The Great Amiga Games Swindle?

When you plant your pounds on the computer shop counter in exchange for the latest Amiga game, are you getting a fair deal or is the industry ripping you off? Julie Tolley and Rob Mead ask the awkward questions and find out the facts behind the figures...

The prices of some games are ludicrous, says Martyn Brown from Team 17. And so say many of you — Amiga Format readers. But what do other games publishers think? Can retailers justify the prices at which they sell games? Are you paying a fair price for your software, or are you being ripped off? AF delves into the underground world of prices and profits and delivers the facts on the figures.

Team 17 set a stringent example to all games publishers with their pricing policies. Over the past three years they've produced some of the most popular Amiga games — Alien Breed, Superfrog and Project X to name a few — and many retail at much lower prices than the usual £25.99 cost. How do they do it when others claim they can't?

Martyn Brown, Team 17's director and product manager, dismisses others' arguments: "When publishers say they can't produce a game at a lower price, that's a load of rubbish. Many larger software houses just blindly put every game out at £25.99, or whatever the current price is."

"We price games at what we think they're worth, A lot of consideration goes into it. Arcade Pool for example, is not a particularly original game. We looked at it and thought it's on a single disk, we can really jazz it up and knock it out at a reasonable price. We're not saying it's a budget product, but we're saying we would sell more at £9.99 than at a full price."

"We've tried a few price points — just under a tenner is a good one — an old fashioned view, but one that works. Also, if it had been on two disks it would probably have had to be £10.99. There should be a move away from the standard price, particularly for A500s. For A1200 games it's on a few more disks and if it's better value then fair enough, but just knocking A500 stuff up to £30 is wrong — it should be going the other way."

The Flip Side

However, other games publishers, who charge higher prices, disagree. Keith Smith, Millennium's PR manager says that in any marketplace there's always a degree of price cutting for market share. And that the price of any game depends on the amount of hardware out there — if the games industry decides which hardware to back then the price of games could plummet like videos did.

"Millennium charge a fair price for excellent games — A500/600: £25.99, A1200: £29.99, CD32: £29.99" says Keith Smith. "The prices we charge are a moveable feast, dependent on the amount of work and the amount of licences sold for a particular product."

"Overheads depend on if the product is developed in-house and how long it takes. Then there's marketing — about one per cent per unit, include the distributors discount which varies and depends solely on the quantity purchased, and VAT. So you can see our profit is not as much as you think! And we are continually re-investing in future products and developing more complex game engines."

A Matter of Survival

Richard Hennerley, MD of Daze Marketing, who distribute games such as Ishar 2 and Stardust doubts if the industry would survive price cuts on Amiga games.

He explains: "Amiga games are priced about right. If we charged less I don't think that it would be a commercially viable proposition, and we'd probably all go off and make PC games."

But according to Debbie Durrant, PR manager for Digital Integration, it's the massive investment needed to produce a game that keeps the prices where they are. "I don't think Amiga games are overpriced, although there will always be exceptions," she offers. "Frankly, current pricing levels reflect the massive amount of costs involved in bringing a game into the market."

"The unit price of a game, say Tornado at £34, includes VAT, distributor's costs, marketing and advertising calculated on 10 per cent of the estimated turnover of product, plus all the usual stuff such as disks and manuals. Tornado's duplication and packaging was quite high because of the contents and its development costs were in the region of £750,000!"

"All companies have to make a profit otherwise this industry would not survive, and most profits are ploughed back into further games development, better technology and better games for the end user."

You pay for what you get is how Bridgett Hirst, PR manager for US Gold, feels about the price of games. "£25.99 is not too high a price to pay for high-quality products," she explains. "But consumers can't always afford to spend that much on a game. That's why we introduced the Kixx and Kixx XL budget ranges. That way you can buy some games at reasonable prices and then fork out for the occasional full-priced game that you really want."

Covering the Costs of Compact Discs

With the launch of Commodore's Amiga CD32 games machine, came another issue to fuel the game price dilemma — what price a CD? The current base level of a CD32 game is £25.99 with many priced at £29.99, and some such as Pinball Fantasies at £32.95 and Liberation at £34.99.

Most CD32 games are, at present, straight ports from A1200 games. That means there will be no development costs involved in producing a game, with the exception of a few which have improved audio soundtracks although the costs involved are small when compared to programming a game from scratch.

The other benefits to software houses are that producing a CD costs less than the price of two floppy disks and, of course, that because CD has ROM, it is a less piratable product saving publishers thousands of pounds of losses.

