Games may be too expensive.

That is the message Valve Software President Gabe Newell gave the assembled developers at the annual DICE Summit on Wednesday. While the topic of his keynote was the game industry's transition from retail industry to service industry, he revealed sales data from Steam that suggests games are too expensive.

The reason why few have arrived at this conclusion is because you cannot easily experiment with pricing at retail, says Newell. But you can with Steam, Valve's burgeoning digital distribution platform.

On the PC-only Steam service, a wide range of prices are attached to games, and attractive weekend deals throw more pricing variability into the mix. Although Valve was initially afraid that volatility or variability in pricing would confuse or anger its customers--or even cannibalize retail sales--Newell says that was not all the case.

In fact, it dramatically increased sales. Illustrating his point, Newell showed the results of a Left 4 Dead promotion Valve ran last weekend, which cut the price of the game in half to $25. The discount (and promise of new content for the game) rocketed sales of the game on Steam by 3,000 percent. 

"We sold more in revenue this last weekend than we did when we launched the product," says Newell. "We were driving a huge uptick in revenue and attracting new customers." And while people believe that we're "screwing" retail, Newell showed that brick-and-mortar sales were unaffected by the online discount.

This phenomenon is not limited to Valve games. Over the holidays, Steam discounted third-party titles. Sales increased 300 percent and units-sold increased by 600 percent.

Still skeptical? Newell said that a weekend sale of one third-party title drove that game's sales up by 18,000 percent and units-sold increased 36,000 percent. It energized the user base, says Newell. When the sale ended, baseline sales were double what they were prior to the weekend discount.

Discounting games does not only increase unit sales--it increases actual revenues. During the 16-day sale window over the holidays, third-parties were given a choice as to how severely they would discount their games. Those that discounted their games by 10 percent saw a 35% uptick in sales--that's dollars, not units. A 25 percent discount meant a 245 percent increase in sales. Dropping the price by 50 percent meant a sales increase of 320 percent. And a 75 percent decrease in the price point generated a 1,470 percent increase in sales.

The conclusion: The games industry is not pricing its products correctly. It's only through the experimentation that such services as Steam allows will the industry be able to find the golden ratio of price and sales. As Academy of Interactive Arts and Sciences President Joseph Olin concluded Wednesday night, this is going to generate a lot of controversy about pricing.

Source

They say this after make their games more expensive for Europeans. Hypocrites.

Well this should be a no-brainer. The cost of gaming has long kept people away from it, not to mention the fact that gamers would just buy twice as many games if they cost half as much. Chances are, before long the standard price of games on Steam will come down. It doesn't even matter that Euro prices went up, since Valve is an American company and has to deal with currency irregularities, because their own data tells them that down is the way to go. Oh, and common sense, but that seems to be extremely lacking in the video game business.

I having been saying this for so long. Games are ridiculously over-priced, no game is worth more than £30 and handhelds a bit less. Hence I shall pirate till the cows come home or publishers/retailers finally retail this and price tier products fair.

OK, so if an HD game sells for $60 & costs $50, say they sell 7 copies, they make $70 right? So if they sell games for 50, say they sell 14 copies, they will make nothing. Of course i have no idea how much profit is made on a $60 game, but is it worth it?

Also, say i have $300 to spend on gaming. I get to buy 5 games for $60. But if they only cost $50, i can buy 6 games. Great for me, but the sellers only get $300 either way.

Also, the games were sold during the holidays on sale. If it weren't holidays they wouldn't have sold as much. Also, if prices were always like that, the % increase in sales wouldn't be so high.

Obviously they make a whole lot more than that, though, since they seem to be very well pleased by the performance their game put up at half price. There are obviously reasonable limits, but on the whole games are badly over-priced.

Also, while the game companies may only have gotten the same $300 from you, they would have sold much more on the whole. In the end massive blockbusters are less profitable per unit, but then the game that was going to bomb completely is a moderate success and opens up future avenues of success. It's a trade, but in the end they will actually get more money from the guy who had $250 and went from buying 4 games and having $10 left to 5 games and no money left over.

the physical disk or digital media is like a penny to them.

The idea is if a 50 dollar game sells 10 copies, maybe it'll sell 30 copies if it was 20 dollars.

I think people need to remember theres a difference between long term and short term demand curves. Just because a sale increased revenue substantially in the short term, doesn't mean that revenue will be higher in the longer term.

I cant agree more! I would buy 3-4 times as many games if they were 25-35 dollars instead of 50-70. It seems like platinum editions/best sellers what ever they were called when they got marked down after selling well have disappeared. I can see why they want to price them high as they cost more to produce, but i think they fail to see they could make more money, and help curb pirating and used game sales if they dropped their prices to a more reasonable level.

Anyone going to mention Radiohead? Other companies are now trying this method, letting the customer choose the price instead of forcing the torrent/steal or pay an expensive price option. Maybe this what should be tried with videogames.