Will Gamers Take a Hike?
"I'm sure Activision would love to sell their titles for more money, but there's a question as to how much pricing power [the game publishers] really have," says Joe Spiegel, a hedge fund manager at Dalek Capital, adding that consumers appear to be "habituated" to the current price points for games. "We have a system that works now. The pricing model is not broken," he says.
The battle over pricing could prove important to publishers such as Activision as Microsoft, Sony (SNE) and Nintendo roll out their next-generation game systems in the coming year.
In the early years of console cycles, game publishers typically see revenue stagnate or plunge as overall game prices and operating margins slump because of companies' efforts to ramp up development for next-generation games.
A price hike would likely enable publishers to do a much better job of maintaining revenue and margins in the near term and boost them later in the cycle.Kotick has set a goal of raising Activision's operating margin from the 13% the company posted last year to 26% in the next console cycle. Although there are several components of his game plan -- among them, goosing international sales, boosting the company's number of multimillion selling titles and upping the number of internally developed titles -- price increases are a key component. Backers of the price hike argue that they are necessary and fair. The cost of developing games for next-generation systems and the royalties that publishers are paying to intellectual property owners is skyrocketing, analysts say. The result of the cost increases is that the number of units publishers have to sell to just break even, at current price points, is becoming increasingly daunting. Publishers, meanwhile, have been offering consumers a more valuable product for their money. Game prices may have largely remained constant over the last two console cycles, but the typical title is vastly more visually complex, and the game play is much longer-lasting than in the past, say analysts.
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