Matchsticks for my Eyes

Pricing Niche Strategy Games: Matrix, Shrapnel and Paradox 14 February, 2011

For some time, I’ve kept my eye on a space-opera 4X game by the name of Distant Worlds, developed by Code Force and published by Matrix Games. This game (based on what I’ve read) could best be described as Master of Orion III done right. As is typical for the genre, Distant Worlds casts you as an aspiring galactic emperor, out to subjugate the galaxy through the efforts of your colonists, scientists, businesspeople, and when all else fails, your soldiers. Less typically, the game expects you to delegate much of your authority to a computer-controlled viceroy, which apparently allows it to aim for an especially epic scale. It apparently even does a good job with little touches such as minor species that can be swept up into the larger empires, and with establishing backstory through in-game events. But for all my interest, I’ve never bought Distant Worlds. Why? Because it usually goes for its full price of $40, on top of which there’s also a $20 expansion pack. And that money would buy me a whole lot of other games or books instead*.

Admittedly, Distant Worlds is a new game; it only came out in March 2010. What about older titles? Here, we can consider Dominions 3, developed by Illwinter and published by Shrapnel Games, which sells for $55 despite being released back in 2006. Now, I love Dominions 3. It’s one of my all-time favourites, and well worth the money I paid for it. But $55 is still a fair bit of money, comparable to the price of a brand-new AAA game.

Whenever I see this topic come up, the standard response is that the Matrices and Shrapnels of this world charge the prices they do because their customers are a small, but price-insensitive, niche. In other words, if I am so hardcore a strategy player that I’ll buy Dominions 3 in the first place, then I’m so hardcore that I’ll pay $55 for it; on the other hand, if I wouldn’t play that kind of game at all, then no discount would help. And this is a reasonable point. While, say, Recettear managed to sell over 100,000 copies with the aid of heavy discounting, (A) Recettear is far more mainstream than Dominions 3, and (B) many of those cut-price sales brought in very little money. (If you’re interested in the maths behind price, units sold and revenue, I have a brief writeup in an appendix at the bottom of this post.)

But a third company, Paradox Interactive, would seem to disprove the “our game will only appeal to a few people, so we need to charge a premium price” approach. Paradox’s games are also very deep, very dense, and very niche, yet Paradox takes a very different approach to pricing and discounting. Paradox’s latest title, Victoria 2 (2010), also currently has an official price of $40 – but one site offers it (in download form) at a temporarily discounted price of $20, and another offers it (as a boxed copy) for a regular price of A$19.50. And Victoria 2 is by no means unique. I regularly see Paradox-published games (both internally and externally developed) go on sale with hefty discounts, often but not always to coincide with the launch of a new game. Paradox’s older games also have much lower base prices (Europa Universalis III Complete goes for $20, though it’s missing the latest two expansion packs.) So the Paradox brass certainly seems to believe that it makes more money this way.

Why might Paradox’s approach be so different from that of Matrix and Shrapnel? I can think of several explanations.

• One, as I understand it, both Matrix and Shrapnel are primarily wargame publishers, but from what I can tell, wargames are generally also pretty expensive. (I’m not a wargamer, but this is based on my looking at the prices of wargames and hearing periodic complaints on the subject.) Perhaps Matrix and Shrapnel are accustomed to pricing for that market, and just apply the same principles to other strategy games? Perhaps their usual audience is accustomed to paying higher prices even for non-wargames? Perhaps it’s both?

• Two is the nature of Paradox’s product offering compared to the other two. Shrapnel doesn’t publish that many games in the Dominions series (in addition to 3 itself, there’s just Dominions 2, which seems to be no longer available), and Distant Worlds is its developer’s only game. In contrast, Paradox has plenty of games in its historical series, which complement rather than replace each other, and it constantly releases new titles and expansion packs. So by discounting, say, the Renaissance/Age of Discovery/Enlightenment game Europa Universalis III, Paradox is building brand awareness for its medieval game, its Roman game, its Victorian-era game and its World War 2 game. To some extent, this is supported by my observation that games that Paradox publishes, but doesn’t develop, don’t seem to go on sale as often as Paradox’s own titles. Given that, say, there are only two titles in the externally developed Mount & Blade series (plus a third one in the works) and the first game was made obsolete by the second, and that there’s only one Sword of the Stars game (plus an upcoming sequel), there’s less need to promote these by discounting. (That said, their base prices are also cheap – Sword of the Stars Complete goes for just $20.)

• The other remaining alternative, of course, is that one business or another is mistaken: either Paradox is leaving money on the table with its lower-priced back catalogue and frequent, large discounts, or Matrix and Shrapnel are losing business with their high prices and infrequent, small discounts.

I have my own suspicions as to the answer: I’ve bought a bunch of cheap or heavily discounted titles from Paradox that I would not have bought for full price, so Paradox has forgone little or no revenue from me. In contrast, as mentioned above, Distant Worlds’ price tag is what has kept me from buying it. And my instinct tells me that pricing games in the belief they’ll only appeal to a tiny niche may end up being a self-fulfilling prophecy. But I’m just one customer; I’m biased (cheap games benefit me!); and most importantly, I don’t have any hard data (for the Matrix/Shrapnel/Paradox end of the gaming spectrum) to verify my guess. So at this stage, I think, the jury is still out.

If anyone reading this is from one of the abovenamed publishers, or has experience with pricing niche video games, please leave a comment! I’d love to hear your thoughts.

* To be fair to Matrix, I just discovered that the game had gone on sale (down to $27) over Christmas 2010.

** If the data’s available, there are plenty more examples of niche games I’d like to hear about. How has, say, Arcen Games done with its frequent sales on AI War?

Appendix: Product pricing, sales revenue, and profit

How much should we charge to maximise profit? (This isn’t the same as maximising revenue, as we’ll see.)

At the revenue line, revenue = price * number of units sold. So I should be indifferent between selling 5 items for $20 each or 2 items for $50 each, a ratio of 2.5:1.

At the profit line, it becomes a little trickier because now I have to deduct the incremental cost of selling each additional unit***: Profit = (Price – Variable Cost) * number of units sold. If each item I sell costs me an incremental $10, now I have to sell 8 copies for $20 each (making a $10 profit on each) to make the same profit as I would from two $50 sales (which would give me a $40 profit on each, for $80 total), a far less favourable ratio of 4:1.

However, when it comes to games distributed in download form, I think it’s reasonable to assume that, other than the retailers’ (Steam, Impulse, etc) fee, there is a minimal cost to sell additional units. (And in any case, my understanding is the retailers’ fee is typically a variable amount – say, 40% of the item’s price – rather than a fixed sum.) So for present purposes, we can probably treat revenue maximisation as the sensible policy to pursue.

*** Strictly speaking, when I talk about “profit” in this section, I’m referring to “contribution margin” – that is, revenue minus variable cost.

I hope you enjoyed this post! To quickly find this post, and my other feature articles, click the “features” tab at the top of this page.