Once again, Team 17's Martyn Brown has a strong opinion on this subject, "CD stuff," he says, "should be £30 maximum — there is no reason on Earth to charge more. If developers say they took a risk developing for CD32 well that is nonsense. You can develop on hard drive; you don't have to go on to CD until the last minute."

"You're getting games that might have been on seven disks originally on to one CD. so you can take £3 off production costs before you start. OK, there's a royalty to Commodore for every disk, but then there's no piracy, so whatever you lose you gain back anyway. The stuff that's £34 and £40 is ludicrous, I mean a CD costs about 50 pence!"

One of the first companies to publish a CD32 game, Millennium, have a separate pricing policy for the format. The firm's Keith Smith explains: "CD32 is still a growing market. We were the first company to have an Amiga CD32 product out in the marketplace so we took a gamble and aimed it slightly over the price of A500, but comparable to A1200 games."

"We also try to build extra value into a game such as FMV and interactive manuals — it's hard to squash an A1200 manual into a crystal case!"

"James Pond 2 released on CD32 was £29,99 because we added £10,000 worth of animation and a brand new digital soundtrack. But Diggers, originally bundled with the CD32 is soon to he released separately for £19.99 which is a low-price game for all new purchasers of a CD32."

"Other CD platforms are approximately £15 more expensive, so against the Mega CD our games represent real value."

Wholesalers' Whack

After the publishers cover their costs, the next step in getting a game on to the shop shelves adds another chunk to its cost to consumers.

"It's all part of the endless cycle of unhappiness," says Keith Smith. "Purchasers are unhappy with the price they pay. Distributors are unhappy with the retailers' margin. Developers are unhappy with the discounts required from the distributors, and so on."

"The only way to overcome this is to have a massive hit like Mortal Kombat then nobody minds what price they pay as long as they get the product. This is only achieved by developers insisting on a massive amount of money in the first place. Two words — chicken and egg."

In the UK the two main wholesalers/distributors of Amiga software are CentreSoft and Leisuresoft. Between them they control the distribution of Amiga games to UK retailers, from WH Smith and Boots to HMV and Virgin Megastores. They usually add 10-15 per cent to the price of a game, and their cut is seen by some as too high a price to pay.

Richard Tidsall, Leisuresoft's group marketing director, says: "The distribution of computer software is no easy task." And he says it's the expense of providing 24-hour turnaround on a product to retailers, the cost of warehouses the size of football pitches, computer systems and staff costs which puts up the price of games.

"That's why a distributor will account for up to 10 per cent of the retail price," he explains. "Amiga products are good value, and even if they are expensive to purchase when first released, budget ranges provide better value for money."

Do Retailers Reap it in?

On a base-priced game of £35.99 including VAT, the publisher will take about 45 per cent of the pre-VAT price, that is £9,95. The other 55 per cent is divided between wholesalers and retailers, typically around £4.43 to the wholesalers and £7.74 to the retailers. Can retailers justify the cut that they take, or are they too greedy?

According to Richard Hennerlev from Daze Marketing, the retailers are right. "They have costs to meet and must function as a business," he says. "If their margins are decreased they will simply sell or distribute something else they perceive as being more commercially lucrative.”

And Andrew Stafford, Product Manager for WH Smith Retail knows what it's like to run a retail business, "The single biggest cost is the salaries and upkeep of staff," he reveals. "There's also the running of stores — you know, rent, rates, lighting, heating, shopfittings and maintenance."

But the other main force behind retailers' price policies is the competition: "On all things Amiga, we're guided by the publishers and the price they put the game out for. We've broached the subject of lowering prices, but they've said their development costs are too high."

"I know some small companies like Team 17 are lowering prices, and they are an important part of the future of the market. But the larger companies set the example — they have the economies of scale that smaller companies haven't."

"There are two ways games sell — you can charge high prices, but have a low volume of sales, or you can charge lower prices and have a high volume of sales. At the moment software publishers are opting for the first choice, I think they should be going for the second."

"Having said that, the performance of the Amiga market is still really good for WH Smith, it is an important format for us and it's our fourth biggest with only the consoles beating it in sales."

Virgin Megastores, it seems, holds a similar view to its competitor. Their three main areas of sales — music, video and games — are all low margin, high volume products, and the profit they make on an individual product is small when compared to goods such as clothes.

A Virgin spokesperson says: "Our prices are determined by two factors — what price we buy at and our outgoings such as operational costs, wages, and heating, plus investment in new stores."

