Oz Industry Insights: Game Prices

In August, 2008 GameSpot AU asked why Aussies pay more for games. Three years on, local gamers are still asking the same question. Despite the well-positioned Australian dollar, video game prices Down Under continue to remain high compared to other countries, leading more and more consumers to import games from overseas online distributors. With Nintendo’s 3DS about to launch in Australia--and with it an influx of new software--the time has come to re-visit the issue of game prices and find out why nothing has been done to bring the Australian market on par with the rest of the world.

With the Australian dollar sitting somewhere between 90 to 100 US cents for the past few years, a A$100 price tag for a video game is hard to swallow, particularly when compared to other countries. At the time of writing (14/02/11) the Australian dollar is 1:1 with the US dollar, 62 cents with the British pound, and 83.4 Japanese Yen. Conducting a quick comparison of game prices across the three regions in Australian dollars is enough evidence to show Aussie gamers are being hard done by: a pre-order for Rockstar’s LA Noire for the PlayStation 3 is A$108 on Aussie retailer EB’s online store, A$60 at US retailer GameStop’s online store, A$64 at UK retailer GAME’s online store, and A$65 from Asian online retailer Play-Asia (all conversions match the correlating markets on the day of writing, 14/02/110). The trend continues: Call of Duty: Blacks Ops is $A108 in Australia, A$50 in the US, A$64 in the UK, and A$50 on Play-Asia; Halo: Reach is A$118 in Australia, A$60 in the US, A$56 in the UK, and A$58 on Play-Asia. Handheld console software doesn’t fare any better Down Under: Super Street Fighter IV: 3D Edition, one of the 3DS’s launch titles, is available for pre-order for A$78 in Australia, A$40 in the US, A$56 in the UK, and A$60 on Play-Asia.

Changes in both the Australian games development industry and the local consumer market indicate that Australian game sales are slipping. With the impact of the global financial crisis (GFC) still being felt across the games industry worldwide, what will this mean for the future of the local market? Are high game prices a cause for concern, or simply a by-product of living Down Under?

LA Noire costs just under 50 percent more in the US than in Australia.

In February 2011, the Interactive Games and Entertainment Association (iGEA) released its annual report into the Australian game industry consumer market, aided by research group GfK Retail and Technology Australia. The figures show the Australian games industry fell by 16 percent in 2010, recording total revenue of approximately A$1.7 billion. Console games were also down by 13 percent, with 16.9 million units sold in 2010 compared to 19.3 million units sold in 2009. (The research data included hardware, gaming peripherals, and boxed software sales registered through retail outlets, but it did not include revenue from online retail sales, downloadable content, online games subscriptions, or mobile games.)

While it is impossible to draw a definitive link between the dip in local game sales and high game prices, some Aussie gamers remain convinced that the loss of revenue in 2010 can be attributed to consumers looking overseas for better bargains (see the comments section of this story). However, iGEA CEO Ron Curry is adamant that the Aussie industry fared better than overseas gaming markets in 2010.

“Compared to the most other international territories, our local interactive entertainment market has done considerably well to weather the global economic crisis, which affected a broad range of entertainment industries and what we are seeing now is a leveling or righting of the market," Curry said. “Anecdotally, sales of interactive entertainment products are continuing their healthy growth; however, the ways these products are being consumed and engaged with is expanding and changing dramatically, as is the industry itself. Digital downloads, online subscriptions, micro and mobile games, and alike are expanding consumer spend into areas that we are unable to measure in the traditional manner.”

Every year, the Australian arm of global professional services firm PricewaterhouseCoopers publishes its Australian Entertainment and Media Outlook report, looking at current and future trends in the industry. The latest report looks at the industry from 2010-2014, and forecasts that Aussie game sales will bounce back to approximately A$2.5 billion by the year 2014. However, it is worthwhile noting that while the Australian games industry did see a 7.7 increase in 2009 from 2008, this number pales in comparison to previous years, with 26.4 percent and 41.3 percent rises in revenue in 2007 and 2008 respectively. Add to this the fact that industry actually fell in 2010, and the trend is clear: people are spending less on games in Australia.

The high cost of doing business in Australia

Getting game publishers to comment directly on the disparity between game prices here and overseas is a near-impossible task, with all the companies GameSpot AU approached for comment on this issue declining to participate. In 2008, GameSpot AU spoke to credit analyst Michael Cowley and former Macquarie University researcher Anders Tychsen about the economic factors that impact business transactions in Australia. Although the Australian dollar may have changed since the last time we looked at this issue, the factors that affect the economics of distribution in the Australian market have not. According to Cowley and Tychsen, three things contribute to the high prices of overseas imports (including games): Australia’s geographical isolation, the size of the country, and the relatively low population.

