Wall Street Analyst: Gamers are overreacting to EA's Star Wars controversy; publishers should raise prices

Read this last night as I was going to sleep. Article from CNBC:

Gamers livid over Electronic Arts' in-game moneymaking strategy in its new "Star Wars Battlefront II" title are overreacting, according to one Wall Street firm.

"We view the negative reaction to Star Wars Battlefront 2 (and industry trading sympathy) as an opportunity to add to Electronic Arts, Take-Two, and Activision Blizzard positions. The handling of the SWBF2 launch by EA has been poor; despite this, we view the suspension of MTX [micro-transactions] in the near term as a transitory risk," KeyBanc Capital Markets analyst Evan Wingren wrote in a note to clients Sunday.

"Gamers aren't overcharged, they're undercharged (and we're gamers). … This saga has been a perfect storm for overreaction as it involves EA, Star Wars, reddit, and certain purist gaming journalists/outlets who dislike MTX," Wingren wrote.

Continued:

The analyst estimated cost per hour for a typical "Star Wars Battlefront II" player. He said if a gamer spent $60 for the game, an additional $20 per month for loot micro-transaction boxes and played around 2.5 hours a day for one year, it comes out to roughly 40 cents per hour of entertainment. This compares to an estimated 60 cents to 65 cents per hour for pay television, 80 cents per hour for a movie rental and more than $3 per hour for a movie watched in a theater, according to the firm's analysis.

"If you take a step back and look at the data, an hour of video game content is still one of the cheapest forms of entertainment," he wrote. "Quantitative analysis shows that video game publishers are actually charging gamers at a relatively inexpensive rate, and should probably raise prices."

Well... er... I'm speechless. I have no idea how to react to this. Help me out here, people.

He is correct. The price of gaming has stagnated but the cost to make hasn't. We have been paying the same price for decades and yet gamers what to pay less but expect more. Its rather unreasonable setup. DLC and micro transactions do aid in offseting the price because DLC and Micro transactions are significantly more cost effective for developers than the core game by a large margin.

Rich money hungry assholes claims rich money hungry assholes are in the right.

Weird.

It is true that AAA games are getting more expensive to make, but here are two points:

1. Despite this, AAA publishers are not having any problems making a profit. EA posted $1.2 billion in profit for FY2017. Take-Two? Last I heard, about $100 million profit in FY2017 despite not really releasing anything big in that time (which I presume begins and ends on October 1st). Even Ubisoft, still threatened with takeover by Videndi, still managed to post more than €500 million in profits in 2016. Yet we continued to see an escalation in monetization and microtransactions. The truth is this is greed, plain and simple. AAA publishers don't just want to make a lot of money, they want to make a ridiculous amount of money, and they're using "games are getting more expensive to make" as an excuse for this greed.

2. We are talking about AAA games here. Last I checked, AAA budgets are not the only way to make video games. Indie-sized budget games continue to thrive, and I believe there is a massive mid-budget gap that the AAAs are not exploring. Instead, we are heading toward a Hollywood-style all-or-nothing banking on a few number of releases. And yet they have the gall to complain about their conscious lack of diversity in their portfolios. We are always told that diversity is good business practice. Why should we reward or excuse poor business decisions?

Just the opinion of one person\firm.

Meanwhile, the lootbox controverse had a lot of people speak out and post their opinions. And the message was loud and clear.

What is this analyst smoking? It's probably something strong. I wonder what the Star Wars community will think of this.

If you watched the video i posted, you'll know that the games made 7 years ago costs more than the games made this year. That covers the inflation 7 years ago and all those marketing bullshits.

Those profits are most likely mainly due to micro transactions and not due to the sales of the core game. The profit margin on triple A games are particularly slim and in some cases in the negative if it flops media wise. We can't use the money generated from micro transactions as a benchmark to the profitability of triple A games because micro transactions are insanely profitable by nature. The cost to produce micro trans items is sometimes hundreds of times less than the cost of the core game.

