What Games Are: Why The Xbox’s $5 Problem Is Great For OUYA

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Editor’s note: Tadhg Kelly is a veteran game designer, creator of leading game design blog What Games Are and creative director of Jawfish Games. You can follow him on Twitter here.

Game developers, publishers and platform holders regularly argue the toss on the appropriate pricing of games. They struggle with questions of whether being too expensive cuts off oxygen to new players, or whether being too cheap means they become devalued. In a free-to-play era especially, this question grows even more complicated. Those kinds of games require certain compromises in game design, and those compromises do not work for all kinds of game.

The results of that argument play out differently over various platforms. Facebook games, for example, are almost entirely free-to-play, while console games are retailed at comparatively high prices. Steam makes most of its bones in holiday sales when games are often 75 percent off, while iOS advocates endlessly debate the virtue of $0.99 or $1.99, or the occasional outlier like Minecraft at $6.99. Each breeds its own tensions, but – for me at least – it seems that the optimum price for non-free-to-play digital games is around $5.

I base this from a study that development studio 2DBoy ran a few years ago. The studio sold copies of its hit game World of Goo using a flexible pricing model. You could buy the game at whatever price you liked. The developers then compiled and released all of the sales data. The results were interesting, showing that of all the price points that users chose, $5 seemed to work best in terms of numbers of downloads versus pay-off.

Informally, I’ve seen the same magic number seem to work wonders across the board. Steam sales often encourage mass purchases from users of games in or around the $5 mark (ask any PC gamer just how many impulse purchases they have made at this level that they have not yet played). Similarly, second-hand retailing of games often serves as a kind of library for gamers, where they essentially maintain a deposit with a store by buying a game, and then trade-in-and-top-up with a few dollars each time to get the next game, and the next one.

The reason is that $5 is cheap enough to consider a punt on a game without going through the rigmarole of trying a demo, or pirating the game, and it especially makes sense for kids. Kids operate on a pocket-money budget most of the time, which means that they swap, loan, copy and otherwise get access to many more games than they can reasonably afford. This kind of activity is how they play a lot, form their tastes and go on to become valuable adult customers down the road.

That’s why the recent news broken by Edge (Disclosure: I write a column for Edge magazine) about the next Xbox being always-online and locking games to accounts is so significant. The notion that a game that you buy soul-binds itself to your account is not new. Your iPad already does exactly this, for example, as does your Steam account. Once you buy a copy of XCOM Enemy Unknown or Temple Run 2, you can’t pass it on.

This, largely, is the thinking behind locking games on console for disk- and digital-sold games. If you buy your Halo 5 in Gamestop and insert it into your next Xbox, the thinking goes, it will only ever work for you. So, no second sales or borrows or swaps.

In principle this makes publishers very happy because they resent the grey markets of piracy and second-hand retail with a passion. Likewise, everyone assumes that the entire console business is going digital anyway, and with the death of media retailers like HMV it’s only a matter of time. The combination of the two seems to promise a future where all console games will be sold at high prices, all the time, and everybody will make money.

Microsoft’s $5 Problem

Maybe, but at the expense of younger players. During my formative years I was an inveterate pirate. I got my start with a Sinclair Spectrum and games recorded on cassette tape. In the schoolyard I would swap, copy and even compile mix-tape compilations of games on larger cassettes, writing start numbers on the inlays. I would also buy games by the truckload. As a result, I played a lot of games.

Whether you came up in the console era and swapped cartridges like a maniac at lunchtime, or copied floppy disks at home and prayed they would work, try lots of free-to-play games on Facebook, or buy lots of cheap apps, chances are that you’ve played many cheap or free games. It’s a part of growing up that you have way more time than money. You bore easily, but also become highly passionate toward the things that do not bore you, and you learn like crazy. You become invested, perhaps in a few games or in the whole culture of being a gamer, and this turns you into a lifelong fan of that platform.

Unless, of course, you can’t afford to. Then you just go elsewhere.

The problem as I see it for the next Xbox, or PS4, and this wish to lock games in, is that I just don’t see Microsoft lowering itself enough to charge $5 for Halo 5. Rather, I think they’re thinking to turn every previously-a-borrower potential customer into a $50 actual customer, and so is every other publisher that wants to see this kind of locking happen. And that’s simply ludicrous. A locked-in strategy only works in a $5-or-less world.

Microsoft should have owned the digital gaming space years ago, not Apple. It had the solution in place, millions of customers, and the hardware to play really great games. But the problem was that Microsoft could not really allow itself to enable those games to find their natural price point. Even today if you browse through the Xbox 360 back catalogue there are many 2- and 3-year old games that are being offered at twice or three times what you would pay for them new at retail, never mind second-hand prices.

Even while iOS races ahead as a gaming platform, console makers like Microsoft, Sony and Nintendo have not meaningfully responded. Part of the psychosis of these companies is that they still believe that they are a premium offering, and so they act like a fancy Nordstrom store selling perfume, luggage and handbags for vastly inflated prices. They get tied up in arguments over whether they should allow their product to be devalued (as though the rest of the world does not exist), and whether that is good for games in the long term.

Long story short: They are not in the position where they can make $5 work, and their publishers are not willing to sell Call of Duty for such small amounts. And that opens the door to OUYA, Gamestick, Steamboxes and the oncoming storm of microconsoles.

Whereas Xbox and such are all bound up in these massive and complicated tangles, microconsoles like the OUYA are perfectly happy to work with smaller developers and publishers. They are keen to deliver that App-Store-like relationship to the TV space, and they are increasingly well-placed to make the price argument. If it comes down to Microsoft demanding premium money for a console and games with no comeback or resale, versus an OUYA for $99 that sells games for $5, that becomes an easy decision for any parent. So the OUYA becomes the platform that onboards young players.

Perhaps there is a growing market for a console that is just for adults, for so-called “graymers” who are happy to pay for premium experiences. Perhaps there is an emerging market for an exclusive kind of console, a sort of super-premium category that does not need young players any more. If there is, I wonder how long that market could sustain an expensive platform like the next Xbox by itself though.