"The reasons why video games are sold at different times and to different prices in different regions are related to marketing issues and the laws and regulations of local countries," Tychsen said. “Pricing is related to many factors. For a US-based company, shipping a game to Afghanistan will cost more than shipping it to Canada. If games are printed and packed in Japan, this may be the opposite. Similarly, different countries have different taxation systems."

Super Street Fighter IV for Nintendo's upcoming 3DS is available for pre-order for A$78 in Australia, A$40 in the US, A$56 in the UK, and A$60 on Play-Asia.

Australia’s very small population is spread out over a very large area, meaning it is more expensive to distribute and move something around than territories like the US, Japan or Europe, where the number of people per square kilometre is higher. The same problem applies to game release dates Down Under--distributing products across the whole country within one day is a huge feat, and there are simply not enough people in Australia to warrant the same kind of immediacy that is granted to other countries with more consumers. It's a disparity that happens across the board, with all imported goods, from cars and jeans to electronics and games.

"I think there are so many other factors at play. In the US, video games pass through fewer hands getting to store shelves compared to Australia. Everyone needs a piece of the pie and that is why we always have a higher price to begin with," Cowley said.

With the Australian dollar reaching near-parity on average with the US dollar for over two years now, Aussie gamers may well expect the A$100+ price tag of new release games to drop to around the US$50 mark that US consumers are paying. However, according to Cowley, one reason that this has not happened to date, and may never happen, is that it simply wouldn’t make good business sense for local publishers to constantly adjust Aussie game prices according to the exchange rate. Given the fragile nature of the market, and its tendency to constantly shift up and down, this reasoning makes sense. Although the Aussie dollar has remained strong against the US dollar for the past two years, anything could affect market values at any time. Click on the Next Page link to see the rest of the feature!

The publishers' perspective

Despite what the 2010 figures show, local publishers are celebrating rising sales numbers. Although Nintendo, Microsoft and Sony declined to comment on local game prices, all three publishers’ latest sales figures for Australia indicate that there is no cause for concern on their part.

In February 2010, Microsoft revealed that the Xbox 360 experienced its biggest year to date in 2010, with a 20 percent increase in total sales over 2009 (although it declined to offer any Australian-specific hardware details or numbers). Nintendo also revealed a profitable year, with the Wii in number one place as the highest-selling console of 2010, selling more than 420,000 units. Nintendo software (including both first party and third party published software) also accounted for 47 per cent of console game sales in 2010, and in November last year the publiser announced it reached 2 million Wii units Down Under. Finally, Sony reached 1.1 million PS3 consoles in Australia in 2010, making up 26.5 percent of all console sales in the region.

Managing director of Sony Computer Entertainment Australia, Michael Ephraim, said both the PS3 console and PS3 games were doing well despite the downturn experience by the local industry.

“PlayStation 3 as a platform continues to outperform and outgrow, even during the double-digit industry-wide downturn last year,” Ephraim says. “Our consumers are responding to the increased entertainment content offering, from both our company and our network of partners, enjoying the benefits derived from our ongoing technical innovation, and also the more connected network experiences we continue to offer.”

When GameSpot AU interviewed Ephraim for our last game prices feature in 2008, SCEA’s managing director said a big segment of the market still chooses to buy games locally for things like ease and return policies, something that is unlikely to change in the future.

"Compared to the European market, prices in Australia are quite reasonable for our games," Ephraim said in 2008. "In Australia we have to consider things like the GST, different retailer margins, freight issues, geographical location, and volume of customers when setting the prices of our games. Plus there is no consistency with the exchange rate--it's always fluctuating. Who knows, by 2009 things could have done a complete turnaround."

The Wii was the highest-selling console in Australia in 2010.

The retailers’ perspective

Aussie game retailers also remain unconvinced that slipping sales are a cause of concern. Two of Australia’s largest game retailers, EB and GAME, are adamant that price is only one among many concerns that Aussie consumers have when it comes to buying video games. Debra McGrath, EB’s national brand and marketing manager, says competition between retail and online stores has always been fierce.

“There are so many factors that contribute to the rise and fall of sales that there is no way of pinpointing exactly what percentage of that relates directly to online sales and the strong Aussie dollar,” McGrath says. “As such, [EB] has not seen a direct impact on sales. However, price is only one element of being a successful and trusted retail business. We have seen exciting growth in our [online] store by offering customers a safe, quality and reliable service experience that integrates seamlessly with our physical EB Games stores.”

Paul Yardley, managing director of GAME Australia, agrees. He says his store’s online business has doubled year-on-year, something that signifies that while more people are buying online, they’re still buying local.

