Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Video Game Publishers Price Their Games Beyond the Sticker
Transcript
- Lucas: In 2020, the standard price for a new video game jumped to $70. That's a 17 percent increase over the $60 we'd paid since the PlayStation 3 era. But honestly, the sticker price is just the beginning. Luna: Yeah, because once you buy the disc — or download it — the publisher has only begun to make money. Lucas: Exactly. The real pricing story is about the ecosystem after that initial purchase. Let's look at Take-Two Interactive, the company behind Grand Theft Auto. Luna: GTA V is the perfect example. That game is from 2013, and it's still one of the best-selling titles every year. Lucas: Right. And it's not because people keep buying the base game a decade later. It's because Take-Two built Grand Theft Auto Online — a persistent world where players spend real money on virtual cars, apartments, and outfits. By 2023, GTA V had generated over $8 billion in revenue, and analysts estimate that more than $1 billion of that came from microtransactions. Luna: So the $60 — or $70 — is just an entry fee. The real monetization happens after you're inside. Lucas: And this model has become the standard for almost every big-budget release. Take Activision's Call of Duty. In 2020, they introduced a battle pass system — a tiered reward track that costs about $10 and lasts a season. Players can also buy cosmetic bundles for $20 or more. Luna: I remember seeing articles that Call of Duty Warzone, the free version, was making hundreds of millions per quarter just from those purchases. Lucas: In 2021 alone, Activision reported over $4 billion in in-game spending across its titles, with Call of Duty contributing the largest share. That's more than the revenue from selling the game itself. Luna: So the old model — ship a game, collect $60, done — is pretty much obsolete for the biggest publishers. Lucas: Precisely. And they've gotten very clever with how they price the initial purchase too. Almost every AAA release now has multiple editions. The standard edition at $70, a deluxe edition at $80 or $90 that includes early access and some cosmetics, and an ultimate edition that can hit $100 or more. Luna: That sounds like the classic decoy effect we talked about in a previous episode. The $100 edition makes the $90 one look reasonable, and the $70 one seems like a steal. Lucas: Exactly. And it works. Publishers have found that a significant portion of players — probably the most engaged ones — will buy up. They anchor at $70 and then offer a better version that's just $20 more, which feels like a small upgrade compared to the total experience. Luna: What about games that are free from the start? Fortnite, for example. Lucas: Epic Games pioneered the free-to-play model with a battle pass that costs around $10 each season. But the brilliance is that they also offer a tiered subscription called Fortnite Crew — $12 per month gives you access to all premium content, and it automatically renews. That's a recurring revenue stream that turns casual players into subscribers. Luna: And they've been hugely successful. I think Fortnite alone generated over $9 billion in its first four years. Lucas: That number is correct. But now we're seeing a new shift: subscription services for entire game libraries. Microsoft's Game Pass, Sony's PS Plus, and even Ubisoft's subscription. They're essentially the Netflix model for games. Luna: So instead of paying $70 per game, you pay $15 per month for access to hundreds. But that must change how publishers price their own games, right? Lucas: It does. When a game launches on Game Pass, Microsoft pays the publisher a fee upfront. The publisher bets that the subscription revenue will replace lost sales. And sometimes they're right — indie games can see huge boosts in discovery. But for a blockbuster like Starfield, which launched on Game Pass day one, the trade-off is that they may have lost millions of individual sales. Luna: What's the evidence? Did Starfield sell fewer copies because it was on Game Pass? Lucas: Microsoft doesn't break out sales numbers, but industry analysts estimate that the game would have sold at least a few million more copies at $70 if it hadn't been on the subscription. But Microsoft's strategy is to lock in subscribers, and they're betting that the lifetime value of a subscriber is higher than any single sale. Luna: So we have three coexisting pricing models: the traditional $70, the free-to-play with microtransactions, and the subscription. Which one is winning? Lucas: Probably the hybrid. Most subscription services still let you buy games outright, and free-to-play games still sell virtual goods. The smartest publishers are giving you multiple ways to spend money. The really interesting question is whether the $70 price point holds. Luna: Inflation would suggest a price increase to $80, but past attempts have been met with backlash. Lucas: Right. Sony tried to raise the price of big first-party titles to $70 back in 2020, and there was pushback. But it stuck — now it's the norm. The next jump to $80 will probably happen, but it might come with more included content or a longer game to soften the blow. Luna: It's fascinating how much psychology goes into pricing a digital product that costs almost nothing to reproduce. Lucas: And that's the core of pricing power. Now, if you find these insights into business strategy useful — maybe they've changed how you think about the products you buy or the pricing decisions at your own company — that's exactly what this show is about. And if you want to help keep it ad-free and independent, you can support us at buy me a coffee dot com slash fexingo. Even a small contribution helps us keep digging into stories like this. Luna: Yeah, I'd second that. The show is funded by listeners who find value in these conversations, and every bit of support makes a difference. Lucas: So back to that $80 question. I think it's inevitable, but the way it's framed will matter enormously. If a publisher says, 'We're adding more content and raising the price to $80,' that's a value proposition. If they just hike the price, consumers will revolt. Luna: Especially with subscription services offering a bargain. Why buy one game for $80 when you can get a month of Game Pass for $15? Lucas: Exactly. That's the tension. Subscriptions devalue the individual game. So publishers will have to use every trick in the playbook: limited editions, pre-order bonuses, exclusive in-game items. The price will go up, but it'll be hidden in layers. Luna: So the future is probably a mix: you might pay $70 for the base game, then $10 for a battle pass each season, plus optional cosmetics. And if you subscribe to Game Pass, the base game is covered, but you still pay for the add-ons. Lucas: That's exactly the model Electronic Arts uses with FIFA. They moved to a free-to-play mobile game, but on console it's $70 plus the Ultimate Team packs. And Ultimate Team alone earned over $1.6 billion in fiscal 2021, according to EA's filings. Luna: So the franchise that sells for $70 generates over a billion in add-on revenue. That's incredible. Lucas: It shows that pricing is not just about the initial price tag — it's about the entire revenue architecture. And the smartest companies in games think of themselves not as software sellers but as operators of ongoing services. Luna: Which is exactly why video game publishers are some of the most innovative pricing strategists out there. Lucas: So next time you pre-order a deluxe edition for $100, you'll know exactly what you're paying for — and what the publisher is counting on. Luna: I'll never look at a battle pass the same way again.