April 19, 2015

Video Games May Seem More Expensive But They Aren’t – It’s All In Your Head

Like most things on this site, this isn’t really about video game prices at all.  It is a lesson in economics and how to think about the world if you want to be successful.

I have been hearing a lot of grumbling lately from friends and fellow gamers about the cost of video games.  The economist in me cringes when an otherwise rational person jumps into a diatribe on the state of video game pricing and the various console wars because it reminds me of those people who insist that gas is at an all-time high, even when the inflation-adjusted cost of traveling one mile is less than it was in the 1950’s.  Listening to it makes me realize how thoroughly our education system has failed at producing rational, informed citizens capable of competing in the information age where knowledge is power.  

Legend of Zelda NES Original Retail Price

In 1986, The Legend of Zelda was released with a retail price of $49.99 plus tax, or $53.49 in the Kansas City area. To adjust that for inflation, the game would have to sell for $109 after tax today.

When it comes to video games, or any other form of media for that matter, what counts is the net cost per hour of entertainment delivered, adjusted by the subjective enjoyment of that entertainment for the person experiencing it.  The sticker price for the game itself doesn’t matter.  If you buy a game that costs $5 and delivers 10 hours of gameplay that you are crazy about and loved, your expense was around 50¢ per hour.  If you buy a game that costs $100 and you get 200 hours of game play out of it that you loved, your cost was still just 50¢ per hour of being entertained.  

Put more plainly, the $100 game cost the same amount as the $5 game because you aren’t buying a game, you are buying hours of entertainment.  That is what you are paying for when you open your wallet.  That is what the video game developer needs to deliver.

The Real Price of Video Games Has Plummeted Over the Past 30 Years

This basic economic truth aside, the inflation-adjusted sticker cost of video games has plummeted over the past three decades.  

Think about the $4.99 games sold in the Apple store for iPad, iPhone, and iMacs.  Today’s consumers can own a title for the cost of a few rounds of quarters shoved in video arcades, which is how our grandparents had to play.  In addition, there aren’t all these layers of middlemen (e.g., the bowling alley operators) keeping a cut of the profit.  Instead, for every $1.00 sold, the platform distributors such as Apple keep 30¢ and the game creators keep 70¢.  

If you can develop a successful application or game, it is entirely possible that a month from now you’d have six-figures in cash sitting in your bank account.  That kind of rapid payoff wasn’t nearly as accessible in the past.  The industry certainly wasn’t as democratic as it is now, where a husband-and-wife team can code and launch an app that pays off their house after going viral.

As for traditional console games, consider this:  When The Legend of Zelda was first released in 1986 on the Nintendo Entertainment System, it retailed for $49.99 plus tax.  In the Kansas City area, you’d be looking at around $53.49 to take the game home from your local Toys ‘R Us at a time when President Reagan was in office, the Challenger space shuttle had blown up, and Chernobyl was melting down in Europe; the stock market was recovering, in the early phases of the biggest boom in recorded history, and young upstarts like Steve Jobs and Bill Gates were already rich from their early days in the computer industry.  

Adjusted for inflation, if The Legend of Zelda were released today, it would sell for $109 after tax at your local Walmart, Target, or GameStop.  

To complain about a game of comparable scope selling for $60 today, complete with vastly superior graphics, sound, and gameplay immersion, is an economic fail.  Even adding in $40 of downloadable content for expansions and full functionality in games like Dragon Age or Castlevania: Lords of Shadow still only gets you to $100, which is cheaper than the real cost of the original Nintendo Entertainment System games.

The question, then, is, “Why do video games seem more expensive?”  Simple.  When you were a kid, your parents were picking up the tab.  Now, you have to buy them yourself.  People are a lot more selective and protective of their own hard earned money than they are when they spend someone else’s cash.  

  • Jacek Janiszewski

     Games aren’t more expensive if you know where to look. The same video game retails with different price tags in different regions and a smart (and/or poor) gamer can take advantage of that.

    For example BF3 retails for 59.99 USD however a key for the russian version can be bought for about 15 bucks.

    Apart from the bit of manual labor required to change the language files there’s no disadvantage. The same thing applies to most other digital distribution platforms.

    As for the education I can’t agree more. The question is this a matter of academic inertia or deliberate?

  • philnolan3d

    Are the graphics vastly superior? or even superior at all? If you adjust the price for inflation shouldn’t you also adjust the graphics for “inflation” as well? Legend of Zelda had some of the best graphics available at the time.

  • Michael Starke

    It’s interesting that I just stumbled upon this post now. I came to a similar conclusion about the valuation of games based on hours of entertainment. My rationalization for buying a game is that it has to “earn” minimum wage. A $60 game needs to entertain me for around 8 hours for me to feel like I got my money’s worth. Anything beyond that is gravy in my book. Hell, if I valued a game like Civilization 3 on a $/hour of entertainment basis, I’m probably down into the fraction of a cent per hour range right now.

    • Kat

      This is why tabletop RPGs are one of the best ways I’ve spent entertainment money in a while. I’ve been going off one $35 book for almost 3.5 years now. When you figure that I’ve played every weekend, between 4-6 hours per game, it’s cost me three cents an hour. My friends who were able to use my book and the free online reference document got those 980 hours of gaming for FREE.

  • Najeeb Shah

    wrong , a 60$ tag on a video game is just wrong , its a mafia out there , a poor man can stay alive on 60$ for a whole month