Next-gen software: Will pricing hold?

With the PlayStation 4 unveiled and rumors swirling that Microsoft is preparing to announce a new Xbox in April, next-gen is all the buzz right now. These are massive investments from the respective platform holders, and under the old "razor and blades" model the hope is to make back much of the money on software. And since some of that software is going to cost a good deal more to develop (although not as much as some think, says Hermen Hulst) should consumers be worried that $69.99 will become the new standard AAA game price?

GamesIndustry International posed that question to a few analysts. The consensus seems to be that $59.99 should be able to hold, but some big budget titles like Call of Duty and others could get away with higher.

"I think that games should be priced based on the value proposition, so some games should be priced higher, but I don't think the publishers have the collective will to charge more. My guess is that $59.99 will be the price point. I would applaud the publishers if they tried to charge $69.99, although gamers would probably get upset," said Wedbush Securities' Michael Pachter.

"I would applaud the publishers if they tried to charge $69.99, although gamers would probably get upset"

Michael Pachter

Sony Computer Entertainment America boss Jack Tretton told AllThingsD that PS4 will support a variety of prices from $0.99 to the $60 range (of course, "range" could imply $69.99). But the bottom line is that in this digital era, a variety of content will lead to all kinds of pricing. And as EEDAR's Jesse Divnich pointed out to us, publishers can maintain the $59.99 price but bring in much more revenue with additional DLC.

"The $59.99 price point in the United States for next-generation games are unlikely to change. As we've seen through the years, however, revenue per game has increased gradually as publishers have been able to capitalize on additional in-game and digital content," he said. "With publishers focusing on fewer, yet bigger and longer lasting titles, I'd expect publishers to keep the $59.99 price point intact, but expand on their digital offerings with more in-game content and expansion packs."

He added, "And I don't think this is a scenario where publishers ship a 'base' product and gauge on digital offerings. We believe these digital offerings, like they are today, will expand upon the player experience and offer even more value than they do today."

David Cole of DFC Intelligence agrees. While he thinks the "super AAA" games may test out the $70 price, most content will come in much lower than that. "I think we will see an incredibly wide range of prices. Premium games command premium prices. Think Skylanders, Collector's editions, Guitar Hero and Wii Fit in their day. What gets squeezed is the stuff in the middle that must compete with high-end development on one hand and low cost/low price games on the other," he pointed out. "So you have fewer big budget titles but those will have even bigger budgets and that will be cost passed on to the consumer. Of course, very few games will be able to do this."

Even if there is a slight bump on AAA game pricing, the average selling price (ASP) will beging coming down as the cycle advances, according to IDC Research manager Lewis Ward.

"While there will always be collector's and limited edition console game discs that cost $80 or more, I'm not projecting that the PS4 or next-gen Xbox will raise the typical 'AAA' game disc to $70. 7th gen disc ASPs have trended down a couple dollars per year since 2006-2007. 8th generation discs will come in closer to $60 - which we're already seeing with Wii U - and then start trending down a few dollars per year. So there will probably be a ~$10 gap in pricing between 7th and 8th gen discs, but due to ASP slippage over time, the overall console discs ASP through 2016 should remain in the low to mid-$40s range," Ward explained.

An ASP in the mid-$40s is palatable for many hardcore gamers, but the console business is still going to have to face the fact that mobile, tablets, and free-to-play are changing the gaming landscape and the business of games. With PS4 supposedly being more open than any console before it, hopefully developers will being able to offer more free-to-play games and titles at more attractive prices.