When Exclusives Are Consumer Friendly

There’s an old business punchline where the owner of a firm says “I’ll sell at a loss but make it up on volume.” I’ve heard the punchline in three slightly different variations but have never heard the joke that was once attached to it. A business owner maximizing their losses is the kind of galaxy brain source material that makes for a good punchline but also happens to be a cutting edge business practice. Uber and its recent IPO is the most recent and high profile example, but if you ever used a Groupon or signed up for MoviePass you’ve experienced this business model. There was even a parody company called SliceLine in HBO’s Silicon Valley that played on this idea. While most of these schemes are the appropriate target of mockery, they are also a great source of consumer surplus. As long as investors are willing to put money into these companies, we’ll enjoy their products below cost. This brings me to the Epic Store.

Epic’s timed exclusivity deals are consumer friendly. I realize a lot of gamers get this wrong, but I can’t hold this against them because they have a lot of practice being wrong on the internet. Part of the problem is that concept of consumer friendliness has been more of a high horse for The Gamers™ to mount than a well defined concept. For the purposes of this article I will consider a policy to be consumer friendly if it gives consumers, in aggregate, more for equal or lesser cost (or, equivalently, gives the same or better for less). Establishing that the Epic Store gives more than it takes shows that it is consumer friendly by this measure.

The Costs

The Epic Launcher is an inconvenience to download and open. Even Epic thinks this since they need to give away free games (Stories Untold as of this writing) and spend money on exclusives in order to entice users to use it. The same was true of Steam when it first launched and is also true of Origin, Uplay, Battle.net, Bethesda.net, Discord, and GOG Galaxy. If you’re a maniac for The Sims, Battlefield, or Anthem then Steam is the inconvenience since you need to open it for the games you don’t have on Origin, but it’s safe to say that the more common experience is that of a Steam user needing to use an alternative launcher. The magnitude of this cost may be small, but if a user needs to move the mouse one extra pixel or faces some angst about using a launcher they wouldn’t have otherwise chosen, it still needs to be offset by some benefit to become consumer friendly.

If all players are categorically unwilling to use another launcher, then Epic is wasting their money and consumers are more likely to lose in aggregate due to the delay in playing something they would have otherwise enjoyed. This is the least likely case since exclusives are an old and common tactic in gaming. Investors constantly hound Nintendo to release their properties on other platforms, Halo was announced for Mac before it was an exclusive for the launch of the Xbox, and Sony’s commanding position is partially attributable to its critically acclaimed exclusives. This precedent does not show that consumers are better off, but it does show what they’re willing to do in order to access a product they like. The fact that a meaningful proportion of players are willing to purchase a console in order to play a game like Bloodborne or The Last of Us establishes an upper bound of inconvenience which a free software launcher will clear for all but the most partisan opponents of the Epic Store.

I will not put much weight on the partisan objection to the Epic Store for two reasons. First, the costs are easy to quantify (whatever benefit they have to forego during the exclusivity period less any discount they get on the eventual later release) and borne by a small proportion of gamers. Second, similar partisanship also exists for users of GOG who feel equally strongly about DRM. These feelings are no less important or sincerely felt than outrage at Epic, but the discourse has up to this point has been okay with overlooking this minority. Since my focus here is on what is beneficial to the consumer, I will leave social justice considerations for experts like gamers who hate the Epic Store.

As for the inconvenience of another PC digital distribution platform, PC exclusives are common with even lower stakes. Half-Life 2 was Steam’s first exclusive (and Kotaku reported how well that went), Origin now distributes EA’s titles, and Blizzard has only ever digitally distributed through Battle.net (with the recent exception of Diablo and Warcraft I & II being released on GOG.com). Even Bethesda and CD Projekt Red had exclusives with Fallout 76 and Thronebreaker: The Witcher Tales, though they have now since become available on Steam. The inconvenience or frustration of not being able to use a platform of choice remains, but PC consumers specifically have shown that they are willing to put up with it in order to access something they value, and do so fairly regularly.

The Benefits

The first and most direct benefit to consumers from the Epic store is money. It turns out Fortnite makes a bit of money, and this has allowed Epic to subsidize every game purchase that is greater than $14.99 in their summer sale with $10. Want to pre-order John Wick Hex? $19.99 normally, $17.99 on sale (10% off), and $7.99 (60% off) when Epic is done with it. 60% off for a game that was announced a little over a week ago (with half the purchase price coming directly out of Epic’s pocket). Epic, following previous storefronts, has also provided a free game every two weeks, accelerated to a free game every week during its sale. Epic taking a loss on every sale and hoping to make it up on volume is a direct transfer from Epic to consumers.

The benefits of the Epic Store are not just limited to these transfers, but are also felt indirectly through its revenue share and paid exclusives. Since games are a highly competitive industry the 18% of sales developers don’t pay to Epic are likely to be passed on to the consumer either through price cuts (as was the case with Metro Exodus) or quality improvements into the product. Failing to do so puts producers at risk of being outsold by better and less costly rivals that are willing to take less of the surplus. Furthermore, other digital storefronts are feeling the pressure to cut their own shares with Discord and Kartridge following suit, and Valve giving up a fraction to high earning titles (though it is unclear if this was based on any knowledge about a rival storefront emerging). Even users who do not use the Epic store live in a new status quo where the cost of delivering the game is no longer taken for granted as being 30% of sales.

Reinvestment in the product is why Epic’s timed exclusives have the potential to be consumer friendly as well. Revenues from an exclusivity deal will go back into production on either the game or a future project. These kinds of deals are presumably even more attractive when even high profile titles are reporting weaker sales than expected. The benefits are realized by all consumers over time since Epic’s exclusives have been limited to one year. They are also hard to quantify since we do not get to compare against the release in some alternate universe and so we must rely on the knowledge that the developer has been given more options in an environment where they have every reason not to simply pocket the money.

Competition is the final major benefit to consumers and it is also an easy one to overlook. Many users rightly criticized the Epic Store for not having a refund policy at launch, but it is worth remembering that Steam only introduced their own refund system after Origin introduced one. It is also why Steam has started to loosen its grip on its 30% fee and why Epic is adding free cross-platform multiplayer tools. Steam has improved with less competition, but it has more often been on Valve’s terms, and the speed with which they are able to implement responses to competition invites speculation as to how much better Steam could be had Valve more competitive pressure to invest in the platform.

The Balance

Many of these costs and benefits are intangible and so determining any net benefit to consumers is more than just an accounting exercise. The simplest heuristic is to simply express these as tradeoffs. “Would you prefer to use just one launcher if it meant the most expensive game you bought that year had one fewer level?” “Would you prefer to use a single launcher if the prices were 10% more?” “Would you prefer to use a single launcher conditional on it being impossible to refund a game except in the most extreme circumstances?” We know the collective response to any of these individual questions is no since we have been living with multiple platforms and exclusives for those platforms since we first had digital distribution.

The fact that gamers are willing to put up with multiple platforms does not indicate that the Epic Store is a net benefit on its own. It’s possible that present day benefits may be recouped later through anticompetitive practices. For example, there is a concern that Amazon’s practices may be presently beneficial to consumers but will be harmful to them in the long run. In this light it is worth considering what Epic’s end game might look like. Unlike Amazon, the Epic Store is providing a substantial amount of consumer surplus in order to bring increase competition in its space. The Epic Store achieving parity in market share with Steam for PC distribution would be a phenomenal success, but it would also be one in which both storefronts would need to fight to keep their share. It means that Epic is paying serious money to bring about market conditions that require distribution platforms to invest more and charge less. As with the benefits that come from developers reinvesting in their product, these are benefits that are enjoyed by all consumers, even if they never touch the Epic Store.

