Feature Creep – On The Cost of Making Video Games

I saw a post over at Massively OP trotting on the argument that video games should cost more because they are more expensive to make than ever, that being part of the justification for the EA lockbox and pay to win scheme in Star Wars Battlefront II I was on about yesterday.  So it seemed timely for this video to show up.

The summary, should you want to skip, is that big companies like EA and Activision are actually making less games, spending less on making games, yet pulling in more revenue than ever because microtransactions, season passes, subscriptions, and all that money spent after the box sale more than make up for the AAA box price staying at $60.

Basically, it turns out if can keep one game going with post-launch addons you don’t have to make any more new games.  Imagine that.

19 thoughts on “Feature Creep – On The Cost of Making Video Games

  1. anypo8

    Heck, it turns out that not only can you run a fairly large game company on the profits of a single successful 14-year-old game, you can siphon off a lot of of that profit for periodic failed projects and still stay above water. Who knew?

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  2. rkoster

    Calling cost of goods “production costs” is completely wrong.

    And by saying “games weren’t too expensive to make” the narrator is skipping all the studios who had one game fail and therefore closed.

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  3. Wilhelm Arcturus Post author

    @rkoster – “And by saying “games weren’t too expensive to make” the narrator is skipping all the studios who had one game fail and therefore closed.”

    By that logic can I then argue that restaurants are too expensive to run because so many close within a year of opening?

    How many studios fail because video games are “too expensive to make” versus having a bad business plan or unrealistic expectations? (Or just a bad game?)

    To use a really egregious example, let’s look at 38 Studios. It was a wonderful place to work I hear, but having worked at startups I used to cringe at the luxuries people spoke of at the place. That’s not how you run a company with no income. And they ran out of money before they even shipped their first game, but it wasn’t because video games are too expensive to make.

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  4. rkoster

    NO question there are plenty of studios that overspend. And yes, restaurants are extremely high risk businesses. But restaurants mostly compete on fixed costs — ingredients are largely the same for everyone. Games — not so much — every year a game that is competitive costs more to make.

    I did a talk back in 2004(?) about this. It’s here: https://www.raphkoster.com/games/presentations/moores-wall-technology-advances-and-online-game-design/ You can find graphs in there of the rise in costs for games. In short, it’s been an exponential curve for a few decades now. In 1995 it was around $2m to make a top notch, AAA game. In 2000, it was more like $4m. In 2005, it was $12m. In 2010, $40m. In 2015, $120m or more. The biggest games are costing north of a quarter billion dollars to make. These figures, by the way, are adjusted for inflation already.

    In terms of raw data generated — literally, the number of bytes the game takes up — we can easily see that dev teams have to generate many orders of magnitude more bytes than they used to. Voice and artwork have absolutely skyrocketed.

    A game like Assassin’s Creed has a staff of 1500 at seven studios in five countries.

    Through it all, games have sold for $60. Which used to be the equivalent of $100, because of inflation. Only today, thanks to Steam sales and the like, games actually sell on average for less.

    The key thing to understand is that *the public doesn’t buy B games.* A game with stellar gameplay and less than state of the art graphics is generally simply left on the shelf. Yes, indie games with distinctive art have managed to break through so everyone will cite counterexamples, but looked at statistically, it’s something like 99.9% don’t. The average game on mobile or on Steam makes somewhere between $0 and $100 TOTAL EVER. Metacritic scores show that you basically have to be up there at 85+ to be viable, and it’s very hard to get that without state of the art tech and visuals.

    “Too expensive” isn’t a measure of just cost though, it’s a measure of risk. As costs have risen, we have seen massive consolidation across the industry. There used to be over 20 publishers of AAA games in the 90s. There also used to be dozens of third party studios. As costs have risen, third parties have either died when they overextended trying to reach the quality bar, or they were absorbed by the larger companies. Publishers overextended by banking on major franchises, and when one didn’t hit, went away.

    This cycle tends to reset only when new technology platforms come along that don’t LET you do expensive productions because they don’t have the graphics horsepower. Mobile was like that, so was Flash gaming. But as soon as you can overspend on graphics, it becomes mandatory, and then the spiral starts. Early MMOs was like this — UO cost only a couple of million, SWG $20m, Sims Online and WoW north of $80m. Facebook games like Cityville cost more than UO to make!

    Basically, there *isn’t* a good business plan. There *aren’t* any realistic expectations. Any sane business person would say “don’t make games.” You can see this in MMOs now — where just getting 100k people subbing to something ought to make a highly satisfactory viable business… but go look at player reactions to visuals that aren’t at the absolute top end.

