Games and Manipulation: The Economics of Games

Words: 3319 Approximate Reading Time: 25-30 minutes

This essay is the second in the three part series. To read Part 1, click here.

A discussion about games and money is going to require us to dive into the cost of games themselves.

“Cost” here meaning two things. One thing, of course, is how much it costs to buy a game. But another is the cost to make the game. Because games – as we are aware of in the abstract but can often forget – are made by people, who are pouring a lot of time and effort into their product. In fact, often an amount of time and effort that we would deem immoral if applied to ourselves. And we need to think about that time and effort when we think about “what is a game worth?”

To begin, making games is a business. That’s not to say that people can’t make games for the love of games. Or that people who make games are only in it for the money. Rather, for the amount of time and effort being put into a game, we are naturally going to expect something in return. If for no other reason than the fact that it is difficult to survive off of nothing, and unhealthy to work a “normal” job while also making games as a hobby. These things are possible, but not what we as a society or as a culture of video game players should endorse.

And since making games is a business, there are a lot of rules that surround the making of a game. You have to make a game that players will enjoy. You have to make sure you make a game that will sell well enough to return the money that was spent making it. You have to satisfy the desires of particular investors or a publisher, who were needed to provide funding or resources to actually get the game completed or to help the game sell.

So we want to think about the various economic pressures that exist for making a video game, and how those pressures impact what kinds of games get made, and by whom.

The Basic Economics of Video Games

Most games that we are familiar with are created by studios, which are big companies with lots of employees. You have people making art – both conceptually and within the game itself. You have writers. You have people building tools to work with. You have people designing missions. You have people making sure characters properly interact with the world around them. And so on and so on.

Having so many people means that you’re going to be paying a lot of money. Especially when you realize that the average game designer salary is $70,750 (the actual range varies quite a bit, depending on a lot of factors). And since creating a game is a task that demands a lot of skill, we should expect these people to be paid well for their work.

But of course, then you have to factor in all sorts of other things that a studio is going to need. Like space to work. And computers and other hardware to work on. You’ll probably need at least one lawyer on staff to deal with intellectual property rights, both in what you create and to make sure you’re not infringing on someone else’s property. Once you start thinking about the other elements that are going to go into running a video game studio, the costs start to grow even more.

So, how much does it cost to make a video game?

The simple answer is “it depends.” Another answer is “we don’t know for sure.”

Obviously, the amount of time spent on a game, how big it is, whether it requires updates and future content or is considered “finished” upon release, and all of that is going to be rolled into the cost. And games are going to differ on this front.

But part of why we don’t know is that we’re mostly relying on guesswork. There are plenty of estimates out there. An indie game might cost somewhere between nothing (in the sense that it’s made by one or a few people who don’t “pay” themselves) to a little less than $1,000,000; a more polished indie game will likely be several million dollars; your big titles will generally push tens of millions of dollars. And companies themselves regularly present figures of up to $60,000,000 as estimates for the price tags of big titles.

Which means that making a game is expensive. And we want to think about that fact when we talk about the cost we ourselves end up paying.

Digression: Economics, Price, and Fairness

I want to present this section on its own. It will involve a lot of mathematics and discussions about economics, and as such might be dull to some. If that worries you in some way, I suggest skipping this subsection.

Recently we’ve seen a push to increase the price of major games by $10USD – the current price tag of a new major release is $60USD, and some now sell for $70. There’s been pushback by a lot of people, and while there is something to it, it’s useful to step back for a moment to think about these problems in a broader context.

One thing we want to keep in mind is that the real cost of games has pretty consistently dropped over the years. This is simply a factor of inflation: a dollar was worth more ten years ago than it is today, so a $60 game would, if adjusted for inflation, cost more in today’s dollars – paying that $60 now is less than we might otherwise have to pay. The price of games has risen over the course of 50 years, but by a pretty small amount. A NES game, for example, would sell for $45USD, but in today’s money that would come out to over $100.

In this sense, the price increase to $70 isn’t that big, and makes sense.

But we also need to think about how much is being made off of the sale of games as a whole. And here’s where it gets complicated.

We acknowledge that it’s okay to make money. But we also can see that sometimes someone can make too much money. And so when we talk about games being too expensive and the price increase being unnecessary, we are saying that on the supposition that the various actors in the game development world are making “enough,” and thus don’t need more. Maybe the CEO of a major publisher doesn’t need to earn $100 million. Maybe we should regard $10 million as “enough.”

As an example of this concept: let’s say a game made $50 million from sales. How do we perceive those numbers? Is that good? Bad? Too much?

