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Why Are Video Games So Expensive?

by: jaklar ; edited by: Eric Stallsworth ; updated: 4/17/2012 • Leave a comment

Spending $60 for a video game may seem outrageous, but rising production costs and next-gen development is not a cheap matter. Let's take a look at what goes into the price of a video game.

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    Whats Going On?

    The cost of buying a video game has been a source of anger and debate since the industry began. No matter what the going rate, whether $20 in the 1970s, $30 in the 80s, $40 in the 90s to the currently acceptable $60, every generation of players freely express their displeasure at paying so much money. All of this begs the question: why are video games so expensive? Let's take a look at some of the factors that go into the price.

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    Video Game Production Costs

    The amount of people and resources required to produce a video game has exploded over the past 20 years. Back in the golden age, you could create a video game with a couple people, as programming required nothing more than simple vector graphics and a few sound-effects. Those days are long gone. Now your average video game is produced by hundreds of people, from voice-over actors to texture artists, researchers, physics programming, musical composition, etc. In many ways, the video game industry mirrors the movie business and we're now at a point when spending $20-million to create a game is commonplace.

    Let's take a look at an average $60 next-gen video game and see where the money goes, according to a recent Forbes analysis.

    Design/Art: 25%

    Everything from motion-capture to painting textures on walls requires the labor of an artist. Considering the amount of art required for a next-gen game, it's no wonder this aspect of game design accounts for 1/4th of the production cost.

    Engineering/Programming: 20%

    Programming artificial intelligence, developing multiplayer infrastructure and even translating a game between regions all add up. Some of this cost can be reduced by developers purchasing an engine license like Epic's Unreal, which automates some aspects of creating a game, but players rarely, if ever, see any savings passed onto their wallet.

    Retail: 20%

    Retailers need to make a little money or they have no reason to sell a product. An average next-gen game wholesales for approximately $48, offering stores like Gamestop a $12 markup, of which only $1 may find its way to the retailer's bottom line.

    Console Manufacturer Fee: 11.5%

    Microsoft, Sony and Nintendo don't just sit back and make money off of every machine they sell. On the contrary, each of these console manufacturers receives a fee from every game publisher for each game you purchase.

    Marketing: 7%

    If a company wants their video game to sell then they need to spread the word to consumers. Running full-page magazine ads, television commercials and banner ads is not a cheap endeavor.

    Market Development Fund: 5%

    You know those advertising circulars you see in the morning newspaper from a game retailer that spotlights a new release? A game publisher usually pays a small fee to attain that kind of placement. Even positioning your game in a lucrative store aisle or near the cash register can cost the publisher a small fee.

    Manufacturing Costs: 5%

    Everything from the printed manual, the DVD (or Blu-Ray), game box and special edition goodies cost money for the manufacturer.

    Licensing: 4%

    If a game is based on an existing property, like a movie, comic book or even the NFL, then a licensing fee must be paid.

    Publisher Profit: 1.5%

    After all is said and done, a publisher can only expect a paltry 1.5% return on their investment.

    Distribution: 1%

    A product has to get onto a store shelf somehow, and this is usually done by a distributor, which typically receives a 1% cut.

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    Will Games Ever be Cheaper?

    There is no indication that video games will ever lower in price. They never have, even through tough economic times. There are many ways publishers can save money on production costs, including outsourcing and digital distribution, but savings rarely - if ever - are shared with consumers. There is hope that in-game advertising could potentially make games free or at least very cheap, but we're a long way from that reality.

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