The state of gaming is due to gamers. Gamers on this forum are not the main consumers for games. They are the loudest but the ones who drive the market are not visiting this forum or forums like this, they are the average consumer. Couple the average consumer with the perpetual promotions of big budget games on every gaming site the overall visibility of mid budget games is practically non existent making as you said all or nothing.

Trying to crash or black list micro transactions is not the solution.

The video indicates that less games are being made but the overall cost to the company is relatively the same. This translates to games costing more. If company A spent 100 million to make 10 games 2010 but spends 90 million to make 5 in 2016, then the cost of game development has increased and its offset by the reduction in games made. This was all in the video.

I'm not arguing that microtransactions haven't been a major factor in the profitability of AAA publishers, what I'm questioning is the need for its continued escalation. How much profit is enough for these AAA publishers? Actually, that's a trick question; it is clear it's never enough. I see this entire controversy as part of the much-needed process of drawing the line in the sand.

Mainstream gaming media isn't the only avenue to "spread the word." Games like Kerbal Space Program, Stardew Valley and Paradox games all started with very minimal press at first; in all cases it was the gaming press that followed the buzz instead of leading it, and all turned out very successful. PUBG practically sold itself through Twitch streams. Besides, it does not matter if the said audiences are smaller, there is an audience. Smaller budgets means you can afford to sell to smaller market and still make a healthy buck. Let's just say I know from close experience that you can make a handsome profit from cornering a niche market.

AAA all-or-nothing deals are not the only way to do things, and we should not be rewarding or excusing such tunnel visions and lack of foresight.

^ yeah I'm going with this as well. Sure they could raise the price and people would still pay the price. But this won't be to cover cost, but to make even more millions profit

"We" should not be rewarding these companies is a rather strange comment when "we" assumes that you and myself are rewarding these companies to which I can say I am not. I buy the core games because its a steal. Microtransactions are useless on me and I am not their market demographic however microtransactions work because consumers buy. I cannot fault a company for meeting the demands of the consumers. We might claim that we don't like it but its obvious that the general populous don't hate it so much as to not engage in the activity. Why should any company try to create or find another way when the current method not only works it works great. The success of microtransactions rolled over from mobile gaming and unfortunately its here to stay. I have yet to read an alternative measure for triple A games financing without the use of microtransactions. If all the complainers are just complaining and not offering solutions then nothing is going to change for reasons stated earlier.

Wow what idiots. Our incomes have really skyrocketed, I'm sure? Just more rich boys. 'We're gamers.' What a joke.

We're overreacting? There's no gamer in the world who doesn't think this shit is bad news. 'Purist gaming outlets who dislike MTX.' So if you don't like having completely random progression, or having rich boys like them pay their way to an advantage, or having all the allure of gambling target at 13 year olds, or the way they advertise in game for more money after getting full price, you are a purist? Everything is wrong with the world and not with them? They are more sadists than gamers are purists. You want us to just stay quiet? Don't vote with your wallet just let them have their way with the thing you love?

Look you can twist the public picture all you want but this shit is just getting started you snobs.

Sure let's raise the price of AAA games that at launch is full of bugs, repetitive gameplay, little to no inovation, and lacks content. If every game was like Witcher 3 i'd gladly pay $80

How many people are already curtailing their AAA purchases? despite the likes of COD posting big numbers generally these top ticket franchises have largely declined from their peaks, as for games being the same price, perhaps in the US, in the UK my experience was £40 for a new game was standard for years which then jumped to between £45-50 and depending where you buy could be as much as £55 these days. Price increases happen, if they do not occur in line with increases in disposable income the only result is people buying fewer games.

I'm fine with price increase but not so much with blocking core game elements under £100s of micro transactions.

Your original argument in this thread was that the analyst in the CNBC article was right and that we, as in gamers, should be paying more for games. That's rewarding the current all-or-nothing business strategy which got the AAA publishers into this mindset in the first place. I have yet to see a convincing argument in favour of this, especially, as I demonstrated, AAAs are currently having no trouble being profitable despite the supposed rising cost of game development and their poor business strategy.

