost of your av­er­age movie on Blu-ray today. If you choose to go dig­i­tal, then you can get nearly all the mu­sic and movies you want, for RM14.90 a month on Spo­tify and RM51 a month on Net­flix. The mu­sic and movie in­dus­tries have kept prices rel­a­tively con­stant, while of­ten ‘re­ward­ing’ cus­tomers with bonus con­tent when it comes to cer­tain pur­chases. Opt for dig­i­tal dis­tri­bu­tion, and prices get slashed even more sig­nif­i­cantly.

Catch­ing up by go­ing the wrong way For video games, it’s been sit­ting in the US$60 seat, with lo­cal prices fluc­tu­at­ing ac­cord­ing to ex­change rates. It has been this way pretty much since the be­gin­ning of video games, and it still is today, most of the time with­out any mean­ing­ful ex­tra con­tent – things like art­books and OST – thrown in for free. To get them, you’ll have to par­take in the nearly equally vile prac­tice of pre-or­der­ing, or get­ting deluxe edi­tions of said games. And even with dig­i­tal dis­tri­bu­tion, a PlayStation Plus sub­scrip­tion of RM21 a month only gets you a few ‘free’ games, and there’s no PC equiv­a­lent. The prices of games on the dig­i­tal stores are typ­i­cally RM20 less than the phys­i­cal copy (as well as for­go­ing a box, a cover and a man­ual). And even then, you’re rarely get­ting the com­plete pack­age, as parts of the game are not even there yet. These miss­ing parts you’ll have to pay for separately in the fu­ture, as DLC (or sets of DLC) pre­orders called sea­son passes. So in­stead of get­ting equal amounts of – if not more – con­tent for the same amount of money like the mu­sic and movie in­dus­tries, gamers pay the same amount for less con­tent, with the miss­ing bits be­ing sold as DLCs.

The ar­gu­ment that games are charg­ing more for less, while other forms of en­ter­tain­ment charged less for more in­stead, isn’t new. In fact, it’s been made back in 2012 by Con­sumerist when it awarded EA with the Golden Poo for be­ing the reader-voted Worst Com­pany in Amer­ica for the very first time. And un­for­tu­nately, it re­mains one that’s rel­e­vant to this day as, if any­thing has changed since then, things have only got­ten worse.

Of course, it’s pos­si­ble to ar­gue that the costs in­volved in the mu­sic and movie in­dus­tries have not climbed as much as that of the gam­ing in­dus­try. And you may or may not have a point – we don’t have fig­ures to prove or dis­prove this. But the set of num­bers that we do have are that of money spent on mak­ing, mar­ket­ing, and sell­ing games, as well as num­ber of games made and net rev­enue, com­piled very well by YouTube con­tent cre­ator Tar­mack. The link to his hard work is at the end of the ar­ti­cle, and that’s what we’ll be us­ing to de­bunk this myth.

When it’s too ex­pen­sive to profit, more profit be­comes nec­es­sary To start, based on the pub­lish­ers’ fi­nan­cial re­ports, we can say that since 2010, three of the big pub­lish­ers – EA, Ac­tivi­sion, and Ubisoft – have had mild growth in rev­enue. There has also been a very mild rise in mar­ket­ing costs, but the costs of game de­vel­op­ment it­self has stayed stag­nant, with the ex­cep­tion of EA, which grad­u­ally spent less in game R&D. Then, there’s Cost of Goods Sold (COGS, a fit­ting acro­nym ac­tu­ally) – that is, the cost of the box and cov­ers, cost of ship­ping to re­tail stores, the cut that dig­i­tal plat­forms take per sale – have dropped steadily. That can be at­trib­uted to the ris­ing trend of dig­i­tal dis­tri­bu­tion.

So, to put things to­gether, what do you get when you get growth in rev­enue and drop in costs? That’s right: ris­ing profit.

That said, game de­vel­op­ment costs have in­deed gone up. The num­ber of mul­ti­plat­form games de­vel­oped by these three com­pa­nies has also dropped pretty dra­mat­i­cally, de­spite stag­nant de­vel­op­ment costs. But this also means that, while the av­er­age costs of mak­ing games are on the rise and each year sees fewer games made, each of them makes more money on av­er­age than mul­ti­ple games of yesteryears. To use an EA anal­ogy (be­cause it’s the in­dus­try’s shoot­ing range tar­get now), Bat­tle­field 1 may have been more ex­pen­sive to de­velop, but it may have very well also made the com­pany about as much money last year as Bat­tle­field:

“So, to put things to­gether, what do you get when you get growth in rev­enue and drop in costs? That’s RIGHT: RIS­ING PROFIT.”