“The games market falling isn’t just a local issue,” Yardley says. “It’s happened in other markets around the world, and it’s no surprise here really. We’ve kept an eye out for any impact but from what I can see [GAME] sales have not been impacted at all. Sure, more people are buying online and I can understand why some gamers may look elsewhere for the best deals given current game prices in Australia. But it’s only a narrow part of the customer base that will go and look for the very best price and go to overseas retailers to get it. I know a lot of customers who would never do that. I was recently talking to a couple of mothers who came in to the store, and they said they’d never ever shop online from an overseas retailer because they are worried about things like giving out their credit card details, and returning the product if something is wrong with it.”

Yardley says the unfair game pricing in Australia doesn’t apply for all games. He lists LittleBigPlanet 2 as an example, saying the title’s Australian price is much more favourable than its current UK price. [However, at the time of writing, the GAME Australia online store price for LittleBigPlanet 2 is A$64, while the GAME UK online store price is A$56, and the US price is A$60.]

“Of course some people are really good at finding deals, and that’s what they will always want to do. But it’s not just about the price. Look at the reasons people have loyalty cards--you can only use them in stores. There’s also the problem of availability--you can only get a day one release if you buy it from a store. Yes, some Aussie consumers are prepared to wait and get a better price, but we have to ask ourselves how big that niche is. I think if the local games industry looked at that niche it would discover it’s not a big problem at all.”

Most Aussie gamers would disagree. But how easy is it to compare Aussie prices with other territories to find the best gaming deals? How easy is it to factor in things like shipping costs, release dates, region coding and delivery times?

The consumer perspective

These questions led Aussie gamer Andrew Kudilczak to start GameCafé, Australia’s first games price search engine. The project began in 2007 as a hobby for Kudilczak and a friend; they both recall wasting hours on Google (instead of playing games) looking for the best deal for newly released titles and wondering why there wasn’t simply a website that listed all the game stores, both online and traditional retailers, along with handy information about prices, shipping info and delivery times. Initially, GameCafé was hosted from Kudilczak’s back shed on a single machine; now, the site runs on hosted dedicated servers, and includes full-time, dedicated staff. Although the site initially included price comparisons within the Australian, UK and US markets (with over 120 stores listed), this amount of information overwhelmed consumers, leading Kudilczak to strip the site back to serve just the Australian market.

Although the need to find cheaper games is what led Kudilczak to start GameCafé, he understands why Aussies sometimes have to pay more.

“Gamers in Australia enjoy a quality of service from Australian retailers that perhaps warrants the extra cost,” Kudilczak says. “The GST is one obvious contributing factor to the high prices, but most gamers in Australia are simply not willing to wait one to two weeks for the latest game to hit their mailbox from an overseas retailer, when they can simply order online within Australia, or round up a copy at their favourite brick-and-mortar store. The prices simply reflect the market forces at play. In some cases, region code restrictions force Aussies to buy locally anyway.”

“I think even though the Aussie dollar is high, the prices of games in Australia reflect the market demand. Should this demand drop, the price of games will drop too. I believe that the large demand for locally-sourced products remains the primary reason for prices remaining relatively high compared to shifts in the currency. I believe the Australian gamer wants the assurance that the game they buy won’t be region locked, and will arrive in a short time. They also see value, and are far more comfortable dealing with local distributors.”

If you want to know where to get the cheapest copy of Halo: Reach, check out GameCafé.

GameCafé’s data is obtained through a combination of data feeds from merchants as well as directly from game retailers’ websites. The price data is then collated and forwarded to a centralised database which gamers can search via the GameCafé website. All this processing is done autonomously, without human intervention. Kudilczak believes that while there has been a big shift towards buying online through distributors such as Steam, he doesn’t think this has had a large impact on overall game sales in Australia.

“The immediate access [of a service like Steam] appeals to the cutting edge/new release gamer, who simply can’t wait to get stuck into it! I believe that more and more services like Steam will begin to appear, especially as network bandwidth costs fall, and network speeds increase. The era of physical gaming media is starting to decline. Many game companies are looking to distribute online. Having said all that, the Aussie gamer can expect to make significant savings from shopping around--some games listed on our site could return a saving of 75 percent or more for the economical gamer. Within Australia, it is nearly always cheaper to buy from online retailers (local or overseas) compared to brick-and-mortar stores with savings in the order of 10-25 percent on a typical game.”

While it seems that some Aussie gamers continue to remain dissatisfied with high game prices Down Under, the percentage of the consumer market moving away from buying local and towards overseas imports is not large enough to hurt the local industry, or to become a cause for concern for local publishers and retailers. When factored in with things like market fluctuations, global economic instability and Australia’s geographic location and size, what this indicates is that Aussie gamers are unlikely to be paying fair prices for games for a long time to come. Are high game prices in Australia a concern for you? Let us know by leaving your comments below!