Finally, Gamasutra published an article on a topic that I’ve been interested in for a long time: the economics of Steam sales. Valve’s infamous sales often drop games as much as 75% to 80% off their regular price, which has lead many to wonder whether selling their product for a few dollars hurts developers in the long run. EA has claimed it devalues IPs and makes consumers unwilling to pay anything except bottom dollar for games, while Valve has maintained otherwise. As a consumer, I am deeply appreciative of Steam sales, but as a supporter of the hard work developers put into their games, I always wondered how they could profit by selling their games at incomprehensibly low prices.
During the Humble Indie Bundle V AMA on Reddit, Tim Schafer answered a question about how viable deep discounts are for small studios. His answer was characteristically bizarre, but still revealing: sales are “magic,” and the more you give away, the more you take in. It makes sense, in a way; sure, you’ve lost some money from fans who would be willing to buy Psychonauts for $10, but you’ve gained tons of money from people who would never have bought the game or even thought about it if it wasn’t $5 off. I guess the balance swings in favour of profitability pretty much all the time.
Sure enough, the Gamasutra article seems to confirm this. Runic Games have claimed that, thanks to periodic Steam sales, Torchlight has enjoyed more or less evergreen sales since its launch, while Edmund McMillen has claimed that at 75% off the regular $4.99 price (making it $1.24), The Binding of Isaac‘s sales suddenly multiply by a factor of sixty.
Speaking of Edmund McMillen and Team Meat, I remember Tommy Refenes mentioning in Indie Game: The Movie that launch day is typically the best day for game sales, and things only go down from there. But with these deep discounts, games can far eclipse their launch day sales and generate record profits on days when they’ve marked down. Hell, Bastion‘s launch day was only its fifth best day of sales on Steam, thanks to all these sales (I picked it up for $5.00, but I’ve seen it go for as cheap as $3.74).
So far, it seems like Steam sales are a win-win-win situation for customers, developers, and Valve itself. There seem to be no drawbacks whatsoever; Valve’s statistics show no negative impact on sales after a promotion finishes, with a reversion to normal, pre-promotion sales figures being the worst that typically happens (in Torchlight‘s case, a doubling of purchases at the full $15 price for nearly two weeks after the sale is a best-case scenario). That being said, I’d like to read even one horror story about a developer being totally ruined by a Steam sale, just to see if things like that can actually happen, as EA intimates they might. The Gamasutra article makes that scenario seem impossible, but given how little I understand regarding the economics of digital distribution, they could be easily pulling the wool over my eyes.
Pixel Bubble 
This is one of the situations that if you are presented with the facts someone wants to show you it can paint a very specific picture. In other words, if you’re not getting all the information it could easily be out of context. This is a hard one for me because I don’t see all the statistics and I agree with EA and Valve at the same time. How is this possible? Well first of all I think that if you look at a lot of the games that were on the summer Steam sell, you will observe there were a lot of dated game there. So it naturally makes sense to sell them at a “loss leader” type price. By knocking off a few dollars, you can easily suck people into buying games and all their respective DLC (Done so myself plenty of times). That all being said, I think it is healthy for older games because it gives them what developers call the “Tail” on earning profit very late in that products life cycle.
So now for the other side of the coin, I do get what EA is trying to say about always lowering the prices so much. They don’t want consumers to get conditioned and start to expect brand new AAA games to be extremely cheap. Now naturally the uninformed consumer will just hate on EA and say they are evil and just money grubbing. Think about it this way, video game prices are somewhat of an enigma if you really think about it, they have remained almost completely constant, in fact they have gotten cheaper since older generations of consoles (I remember paying $70 for N64 games, just one example). So how is it, that game prices can stay relatively the same at $60 (On average), when ALL of the costs associated with creating them have dramatically gotten more expensive. For example, SWTOR spent over $250 Million in development costs, granted that’s an extreme case but I’m making a point. Aside from the subscription fee, sold that sucker for a regular $60.
This is all part of the reason that the industry is exploring new business models, the costs are so high on development now one bad AAA can sink a developer. So overall, now that I’ve presented my argument, I still agree with both parties and now maybe you will see why.
I have to admit, I feel like EA is right, in a way; I HAVE been conditioned to not buy Steam games unless they’re 50%-75% off. Even though Skyrim is an incredible game and well worth the $60, I would never buy it on PC at that price because I know I could get it cheaper in a Steam sale. $15 for Bastion is an incredible deal given that many AAA games of equal quality and length cost four times that much, but I still refused to pick it up until it was $5 on Steam. PC games have been devalued for me (console games haven’t, though; I’m still willing to plunk down $60 for an Xbox exclusive on day 1) thanks to Steam, but I’m grateful for the fact that they’re saving me some cash.
The cost of making games has indeed gone up, and I’m sad to see some of my favorite developers being ruined by the failure of a single game. The failure of Lair meant that we wouldn’t get any more Rogue Squadron games from Factor 5, and the failure of Haze meant no more Timesplitters from Free Radical. That could be why we’ve seen such a big indie push lately; guys like Jonathan Blow, Edmund McMillen, and thatgamecompany have proven that one can make a decent pile of money without spending $100 million on voice actors (I’m looking at you, SWTOR). If you’re already an established indie developer (not an easy thing to do, admittedly) and you can keep your costs low with each subsequent game, there’s little risk of going broke. I doubt The Binding of Isaac cost much for McMillen to make, and apparently it’s sold 700,000 copies as of last month. And that was before the Summer Sale, where I bought it and its DLC for about $2 total, I think.
I never thought about how game prices have changed little in the last ten years; I guess it’s something I always took for granted. I’ve noticed that it’s beginning to take much less time for console games to drop in price, though; it seemed like Mass Effect 2 dropped to $20 retail less than six months after release, which I had never seen 10 years ago.
Yah there are a lot of factors to look at. However, I do appreciate big budget games like SWTOR, it’s unfortunate it didn’t work out but that’s the risk you take. I don’t think “indie” titles can fully replace the AAA market. They do make good games but it’s like comparing apples to oranges. I just think AAA developers need to find new business models and ways of creating their product, which is why your seeing pushes towards digital marketplaces. Consoles are starting to mirror the PC business model because it works.