It is a curious feature of gaming that developers — who have an actual monopoly on their intellectual property — face a harsher competitive environment than distributors whose main role is to make sure the bits get from A to B. As fun as Tom Clancy’s Ghost Recon: Breakpoint looks, we have enough substitutes for that unique experience to keep Ubisoft to charge anything more than about $60 for it (the present $50 price tag being due to Epic’s subsidy). This is not true for digital distribution platforms which have much stronger network effects, economies of scale, and access to data. Valve has not abused its position as, say, a company like Microsoft, but it is clear they are under-investing and overcharging due to the lack of competition. If the Epic Store is successful in establishing itself as a serious competitor to Steam then the result is as much a better Steam as much as it is anything else.

Epic’s tactics are designed specifically to overcome the barriers Steam currently benefits from and are consistent with the actions of previous successful entrants. It does not seem possible to create a credible competitor to Steam without a sizeable investment. What is great for consumers is that a lot of that investment is going directly to us. Epic is effectively paying consumers to bring about a new status quo where more of a game’s budget goes into the final product and storefronts need to fight for our business. There is no assurance they will succeed, but I am more than happy to take my share of the Fortnite money for as long as they’re offering it.


Note on affiliate links: I am a member of Epic’s Support-a-Creator Program for which I am given a portion of sales for traffic I drive to the site or which contain the creator tag SYSTEMCHALK. The inclusion of a given title is for illustrative purposes first, but when it is available on Epic I will provide such a link. As always, I encourage you to do your own price comparison or buy on your preferred platform.

Of course, seeing as there’s a big Epic Sale going on right now, let me just say that I think Hades, Metro ExodusThe Walking Dead: Final Season, John Wick Hex, and Subnautica: Below Zero look like particularly good deals.

Share and Share Dislike

The takes industry works overtime during earnings season and between EA reporting sales for Battlefield V and Activision Blizzard announcing layoffs, there was no shortage of material. Earnings should not generate the kind of hyperventilation they do, since they are a standard measure intended to provide everyone access to the same information at the same time with an accompanying presentation from management to explain what is going on. These numbers should be fundamentally boring, but that does not stop everyone from firing off a 280 character analysis that can’t pass The Big Lebowski Test. This article is going to be about measurement, and if you have ever wondered why stocks go down when earnings are up, this article is for you.

What does a share price measure? The price at which a claim on a company’s future earnings my be bought or sold. What does it mean if a stock price suddenly falls to half its value? Not many people would guess that a stock split has occurred, even though this the most likely reason for a game publisher. What if a company’s market capitalization (share price multiplied by number of shares) falls by half? Then it might have split into two separate entities of equal value. These events illustrate how a share price can be uninformative in isolation. Today, Electronic Arts’ (EA) shares trade for $97.41, Take-Two’s (TTWO) trade for $88.32, and Activision Blizzard’s (ATVI) trade for $42.84. Which is the most valuable company? Activision Blizzard, because its market capitalization $32.69 Billion (EA is $29.18 Billion and Take-Two is $9.99 Billion). In order to answer the question of “Which game company is the most valuable?” we needed another piece of information: the number of shares outstanding.

A common comparison is the current share price against a previous price, since this indicates an increase or decrease in value. Changes in share price useful because they allow comparisons between two companies without worrying about the overall level. Activision Blizzard’s shares were up 1.66% from yesterday, while EA was up 1.70% and Take-Two was up 1.21%. What does this mean? Very little. Share prices are sometimes used as a proxy for investor sentiment, since the price will fall if more people want to sell than buy, and the price will rise if more people want to buy than sell. What is lost in this measure is that investor sentiment considers all their other alternatives including investments outside of the gaming. If Take-Two falls 20% on negative news, then it’s fair to say that investors have diminished expectations for that company’s future profits, but if EA and Activision Blizzard fell 40% on the same news, then it also means that investors are more confident in Take-Two than the other publishers.

Short term price movements rarely communicate meaningful information. It’s fun to pretend that EA waved a magic wand and created half a billion dollars today, but that isn’t what happened. Prices should reflect the underlying value in the long run, but there is no law that makes this so. There is more than a casual overlap between the “reviews should be objective” crowd and people who cite stock prices as evidence, and yet stock prices are one of the most subjective measures anyone can choose. If on Monday every Activision Blizzard shareholder was imbued with the unshakeable conviction that if they kept their shares a sperm whale would burst out of their chest like some terrifying Ridley Scott/Herman Melville crossover, the resulting stock price would not reflect the underlying value of the company. As a rhetorical technique, even if one were to grant the assumption that the price activity is caused by whatever someone is claiming (I’m sure politics in video games is among the top risks Goldman Sachs is factoring into their price models), it is tantamount to saying “and lots of people agree with me!” To see the wisdom of the market at play, consider EA’s share price over the last month:EAEA’s earnings were announced on Feburary 5th (at the end of the trading day). That analysis is not hard to write “EA underperformed expectations and the share price fell.” Two days later share prices are higher than the previous ‘optimistic’ values. An armchair analysis might be “Apex Legends was released the day before earnings.” If that’s the right explanation then it takes the market 4 days to assess that the unexpected success of a new battle royale title, after which it is unambiguously more than enough to make up for the lowered guidance.

EA cited competition from titles like Red Dead Redemption 2 (RDR2) as one of the reasons for its lower than expected earnings. Take-Two owns Rockstar, and so what happens to the share price of the company that has the top selling game when they announce earnings (Feburary 6th)?

ttwoIt goes down obviously.

There is a sensible reason for this behaviour. Just as drivers do not exclusively use the rear view mirror, investors are concerned with the future performance of their investments. RDR2’s success was well known and common knowledge by the time earnings were announced, and so was already factored into the share price. However, Take-Two did not raise its guidance as much as investors anticipated, and so the price fell, meaning that Take-Two had been previously overvalued.

Public companies report lots of useful numbers that can be analyzed. If you want to know how much a company sold, they tell you. If you want to know how well those sales translated into profits, they tell you. They tell you how many people are working there and how much the CEO is making (a lot. Always a lot). Even if you could isolate external factors and you wanted to ignore other measures of investor sentiment, the examples above invite a question as to how informative investor sentiment actually is.

Unless you’re thinking about investing in the company or concerned with its ability to raise money for its operations, you probably shouldn’t care too much about what the share price is doing. Share prices will not tell you if political correctness is destroying the games industry or if Fortnite will kill us all. Share price takes during earnings season are especially frustrating because the price movements are in response to the release of information that is actually relevant to the subject. It’s fine to ignore this information if you want, but it’s just your opinion man, not the shareholders.

Valve’s Bloody Nose

I normally put the disclaimer at the end, I should mention that since the previous article I have joined Epic’s Support-a-Creator program which provides me revenue for referrals (use the tag SYSTEMCHALK 😉 ) and the links will reflect this change moving forward. This is especially important since this is a pure opinion piece which was originally going to be a Twitter thread, but I want to put more effort into blogging. I’d like to think my opinions are worth more than a referral percentage, but as always, do your own price comparisons and allow this disclosure to factor into your reckoning however you want. Also Subnautica’s on sale.

