Video Game Pricing is Coming Down, says EEDAR

The folks at Electronic Entertainment Design and Research (EEDAR) have released a new report on the impact of game pricing on the industry. EEDAR's research found that game pricing on new games has come down recently as publishers compete for the mass market consumer and limited shelf space at retail.

"Recent data trends... indicate that initial MSRPs are declining on both the Xbox 360 and PS3 as the amount of games priced under $59.99 has increased 66% over last year, while the entire quantity of games only increased 44%. In other words, pricing is beginning to come down," noted analyst Jesse Divnich. "Its weight, however, is not heavy enough to reflect on the current trend in pricing. We believe this will likely change. As the Xbox 360 and the PS3 hardware continue to decline in price, more non-traditional, casual, family, and price sensitive gamers (noting these demographics sometimes overlap) will likely adopt these systems, which will increase the demand for cheaper titles. In fact, if we look at upcoming releases in February and March, the average initial MSRP for games on the Xbox 360 is $53, much lower than the average initial MSRP."

Divnich said that EEDAR is already starting to observe the effect described above thanks to the lower pricing on the Xbox 360 Arcade SKU, which has attracted more sales from the mainstream audience looking for cheaper titles. Divnich also said that the Wii may have had a similar impact since its software pricing is lower than either PS3 or 360 and these new "'non-traditional' gamers are likely more price sensitive and prefer less expensive games."

Another important factor is shelf space at retailers, which is mostly fixed. "This fixed amount of space is well below the quantity of new games released in the market. Every new release has to compete with all previously released titles," explained Divnich. "Of course, retailers continue to add shelf space to 7th generation platforms as older generations of hardware phase out. That said, we currently see greater than 500 retail game titles released a year on the 7th generation home systems, far more than the retail shelf space gained from the phasing out of the 6th generation game titles. This disparity increases the competitive landscape for 7th generation titles."

Signal Hill analyst Todd Greenwald warned earlier this week that publishers could be facing the "demise of $59.99 pricing for front-line 360 and PS3 software titles." He classified this as the "biggest risk" for all publishers in 2009, since a drop in MSRP would significantly erode their margins.