Well, that depends on the cost to make the game. If the game cost only $50,000 to make, that’s a return of 1,000 times what was put in. Maybe that’s too much?

On the other hand, if the game cost $40 million to make, then that would be a return plus some profit. That would likely fit more within our concept of what is “fair” to make in terms of that profit.

Now what if you halved the cost of the game being sold? Well then both cases (for simplicity’s sake), the developer is making only $25 million. In the first case, that’s still an incredible return. In the second case, we suddenly have a problem and the studio may need to shut down.

So the cost of games and how we perceive that cost is going to depend heavily on how much is being made relative to how much money was put in.

And here’s where our lack of knowledge about how much games cost – not in general, but for each game – becomes a problem. Because we are trying to make ethical judgments with insufficient information.

This calls for some greater level of transparency at various levels. What is the cost of making a given game? How much of that money is going to the studio and the employees who made it, versus a publishing company? How much are various people being paid? Did making the game involve crunch? All sorts of questions like this need to be answered in order to decide whether this simple ten dollar increase – or the cost of any game we want to buy, is “fair.”

The point of all of this is that we gripe because the $10 comes out of our wallets. But we want to be thinking more broadly about these problems as well. Is the problem actually that the games are too expensive, or that the money is being spent on the wrong things. Better pay for the people making games, better support structures, a greater cushion to allow for more time to prevent crunch – all of these things could justify the same total numbers, and the solution would then be not to lower the price of games, but to fight for fairer treatment of workers in the industry.

It should be noted that I’m also ignoring an incredibly complex problem about basic economics. If a game costs $50 million to make, then it needs to sell X number of those games at Y price in order to just break even. We can do the basic math to solve the equation, but the games actually need to get sold. Which creates a problem in both directions. We can’t know whether a game sold too few copies and might (ethically) have charged more, or whether a game sold “too many” copies and thus ought to have (ethically) charged less, until after the dust has settled. We are trying to navigate these problems completely blind.

Markets and Trends

So how do these basic pressures impact the games we get?

Making a video game – especially a major title – is going to be a significant financial risk. And so the people in the business, especially video game publishers, are going to want to find ways to diminish that risk. What strategies can they take to make sure that a game will return its costs and provide a profit?

Which is why we see so many long-running video game franchises, and so much of game design following basic trends set by popular titles. If Game X sells well, then there’s a good chance that a sequel to Game X will sell well, too. If Game A has a mechanic that players found enjoyable, then copying that mechanic will help you sell your own game. The point is a kind of safety – not a guaranteed win, but just something to help make sure that everyone involved isn’t losing tens of millions of dollars.

So you would expect major titles – released by big name studios under the purview of big name publishers – to involve relatively little experimentation and/or new intellectual property. Not that you can’t ever see these things, just that they will be less common, because those “new” games could end up potentially failing. And failure is a serious problem at that level of development.

In addition, monetization becomes important. If you can find a way to sell a player additional content for a game – cosmetic items, expansions, new characters, etc. – then you can make more money off of a game and keep it in the public consciousness longer.

Service Games

Now let’s pivot to talking about the “games-as-a-service” model, or the live service model. I’ll refer to these as GaaS games or the GaaS model for short.

First off, what is a GaaS game? Any game which is built not on a game being “finished” and presented to consumers, but instead where the game is continually being updated with new content to keep players engaged for longer periods of time. A standard game might have 50 hours of content, and then maybe later on there will be an expansion or two that will add another 30. A GaaS game is designed so that you have potentially unlimited content – the only limitation is your own desire to keep playing – and the game is continually changing in big ways and small on a fairly regular timetable.

The transition to the GaaS model has been ongoing for quite a few years now, and bigger companies have started pushing these games more aggressively. And if we stop to think about why, it will make sense.

Making a video game – especially one of the big ones – is an expensive proposition. And the process of selling that game comes with a lot of risk. If you’re going to spend $50 million to make a game, you need to sell a certain number of copies of the game to just make back the money that was spent. And then you have to move on to the next game, which means taking another big risk, with no other revenue coming in. And since these major titles can take years to make, that’s a lot of time where a developer is making relatively little money after that big surge.

A GaaS game, though, allows for a company to pull in a relatively consistent stream of money. Rather than spending years making a game and getting effectively one big payout, the game gets an initial payout from players purchasing the game (unless it’s initially sold as free-to-play), and then gets money funneled in from players purchasing skins, or expansions, or seasons, or whatever the game is selling. And since the game is designed around being constantly updated, there is still a lot of work being done on the game, but now that work has shifted from “how can we make a new game from the ground up?” to “what kinds of new content or major changes can we make to this existing game to keep players interested?”