There is a tried and true scene in Hollywood where the hero finds themself in prison, finds the biggest, meanest inmate he can and proceeds to provide a nuanced commentary on the seventh chapter of Machiavelli’s Il Principe with his fists to show that he’s not a man to be trifled with. Epic, for the crime of making Fortnite, has been incarcerated in the PC Digital Storefront Maximum Security Penitentiary and wants to show it means business.

If I had to guess, Epic is fighting against becoming an ‘also ran’ with a small part of the market and instead is attempting to position itself as a credible alternative to Steam with the market share that comes with it. The Epic Store launched with an impressive roster of exclusives like Hades, Ashen, and Hello Neighbour: Hide and Seek. Since then it has captured Tom Clancy’s The Division 2, and, most notably, Metro: Exodus weeks before release. These kinds of deals are almost certainly not cheap, but they communicate how serious Epic is about its storefront.

Kotaku recently ran a piece regarding Valve’s reaction and how it leverages toxic elements of its community to harass a defecting product. I am not inclined to share the villainous mastermind explanation since the weight of the evidence does not equal the weight of the charge. However, even divorced from malicious intent, Valve’s cries of “unfair” are a flabbergasting response to a new and unproven entrant.

The Epic Store’s claim to fame at present has been succeeding in spending a lot of money in getting temporary exclusives onto its relatively small store. A new game by Supergiant is no small thing, and the excitement surrounding the store is as much about its potential, but Valve could remain perfectly stoic about an upstart who is burning through a lot of money to get attention. Stores that spend more than they bring in don’t last very long, and with a 12% revenue share, Epic needs to sell even more copies to make this money back. Instead, and unlike any other competitor, Valve has elevated the Epic Store’s status by saying out loud that they are a threat, and offering level of credibility even Fortnight money can’t buy.

When IBM entered the PC market in 1981, Apple ran an ad saying “Welcome, IBM. Seriously.” Here’s a copy of it:

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What the ad doesn’t show is that Apple’s market share wasn’t all that different from the other PC makers Commodore, Tandy, or Osborne, and so successfully created the impression of a duopoly that didn’t exist. There is no direct analogy to the PC Gaming market of today, but this anecdote shows how valuable the impression Valve just gave the Epic Store is.

Valve simply did not need to comment on the departure. There have been other platform exclusives. Thronebreaker: The Witcher Tales, went from being an exclusive on GOG to being sold on Steam even while Valve was launching its own card offering of Artifact. However much the “unfair” comment was intended to punish Exodus for defection, Valve has focused its attention in the wrong place. Valve has elevated a competitor that has needed to buy its attention to one that is serious enough to hurt them, and Epic is left swaggering in slow motion at a flattering low angle while the inmates and guards stare on in disbelief.

Valve’s Cut

Over half of developers surveyed do not think Steam justifies its 30% share of revenues according to GDC’s State of the Game Industry report. Over half of developers responding make 75-100% of their sales on Steam. The difference is not surprising since, just as gamers will think $5 is a fair price for this year’s AAA spectacular, game developers will want to see the price of the service they are consuming go as low as possible. Consumer psychology aside, it is still striking to see these numbers beside each other. The 70/30 split has been a standard for a long time and has recently been called into question with the entry of several high profile storefronts competing on price and store exclusives. Now is a good time to consider what exactly that 30% buys.

A firm wanting to do their own digital distribution must arrange for payment processing, hosting, returns, chargebacks, and then worry about people finding the product. For smaller firms these costs will almost certainly be more than 30% of revenues and so using a digital storefront like Steam represents a savings. In 2019 the choice is not Steam or a private storefront and the question in GDC’s survey was posed in light of competing alternatives that offer a lower price. The profits for digital storefronts have always come from the surplus from the actual cost of providing the services, and the argument for competition is that profit seeking firms will be willing to undercut each other in order to capture more of the market. Assuming that Discord and Epic don’t operate at a loss (not a good assumption in these cases) and that their rates are sustainable, then it is tempting to think that Valve is claiming at least 18% of revenues as a tax for being on Steam. Given that 18% is more than what the new storefronts are charging overall, it makes sense that only 6% of developers surveyed think Valve is justified in claiming that surplus. However, this is not the right way to think about whatever surplus Valve or any other provider is claiming.

People who are good at something often do not find it very difficult to do. The price of someone’s labour is commensurate with the value they provide, not the effort they exert in performing the task. If digital distribution is just a matter of setting up a tool booth and matching developers to gamers then it invites the question why payment processors aren’t opening their own storefronts since they will always be able to undercut the competition by whatever surplus they charge for their own services. For better or worse, Steam is very good at doing this match, which is why almost ¾ of respondents make at least half of their sales on it. In addition to plumbing like payment processing, Steam offers services like the Workshop, Digital Rights Management (DRM), and, even after the increase in games released under Steam Direct, a degree of legitimacy that is not provided by other storefronts. Most importantly, it provides access to a potential audience, even after accounting for complaints about its discovery algorithm. The more favourable revenue shares by competitors do not mean anything if developers cannot get on the storefront or cannot achieve a certain number of sales.

The right question isn’t “Is Valve justifying its 30% cut?” it’s “How do Humble and GOG justify theirs?” Humble has an easier time of this since they essentially piggyback off of Steam for most users (it is also unclear if Humble absorbs whatever costs Steam might charge for external keys). GOG has its own requirements (particularly regarding DRM) which require effort, in addition to stricter controls on who gets in. The fact that only certain games choose to launch on GOG, or appear at all, suggests that at least some developers do not find the additional sales worth the effort to participate on that storefront.

It’s hard to put an exact number as to the right price that any storefront should charge for their services, but at least in the case of Steam we know it’s access to the market that forms the foundation for most of the survey respondents’ businesses and so it is hard to see that number as too high. It may not be fair, but more people are coming to Steam, not less. None of this is to say that discovery is solved or that Steam is the best option for people, but it does make certain decisions by Steam make a lot more sense. Smaller developers were understandably frustrated by the choice to give a break on the revenue share for larger games that pass certain sales thresholds. However, these games clearly do not benefit from the access Steam provides in the same way that smaller titles do, and in the absence of other features to entice these developers, Valve needed to cut its rates in order to retain them. Valve seems to be quite good at matching their prices to developers’ willingness to pay.

This is why discoverability is a big problem for Steam and one they’ll need to continue to work on. If the other storefronts can demonstrate they can connect developers and gamers better than Steam does, then Steam has no reason to charge what it does and will have to decrease their price. Epic seems best positioned to do this as they are attracting an audience that is different from Steam’s and have the financial capital to back it up. And yet behind Epic’s aggressive launch price is an interesting revelation. In the disputed translation of an interview, Epic’s Sergei Galyonkin (author of SteamSpy) apparently revealed that their solution to discovery was to rely on influencers over algorithms and that the referral rate for influencers is set by developers, with Epic covering the first 5% (for now), and an example of indies offering perhaps 20% to incentivize influencers to play the game. Galyonkin is a sharp guy and it is unlikely he chose 20% at random. From this example, large games that require no incentive will face an effective rate of 12% on the Epic Store. Bigger games that need some incentive will face an effective rate of 17% (from purchases from influencers). Smaller games will face an effective rate of 32% from purchases from influencers. Compared to Steam’s tiers of 30%/25%/20%, the Epic store doesn’t seem all that different. In Galyonkin’s example, the value of influencers is about equal to what Valve is charging to automate the process through its algorithms.

