Russ Pearlman's Blog

Are video games too expensive?

Warren Spector, video game industry giant, thinks so. During a recent interview, he said: “We’ve been a niche medium that over-charges for its product and therefore generates a lot of revenue which makes us a little bigger than Hollywood, which is crazy.”

Let’s compare:

• In 2000, a ticket to the movie theater averaged $5.39 while today, it averages $7.20. (According to BoxOfficeMojo.com) That’s a 133% increase in price.
• In 2000, Deus Ex (one of Spector’s games) sold for $49.99. Today, the full retail price for most games is $59.99. That’s a 120% increase in price.

So, movies have gone up in price more than video games over the last 8 years.

But, the more important fact all comes down to revenue — not just price point. In 2000, the Academy’s movie of the year was Gladiator. It’s for sale at Walmart on DVD for about $13. How about Deus Ex? Amazon / E-Bay has listings as low as $1.99 and as high as $4.99. Wanna bet if there is any royalty payment going to the publisher for those copies?

And, how many retail channels were there for Deus Ex? Let’s see …. there was retail and rental. For the video game industry, rental only involves a single royalty payment, so you pretty much get just one – retail. And, after the first 6 months, you pretty much see little to no revenue coming in.

How many retail channels for Gladiator? Well, you had the theatrical release. Then there is alternative releases through airlines, pay-for-view hotel, cable / satellite pay-per-view, premiums channels (i.e., HBO, etc.), network syndication (i.e., ABC, TBS, etc.), re-release on Blu-Ray disc, director’s cut re-release, etc. etc.

Would consumers be happier with lower prices? Yes. Should game developers / publishers look for opportunities to lower price? Yes. Absolutely. Should Warren Spector’s Disney Interactive and Media Group (DIMG) lower prices when they lost money last year? No. Should individual development shops get a lower $ per unit sold? No.

If you don’t fix the retail channel, you won’t fix the problem. And if you don’t fix the revenue opportunities, you won’t fix the problem. It doesn’t come down to just price per unit… it comes down to changing revenue opportunities for video gaming.

Ahhh, the dream of so many consumers – buy an entertainment title one time, and play it anywhere. Buy Grand Theft Auto, and play it on your console, on your PC, on your portable device, on your laptop (maybe even on a flight from JFK to SFO on American Airlines). Well, I can dream, can’t I?

Thanks to Steve Perlman (notice how he spells it incorrectly ), founder of OnLive, there might be a glimmer of hope for the video gaming industry, at least. OnLive streams video games over the Internet so that it’s actually playing back on the OnLive servers instead of your device in your living room. Say goodbye to the PS3, XBox, Wii or PC? Probably not quite yet, but such a mainstream offering for major titles is quite interesting.

Of course, there are going to be some major challenges to this. I quite agree with Richard Leadbetter who wrote an article for Eurogamer. In it, he questions the practicality of the service in its ability to scale. 1 million gamers sucking down 50+ FPS at the same time is a scary thought to anyone who has experience building large systems. (From my own personal experience, I was able to build out a system that supported 50,000 – 100,000 concurrent users. It was quite a task!)

But, I do think that Perlman has the generally right idea — to enable buy once, play anywhere, we really need to be able to build out digital libraries that can be streamed (and/or downloaded) to devices that live at the edge of the network. Buy a video game (or movie) once, and then stream (or download for offline use) onto the individual devices. Sadly, at the same time that Sun Microsystems is being bought by IBM, the dream of ‘the network is the computer’ may finally be seing mainstream America.

A new study from Screen Digest has some rather interesting tid-bits:

• The subscription based MMO (masively multiplayer online) gaming market grew 22% in 2008
• World of Warcraft enjoys a 58% market share of the US and European based subscription MMO marketplace (this is actually down from 60%, though the revenue numbers are up due to the 22% growth)
• Since it’s launch, WoW has collected over $2.2 billion in subscription fees. (I know with the recent US government plans, the word billion no longer has the same impact, but that’s HUGE!)

A few years ago, I predicted that WoW would become the #1 entertainment property of all time in terms of gross revenue (including music, movies, books, games, etc.) Here are the top sellers in each category:

• World of Warcraft (Video Gaming) – $2.2+ billion
• Gone with the Wind (Movie) – $199 million (1929), adjusted for inflation $1.5 billion
• “The Bible” (Book) – claims of over 6 billion copies sold, but I have no idea how to calculate the revenue; besides, there are so many versions out there, is this really a single property? Ditto for all other types of ancient and relgious texts
• A Tale of Two Cities (Book) – over 200 million copies sold; not sure about gross revenue, but would need to be north of $10 (adjusted for inflation) per copy to match WoW
• Thriller (Music Album) – over 100 million copies sold; again, would need to be north of $20 (adjusted for inflation) per copy to match WoW

I had made that prediction back in 2006 that WoW would be the #1 entertainment property of all time. Outside of beating sales of the bible, I would say that my prediction is finally proved correct! And, while it might still be close if you are generous in pricing out the books and music, WoW doesn’t seem to be slowing down.

Recession or party for the video games industry? This week marks the GDC (Game Developer’s Conference) in San Francisco. Following major lay offs from development stuidos such as EA and THQ and headlines about the dire economy, you would think that even the video game marketplace is suffering.

But, in reality, February 2009 was yet another strong month – up 10% over last year’s February numbers. And, that’s across the board – Nintendo, Microsoft and Sony are all seeing growth. What about other entertainment sectors? The numbers from the box office certainly are encouraging – a 10% YTD growth from 2009 compared with 2008.