    This is why service games — which reduce volatility and drive customer lock-in– help. And why free to play — which lowers marketing costs, hugely expands audience, eliminates price sensitivity, and removes spending ceilings — makes a difference. Bigger bets, less games, and try to make a service with microtransactions. It’s the only sensible way to play in the market if you have money.

    If you don’t have money, the sensible thing to do is make as many cheap small games as you can and hope one hits big and goes viral, so you have money and can play the other game.

    When games are cheaper to make, we get indies and creativity and explosions of awesome in the market. When games are expensive to make, we get predatory business models, sequels, and clones. People are complaining about predatory business models, sequels, and clones — so, games are too expensive. :)

    Further reading:
    https://www.gamasutra.com/blogs/RaphKoster/20150603/244955/An_Industry_Lifecycle.php
    https://www.gamasutra.com/blogs/RaphKoster/20140507/217242/The_Financial_Future_of_Game_Developers.php

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  5. Wilhelm Arcturus Post author

    @rkoster – You should have posted that to your site, even if it was a review, because now it is stuck in the comments section here where maybe 100 people will see it between now and the heat death of the universe.

    Given what you have said above and the financial results for a certain set of companies, it sounds like there is a business model that makes some sense for AAA console titles, but the barriers to entry are extremely high. A very few studios can manage that.

    And while it probably isn’t a huge percentage of the cost, I would add in advertising as part of what is required for an AAA console title. A lot of advertising. Despite not owning a current generation console I always seem to know what titles are shipping because there are ads on TV, ads on the internet, and displays and promotions all over GameStop when I wander in there for a Pokemon download event. I don’t care, but I still somehow always know when a new Assassin’s Creed or Call of Duty title is launching.

    Anyway, there is just a small set of publishers who can make such titles. Why haven’t they raised the box price? I will freely admit that the price of a video game hasn’t kept pace with inflation. I spent $30 of my Birthday money in 1979 to buy Adventure for my Atari 2600. I’ve seen the default price rise to $40,$50, and then $60 over the years.

    Why isn’t the latest Assassin’s Creed title $99? Or $120? Or whatever?

    Or does the box price not matter so much when you have service revenue? I remember past articles about how little of the $60 box price ends up in getting to the studio who made the game, and while some of that is likely better with digital distribution, there is still a pipeline between the dev and the consumer that takes its cut.

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  6. rkoster

    I’m thinking about doing a blog post about this stuff, yes, updating my older ones. :)

    Marketing costs are HUGE. These days, $85m for marketing an AAA game isn’t a crazy figure. That would buy you four SWGs.

    Why haven’t pubs raised prices? One, price sensitivity. It was tried a bit, a few games launched at $69.99 if you recall. And of course, stuff like collector’s editions, which basically is a premium price for a few pack-ins that have relatively low cost of goods.

    But simultaneously, publishers came around to the upsell model via free to play and microtransactions. Why cause sticker shock when you can get the money anyway via other means? If anything, expect to see sticker price DROP as the pubs tilt more revenue towards the serve end of the equation. On mobile, it’s already the case that you can’t sell a game for $0.99 — literally — you have to give it away. Steam average point of sale price has fallen similarly. Discs are likely hanging on only because retail still matters for consoles. Once it’s all digital, games will mostly be free, and you’ll pay entirely through upsells and maybe subscriptions.

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  7. Gevlon

    The argument “we need microtransactions because games cost more” is retarded anyway. *IF* games cost more to make, that would merely mean $200 box costs and $50/month subscriptions.

    The question is unrelated to costs: “why do game publishers prefer microtransactions over box costs and subscriptions” and the answer is sadly: because players like P2W and many players are easily addicted to gambling.

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  8. rkoster

    It’s a bit more complicated than that.

    Microtransactions, particularly coupled with free to play, greatly open up the available audience AND the revenue potential. Here’s the thought experiment:

    Someone has a price sensitivity threshold. Say they are willing to try your game for $24. If the game is $24.99, they will pass it up. If you put it on sale for $20, the price is below their threshold, and they will buy it. This is pretty standard. Lowering entry price makes more people willing to take a flyer on the product. And the gap between $0 and $0.01 is HUGE — the effect of zero pricing is massively disproportionate to the price difference, because of loss aversion — we don’t want to give up any money at all, even a penny, on a high risk.

    So lowering entry price pushes the audience bigger — we’re talking by a couple of orders of magnitude, potentially. Creating $200 games means that the audience that wants $60 as their price threshold isn’t going to be willing to buy *even if they would shell out $200 lifetime* on upsells.