Discoverability does not go away once a developer switches storefronts. Valve is using technology to connect its users with games, while Epic intends to replace what sites like Keymailer do. It’s not obvious which approach will be more successful. If Epic’s effective rates are closer to 12% then it means influencers aren’t all that influential and if sales can be maintained to levels comparable to Steam’s then it really does mean that Valve has been charging for a worthless matchmaking service. But if Epic is relying on “ya boy yoloswag420” to connect the game to the audience, it is the developer who will be paying for it, not the creator of Fortnite. If influencers fail to attract buyers to new titles, then developers aren’t going to receive help from Epic in selling their game. In this scenario developers will need to rely on the storefront remaining relatively closed or the 12% cut reflects that the Epic store is just Steam without the algorithms. The competition between Epic and Steam will likely be less about price and more about who has the more effective discovery mechanism.

Diversity for the Amoral

The new year started off with a fresh set of outrages to scourge Real Gamers™: Kick McKeand wrote a good article about diversity in games, Emily Grace Buck (who’s started a new program for story games) reminded us that old gaming quip about story and pornos isn’t all that clever, and it turns out Soldier 76 has a boyfriend. To this last bombshell, the people who complain about games more than play them offered the penetrating insight of “dying game makes character gay for attention” which put me into a personal crisis since I was really coming around after seeing “Getteth woketh, goeth broketh” (as it originally appeared in the King James Version) for the thousandth time and now I see that the causal chain is completely backwards.

There’s no point in worrying about people who are wrong on the internet, and there isn’t a shortage of coverage on diversity in gaming. I am sympathetic to articles and personal anecdotes about characters from underrepresented groups, because I assign some value to the wellbeing of others. It also means I believe people when they say they’re indifferent to the happiness that the presence of more diverse characters might bring others. The existing discussion around diversity does not offer anything to these people, even though inclusion does not need to rest on a moral imperative. This article is intended to present the amoral/apolitical reason why diversity is good for gaming, and why this should be unsurprising in a business context.

More gamers help keep prices down

Everything in gaming is growing except the prices. There are different ways companies have been able to maintain and increase their profits with varying degrees of acceptability among gamers. The most notorious of these methods are loot boxes (and other microtransactions), but DLC and subscription plans are included with varying degrees of acceptance or consternation. There is no consensus as to the acceptability of these practices, as EA faced pure mockery for appealing to a player’s sense of accomplishment, while CD Project Red’s same appeal with regards to the recent changes in Gwent’s economy went without remark. Judging by these reactions, diversity is already here and addressing it has consequences for the bottom line.

A developer has lots of options available to respond to the increasing costs of development, but many of these options will be constrained by the intended audience. If a developer can’t raise prices, it can attempt to reduce costs. This means cutting back from the game and most buyers will want more game, not less. A developer might seek some kind of guarantee or favourable financing terms in the form of a platform exclusive. This choice reduces the workload and removes some of the risk of development, but necessarily limits the audience for the product. If these options, along with loot boxes, subscriptions, DLC, and price increases are untenable, then the only other option is to get more people to buy the game at a price that is less than the cost of acquiring them.

A game producer does not need to push any agenda other than making enough money to keep the lights on in order to see that there are audiences beyond the a stereotypical gamer and that it is less costly to reach out to this market. Outreach can mean a direct marketing appeal to this broader audience, but the underlying product needs to be something they want to play in the first place. Games wanting to appeal to a broader audience will reflect the interests of that audience, and that can mean stories and characters that are unfamiliar. Some gamers will like this, some gamers will be indifferent, and clearly some gamers will dislike it. For gamers who dislike more inclusive elements, the decision can be expressed as a tradeoff: Is the removal of inclusive elements worth a price increase? Loot boxes? In blunter terms it could be expressed as “Pay up or get out of the way, there’s gaming to be done!”

This is less about a Social Justice Stazi threatening to take developers’ thumbs if they don’t meet a representation quota and more about gaming becoming more accepted and businesses responding to increased demand. It’s much harder to feel like you’re caught in the crossfire of a culture war when you imagine some politically incorrect Mafioso voice saying “Itsa just buisanees!” But this issue really seems to matter to some people. This review for Battletech appeared after about 3 hours of playtime in my Steam friends (anonymized to protect the guilty):

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The majority of this negative review deals with elements of the actual gameplay, but it is worth noting that the inclusion of a third pronoun in character creation (essentially a drop down menu) gets top billing as “the most obvious fault…” Since that review was written the game has delivered 73.1 hours of additional gameplay. It’s easy to ridicule reviews like this, and I think it’s entirely possible for someone to put lots of time into a game and still not recommend it. All I want to point out is that the pronouns for the game haven’t changed, and they have not prevented this reviewer from opening the game up with some regularity. Based on this information, I don’t think this player would undo their Kickstarter pledge (if they had one) if they had the option, let alone pay extra to remove gender options. Essentially, this is a matter of annoyance, rather than something material.

There are lots of things in games that annoy us individually that do not prevent us from getting some overall enjoyment of the game. I get kind of annoyed when games make me push a button to do something horrible and then say “DON’T YOU FEEL HORRIBLE YOU DID THIS!?” No! I have never felt bad at one of those moments and I wish these games would stop hovering over my shoulder like some ethical sommelier describing the subtle notes of pathos I should be recognizing. But I get that people like these bits, and I’m perfectly content to let the specialists who make games decide what they want to include in a game.

Not all the choices of game developers are going to appeal to everyone. It’s not news that some people prefer the way games used to be rather than the way they are now. Indie games especially have been relying on this market to stay in business. But in order to push the envelope big games will continue to need to be a big tent that appeals to a large enough group of players to justify their budgets. Narrower games with a tighter scope don’t have the same commercial pressure. Games becoming more inclusive is just another step evolution of the industry, and people who would prefer things to stay the way that they are aren’t so much being squeezed out so much as their preferences are becoming increasingly niche. I don’t really choose my games based on politics, but if Real Gamers™ are abandoning mainstream gaming due to their politics on diversity, then I expect the exact same market forces to produce something that appeals to them. In fact, I bet they have lots of suggestions about what would make games great (again).

Mobile gamers advanced gaming

Another form of diversity that YouTube shouting heads have had a really tough time with lately has been the diversity of platforms, specifically the release of high profile mobile titles such as Diablo: Immortal and Alien: Blackout. Mobile gaming has periodic waves of contempt from Real Gamers™ that tend to hit their peak when monetization strategies from this format make their way to larger PC and Console titles. The latest outrage stems more from the perception that some game that would have otherwise been made is now not being made in favour of a mobile title. Opportunity costs are a real thing, and no studio can ever hope to do all the possible projects available to them, but it does not follow that mobile is displacing PC and console gaming. To the contrary, mobile has been and continues to be a net benefit for all of gaming, including players who don’t play mobile titles.

Objections on the basis of opportunity cost can apply to just about every decision a developer makes, including activities outside of game development. Plenty of popular franchises now sell merchandise and this is rightly perceived as a very smart business decision instead of an inexpiable waste of time and resources that should be going into a new game. We are apparently willing to endorse the formation and exploitation of new and beloved IPs but draw the line at the release of a large and revenue generating marketing campaign that mobile users install on their devices (colloquially known as ‘a game’).

Some of the biggest stories in gaming right now are a result of mobile gaming. Chair Entertainment Group began by developing games for the Xbox live arcade and was acquired by Epic in 2008. Its first two titles were successful, but the studio gained notoriety for its mobile series Infinity Blade, originally released on iOS in 2010, and all subsequent releases from that studio have been mobile games. In acquiring Chair, Epic acquired its creative director, Don Mustard, who is a lead on Fortnite.