Bad Com­pany 2, Dante’s In­ferno, Need for Speed: Hot Pur­suit, and Rock Band 3 com­bined back in 2010. The no­tion that they are too ex­pen­sive to make with­out MTX, then, re­mains lu­di­crous at best, and still con­trary to the facts.

Of­ten, MTX apol­o­gists for­get or ig­nore the fact that con­sumers of­ten play sec­ond fid­dle to another group of peo­ple – share­hold­ers. That is, af­ter all, where the big money is, and if the stock mar­ket watch­dogs like some­thing, that some­thing is con­sis­tency. With MTX, this is achieved more eas­ily, as in­stead of hav­ing to wait for that one hol­i­day blockbuster to spike up the profit fig­ures of a slow year, MTX keeps that flow steady all year round. It makes for a nicer, more sta­ble look­ing graph that doesn’t put in­vestors in con­stant anx­i­ety all year round, won­der­ing if that gam­bit game will work out as ex­pected, and so that they don’t lose their minds when it doesn’t.

That brings us to why Rock­star Games can get away with not mak­ing a sin­gle game af­ter Grand Theft Auto V, all the way un­til this year’s Red Dead Re­demp­tion 2. That’s five years of no games, and yet money keeps flow­ing in, be­cause peo­ple are con­stantly buy­ing Shark Cards for GTA On­line. Was GTA V ex­pen­sive to make? No doubt. With the heav­ily pub­li­cized fig­ure of US$265 mil­lion of de­vel­op­ment and mar­ket­ing cost com­bined, it was also the most ex­pen­sive game to date. But it is also the best sell­ing AAA game of all time, with 85 mil­lion units sold. As­sum­ing each was sold at the un­likely full re­tail price of US$60, the game would have made Rock­star Games US$5.1 bil­lion – al­most 20 times the cost. And that’s be­fore tak­ing into ac­count the Shark Cards that made triple-digit mil­lions of U.S. dol­lars in dig­i­tal net rev­enue ev­ery quar­ter. Yes, you read that right – over US$100 mil­lion ev­ery three months.

Greed is, in fact, not good It’s one thing to make money, but it’s another thing en­tirely to nickel and dime the cus­tomers to make all the money, and think­ing that any­thing less than that is a fi­nan­cial fail­ure. There is no need for MTX here, just a lot of want for a lot more money. Proof of this is Ninja The­ory’s Hell­blade: Senua’s Sac­ri­fice. It’s a visu­ally stun­ning game with a mean­ing­ful plot, and it’s priced at US$30, half the usual price for games. And yet, the game made prof­its three months in the mar­ket, ahead of its ini­tial es­ti­mates of break­ing even af­ter six to nine months. And it achieved all this with pretty much no mar­ket­ing bud­get, re­ly­ing en­tirely on me­dia cov­er­age and word of mouth.

The bot­tom line is this – you will never hear any­one ar­gue in fa­vor of MTX. No one will ever say to you “Oh wow, I got to pay US$60 for the game, and now I can pay even more, with no limit in sight.” In­stead, any ar­gu­ment that you’ll hear about MTX are all about the sup­posed ne­ces­sity of it in games de­vel­op­ment, and the way pub­lish­ers will all go bank­rupt and close shop with­out them, when that’s clearly not the case. While each in­di­vid­ual game is get­ting more ex­pen­sive to make, com­pa­nies are spend­ing the same amount of money mak­ing fewer games, and rak­ing in record prof­its be­cause peo­ple would lit­er­ally buy any­thing, just as the mo­bile mar­ket has shown. So un­til pub­lish­ers stop prof­it­ing, can we all stop it with the overuse and abuse of the word ‘too’ and stop jus­ti­fy­ing un­eth­i­cal – even if still le­gal – busi­ness prac­tices? Pub­lish­ers don’t need us to de­fend them; the ones that need our de­fend­ing are our wal­let and our dig­nity as gamers.

Here’s the link to Tar­mack’s YouTube video, where you can find the spread­sheet of data gleamed from pub­lish­ers’ fi­nan­cial re­ports:

Here’s Senua, fight­ing psy­chosis – her own, that of greedy pub­lish­ers, and those of the mad peo­ple who de­fend their prac­tices.

GTA On­line alone kept Rock­star Games prof­itable for five years, even if they were five years with­out any new games.

Where there were still things to do in GTA On­line be­sides earn­ing in-game dol­lars and gen­eral pro­gres­sion, there’s lit­er­ally noth­ing else to do in Star Wars Bat­tle­front II be­sides earn cred­its and loot­boxes, both of which are tied to mi­cro­trans­ac­tions.

Then there’s Ubisoft, a pub­lisher that should re­ally tone down their mar­ket­ing and trailers specif­i­cally, if the games are not go­ing to be as visu­ally stun­ning.

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