If the current model really works so great for the AAAs, why should we reward them with even more money if it already works great? More specifically, what is the need for the continued escalation of microtransactions that we are experiencing? If on the other hand, there is some kind of flaw in this model, then why should we let the AAAs double down on it? Why not force them to explore and experiment with alternative models, such as the mix of mid and big budget games that I suggested?

And just to be clear, I hold precisely zero expectation for gamers at large. As far as I'm concerned, everything we're discussing here are hypothetical.

@anthonyautumns: Great video, thanks

Just stop buying stuff via microtransactions if you're sick of it... Or stop buying games from the publisher. I don't mind them, because I don't use them

We’ve had $60 for around 30 years now. No adjustment for inflation or development costs. If anything, the price drops during the rise of the CD based games era (due to drops in manufacturing cost) gave gamers the wrong idea about where prices were headed. The $60 most new Genesis or SNES games used to cost would be around half what the games would cost today if inflation were factored in. Not to mention development teams are 20+ times larger, wages have gone up, healthcare costs, marketing costs, the rise of used game sales etc.

I know it’s cool to hate of the evil, money hungry publishers. But there are valid points in raising game prices or finding new revenue streams. At least some are making these things optional. In the end it’s either find new ways to make money, or close up shop like the dozens of studios that have closed down in the last decade. Which would you prefer?

Well said

Then how come publishers are swimming in millions on profit? How come Hellblade: Senua's Sacrifice (a great AAA title made by an indie) even exists AND donates money to charity while still making profit? You talk about studios closing? Greed is the reason they do. Publisher expect millions of sales or you're done. Just look at all the studios fallen under EA because they didn't meet the expectation.Usually they did make a profit, just not enough for the money hungry publisher.

I don't think price is even the only problem here. It's the fact that the progression systems are intentionally elongated to entice gamers into purchasing, or making the statistics of getting something of value significantly low.

The micro-transactions effectively enter as a fix for a game design issue intentionally put in by the developer. If people want to purchase quicker access to a game's content, that alright but for those who don't want to pay, the game design is purposely lengthened so that you have to play far longer to get to the meaningful content. It's a trick, really and the worry is that in future, it will make micro-transactions less and less optional.

If publishers and game developers are okay with intentionally designing an element their games poorly to make more money, then one worries when that will stop?

This post, of course, isn't necessarily about the cost of games or cost of micro-transactions but rather highlighting that the cost of micro-transactions isn't the only problem with their existance in priced games.

@Pedro: “ I have yet to read an alternative measure for triple A games financing without the use of microtransactions. ”

The core game prices need to be raised but good luck with that.

micro transactions are here to stay because crybaby’s won’t pay more for the core game.

We’d likely have less buggy games at release, less repetitive gameplay, less talk of games as a service, less or no need for micro transactions and so on and so forth if gamers would pay more for the core game.

If games and studios that created said games can thrive from micro-transactions alone while being "Free2Play" (and they do) why are EA charging full whack for games that have micro-transactions?

Its marketing costs and over hiring of staff to meet deadlines that is driving up the costs. For the most part developers are using the same game engines and middle-ware that they've used for the past 10+ years and if anything the licencing costs for those have gotten fairer due to greater competition in that area. Whats more, in house engines usually drive annual releases that share most of the same assets which means less development costs once again.

Consumers pay more because of annual sequels and advertisements that tell you what you should absolutely definitely buy, if the prices go up you'll only be paying for more of that and ill probably start buying from CDKey sites.

Already pumped the prices up here from £39.99 to £59.99 in some cases.

Alot of money gets pumped into marketing and shit like those kewl-kewl motion capture cutscenes for a barely playable 4-5 hour game.

Not worth the money in the first place half the time. Spend more time on creative gameplay with engaging map design and less on making a shitty movie with gameplay around it.

Stop hiring Hollywood actors for your game.

These companies already have gross profit margins.

They don't need DLC/micro-transactions.

Don't support it, but i guess i more morally upstanding than the average person.

Maybe if publishers stopped milking old franchises and actually released something new people would be more willing to pay prices....

Is a new COD really worth more then a COD game released 12 months prior?

Is Forza 7 really worth more then Forza 6?

Is Gran Turismo Sport really worth the extra over GT6?