Fortnite did not just beat its competitors to mobile, it utilized a free-to-play model which has its origins in mobile. It’s a lot easier to have broad appeal if you put the game on systems people want to play it on and, as the largest growing segment of gaming, it’s pretty clear that people want to play on mobile devices. The title’s success does not rest on the efforts of one person or one factor, but both the revenues and the player base are what people are talking about and both of these have a direct connection to best practices in mobile gaming.

I played a little bit of Fortnite in Alpha before there was Battle Royale, and have played exactly one round of Battle Royale. I do not consider the game Fortnite to be a personal benefit. However, the windfall from producing a cultural phenomena has now translated into Epic offering more favourable terms to asset creators for their engine, and the launch of their own storefront with a revenue split that cuts the store’s take by more than half. While it’s too early to say if the Epic store will be the Steam killer some predict, it’s been a major PC gaming news story and likely marks a major shift in digital distribution. Even if I never play another Unreal Engine game and delete my Epic Store account, the competition brought into distribution results in developers investing more in their games as platform fees go down.

The biggest stories in gaming from last year come from a team that spent a lot of time on mobile, brought the lessons back to the PC platform and are now reshaping the broader landscape. Gamers who don’t like mobile games do not need to play them to receive the benefits. As with most variety, the worst that can happen is an additional option I can safely ignore. Of course, looking at Steam’s best sellers, it’s clear that gamers aren’t ignoring titles that have inherited from mobile games.

Business cases

There is absolutely nothing new in this amoral case for diversity, as firms outside of gaming have realized and capitalized on it for decades. IBM’s hiring policies tend to pre-date US civil rights legislation and can trace its progressive hiring practices back to 1914. Ruth Leach Amonette, IBM’s first female VP, summarized the logic by asking “Doesn’t it make sense to employ people who are similar to your customers?” The CBC’s podcast on marketing Under the Influence had a rather good episode on LGBT advertising and how marketers attempted to appeal to this demographic before it was more broadly acceptance and how overt appeals marked a shift in acceptance. I think these two stories can tell us why gaming looks the way it does today.

No one group is ever going to have all the good ideas. As an industry that sits at the intersection of technology and creativity, gaming has to maximize the number of ideas it generates, which means not cutting itself off from ideas for superficial reasons. This is the IBM story. There is also a commercial incentive to seek out underserved markets since it costs less to bring in customers and there is goodwill towards genuine efforts at inclusion. Diversity pays.

You could say that’s also the Under the Influence story, but the program is not definitive on this point. The program allows for the possibility that the coded messages to LGBT buyers may not have come from the marketing departments, but were rather snuck in by the artists working on those ads. Even if gaming is not actively courting a more diverse audience, it makes sense that its output will reflect its increasingly diverse workforce. Whether greater diversity in character and story reflects a response to commercial incentives or a diverse workforce, the consequences are available for everyone to see: more of us are playing games, and newer platforms such as mobile are the fastest growing.

Personally, I prefer a more ethically founded justification for diversity in games. I trust developers to make decisions about every other aspect of a game, and I think they should be able to make the games they want. I think people live a happier and more fulfilling life if they do assign some value to the happiness of others, and you can justify it through a macho band-of-brothers-we’re-all-in-this-together attitude or the most humanitarian bleeding heart appeal to our better nature. Despite this preference, I don’t think this attitude is a necessary condition to benefitting from more diversity in games. We all realize a massive benefit from the fact that games remain profitable without price increases and that there are lots of new titles experimenting with new ideas which we then get to choose after someone else has paid the bill. It is just simply unaffordable to be insular at this point.

Two Art Movies

In 16 1/2 minutes a Canadian left an indelible mark on one of the greatest filmmakers and one of the most financially successful. His first film was nominated for an Academy Award when he was 25 and Stanley Kubrick called it “one of the most imaginative and brilliant uses of the movie screen and soundtrack that I have ever seen.” The Canadian was Arthur Lipsett, and he took his life in 1986 after a struggle with mental illness.

Arthur’s obscurity relative to his influence is reflected by the fact that there are two feature length documentaries about him but only one written biography (by one of the documentarians) and a handful of articles that note the scarcity of critical or biographical writing. His is a story that should be told, but I have nothing to offer biographically that hasn’t been covered by others. Instead I’d like to show you his work and talk about its influence on movies and also on me.

Before the first film I’d like to ask a favour. Arthur Lipsett was an avant-garde filmmaker whose works weren’t for everybody even in the 1960s. It is common for someone in my role to stress the importance of a given work or to give a list of excuses masquerading as context for why this very boring movie is actually a very good movie. I think the films in this article are worth experiencing on their own. I watched them all before putting them in, and for most of them I watched again right after. The deal I’d like to make with you is is this: I will present the film first and I’d love it if you watch it and form your own opinion (ideally without distractions. They’re less than 10 minutes each). I’ll explain why after this first one. Also, I’ve embedded the YouTube videos in the article, but if you’d click the NFB links in the text I’d much rather you get swept up in their recommendation algorithm than YouTube’s.

Very Nice, Very Nice

Here is the second movie of Arthur’s I ever watched (7 minutes):

What did you think? Did you feel a particular way or get an overall impression about what it might be about? I am an unforgivable film snob, but I can’t shake the feeling that so far as experimental films go, this one is pretty accessible. I can’t know for sure how you reacted to it but I’d like to think that we found similar bits funny. This was most likely a strange movie to watch, but I also think deep down in your heart of hearts while you’d never tell anyone for fear of being wrong or seeming like one of those people in coffee shops, you have an opinion about what this is ‘about.’ At the very least I hope that if you didn’t enjoy it, it wasn’t a massive waste of your time.

This was the one that was nominated for the Academy Award and that Kubrick spoke so highly of. If you don’t agree, that’s fine, but that’s why I wanted people to watch before the exposition so that they can make up their own minds and give themselves a chance before deciding if it was an accessible experimental film. But I’m getting ahead of myself. How did this thing get made at all, let alone with taxpayer dollars?

The National Film Board (NFB) was founded in 1939 to create propaganda in support of the Second World War. In 1950 the National Film Act removed direct government intervention from the NFB and shifted its mandate to produce and distribute, and to promote the production and distribution of films designed to interpret Canada to Canadians and other nations. In 1956 the NFB headquarters was relocated from Ottawa to Montreal to improve its dismal reputation among French Canadians and to be more attractive to French-speaking filmmakers. At this time Arthur was an exceptional student at Ecole des beaux-arts de Montréal (Montreal school of fine arts). Two years later, when the NFB was looking for talent, Arthur’s mentor Arthur Lismer (a member of a famed group of Canadian artists The Group of Seven) recommended him.

Arthur assisted on different productions and did service work, short cartoons for sponsors or spots, illustrations, and similar jobs. In contrast to the service work, Arthur had a great love of sound and would stitch together small clips from different sources to create certain effects and moods. At the NFB he began liberating bits and pieces from other films from editing bins and garbage cans and started assembling them late at night. He got a still camera and took photographs that would be attached to the sounds, and for about $500 (around $3,600 today) Arthur created “Very Nice, Very Nice.”

It is common to say something to the effect of “the film was released to critical acclaim” but at least some people NFB didn’t really knew what to do with it until it was nominated for the Academy Award, even if others thought it was clearly very important. The NFB distributors thought it was nonsense, schools were asking what it meant, and independent film as we know it today didn’t exist in Canada. Even if you liked “Very Nice, Very Nice” it’s easy to have sympathy for skeptics the NFB. Films like this didn’t exist (even if now this kind of visual collage is almost an art film cliché), there weren’t music videos, flashy advertising, or even a stack of channels you could flip through quickly on TV. Arthur was the first. The film’s importance became clearer with recognition from other filmmakers and the Academy Award nomination, and the film sold a fair number of prints.

