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December 13, 2005

Filed under: gaming»roundtable

Value Ad'd

I feel somewhat prophetic, having written about class in games before Corvus announced the new round table about prices and the role of advertising. But I know what you're thinking: "That article didn't really have anything to do with me! I can afford to keep playing, and ads will probably even drop prices for those who are less fortunate!"

Oh, you poor, deluded fools. Only as a lazy writer's attention-getting device could you say something like that, I would hope.

The Internet is to blame for this "ad-driven" economic fallacy, because it's one of the few places where a relatively strict implementation of the model has remained in place. There are cultural reasons for this, as well as a relatively low cost of entry. It's comparatively cheap to start a Yahoo! or a Google, and investors will throw money at you. But games are not, despite their digital nature, the Internet. They are not a search engine that will build its own database once smart people have done smart work making it smart. They are not a set of web applications built on standards that have been honed over many years. They are content-based, and we don't have any cultural or economic reasons not to charge a lot of money for content. In fact, we have a great precedent for it in the cable industry.

Everyone loves to hate cable. Disclaimer: I once worked for a small cable company, which is not the same as working for a cable content provider. It's a very strange market. Your cable company doesn't just set the prices on their own. They buy the channels from the content provider (Disney provides ESPN, for example) at a certain rate per subscriber to that channel. Larger companies can get discounts based on the economies of scale, but the baseline cost is still determined by the channels themselves. Those channels can raise their rates at a specific amount, which is specified by their contract. This increase can be, but is not always, tied to the rate of inflation. ESPN, again for example, knows that a system which does not carry them will hemorrhage customers. The last time I saw an ESPN contract for the National Cable Television Cooperative, which provides purchasing power for small cable companies, the maximum price increase yearly was 20% (more or less--it has been a while). And trust me, ESPN doesn't hesitate to go for the maximum every single year. Something like 10% of your cable bill probably goes directly to that one channel.

Now, cable companies try to balance out the massive increases in their popular channels in a couple of ways. First, new channels often offer incentives to companies as a loss leader to gain market share. Second, not every channel increases at this rate, and so the programmers try to find a balance between different shifting tiers and packages. But let's face it, they're going to have to increase the prices anyway and they want a piece of the pie. So cable bills have traditionally risen much faster than inflation, sometimes up to four times the Consumer Price Index, depending on where you live.

You think you're getting economic value from the ads running on Comedy Central or Sci-Fi Channel? Because I think it's getting pocketed by The Man, personally. And then they raise your rates again. It's hard to imagine that producing a TV show has actually become so much more expensive, particularly with technological advances. Why would it be any different for gaming, where the expenses really have risen?

Now we have the GameDaily article where the Massive, Inc. CMO insists that ads will make for better games, and will subsidize post-publication content. And that may be--although, pessimist that I am, I doubt it. Advertising hasn't stopped Sturgeon's Law from applying to every single other medium available to mankind. But if cable teaches us anything, it should be that ads won't make anything cheaper than it already was. For gaming especially, where the advertising will not pay off unless a large audience is created through sales in the first place, gambling on ads as a revenue-recovery strategy won't play well with the suits. Following the industry standard for another generational $5-10 increase in price will.

See you at the cash register--or maybe not. I'm just about priced out of this market, myself. And whether or not we're actually getting a good value from gaming anymore, as peterb noted the other day, is a whole other can of worms.

Who else wants to talk?

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