The Impact of Rising Inflation on the Video Game Industry

Introduction

Rising inflation rates are a growing concern for various industries, including the video game industry. This article examines the implications of increasing inflation on video game prices, development costs, and the broader political and economic situation.

The Impact of Inflation on Video Game Prices

When considering the impact of inflation on video game prices, we can examine three major spending areas for consumers: subscriptions, boxed products, and free-to-play (F2P) and service games.

Subscriptions

Subscriptions, such as Gamepass, Apple Arcade, or Netflix, may be most vulnerable to the impact of rising inflation. As consumers face a cost of living crisis, they are likely to scrutinize their discretionary spending. Recurrent subscriptions may be evaluated more closely as consumers seek ways to save money for essential expenses like energy. Additionally, the proliferation of entertainment subscriptions means consumers may cut back on multiple services, including gaming subscriptions. To mitigate the impact of rising costs, firms may consider increasing monthly subscription fees, although this delicate balance could potentially lead to increased cancellations.

Boxed Products

Boxed products, such as AAA titles or indie games, are already considered premium purchases. With inflation rates nearing 10% and stagnant prices in recent years, it is conceivable that some companies may seek to raise prices. However, the sensitivity of price-conscious indie game purchasers may necessitate strategic pricing, including permanent standard price increases accompanied by steeper launch and sales discounts. The potential for price increases in this category is more uncertain, as companies may be wary of being perceived as taking advantage of financially strained consumers.

F2P and Service Games

F2P and service games operate under different economic models, with developers having pricing power within their games due to effective monopolies. While they may be less price-sensitive, F2P games have experienced backlash when increasing prices in the past. Developers are positioned to raise prices for virtual currencies and other in-app purchases, but the impact on sales and conversion rates remains uncertain. Increased bundle prices for F2P and service games may boost revenue, although the potential backlash and negative impact on player satisfaction should be considered.

The Impact of Inflation on Video Game Development and Salaries

Inflation’s most significant impact may lie in the rising costs associated with video game development and salaries. The COVID-19 pandemic accelerated remote work capabilities, eliminating geographical barriers and allowing easier job switches. The traditional office location as a deterrent for staff retention has diminished, leading to increased competition for talent across regions and countries. The current cost-of-living crisis, coupled with inflation, may drive demands for higher salaries and potential unionization, impacting overall game production costs. Additional factors such as rising energy costs and rent, as well as the global effects of the pandemic and geopolitical tensions, contribute to the increased expenses for studios.

The Wider Economic Situation

During periods of economic prosperity, income inequality often enlarges without significant backlash. However, during a recession or when resources are scarce, political battles over wealth distribution intensify. Over the past decade, income inequality has been overshadowed by gig economy work, globalization reducing the cost of goods, and declining union influence. The current financial pressures make labor unrest and calls for wage increases more likely, creating an unsuitable environment for wage restraint, especially in a tight labor market.

Consequences for the Games Industry

In summary, rising inflation is expected to result in increased prices for consumers, potentially leading to a dampened overall revenue growth due to reduced conversion rates. Meanwhile, escalating salaries and other costs, alongside shrinking margins, may make video game companies less profitable, potentially even leading to some businesses’ downfall. The evolving situation requires careful monitoring and adaptation within the industry.

Conclusion

The impact of rising inflation on the video game industry encompasses various aspects such as pricing, development costs, and the wider economic landscape. While price increases are anticipated for consumers, the exact extent and consequences remain uncertain. Rising costs of game development and salaries further contribute to the industry’s challenges. Navigating these uncertainties and adapting to changing market dynamics will be crucial for video game companies to weather the effects of inflation.