There are a lot of cinematic firsts (even in Canada), so why insist on this one? Mostly because I think “Very Nice, Very Nice” still holds up and I suspect it is even more relevant today than when I watched it before. I like the little jokes that are in the film like the audio saying “keep moving right ahead please” with the still of the street sign indicating left or right, the particular photo shown over the words “reproductive system” or the “in this marches an army whose motto is” and “we believe warmth and brightness will  return and renewal of the hopes of men” both receiving the immediate response of “NO.” I also really like the overall structure and the climax at the end where it really just cuts loose. I’m useless at film criticism, but when I first watched the movie I had a really distinct feeling that I sort of understood what it was like to be around in the 1960s. There certainly seems to be plenty of anxiety and it does seem to be dealing with social change and the bomb, but I’m not sure if this film qualifies for entry in the “the world is going to hell” genre of art film. First, unlike other entries in the genre (which wouldn’t have existed anyway), it is not relentlessly depressing and I think this is part of the attraction to me since there are enough nice things cut between the distressing bits. It’s also why I’m reluctant to even try to pull out any kind of a ‘message’ and why I think it’s a relevant movie today. The world in “Very Nice, Very Nice” seems to be changing a lot, and there seems to be a lot of cause for concern, but we are not destined for oblivion. It may not be hopeful, but it’s honest, and as an experience there maybe isn’t some big message to be taken away from it so much as an opportunity to share a particular point of view, or maybe have a moment of “hey, I think that too!”

I like to think I’m not totally off base in my impressions on “Very Nice, Very Nice” and take some comfort in the fact that Kubrick’s praise of the film and subsequent offer to Arthur to edit the trailer for Dr. Strangelove or, How I Learned to Stop Worrying and Love the Bomb line up well enough at least so far as anxiety and humour are concerned. Arthur did not take the job, but his influence is plain as day on the trailer:

And while we’re at it, the logical conclusion of this influence is probably the trailer for A Clockwork Orange:

21-87

I mentioned two filmmakers and also that “Very Nice, Very Nice” was the second film of Arthur’s that I ever saw. Here was the first (9 minutes):

This movie went off like a bomb in me. I saw it completely devoid of context and I suppose the most basic reaction I could describe is that is scared the hell out of me. I have no idea if this is anyone else’s reaction, but I found myself anticipating what would be coming next, (for example the woman says she found something else I had this unshakeable belief that she would say specifically “The book of Revelation” and not just the Bible), and the themes of dehumanization were something I was concerned with and thought “yeah, whoever made this totally gets it!” There doesn’t seem to be any of the humour in “Very Nice, Very Nice” but I picked up on the irony all the same. I love this movie, even if it’s not the first of Arthur’s movies I would recommend. Unlike “Very Nice, Very Nice” this one seems to be relentless in its pessimism, and so it may even be that my love of it is as much a reflection of what I felt at the time as it is its own merits (though I really do think this is his best film). I’m still struck by how a movie that’s less than 10 minutes long can give me such a clear impression even if I struggle to put what it’s ‘about’ in to words.

I am understating the influence of “21-87” by focusing on one filmmaker, but George Lucas has been very open about the influence of Arthur Lipsett on him and specifically his love of “21-87”. You can look at his student film “Electronic Labyrinth: THX 1138 4EB” and see it clearly. When the NFB visited his class at USC Lucas asked “How is Arthur Lipsett?” and he participated in the documentary film on Arthur’s life. It seems fairly well known that Lucas was more interested in being an artistic or experimental filmmaker than the author of spectacles like Star Wars and Indiana Jones. What has been lost in this story is that he didn’t just want to be any experimental filmmaker, but he wanted to be one like Arthur, and Lucas himself plainly says as much. But Arthur’s presence is still felt in the original trilogy, either through Lucas’ (slightly dubious) claim that ‘the Force’ was inspired by the dialogue around the 3:45 mark, and through Princess’ Leia’s cell number in Star Wars.

The Future

What’s striking about rewatching these movies is how they influence or anticipate what we might think of as modern. The short Rejected is hilarious and spawned its fair share of memes, though it seems about 40 years late to the party after watching the NFB’s “Hors D’Oeuvre” (you’ll almost certainly know Arthur’s segment when you see it). Baraka has a lot in common with “Free Fall” (I picked one really obvious one. There’s lots to choose from). I’ve not been able to see any direct mention of Arthur from Terry Gilliam, but I do keep hearing “it reminds me of Monty Python” (the animations) whenever I show poor unsuspecting acquaintances an Arthur Lipsett movie, and I certainly believe he was an influence, if only an indirect one. Arthur almost certainly would have done well in music videos (Chris Cunningham comes to mind. You might want to skip ahead 4 1/2 minutes on that first one if you’re in a rush) and a Canadian music video prize bears his name. Unexpectedly even the ‘react video’ genre might claim its genesis in response to Arthur’s work as this is exactly what the NFB released with ‘the youth of today’ reacting to “Free Fall” and “A Trip Down Memory Lane“.

The react video (“Two Films by Lipsett“) is the most interesting when writing about Arthur because it forces me to avoid an easy summary of his creative work. We know the story ends unhappily. The quality of his later films suffered, and he ultimately left the NFB. His mental health deteriorated and after multiple suicide attempts, he took his own life just shy of his 50th birthday. Very few would question a narrative of a disturbed genius shackled by the confines of a government bureaucracy, and that the cost to his mental health was the price of seeing further than everyone else. But this isn’t supported by the facts. In truth Arthur had at the very least supportive voices within the NFB that let him do his work. That support extended to the creation of a film like “Two Films by Lipsett”. He was given advice on at least his early work and seems to have taken it (“Very Nice, Very Nice” was apparently much bleaker). He would later re-apply to the NFB and they enthusiastically took him back later in his life. Unfortunately he could not complete the film. His behaviour was so erratic he would hide the splicer when he was using someone else’s editing room and he chained up his own equipment. He eventually quit with the job unfinished, stating he was incapable of continuing on. Arthur’s best work was when he was lucid, and his deteriorating mental health ultimately prevented him from making films. He personally may not have operated well within the NFB bureaucracy, but he did have supportive producers who let him produce the work we enjoy today. The effectiveness of this collaboration is why we watch and discuss “Very Nice, Very Nice” and not “Strange Codes” (his work outside the NFB).

In truth, I have very little to say about his life. I can’t tell you a story of clashes with the NFB or the failures that lead to his death, and there is no big “and we now call them ‘Art Movies’ in honour of Arthur Lipsett” conclusion. Ultimately this article was meant to share Arthur’s work and the unacknowledged debt so much of our media owes to it. I don’t know why things turned out so badly for him, but I regret that they did. The biographical details I know are that was well dressed, had a wonderful sense of humour, apparently liked peanut M&M’s (although the photos I’ve seen only ever show smarties at his workspace), and was overall pleasant to be around and an impressive individual. I only know him through his movies, and like to think that this is all true. If you’d like to know more about him, the NFB produced a documentary Remembering Arthur (his girlfriend is impossibly likeable and his colleagues at the NFB do not suggest a particularly troubled relationship with the organization). And if the films happened to speak to you, maybe pass one or two to a friend and see what they think.

