Video Game Prices

Video games are just another type of computer program. Since I work as a computer programmer, I think it's interesting to breakdown the pricing structure and look at the logic behind the prices.

Video games, and any computer software, have several "expenses" associated with them. One of the largest costs is development. The video game has to be developed, typically by a team of developers working over the course of months or even years. This costs a lot of money; salaries, rent, hardware equipment, licensing fees, etc. Once the game is ready the next cost is manufacturing. The game has to be produced for mass distribution. Even if the game is to be solely distributed via the Internet there are hosting fees. And finally, the company may offer some form of customer service to cover customer issues, defective products, etc. When you add all this up, ideally you can sell the game for more than this.

What I find interesting is video game prices have gone down over time. Back in the late 80s and early 90s, video games typically cost $40 - $50. I remember buying Sega Master System and Genesis games, it was rare to find a game priced under $40, but there were a few games that cost over $70. Compare this to modern game prices (XBox 360, PS3, and Wii). Many of the games are in the $20 - $40 range. This is made worse when you account for inflation. When you account for inflation those video games in the 80s and 90s typically cost between $60 and $100.

Newer games are a LOT more complex, as a result the cost associated with development is higher. Also the costs of doing business (salaries, rent, etc.) are higher now than 20 years ago. So why have game prices gone down? I can come up with 2 reasons why.

1. Larger target audience. More people play video games nowadays so a company can expect to sell more copies of its games. More sales means lower prices.
2. Cheaper distribution media. Most new games come on CDs or DVDs which are dirty cheap to mass produce (cents each). Many games are distributed electronically which eliminates the need for physical production. But 20 years ago video games were all cartridges, and whereas you would assume cartridges would be cheap to manufacture, they were not. Cartridges use ROM (read-only memory) to store the game. ROM and RAM (random access memory) are cheap today, but 20 years ago ROM and RAM were expensive. In 1995 I purchased 4 MB of RAM for my computer, it cost me just over $300. Literally this RAM was worth its weight in gold (at the time).