Price Warfare

Activision's decision to price Call of Duty: Modern Warfare 2 at GBP 10 above the normal SRP for console games in the UK is still being digested by the games market and gamers alike. The company protests that the decision is purely based on economic factors - the weakness of the pound on the currency markets and the rising costs of development. Just about everyone else, however, is calling a spade a spade - this is a cheeky testing of the water, to see whether the market will support higher SRPs for major releases.

On the face of it, it's a downright awful time to test this premise. The full effects of the recession are starting to be felt in the UK, with rising unemployment and many workers facing pay freezes or reduced shifts. After years of inflation, the City now frets about the possibility of deflation - which would leave more expensive videogames looking even more out of place.

However, it's already fairly clear that "core" games such as Modern Warfare 2 don't suffer significantly from economic downturn, as their audience views them as a high-priority purchase - and will sacrifice other purchases in order to afford them. Perhaps, in light of that, now is as good a time as any other to experiment with premium price points.

Besides, Activision already has significant experience of success with premium prices, thanks to Guitar Hero. Those games may justify their expensive price tags by putting plastic instruments in the box, but the reality for the consumer remains the same - they end up spending significantly more for their gaming experience than they normally would, and the success of Guitar Hero and Rock Band suggests that they're happy to do so.

Some would argue that the inclusion of peripherals affects the perception of value which informs the consumer's purchasing decision, and there's a lot of weight to that argument. It's incredibly facile, but at the end of the day, Guitar Hero comes in a big box - Modern Warfare 2, on the other hand, will be in a box the same size as any other, but with a bigger price tag. That, critics anticipate, will make the price hike a lot harder to swallow.

There's undoubtedly some truth to that, but consumer perception of value doesn't entirely come from the size of your box or how many plastic peripherals it holds. Modern Warfare 2 comes to the market with an advantage which practically no other videogame can boast - a track record of extraordinary value. For millions of the consumers who bought the first Modern Warfare game, it counts among the best value purchases they've ever made.

The reason for that, obviously enough, is the multi-player. Along with a limited number of other game franchises - Half-Life, Halo and Quake, primarily - Modern Warfare has managed to deliver hundreds, even thousands of hours of entertainment to many of its purchasers. With 12 to 16 hours now considered to be a very solid length for a game experience, and less than 10 hours becoming increasingly common, the kind of consumers who enjoy multi-player will have found Modern Warfare to be one of the cheapest games they've ever bought, on a per-hour basis.

That's a slightly abstract calculation, perhaps, but it's one that will influence consumer spending. Anecdotally, I know that most of my gamer friends will buy Modern Warfare 2 at the higher price point, simply because they fully expect to get hundreds of hours of multi-player from the title. It's exactly the same calculation which justified spending hundreds of pounds on Rock Band or Guitar Hero instruments, games and song packs - it's not the flimsy plastic instruments which justify the outlay, it's the countless hours of beer-fuelled, sociable fun.

The flaw in all of this, of course, is that not everyone plays multi-player. For many people, Modern Warfare was an entertaining, well-made and enjoyable single-player FPS game - not exactly the pinnacle of the genre, but great nonetheless. It was also a game that was over in about ten hours. At GBP 3.50 per hour, that was a decent investment, competitive with cinema or DVD. At GBP 4.50 or GBP 5, it starts to look less appealing - especially in the busy Christmas market, with many other big titles clamouring for attention and costing GBP 10 less.

But of course, the reality is that the game won't stay at that price point forever. The first Modern Warfare game held its value for much longer than most games do, but even taking that into account, within a few months that extra tenner will have been shaved off by retailer discounting. Is this, perhaps, what Activision expects? The multi-player users, the hardcore who are incredibly excited about buying Modern Warfare 2, will buy the game at its inflated price point in the first few weeks - and the single-player cohort, less enthused about the game's value proposition, will pile in when the price drops and give the game great long-tail sales?

Activision must be well-aware of the risks inherent in this strategy. Some multi-player players will also hold out until the price falls - if that's a big enough percentage, it'll hammer Modern Warfare 2's early sell-through numbers, forcing a price drop much earlier than planned. Consumers with limited budgets may not hold on to their pennies until the price drops, instead buying rival products and simply never coming back to buy Modern Warfare 2. The possibility of a conscious backlash to what's seen as straightforward price gouging also needs to be considered.

In a time when the traditional boxed game model is under increasing price pressure from subscription and 'freemium' models, it's certainly a bold move for Activision to experiment with driving prices up, rather than down - and if there was ever a game for which it's likely to work, it's Modern Warfare 2.

However, the other publishers who will undoubtedly be watching the game's success carefully would do well to remember that this strategy is highly dependent on the nature of the game itself. Publishers have long been fond of slapping the triple-A label arbitrarily on their high-budget, core market productions - to suddenly decide that the success of MW2 (and I do believe that it will be a success) at a higher price point justifies slapping bigger price tags on everything they consider AAA would be to court disaster. The market will probably tolerate a premium being charged for the occasional extraordinarily anticipated, high-value title. Any greedy attempt to make this move more widespread, however, could damage sales more than any recession ever could.