Lower game prices

In a previous article I pointed out that the inflation adjusted price of the Doom shareware demo is about the same as what you’d pay for a copy of Deus Ex (a complete game that is technologically more sophisticated) today. There is a longer range comparison in the loot box article (the good one) and the conclusion is the same: Games have never been better and we have never paid less for them. I see this as good, but someone pointed out how alarming the fall in prices is, and I can understand why. If your livelihood depends on selling a product, price decreases are not met with enthusiasm. This article will unpack what I mean by falling game prices, and what this model of thinking can tell us about what’s happening right now.

I made an effort to make the article shorter and couldn’t manage it, so there is something of a summary at the end, and I’ve tried to make the sections reasonably self-contained.

Comparing prices

There is a game jam where participants are invited to create a game in 0 hours, starting at 2AM daylight saving time and finishing at 2AM standard time. The joke is clear: the difference in measurement is being reported as the duration, but it’s easy to let this kind of mismeasurement creep into discussions on price.

Comparing products like games is difficult because they’re so varied. A cigar is never just a cigar. Visit a forum for enthusiasts of any given product and you will quickly find all the differentiating characteristics of their chosen brand and how dare you even think of comparing it to the garbage that other guy makes. Even within the same product quality changes over time. The car today may cost more than it did last year, but last year’s model didn’t have seat warmers, built in GPS, an automatic parking assistant, directions voiced by Mark Hamill, and perfumed airbags. We need to be clear about what we are trying to measure and then make sure what we’re using is appropriate.

In the case of games we are looking to measure the welfare of the consumers and producers of games. Consumer welfare improves when the same game costs less or the game is improved and costs the same. Producer welfare improves when they can make the same game for less or charge more for it. The price is easy to measure, but the concept of same game is not.

The ideal world for this kind of measurement is one in which I go to a nondescript building with the words GAME STORE written on the front, put down some money, say “One video games please!” and am handed a grey box with the word GAME written on it taken at random from a drawer. All changes in price directly translate into welfare changes, since all the products are identical. We don’t live in this world, but we can approximate it in order to analyze changes in the price of video games.

Imagine we had some objective measure of quality that accounted for all characteristics and differences in games. We could then pick one game as our benchmark and adjust the prices of all the other games by the quality according to the list. If Pillars of Eternity (PoE) was our benchmark then maybe Tyranny is worth one and a half PoEs, and Nantucket is worth half a PoE. Since Tyranny gives you ‘more game’ per dollar the quality adjusted price of Tyranny should be lower than PoE, while Nantucket would be higher by comparison. The underlying product would be the grey box with GAME written on it since we’ve transformed all quality characteristics directly into the price.

We won’t attempt to develop an authoritative list of quality adjustments since our objective is to measure welfare, but it is useful to keep this framework in mind as we work through its implications in the following sections.

Consumer welfare

Personal circumstances aside, video game consumers are unambiguously better off today than in the past and there are multiple ways of showing this. First we can directly compare the back catalogue available on game publisher’s websites. We don’t need a quality adjustment here since we’re comparing the same product. Purchasing Half-Life  costs you less than it did when it came out in 1998 (happy 20th). This would also be true if Half-Life cost $10 (US) in 1998, since prices, including the price of labour (wages), have gone up over 20 years and so Half-Life will claim less of your income today than 20 years ago.

Alternatively, we could try to infer a change in welfare based on game quality by comparing a $60 (US) game from the past to today. The Elder Scrolls IV: Oblivion (2009) cost the same as Fallout 4 (2015) on release in nominal (not inflation adjusted) dollars. If we allow that the gameplay experience is roughly comparable then Fallout 4 is  better as it clearly has a substantial improvement in graphical fidelity and, as measured by howlongtobeat.com, gives you more things to do. Pure playtime is a poor measure of quality on its own, but since I’ve assumed near-equality in the gameplay experience, Fallout 4 is quite literally ‘more game’ than Oblivion. Our $60 has gotten us more and we’ve not yet adjusted for inflation which makes Fallout 4 even more attractive in real terms.

The quality adjusted price described in the previous section needs to fight against nostalgia. While classic games are wonderful, I would argue the examples above suggest that an honest accounting would show that games today are of a higher quality than games in the past. Producers have been able to learn from the great games of the past and build on them. If the classics really were so much better than what we have now, we would not need such a substantial discount before we buy them. Over a 20 year time horizon, we don’t really need the abstraction of a quality adjusted price to see the difference, but provided we have a convincing indicator of quality improvement, it does allow us to say that game consumers are better off year over year.

The consumer side is only part of the story. Why were games so expensive on a quality adjusted basis in the past and why have prices gone down now? For that, we need to look at video game production.

Supply side gaming

The current model is ambiguous as to whether or not game developers should be panicking. Producers are paid with actual money, not quality adjusted or inflation adjusted dollars. The fact that prices have not kept up with inflation implies a welfare loss, since producers need to pay those higher wages (including to themselves) and grocers don’t offer discounts to the people polluting their children’s minds with Grand Theft Satanism: Ignore Your Homework Edition. But there are also more people playing games now than in the past, and the amount of money the games industry is bringing in has grown substantially.

At least part of the increase in revenue is attributable to the fact that gaming is more affordable. But if the only thing keeping the industry from experiencing this growth was a pricing decision, why didn’t companies start charging less earlier and reap the benefits? Any company attempting to do so in the past would have gone bankrupt. Playing games became more affordable over time, and so did making games. Did you like Mass Effect? You can access a better version of the engine they used to make it and only have to pay 5% of revenues (past $3,000) once you start selling your game. In 2007 you could only get Photoshop in a big expensive box and it did a lot less than the one you can rent for $10 a month today. Same with 3ds Max (at a higher price), although I’ll bet Blender ($0) has at least the capabilities of 3D software from over a decade ago.

The one price that has gone up is labour, but the reason for this is that labour today is so much more productive with the improvements in the tools. One hour of labour spent on games today has more knowledge about games, produces higher quality content, and does so faster than it did in the past. Labour costs should also include the payments to the developers themselves, unless they’re the ‘ideas guy’ kicking back and watching everyone else work.

I started by saying producer welfare goes up if they can pay less to make the same game, or if they can charge more for that game. This ties producer welfare to profits, though we need to use quality adjusted prices since no developer would make the exact same game again. Competition should prevent producers from arbitrarily increasing the price of their games and so producer welfare is tied to the efficiency through which they can make their quality adjusted games. If you took one year to make the box with GAME on it and then it takes you six months to make the box with GAME on it, you have six months to make another one or to have a holiday (‘consume leisure’).

Developers are producers of games but they are consumers of game making software, and the same rules apply for 3ds Max as they do for your favourite game. Most of us play games while few of us use these tools and so it’s harder to give examples of quality improvements that don’t come straight from marketing material. Depending on your time horizon the US price index for commercial software publishing is down of at least flat (local indices could be approximated by applying the exchange rate if most of the software used was US produced, or obtained from your national statistical agency), and largely ignores the proliferation of free alternatives for tools. In addition, commercial products tend to contain app stores with inexpensive solutions to things that used to require developer time.

A producer working today can make a game for less on a quality adjusted basis. In practical terms this means that something like the last game can be made for less (including time), or a better game can be made with the same resources to command a higher price. Lower costs also mean people who could not make a game before are able to and so the ability to create a game in the first place is a welfare improvement itself. Our analysis should not limit itself only to incumbents.

