Could Steam machine sales drive the price of video games down all the way to $0 based upon free to play games?
In a related report by The Inquisitr, the Steam machine is essentially a Linux-powered gaming PC intended to compete in the console gaming market against the PlayStation 4 and Xbox One. Nvidia claims they’ll be better than the PS4 hardware and even have a better Steam controller to boot.
Over on Tech Spot a guest writer named Nicholas Lovell makes the argument allowing video game developers to set their own prices will inevitably cause prices to drop to $0. This argument is based upon the ideas of the economist Joseph Bertrand, who believes competitors in a free market will eventually undercut each other’s sales until the prices stabilize right above the cost of producing the product (the marginal cost). When these ideas are applied to gaming digital distribution, Lovell argues that game developers might compete to the point of everything becoming free games because the cost of bandwidth is almost $0.
I buy this argument to a certain extent, but it would also require multiple companies cooperating toward a common business model. Even with competition the lowest price seems to be either $1 (mobile) or $5 (PC). But it’s also a mistake to claim the marginal cost is limited to only bandwidth costs. Marketing (Steam’s 30 percent cut) and development are real costs so the marginal cost can never be completely $0. But it is true that once those mostly one-time static costs are paid off then the marginal cost drops to almost $0 if you ignore the costs of long-term technical support, creating patches, etc.
So what would this business model look like? Microsoft and Sony sell the Xbox One and PS4 as loss leaders and then recoup their money through software sales. Apple has become a very large gaming platform, but their business model is the opposite, with the vast majority of their money coming from (overpriced?) hardware sales. But instead of going full free to play, or competing to the point of bankruptcy, I can see developers first attempting to sell their game at full price and then switching to a different business model.
For example, if sales volume on certain titles drop to a certain threshold I can imagine switching those games over to a digital subscription-based service. It could function sort of like cable TV where all the entertainment creators split a set amount so many ways. Much of the revenue would also come from the sales of the hardware. It’s possible that Xbox Live and PlayStation Plus may evolve in this direction, especially since they’re already giving away “free” games as a bonus.
Otherwise, I can see games becoming standalone $0 freeware if repackaged as a marketing platform for a sequel or titles from the same developers. The free versions could have built-in advertising and payments systems for buying the newer games (free to play mobile games already tend to do this heavily). In addition, DLC could be marketed even more heavily in the supposedly free games.
Do you think the Steam machine will necessarily cause video game developers to trend toward free gaming?