Back in September of 2009, when Apple launched the 3rd generation iPod Touch and touted the gaming capabilities of the system, I expressed concerns about what this new ‘everything under $10’ business model might mean to the $30 – $60 gaming industry.
While we don’t have any long term results yet, analysts at Flurry have tried to piece together some sort of story about what trends we can get from comparing 2009 sales to 2008. And put simply, what is good news for Apple’s gaming aspirations is bad news for Sony’s beleaguered handheld and a shot across the bow of the juggernaut Nintendo DS. With the recent release of the iPad, and the ‘upscaled pricing’ of many apps, this becomes an increasingly interesting discussion.
A pet peeve I have always had is that most sites report NPD numbers without context – in other words, ‘console’ refers to hardware, software and accessories, whereas ‘PC’ is strictly software. So trends can be difficult to spot when a new higher priced console arrives or when the PS3 gets a price drop, for example. So while Flurry did the usual thing and looked at everything in terms of the so-called ‘$11 billion market’, I wanted to get a little more real.
So I started to do some analysis based on break-outs from monthly data done by other sites, but immediately came across a problem: there is little clarity in exactly how the NPD breaks things down and lumps them together – for example, we know that the DS and PSP get broken down into hardware, software and accessories, but what about the iPod Touch and iPhone? That lack of clarity caused me to just punt and use the raw numbers.
The pie charts above are pretty telling:
- The overall market shrank in 2009, but the market share for portable gaming grew.
- Nintendo DS revenues grew by ~15% but lost market share.
- Sony PSP revenue shrank by ~30% and market share was cut nearly in half
- iPhone share and revenue grew by ~400%
Of course, it must be remembered that the iTunes App Store was only open for half of 2008, but even assuming that represents 50% of potential you would have iPhone share and revenue growing by ~200% … which is pretty darn amazing.
The first-level implications of this are clear:
- The Nintendo DS continues to have massive success, but clearly feels low-end pressure from the iPhone.
- The Sony PSP has seen failure after abysmal failure continue to eat away at it … yet has sold 50 million PSP systems …
- The iPhone / iPod Touch is redefining portable gaming at the low end.
But while that is informative and important – it doesn’t speak to my earlier concerns. Specifically – as the App Store grows in popularity, how will the ‘All for under $10’ pricing model impact the overall game market?
Not only that, but – what will it take for non-trivial, non-ported game to become a serious segment of the iPhone game sales?
If we assume pricing of $35 for PSP games, $25 for DS games, and $5 for iPhone games, and then look at what that means for volumes of games sold, we see that the iPhone sold perhaps 100 million games last year for an average of $5 each, which is more than the 80 million or so that the Nintendo DS sold.
So what is the problem – loads of sales means loads of profits, right? Not necessarily …
First off, the average price for a game is more like $2, with an estimated 45% of all paid games costing just $0.99, and 96% costing $2.99 or less! That actually means that ~250 million apps were sold in 2009!
But going back to the numbers of apps for each platform in my article last fall (expanded for new releases) – ~700 for PSP, ~3700 for DS and ~27000 for iPhone – the amount of gross income per app is very different. We get ~$450,000 per game on the PSP, ~$550,000 per game on the DS, and a mere $18,000 per game on the iPhone.
I know what you’re thinking – iPhone games are cheaper to make because they are ‘snackables’ that cost ~$2. Certainly that is true in many cases – there are plenty of games (i.e. Doodle Jump) developed by just a few people that have made tons of money. But there have been plenty of articles that show the overwhelming amount of games released to the App Store sell under 1,000 copies. Even the makers of Doodle Jump admit that having a contact at Apple and getting a featured App Store slot – and using an exploit in App Store updates – helped them gain more attention than ‘normal’ people would get.
To contrast a more mainstream effort, let’s look at the recent App Store addition Final Fantasy. Like pretty much ALL non-trivial games, Final Fantasy is a port, this time of the 2007 PSP game release.
Let’s assume that the iPhone release took 12 people a year to work on to port to iPhone OS and add a touch-screen interface, and based on standard overhead model that took ~$1 million. Assuming the standard App Store $2 average price, it would have taken 500,000 copies just to *break even*! At the launch price of $8, that still means 125,000 copies before it starts making profits.
Let’s assume that the PSP reworking of Final Fantasy in 2007 required 18 people for a year (more people to remaster the graphics and audio and add a small dungeon but no new interface), for an overhead cost of $1.5 million. Based on the launch cost of $30, that would mean 50,000 copies to cover costs.
So even for a game that costs 50% less to develop, it would take ~3x the sales of a top-price iPhone game to cover the costs compared to a lower-priced PSP or DS game!
And another thing – the $8 pricing might work for Final Fantasy, a game that many bought at that rate on pure name recognition … but how many other games can get away with that pricing?
I’ve been playing Undercroft lately on the iPod Touch, which (as usual) was previously available on another platform – this time Windows Mobile. I noticed it STILL sells for $13 on WiMo, yet sells for $5 in the App Store! It is a bargain at $5 because it is a huge game with tons of content – but I wonder how many people worked on it, what their costs look like, and how many they have sold.
I recently did a Netbook Gamer on Vampire the Masquerade: Redemption. Years ago there was a post-mortem that showed the game cost ~$2 million to make – and that was a decade ago, and was a ‘small team’ effort of under a dozen people total. My point – building a game of any significant scope takes time, energy, and loads of money.
Serious-minded people will not assume that the same game that takes $100 million and 4 years and a team of over 100 to make for the XBOX360 can be made for under $50k by two folks in 3 months for the iPod. Therefore you get to choose – so-called ‘snackable’ games, or longer developments accompanied by higher prices.
There have been articles that have discussed the dramatic sales effect of pricing a game at $3 vs. $2 vs. $1 … as Apple showed with music, people will drop the $0.99 without a second thought and not feel badly if they barely touch the app. As the price goes up, so does our expectations – and that is where the iPad comes in.
A recent article at Engadget discussed iPad app prices in two ways: re-buying stuff we already own, and paying $5-10 for something in higher resolution form that we would dropped $0.99 for in the standard resolution.
Uh-oh … is that the sound of reality setting in? I said in my article last year that the ‘All under $10’ price model wasn’t sustainable long-term … and the iPad shows it. Games that have been re-rendered at higher resolution are doubling – or more – in price, as developers hope to set new expectations of a ~$10 – 20 price model. Quite frankly, many developers have been saying that ‘All under $10’ was quickly becoming ‘gimme for $1’ – and was killing them.
Personally I am thrilled – don’t get me wrong, I LOVE free and cheap stuff! But a great game like Plants vs. Zombies is a $10 game, not a $3 game – and the idea of counting on massive volumes and only releasing games that are ported from other platforms is not a long term strategy. Not for developers, not for Apple. At $20, developers can develop something innovative and interesting to take advantage of the iPad capabilities, and then release something down-scaled for the iPhone.
I hope that the iPad succeeds as a gaming platform and so does the higher-price model – provided that the games rise to the occasion. Because so far the iPhone has had great success, but without a new model it is headed for either stagnation of an Atari-style crash.