The answer is no, newer games generally don't offer enough over a previous game to warrant jacking the price up.

What consumers are willing to pay for a product is the most important factor when deciding where to price goods not how much value some clueless fool wants to put on an hour of entertainment. It's up to developers to stay with in the budgetary confines of what the market will bear not vice versa.

Been paying roughly the same price for games the last three decades even though the man hours required for current production of AAA games increased a hundred fold.

So while I'm not volunteering to pay more I do understand where the Wall street analyst is coming from. :P

This is pretty spot on.

I’d have no problem if the games that were designed as Battlefront II was were free to get, where there’d also be a $60 version that was content complete. Similar to what’s been done on mobile.

Two different models. Then the people that want the complete game could pay up front, those who enjoy things such as MTs and LBs could knock themselves out, and EA could sit back and rake in the cash which would allow them to keep the games’ cost reasonable.

Everyone’s happy.

A lot of the development cost is on creating the actual game engine and tools to make a game, with most AAA games cross sharing game engines and resources that cost aspect has been massively reduced.

This guy should visit the forum. Everyone could then ask him for stats, perhaps using Call of Duty budgets and what percentage of said budget goes to the game developers, actors, and advertising.

@uninspiredcup:

Don’t know where you live but game prices haven’t changed much in a very long time.

PC has because of digital, steam and it’s sales. That’s different from browsing DOS games in local pc builder stores of years past.

Consoles not so much.

Brought to you by the same people who thought it was a good idea for financial institutions to give 4 home loans to strippers in Florida?

He's right, though it's obviously unpopular to say.

Street Fighter II back on the SNES cost my family 70 Irish pounds. When Ireland converted to Euros, the rate was 1 pound = 1.27 euros, so 70 pounds was the equivalent of 86.1 euros. Feed 86.1 euros into an inflation calculator, using Street Fighter II's EU release back in Dec 1992 and compare it to today:

A basket of goods and services that cost €86.1 in Jan 1993 would have cost €137.93 in Oct 2017.

The most expensive games of today costs 70 euros. So, despite budgets ballooning exponentially and games getting vastly bigger, prettier, more advanced and polished and feature filled, I'm essentially paying half what my poor parents had to pay for SNES games back in the day. That seems... pretty incredible.

Hence why every random game needs 5 million sales or else it's a money losing failure. Not a great model for the industry that makes the games we love.

(Rough, somewhat anecdotal figures obviously, but they get the point across)

@lrdfancypants: remember Egghead Software? I loved needing out in there

@xantufrog:

When it comes to gaming nostalgia browsing through old PC DOS games is way up there for me.

It’s just not the same anymore for whatever reason.

I loved it.

@locopatho:

What doesn't factor into this is the potential consumer base. How many Super Nintendo consoles were out in the open VS how many PlayStation, Xbox, etc formats. Capcom had a much lower installed base with the snes. Think of it as "buying/selling in bulk". Inflation is a factor but there are other areas to be looked at, like the size of X market at X time.

We need more quality AA games. Like the Yakuza Series.

Not every game being released needs to be a AAA block buster movie type game.

I’d still pay for a game if they upped the price of the base game to 80 dollars. 60 dollars is not enough anymore considering the cost to make games has risen. This is why we are seeing crap like micro transactions or other paid DLC.

Is this analyst aware that when you buy a larg quantity of something the price per item goes down? If you buy a hundred cans of soda u usually pay less per can.

For the same reason the price per hour will be lower for a game that last say 40 h, compared two a movie that is about 2 h.

I think that's more to do with micro transactions on mobile phones filtering through to consoles.

@scatteh316: maybe, but you have to remember many mobile games are free to play on phones.

I'd pay well over 100 dollars for a game that I loved and could play for 50+ hours on. Horizon Zero Dawn, ACO, Skyrim, etc. type games I would pay a lot of money to play. The problem is that you don't know how good a game really is to you until after playing awhile. I pre-ordered both Battlefront 1 and Mass Effect Andromeda and both were HUGE disappointments to me. While games like Dragon's Dogma and HZD were huge surprises to me, in a great way.