"If we could buy our products from the wholesalers for less, then we would sell them for less, it's as simple as that."

"We do rationalise price points to make it easier for the customer, pricing goods at levels people expect to pay, for example £25.99, not £27.93. If Virgin Megastores decided unilaterally to raise the price of a game then all it would mean is that all our competitors would sell more of that game and we would lose out. And if we lowered a price it would just mean that we would make less money on that product."

Away from the massive High Street chains, the small business still manages to compete on software prices, Tony Bicknell of Ultimate Specialist Computer Centres, says they achieve this by taking a smaller proportion of the selling price.

"The prices of many software titles are extremely high," he says, "so we add value to purchases with advice for the customer. All our stores are owner-managed and so have a far higher incentive to give the real service that will help customers as they develop their computing skills."

Mail Order Firms Manage it...

You only have to flick through the pages of Amiga Format and you will find pages of advertisements for mail order companies, selling games at much lower prices than you wall find in your average High Street shop. But how can they be so competitive in this cut-throat market?

"You need to know the right people and have enough money to be able to buy in bulk so that you can get goods in at a low price," says Gordon James from Software Demon who have two shops and a mail order firm. But, he also explains, they only add around eight to ten per cent to the price of the goods they sell — a massive difference from the average 40 per cent most retailers load on.

"We price all our products individually to keep them as competitive as possible. The large retail chains just add a standard percentage to whatever they're selling — books, videos. CDs, games. That's the difference."

Is Piracy still having an Effect?

The high price of games is still an argument which pirates use as an excuse for their illegal actions. If the prices were to drop dramatically, would they stop cracking games? Do pirates need to stop stealing before the costs come down so publishers can afford to lower the price levels?

Daze Marketing's Richard Hennerley argues: "It's about time that this old debate that we would sell more by decreasing prices as it would stop piracy, is laid to rest. If that's the case, how come people pirate budget games which sell at £2.99? Why was Stardust — which we priced at £16.99 — cracked and put up on a Bulletin Board the day of its release?"

"I don't believe the argument that cheaper games would mean less piracy, either," US Gold's Bridgett Hirst agrees. "Our research shows that people will pirate games no matter how much we're selling them for."

Is the Price Right?

So, are you getting a good deal, or are you being ripped off? The price of Amiga games is unlikely to be reduced, but who is to blame? Everyone in the chain of producing a game — from publisher, to wholesaler and retailer — takes their cut of profit which makes even Amiga game player pay more.

But all have their costs to cover and those are increasing all the time. From the publisher who is expected to produce more sophisticated and complex games for the consumer, and on an increasing number of platforms, the development costs are on the up. For the wholesaler and retailer, there's the constant trial of trying to balance the books with the many games that undersell expectations and the high turnover hits, plus the continual increase in expenditure.

Back in 1987, Amiga games were priced around the £24,95, so their prices haven't really been hiked up as much as you think. Now a game costs around £25.99, but do the hours of enjoyment you get from playing it give you value for money?

Much of that is down to you — careful purchasing of a product means you can have endless hours, days, weeks and even months of entertainment — in fact much more value for money than from most other products you will buy. By reading Amiga Format's definitive reviews and by shopping around for the best price, you can ensure the cash you hand over is buying you a lot more game for your money.

Nothing to say

Several retailers including HMV, Woolworth and Comet refused to speak to us on their pricing policies in the wake of the investigation into the price of games by the Monopolies and Mergers Commission. Although the MMC is primarily concerned with Sega and Nintendo's monopoly of the computer games market, other formats, including the Amiga, are also in the spotlight.

How the Prices of Games perform against Inflation

One thing that affects the price of everything is inflation. That vicious spiral that takes the price of everything we buy higher and higher. No matter how much the Government says it's coming down, they just mean that things are going up more slowly. But how have the prices of Amiga games performed in comparison with inflation?

We took a look back to issue one of ACE, Future Publishing's ground-breaking multi-format computer mag, launched in September 1987. ACE was Amiga Format's grandaddy, but back in those days, the dreaded Atari ST still ruled the 16-bit games roost. Amiga games were very rare, and Commodore owners were forced to stump up a whole £5 more than Atari owners for a game.

The reasons for this were twofold. Amiga games could not be expected to sell as many as their Atari counterparts, and they were also 'enhanced' from 16 to 32 colours. Back in issue one of ACE, the only Amiga games on offer were Electronic Arts' Earl Weaver Baseball and Psygnosis' Barbarian. Bubble Bobble made its home computer debut that month, but Firebird didn't have an Amiga version planned.