GaaS games make sense economically, but they still come with problems. Firstly, there is a lot of pressure that comes with maintaining these games, since they require constant updates and fixes, often on stricter timetables than traditional development. Before, a major title might take years to develop, and then an expansion might come out 8-12 months later. But for a GaaS game, you have to be making major changes constantly, and usually be releasing them every 3-4 months (since a lot of GaaS games work off of “seasons”). So that constant work can create a lot of stress and anxiety, in an industry well known for solving problems of time through crunch.

But these games can also pose a lot of problems for consumers as well. Namely, they rely on keeping a player constantly engaged with a game – the player needs to spend both time and money. This can easily breed unhealthy habits for the player, and lead to significant costs. Players can become addicted to the games or particular monetization mechanics, finding themselves unable to stop playing and spending extraordinary amounts of money or neglecting basic responsibilities.

There exists the argument that actually this model is good, because the up-front cost of the game is less than for a typical game, meaning that you end up spending less on it. But I think we should be skeptical of this claim, for two reasons. Firstly, because it’s not quite correct: the cost of the game is usually just being spread out over several purchases over a longer period of time, rather than being given all at once. As we saw in the previous piece regarding sunk costs and how we perceive spending money, this means that it feels cheaper to play these games, while actually being just as – or usually even more – expensive.

Secondly, the idea that these games are cheaper is only true for a certain group of players – those who play for a bit and then drop the game for something else. But for a significant number of players – the ones who stay in – they can end up spending a lot of money on the game. And the very nature of the game means that once you spend some money, you’ve made an investment (again, we’re back to sunk costs), and so you feel tied to the game and you need to keep playing to justify the money you spent.

While GaaS games may be cheaper for gamers – even a large portion of gamers – that cheapness has to be built off the expenses paid by others.

The GaaS model is unlikely to disappear, in the near or even probably far future. Really the only way to get rid of it would be for players to stop playing those games. But since enough people do genuinely enjoy the games themselves to keep them going, the likelihood of players just dropping these games entirely is, at best, very low.

Concluding Remarks

I’ve discussed a lot of different aspects about money as an aspect of game development, and frankly there’s a lot that I’ve left out. Where do publishers fit into this ecosystem? What about practice by X company? What about marketing as part of the budgets for game development? These and plenty of other questions are worth talking about, but I want to limit myself right now just to these basics.

I present these claims essentially to remind us of what the existence of money does within the framework of game development. The need to survive means the need to secure basic necessities, which means in turn securing funding to purchase those necessities. So people do need to make money. We could, of course, turn to the theoretical answer of “we should change the economic system to address this fact,” but that answer would not address the problem that in the here and now people need to make money.

And that need to make money creates a whole host of pressures when it comes to something like developing a game, even if making a game is something any given individual enjoys. It is by stepping back and thinking about what those pressures are and how they impact the end products that we can start examining the ethics of these various practices.

We can say “X game costs too much” or “Y game isn’t worth this amount of money.” But those claims – on their own – are not going to have much meaning other than “I don’t want to pay this much money for this product.” It is only by looking at the system as a whole that we can determine whether the concept of “too much” or “worth” holds any meaning beyond the impact to our own wallets.

The next and final essay in this series will cover the topic of monetization and manipulation. Now that we’ve introduced the GaaS concept, what are the tactics being used to get you – the player – to keep playing and ultimately spend money on the game? And how should we understand these tactics in light of ethics?

Epilogue

Since there’s so much out there on game development, I did want to drop some links to some further reading for those who are curious. These are things I would have liked to get to, but had trouble fitting in to this essay.

Game Developer Myths: The Complete Game – Covers the topic of “Day 1 DLC” and helps explain how the development cycle works, showing how these add-ons are not merely “cut out content to sell back to players later.”

Why Do Indie Developers Sign with Publishers? – Explains the role of publishers within game development.

50 Years of Gaming, by Revenue Stream – A good way to see how much money is being spent on video games and where it’s coming from.

Should Gaming Embrace NFTs? Both Sides of the Debate Weigh In – Article covers what NFTs and games centered around NFTs might mean for video games. Just to note, I am very strongly anti-NFT.

How BioWare’s Anthem Went Wrong – A thorough depiction of the issues of crunch, how publisher demands can hobble development, and a lot of basic pressures that come with game development.

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