The difference, though, is that the video game segment has been growing significantly for the last 10 years compared with a bumpy ride for the box office. So, while both are seeing the short-term benefits of a major recession, there is likely a more lasting impact due to the gaming industry.

Computer Science is Cool Again is a recent article I ran across. Basically, enrollment in Computer Science classes is up significantly after years of downturn. According to the article, this is due to the economic slow down and the opportunities available to computer science graduates.

Personally, I find that hard to believe – I’m not sure many freshmen or sophomores at a university are picking their major based purely on economics following graduation. Sure, some are looking at that, but I think more are looking at the ‘cool’ factor. As the article points out, Web 2.0 and the iPhone are cool.

Speaking of the iPhone, Apple announced plans for the 3.0 software. It looks great – we finally get copy & paste, there is a push for better application integration, etc. But, beyond the enhanced features, the biggest opportunity with the new software is micro-transactions. You know, the things that let you purchase add-ons like new songs in Guitar Hero or new levels for your first person shooter. This is going to continue to push the economic strength of the iPhone as a gaming platform, and I suspect it’s going to mean even further dominance within the smart-phone category until someone else can replicate what Apple is doing with the device / iTunes combo.

I had a great conversations with a delivery team today on the use of Context Diagrams vs. Use Case Diagrams. I’m a big proponent of starting off any software engineering activity with a context diagram so that I can understand the major users of a system, the major systems I have to interface with and the overall scope of what the system needs to provide.

But, why context diagrams and not use case diagrams? In the past, I’ve taught several object-oriented analysis & design classes at both community colleges, universities and for clients. When reviewing use-case diagrams, I often make fun of how silly they look and that I would never deliver something that looked like on in a professional engagement. (This is part tongue-in-cheek, but it is more-or-less true.) The problem with a use case diagram itself is that it’s trying to solve a number of problems all at the same time: 1) who are the major actors of the system, 2) what are the major interfaces and 3) how can I break down the system scope into digestible chunks. I think trying to achieve all of that in a single diagram causes it to be way too confusing and difficult to effectively achieve.

So, in comes context diagrams. They are really only focused on #1 and #2 above – who uses the system and what are their needs? I’m not trying to worry about functional decomposition, and I’m not even focused on the internal guts in any way.

Additionally, context diagrams work really well for packaged applications since they make no pretense on how the software will solve my problem. In the case of a use case diagram, I’m assuming that the package has a clean set of steps for achieving any of the use cases.

So, if you haven’t looked at context diagrams, I highly recommend that you take the time to understand how they can work for you.

You probably missed it, but on January 21st of this year, the United States Supreme Court finally put an end to the COPA (Child Online Protection Act) that was initially enacted in 1998. The law was challenged by the ACLU on grounds that it was too broad and violated free-speech, and ultimately the courts agreed.

Regardless of the particulars of the law or the legal arguments, the intent of the law was really to find a way to keep children (under the age of 13) out of content that wasn’t appropriate for them. Of course, many sites that were ‘COPA compliant’ were easy to circumnavigate – they just asked how old you were, and it was easy for kids to lie. My 8 year old son, for example, knew to just change the year of his birthday to make it onto a site where he plays games – I’m not telling which site, since I don’t want him to get banned

So where does this leave us? How can we protect kids while keeping the Constitution in tact? I’m no fan of regulation, but we’ve certainly become lax on what is considered inappropriate for Internet and broadcast content. I’ve heard stories that Ricky and Lucy couldn’t sleep in the same bed because of TV censors, but now we can see a ‘rear’ view of entirely naked humans during prime time. And, I’m not even going to get into what you can find on the Internet.

I think people who say that the parents need to take full responsibility is being disingenuous or naive. It’s impossible to monitor the radio, the Internet, TV, movies, video games, magazines, books, etc. etc. My wife and I just don’t have enough time in the day.

Perhaps it will take a constitutional amendment (which I’m not advocating – yet) or it will just require a broader ground swell to try and cut off the mass media from continuing to push the limits, but certainly, we need to find a way to help protect our kids.

I’m not sure if it’s because I take it personally, but I’m often upset when I hear people make stereotypical comments about video game players. Recently, I was working with a colleague who was talking about challenges for companies like Sony or Microsoft in regards to their online strategies because they have to deal issues such as keeping content kid friendly. I interrupted with the usual facts about most game players being well above 18 years old, but it really didn’t matter. On one hand, he was certainly right – kids play games, and we should be careful to make sure that we are sensitive to those needs. On the other hand, this has become a more robust and mature industry that caters to all demographics the same way that Hollywood studios do.

I ran across another article recently that also piqued some of the same feelings: IGN: Editorial: Is Casual Gaming Destroying the Industry? The IGN story is more of a chronicle about how various video game developers are viewing the trend towards casual gaming. (Some of the comments following the story, I think, are even more interesting.) The stereotype being portrayed here is that gamers come in two flavors – casual vs. hardcore. Like anything else, I think that you will find folks interested in something, folks who take it extremely seriously and those somewhere in the middle. I would suspect that most game players are either interested in it or somewhere in the middle – I don’t think the majority of game players would come anywhere near the classification of ‘hardcore’.

But, what about casual gaming? Having spent time talking to various sources inside and outside the industry, I think what is being called ‘casual gaming’ now is going to be mainstream in a few years time. Look at the proliferation of iPhone applications or XBox Arcade titles. These casual games are entertaining and – most importantly – accessible. With retail outlets like the Apple iTunes store (for iPhone/iPod), the new XBox experience (for arcade), Steam (for casual PC games) or the many Flash games out there (my kids are totally addicted!) you are no longer chained to a PC or console to play.