These are the positive reasons for quality adjusted prices to go down, even for producers, and they broadly match what is happening to nominal prices. Games cost less now because they cost less to make and competition prevents the producers from simply pocketing the surplus (though there may still be some  if enough additional players buy at the lower price). The gains realized by developers are through the higher wages that increase with the productivity improvements from better software and more knowledge about game development.

A rising tide or Noah’s flood?

Lower prices brought about by technological improvements sound like a wonderful win-win that everyone should be happy with, and it is. But producers who are talking about lower prices are not speaking about it in positive terms, and the existing model presents a puzzle. If price declines are due to decreases in the cost of making games, then why are the prices of smaller games falling so much more than large games?

The lower costs to production inputs are not specific to one segment of the market, but smaller producers are seeing a substantial drop in nominal prices in a way that we don’t see for their larger contemporaries. There may be other factors outside of our current model at play, but there is another side to the entry of new producers into the marketplace that produces negative price effects.

The entry of new producers into the market is generally good as it means more variety in terms of games. New entrants does not always mean harder times for incumbents — Rockstar has little to fear from the hobbyist putting their project up on Steam Direct — but there is likely going to be some competition at the lower level. Competition can manifest itself in healthy ways, but one unhealthy way competition may manifest itself is through higher budget/quality games feeling the need to compete with hobbyist/niche projects on price, and the likely resentment felt towards these new entrants. This is not just unhealthy for producers. In the long run consumers will suffer as well as the lower profitability of games will make it less attractive to the people who make them, and the games that are left will reflect the lower valuation, leading everyone to complain about how games used to be better.

This invites the question as to why higher quality small projects feel like they are in competition with the bottom end of the market. When there isn’t a seasonal sale going on the top sellers on the storefront are not normally low cost games and so consumers are clearly willing to pay up for games, even after the influx of new producers. The titles that appear on the  top seller lists have been able to get across their value proposition to their target market in a way that other titles have not. The question seems to boil down to marketing.

The importance of reaching out to the intended audience and showing why the game is worth its proper value has become more important than it used to be. Large producers are already experienced in at marketing with specialized departments and so have people who are able to identify and respond to shifts faster. Smaller producers are more resource constrained and it’s easy to see how the importance of marketing can be overlooked when a team without marketing experience is trying to optimize the finished product.

The previous article imagined game developers as processes through which labour, computers, and software were transformed into video games. The market is constantly shifting, and technology is always getting better, and so there is always something new to learn and a new way to get better. In the current environment under resourcing marketing (or following ineffective strategies) is an inefficient allocation of resources that has larger implications for the project than it used to. Failing to reach the target audience and making the value proposition means the producer is no longer choosing their audience. Competition for the default audience is well represented by niche and hobbyist projects that didn’t or couldn’t dedicate resources to outreach. In the absence of other information consumers in this segment can only compare by price. This means that the demographic of people who read dinner menus right to left is one of the most competitive spaces in gaming right now since it is the default audience without intervention from the producer.

In trying to think about this problem, I am struck by how much this resembles crunch. Nobody should want to opt into crunch since labour that is overworked is less productive and costs more. It is most succinctly described as a failure of planning, as it is the result of not enough contingency time budgeted. If problems are not identified early enough, there may not be enough time to bring new hires up to speed to deal with the problems and the choice becomes crunch or miss a milestone and possibly kill the project. Likewise, nobody makes a $20 game with the intention to sell it for $5. The consequence of under resourcing outreach is only apparent at the end of the project and so the choice becomes accept some sales at a lower value, or potentially sell nothing at fair value. The competing games at the low seem like the most direct cause, but the problem was a few steps back in misjudging the audience or the price the audience would bear.

The work that people put into their games should be fairly valued both directly in the price of the final good as well as working conditions that do not ask them to sacrifice their personal life. Undervaluation is also undesirable for producers trying to establish themselves at the low end, since higher quality products are being dumped into their segment at cut rates, and gamers who would have otherwise loved a game that failed to reach out to them have to work harder to find it or deal with the second or third best option.

I don’t have a firm solution for this problem, since simply saying “spend more on marketing” assumes resources that may not exist. If a $20 game is being sold for $5 then in theory resources can be reallocated to find a better balance, but coming from a non-specialist this sounds about as comforting as informing someone they may choose which limb gets hacked off. Despite my inability to offer concrete solutions, I have a strong feeling that this is something most if not all developers can overcome.

Because I am boring I talk a lot about organizing factors of production to make some grey box with GAME on it, but what I’m really talking about is creativity. Anyone who has shipped a game has had a unique way they have organized the resources they had to make a finished product. Some producers may have made something of average quality, while some particularly successful producers found a way to take the same or similar resources and make something really great (or, in the model’s terms, something with a lower quality adjusted price). Creativity isn’t limited to making new levels, mechanics, or genres, it’s also something that can be applied to questions like “How do I get people’s attention?” and “What’s something they don’t even know they want yet?”

Lottie Bevan of Weather Factory has written a wonderful blog post (which is much shorter and better than mine which is why I’ve waited until you’re near the end to bring it to your attention) on the creation of the Church of Merch. She says Cultist Simulator lends itself merchandise, but I certainly didn’t know how much I needed a fancy cultist leather journal until I got a shiny package one day (thank you you-know-who!). All the ups and down of the process are recorded, and it’s a fantastic example of how a member of a two person team was able to do something that was obviously a honking great idea in retrospect, but is not an obvious next step for a company with one game and a bunch of DLC on the roadmap (to me at least. But then, this is one of the many reasons why I’m not a producer/co-founder/wearer of many metaphorical hats). Read into the archives and you will also find a post specifically talking about a partnership with a publisher in order to get help with marketing.

Creative solutions is part of the job description for any producer of games. In trying to minimize the possibility of a game being undervalued the solutions don’t need to be perfect, but they need to be attempted. Some producers may hire a specialist, some may try streaming or various social media platforms. Maybe a producer will license an IP they love and use it as a springboard to find dedicated fans. And, of course the market will shift again in some way in the future and there will be rewards for identifying and solving the new problems we haven’t seen yet. It isn’t easy, but this is how progress gets made.

What have we learned?

We put all games on a level playing field by transforming all quality differences into a theoretical concept of quality adjusted prices. Games higher quality games have a lower quality adjusted price and so are more attractive to consumers. This is an uncommon way of thinking about games but it is equivalent to saying that if two games are $20 and one is higher quality than the other, then more people will buy the higher quality game, just as if the two games were the same and one of them cost $15.

Using this perspective we identified two reasons for lower prices for games, both on a quality adjusted basis as well as a nominal basis. The first is positive: games cost less to make because the tools cost less and the labour is more productive than it was before. Here a game is sold at a fair value that reflects its lower cost. The second is negative: Smaller games in particular have not adapted to a market in which identifying a target market and communicating a value proposition is more important than ever. Here a game is sold at a value lower than it should that reflects an inefficient allocation of resources.

Prescribing the problem of undervaluation is only the beginning, but producers have and will continue to overcome this problem in traditional as well as novel ways. The best selling games on storefronts are no there because they cost the least. As smaller producers recognize their games as products and connect with their audiences, they will not only receive fair value for their product, but they will also reap additional quality benefits from engaging with their community.


Note on affiliate links: I have an affiliate status with GOG.com for which I am given a portion of sales for traffic I drive to the site. The inclusion of a given title is for illustrative purposes first, but when it is available on GOG I will provide such a link. As always, I encourage you to do your own price comparison or buy on your preferred platform.