Both Amiga games were £24.95. Inflation was running at 4.2 per cent.

Order of the Day: £19.99

A year later, the Amiga was still taking second billing on the ACE cover and Amiga games were pretty common. Jez San's classic Starglider 2 was out, at £24.95 on both ST and Amiga. But Barbarian 2, this time with Palace, was a mere £19.99 on both formats. On occasion, Amiga owners were still getting rushed for the extra £5, though, Epyx The Games — Winter Edition being an example of this curse. Inflation was 4.9 per cent.

By September of 1989, ACE had gone, and in its place was our daddy, ST/Amiga Format. Even then the Amiga was in second place, but things were to change very soon. Carrier Command was out priced £24.95. By now, ST and Amiga games were both at the same price. Somewhere between £20 and £25. The Tories had allowed prices to rise by 7.8 per cent in the last year.

Things changed quickly in the world of computing back in those days, and September 1990 saw the newly separated magazine — Amiga Format. We were three issues old, and games were still averaging £22.50. F-16 Combat Pilot debuting at £24.95, but the original Strider costing a mere £19.99. By Amiga Format 15, the average price of games was £25.80. The majority being £24.99, but several £19.99 and some as expensive as £34.95 affect the figures. Prices were rising at a huge 9.5 per cent per year.

A year later, and the £19.99 price point is a thing of the past. VAT is up to 17.5 per cent and games are up to £25.99. This year's average — £27.08, inflation at 5.9 per cent was pushing prices up too! By late 1992, the average price of new full-price software had risen to £28.50. This was a reflection of the number of £30+ games on the shelves, but by and large the £25.99 price point was still the order of the day. The mag had a dedicated, and full-to-bursting budgets section, which we will not concern ourselves with here, since we are worried about the price of first-run, full-price games. Inflation — 3.7 per cent.

Better off by £10!

At the end of last year, issue 51 revealed an average game price of £26.60. A fall of nearly £2, but most every game still bore the £25.99 price label. However, inflation was a mere 1.6 per cent.

If Amiga games prices had risen with inflation over the last seven years, then what could we expect the price of our £24.95 (the price in 1987) game to cost today? The figures show us that in real terms we are actually £10 better off than we have any right to expect!

How the recommended retail price of an Amiga game is reached... And where all the money goes

The final price of a game is reached after a complicated set of costs are calculated, according to Richard Hennerley, MD of Daze Marketing who distribute games in the UK. Here he shows us a typical breakdown of figures, taking the selling price of a game as £25.99.

VAT — the Government's cut
After deducting 17.5 per cent VAT, a £25.99 game costs £22.12. That's £3.87, to the Government.

The games publisher's profit
Generally, games publishers supply to wholesalers at 55 per cent discount from the figure after VAT has been deducted. So that's £22.12 less the £9.95 that goes to the publisher.

Distributors and retailers take their slice
Distributors usually supply to retailers at 35 per cent from ex-VAT Recommended Retail Price, £22.12 less 35 per cent, or £14.38. That's £7.74 to the retailer (£22.12 - £14.38) and £4.43 to the wholesaler (£14.38 - £9.95).

Although the publisher in this example gets £9.95, this is by no means the profit which they make — this figure has to cover many outgoings. Deduct the expenses which total £4.70, leaves the publisher with £5.25 gross profit.

"This sounds good," says Richard Hennerley, "but from that a publisher has to pay development costs. These figures vary enormously with the game and can be up to six figures, but if we assume £40,000 for an average game, you would not be going far wrong!"

"From this £5,25 we also have to finance our overheads — salaries, rents, and taxes. Even in a small company such as Daze these total around £60,000 a year. Licensing costs can also be up to six figures."

"You also have to remember that hit games have to pay for the cost of games that flop. This is a hit and miss business, games sell very well or very badly (as low as 2,000-3,000 units). It's not simply a case of 'well if you didn't produce rubbish games'. Many games that do not sell are technically highly competent but it is not possible in this kind of market to know what the public will buy. So this is not a wildly profitable market and there are many ups and downs and risks."

Cost break down

Disks £0.80 (2 at 40p each)
Box £0.41 (inc wrap)
Manual £0.35 (average)
Marketing £0.90 (assume 10,000 unit sales)
Repro £0.25 (assume 10,000 unit sales)
Royalty £1.99 (assume 10,000 unit sales)
Total: £4.70