The Price Gamble

In other words, what was seen as the great pricing experiment of 2009 has ended up providing remarkably little data, and what few hints we have regarding consumer reaction to price hikes are totally obfuscated. Any publishing executive in the coming months who refers to Activision's higher price point as a success should be regarded with deep suspicion, either in terms of their competence or their honesty, or both, because the reality is that the market did not bear the higher price - it was simply never asked to do so.

Far from seeing a wholesale uptick in pricing, I suspect that 2010's story will be of continued downward pressure on prices. It's still unclear just how much impact the appearance of "freemium" business models and low-priced software on platforms like the iPhone is having on consumer perceptions of value, but all of the smart money is on a general erosion of the willingness to pay high prices for software.

Consumers who spend hours playing something like Farmville for free will increasingly question the basic concept of spending the same amount on a videogame that they would spend on a night out, especially as web game experiences become more and more complex and involving. The same goes for mobile-phone games, which generally retail for between £3 and £5 - as those experiences improve and evolve, DS or PSP software selling at between £20 and £30 is going to look increasingly ridiculous.

More importantly, the decisions about pricing are increasingly being taken away from traditional publishers. In the past, the only way that prices would fall wholesale was through a gradual process of competitive attrition with your publishing rivals - who all had the same costs as you, and the same incentive to keep prices high.

Not any more. Facebook game developers couldn't care less if they devalue console experiences. iPhone game developers would dearly love to see the DS fall on its face and move a whole new wave of consumers over to their phone as a gaming device. These new rivals have no reason not to undermine existing business models, and everything to gain by doing so.

Of course, it goes without saying that publishers could not survive if they sold games developed and marketed using their existing business model for a handful of coins rather than a handful of notes. However, this is the challenge to which they must rise - that others are finding cheaper, more effective ways of delivering experiences to a wide range of consumers (including many upstream gamers), and that they must adapt and innovate upon their development processes and business models in order to survive.

There will almost certainly continue to be a market for the monolithic, premium-priced gaming epic, of course - but it would be foolish to underestimate the reach of the new business models which are emerging around the traditional boxed games industry, or the impact they will have on that industry. In that context, we can now view Activision's price hike as exactly what it was - a clever and ruthless way to extract a bit of extra revenue from the launch of a blockbuster, nothing more, nothing less. Anyone viewing it as a valid model for the future of the industry is making a deeply flawed assumption.