    But then there is the high end. It is completely, and I mean, *completely*, normal for people to be willing to shell out $1000 or more a year on their hobbies. They might have a one-time price sensitivity of $50 and STILL spend that much over a year. Think of a golfer and greens fees. They’d walk away if asked to pay $100 for a tee time, but will plunk down $50 every weekend for a year.

    To use a very MMO specific example: on *average,* each player during the heyday of subscriptions was willing to pay more like $40 a month, not $15. We know this, because that’s how many accounts they tended to each have. (This was distorted by higher folks having dozens of accounts, but that actually reinforces my point).

    If you only have point of sale revenue, then you are limited to revenue capped at the price sensitivity threshold. But if you offer upsells of some sort, then you can tap into the willingness of hobbyists to spend a large amount over time, even though they may not be willing to do it in large chunks. This means that the game can actually extract the full $1000 that the hobbyist *was always willing to pay*.

    If you only do upsell microtransactions, you get a much higher revenue ceiling on average, and a revenue floor of whatever your entry price is. Your audience is capped at whatever that price point is, though.Once you reach saturation of everyone willing to pay that price, your game will never grow again. Unless you lower that price or find whole new markets.

    If you add free to play on top of microtransactions, you get the higher revenue ceiling, plus you get the incremental revenue of all the people who are willing to pay LESS than the entry price. Then you get around 50x that many people playing for free, but as long as your cost of operation for those free people is less than what you are earning overall on average, you turn a guaranteed profit. The free people basically act as marketing for your game, as available opponents to keep it lively, etc.

    If you only do free to play with no upsells, you lose your shirt, because the cost of operating will be higher than your revenue.

    OK, so far we haven’t talked about the method of microtransaction. You cite two: pay to win and gacha (the original term for loot boxes). Let’s start with the first.

    Pretty much every physical sport uses pay to win. You buy a better tennis racket, better sneakers, better racecar, better golf clubs, because you think it will get you an advantage. We just don’t like it in videogames because digital in theory frees us of that unfairness. Though of course, we cheerfully buy Alienware computers and Razer gaming keyboards… ahem. Anyway, pay to win is basically one of those things that people are, shall we say, deeply *contextual* in their disapproval. There are lines where it’s excessive, but defining them is hard.

    Gacha, is absolutely leveraging people’s inability to predict randomness. And yes, it can easily tilt over into tapping into the same brain flaws gambling does. But we have to be careful there too, because after all games use random loot drops of various sorts all over the place. Any policies, regulations, or laws will have to be careful to draw that line in such a way that they don’t inadvertantly ban Diablo or coin-op Tetris — which also features random drops on a small repeated transaction basis, as do most arcade games actually!

    Several Asian nations ended up with tight regulations against gacha exploitation, but they were years ahead of the US on it. Nothing in AAA games is anywhere as egregious as Zhengtu Online was, or the stuff that hit Japan five years ago. I’m all for smart regulation here.

    Liked by 1 person

  9. NoGuff

    I’m all for a company making a profit. I’m also willing to pay a bit more in the hopes of restoring the pseudo-fourth wall, where my immersion isn’t broken by less than a full gaming experience. The DLC, gacha, micro-transaction item shops have all but ruined the immersive nature of gaming in today’s titles. I expect that if the cost of lobster goes up for a restaurant that I’m going to pay more for it should I choose to have one. Gaming seems to be the only industry in existence that can get away with using the excuse of “games are expensive to make” as they figure out new ways to monetize the consumer beyond a set price point. What started out as a justification for leveling the playing field between the time-rich gamer and the money-rich gamer, has turned instead into developers/publishers figuring out how to take advantage of both groups while hiding behind pseudo-matchmaking systems in an attempt to pit both groups against each other and make it seem “fair”.

    The inclusion of multiplayer into titles that could obviously do well as a stand-alone single-player title also boggles the mind if “games are so expensive to make”. I’ve seen reports where the added cost of multiplayer is inexplicably high. So, is multiplayer being added because it adds more to the gaming experience, or is it being added to titles just so the devs/pubs can monetize it to the n’th degree?

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  10. rkoster

    “Gaming seems to be the only industry in existence that can get away with using the excuse of “games are expensive to make” as they figure out new ways to monetize the consumer beyond a set price point. ”

    Actually, this is happening with all software, not just games. Probably a consequence of Myhrvold’s Law.

    “The inclusion of multiplayer into titles that could obviously do well as a stand-alone single-player title also boggles the mind if “games are so expensive to make”. I’ve seen reports where the added cost of multiplayer is inexplicably high.”

