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Newell on Piracy, Pricing, TF2 Comics, and More

There's a Live Blog of the DICE 2009 Keynote on the G4tv Website recapping an address by Valve's Gabe Newell on the topic of "entertainment as a service," discussing Steam and serving customers in an era of increased digital distribution and piracy. Along the way he mentions plans for Team Fortress 2 comic books, created by the team behind the TF2 character videos, making a point that audiences tend to be fans of properties, rather than specific products. Gabe makes some sage observations, including how piracy is about service, saying pirates are beating companies on service, citing the example that TV shows are not available in certain parts of the world, but pirates have them up on the web minutes after they are finished airing. He says DRM decreases service value for customers, and makes pirated copies of games look more appealing, saying anecdotal evidence appears to suggest that DRM is increasing and not decreasing piracy. Perhaps most interesting is the talk of how Steam sales have impacted sales figures, which look like they make a strong case for the idea that games are overpriced, as not only did sales increase during these promotions, but so did their profits, and Valve also noted spikes in sales of Team Fortress 2 every time they issued a free update. Here are a couple of direct excerpts from an interesting recap:

Last weekend, Valve decided to do an experiment with Left 4 Dead. Last weekend's sale resulted in a 3000% increase over relatively flat numbers. They sold more last weekend than when they launched the game. WOW. That is unheard of in this industry. They beat their launch sales. Also, they snagged a 1600% increase in new customers to Steam over the baseline.

Worried retailers, fear not. The weekend sale didn't canabalize sales from retail. In fact, they remained constant. Well, constant isn't a 3000% increase, but it's still pretty good, right?

Looking at a third-party game, they saw increases of 36,000% with a weekend sale. Oh. Em. Gee. Okay, Gabe is starting to convince me that PC at retail is going to die very soon.

During the Holiday sales:

        • 10% sale = 35% increase in sales (real dollars, not units shipped)
        • 25% sale = 245% increase in sales
        • 50% sale = 320% increase in sales
        • 75% sale = 1470% increase in sales

At 75% off, they are making 15% more money than they were at full price.

Update: There is also an article about all this on Gamasutra.

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78. Re: Newell on Pricing Feb 19, 2009, 15:36 human
Milk is not a good analogy for games in a economic analysis. There are about a billion reasons why, but I'll name the three most salient:

1) Milk is usually a basic food in many cultures. It is, therefore, in economic terms, relatively inelastic in its demand curve. People cannot find substitutes for milk and are not as willing to part with milk as prices rise as they are to games. Games, of course, are entertainment, and almost no one would prioritize entertainment over a basic necessity such as food.

2) Production and distribution costs of milk and games are wholly different. In Steam, which is what this thread is about, distribution costs are miniscule compared to the price of the production of the game. In milk, distribution costs are more substantial and more easily influenced by external factors such as the price of fuel, the cost of maintaining trucks, et cetera.

3) There are many producers and distributors of milk in most markets. Steam, as a distribution service, is probably the premier service of its kind. There are very few other online games distribution systems in place that compete with Steam.

All of these factors make your analogy fatuous to the extreme.

I am not making any 'defense' here of Steam. My only point here is that you are a moron and everything you say is laughable. The fact that you think you are some sort of messianic advocate of the consumer, "defending lower prices" makes a good laugh, but that's all.

And who cares if a game costs $65 in your country? Prices of various goods differ widely in different countries. If you are German, you are probably used to paying 2 euros for a döner and 2 euros for a beer, and yet you probably pay 1.5 euros or more for a liter of gasoline and here in the US we pay more for beer and less for gas.

'Defending' these prices (not that anyone can even do such a thing) does not remove the market conditions which make them so. That is not to say new ways of doing things cannot be found, and in fact it looks like Valve are trying these experiments to learn more about this new market, but the way you're going about this subject gives me nothing but lulz.

This comment was edited on Feb 19, 2009, 15:45.
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