    You have this backwards.

    First, multiplayer anything is a new game and usually one that is conservatively 2-3x as expensive to make as single-player anything.

    Second, single player cannot drive ongoing revenue. Therefore by definition given today’s costs, they cannot “do well” in comparison to titles that CAN drive ongoing revenue. This is why you see less single player stuff getting made. It doesn’t offer a good enough return. Expect this trend to continue, with all single player stuff gradually becoming the “bonus value add” in a multiplayer-first game, getting wrapped in multiplayer trappings, etc.

    I told you all that this would happpen back in 2006. :)

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  11. Jenks

    Great video, thanks for sharing it.

    I agree with NoGuff, the way games are monetized now is a total immersion breaker. I don’t want to play a game that is constantly asking me to pull out my credit card, or has other players running around who clearly have pulled out theirs. Let me pay the same price of admission as everyone else. The games I want to play are meritocracies.

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  12. Gevlon

    @rkoster: that doesn’t explain why game *access* is not sold in smaller chunks but of game *power* is being sold . Instead of $50/month subscription, they could sell $12/week. Or $0.5/hour, billed at every $10 reached, if you quit the game before 20 hours you paid nothing. None of these were even tried in the Western market.

    What bothers me a lot, is that fair (no P2W) games are no longer made, despite are profitable. It’s strange, because filmmakers still make documentaries and family dramas, not just porn and superhero movies, despite those are more profitable.

    Also, the elephant in the room is that P2W is selling domination. By Adam buying the sword of uberness, Betty now has a worse game experience since she is pwned by Adam. If Betty is a paying customer, especially if she pre-paid a box cost with the expectation to enjoy the game for a long time, she is scammed. Lootboxes are the smaller problem, because they only harm the buyer who pays for gambling in an unregulated casino (I’m 100% sure that the lootboxes are not random and only give out rewards if the behavioral algorithm alleges that the buyer is at the brink of uninstalling the game).

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  13. bhagpuss

    @rkoster Thanks for taking the time to lay all that out in such detail. It makes sense of some things that seemed obtuse and illuminates some that were obscure.

    @Gevlon Far from those payment models never having been tried in the West, they are in fact where we started in online gaming. I’m sure Wilhelm can link a few of his posts about the “good” old days when people paid for their gaming by the hour and ended up spending thousands of dollars. Even when I started playing EQ in 1999, although it only cost $15 a month for the subscription, I was paying my ISP by the minute for the connection.

    That stopped because the market was never going to grow under those conditions. The number of people willing to spend that much on something as frivolous as gaming was vanishingly small. It’s now terrifyingly large because those barriers have been torn down. Putting them back up would probably close the industry altogether, not revitalize it.

    Liked by 1 person

  14. Wilhelm Arcturus Post author

    Oh yes, I even have a pricing chart from GEnie in my post about Air Warrior back in the day. You could get a month of WoW for the price of less than an hour of daytime connectivity to their service. They billed in six second increments, if you really want granularity.

    And I was lucky, I lived close enough to one of their access numbers to avoid any toll from the phone company.

    @rkoster – And yes, what Bhagpuss said, thank you for stopping by and please consider summing this all up in a blog post on your site so it doesn’t get lost.

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  15. rkoster

    “that doesn’t explain why game *access* is not sold in smaller chunks but of game *power* is being sold . Instead of $50/month subscription, they could sell $12/week. Or $0.5/hour, billed at every $10 reached, if you quit the game before 20 hours you paid nothing. None of these were even tried in the Western market.”

    Others have mentioned, it was tried; flat fees destroyed that business model.

    “What bothers me a lot, is that fair (no P2W) games are no longer made, despite are profitable. It’s strange, because filmmakers still make documentaries and family dramas, not just porn and superhero movies, despite those are more profitable.”

    The term is “opportunity cost.” Given two games that cost $10 to make, one which earns $50 and one that earns $250, which do you choose to make if you only have $10? Making the first one is equivalent to passing up $200.

    The dynamics around genre diversity (as opposed to business models) is a whole different discussion.

    “Also, the elephant in the room is that P2W is selling domination. By Adam buying the sword of uberness, Betty now has a worse game experience since she is pwned by Adam. If Betty is a paying customer, especially if she pre-paid a box cost with the expectation to enjoy the game for a long time, she is scammed.”

    This is only true in a subset of games, ones that offer direct competition.

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  16. Pingback: High cost, low cost; a good game sells, a bad one struggles | Hardcore Casual

  17. Pingback: Lootboxes, rigging and P2W: can the reason be piracy? – Greedy Goblin

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