CNBC recently published notes from KeyBanc Capital Markets analyst Evan Wingren, who said that gamers were “overreacting” to the loot box scandal surrounding Star Wars: Battlefront II.
In the article published on November 20th, 2017, CNBC quotes Wingren’s notes to clients, and his outlook on the situation, which reads…
“We view the negative reaction to Star Wars Battlefront 2 (and industry trading sympathy) as an opportunity to add to Electronic Arts, Take-Two, and Activision Blizzard positions. The handling of the SWBF2 launch by EA has been poor; despite this, we view the suspension of MTX [micro-transactions] in the near term as a transitory risk,”
“Gamers aren’t overcharged, they’re undercharged (and we’re gamers) … This saga has been a perfect storm for overreaction as it involves EA, Star Wars, reddit, and certain purist gaming journalists/outlets who dislike MTX.”
NBC goes on to reinforce Wingren’s point by stating that analysts continue to reiterate that Electronic Arts, Take-Two and Activision need to raise prices to adjust for inflation [Update: There was a correction made for the SRP, as it originally stated figures that was in relation to stock target prices].
They continue to quote Wingren, who writes…
“”If you take a step back and look at the data, an hour of video game content is still one of the cheapest forms of entertainment,” […] “Quantitative analysis shows that video game publishers are actually charging gamers at a relatively inexpensive rate, and should probably raise prices.”
The article has no counterpoint for Wingren’s statements. They make no effort to talk about the actual finances, development costs, operating costs, distribution costs, or overall comparison of expenses versus profit to justify publishing Wingren’s comments uncritically. There is no substantial basis, data, or references for Wingren’s comments, and the general gist is that Wingren gets a platform to promote the view of shareholders without any opposing views or factual data to back up his point.
What this article does is create narrative perception.
People read the article from someone who they believe to have authority on the subject matter (he does not), and someone who seems to understand the industry (he does not), and trust that what he’s saying is true (it’s not). The analysts’ goal is to protect financial interests of his firm and the clients that the firm represents. His analysis has nothing to do with whether or not a quality product is made available for consumers, or if that product is priced fairly, or if it even abides by regulatory laws regarding digital gambling.
The CNBC piece uncritically hoists Wingren’s comments above reproach, fact checking, analysis, or counterpoints. The only view being expressed here is one that promotes and defends the corporations that many consumers are quite angry with.
The article also takes no effort at all to even examine why prices need to be raised for games. Middleware technology is at an all time low when it comes to costs. Game engines are now made freely available and relatively inexpensive for starter studios. In fact, costs of development have been driven so low that more games released this year on Steam from a wider variety of studios than the amount of games released between 2006 and 2014, as reported by VG 24/7.
Market breadth has changed drastically, along with distribution opportunities, and a reduced cost of delivery. So more people are making more games at cheaper prices for a larger range of demographics.
Hence, that’s something that’s completely skipped over by those presumably looking to protect their own investments: games are being sold at larger volumes to more markets across multiple platforms using cheaper tools. Essentially, from a developer/publisher standpoint: they can move more units for less.
Digital distribution sales also completely extricates physical distribution costs as a delivery medium. So if we’re using the infamous “Anatomy of a Game” table, as published by the LA Times, digital release channels can knock off at least $20 from distribution overhead. Games are still at $60 when released digitally, even when games like Star Wars: Battlefront II and Battlefield 1 are sold through publisher-owned portals like Origin, where there are no distribution fees.
Wingren also completely fails to mention that on the R&D side, Electronic Arts saves countless dollars on the long tail in licensing fees thanks to having the Frostbite game engine used in-house for almost all of their published titles. The iterative, high-end game engine powers many of their AAA games, so they’re not paying upfront or on the backend for access to technology owned by Crytek, Epic Games, or Unity Technologies. It’s all theirs.
In fact, these cost-cutting measures and operating savings were even measured in graphs by YouTuber Tarmack, who explains that big publishers like EA are producing fewer games but bringing in higher revenue and posting higher profits, while costs have either flat-lined or declined in some cases.
It poses the question: if companies are making more than ever, producing fewer games, lowering costs, and expanding their business, why exactly is it necessary for consumers to pay even more for games?
CNBC doesn’t question Wingren’s assertion that gamers are getting it off easy and are overreacting. The narrative they put forward makes it as if EA is at some stark disadvantage for having to stave off the use of microtransactions in a game like Star Wars: Battlefront II. The article also poses the view that analysts and shareholders are worried about growth and sales, hence stock prices for companies like EA and Activision have been on a decline recently.
What the article doesn’t discuss is that – as pointed out in a recent editorial – you can make bigger games these days for reduced costs and with smaller teams than what it took to make equivalent titles 20 years ago.
For example, it cost Square Enix $45 million to produce Final Fantasy VII from 1996 to 1997, according to a Stanford report, and the game looked like this…
As an opposing example, it cost French studio Enigami roughly $140,000 to produce a game via Kickstarter called Shiness: The Lightning Kingdom between 2014 and 2017, and it looked like this…
The point is, you can make great looking games with small teams on smaller budgets these days than in the past thanks to cheaper tools and advances in technology that requires less resources to produce higher quality results.
Sometimes this even applies to the AAA sector, where a game like Gears of War cost $10 million to produce in 2006, where-as Shenmu cost $70 million for Sega to produce back in 1999 for the Sega Dreamcast, as confirmed by series creator Yu Suzuki in an interview.
And then we have games that look like AAA titles that are just a fraction of their budgets, like Kingdom Come: Deliverance, which was developed on a $2 million budget, according to RPG Watch.
The point is, it’s an absolute lie to say that all game development costs are rising and therefore all game prices must rise. It’s a fluid industry with an ebb and flow for the cost of development. It’s also a lie to say that games can’t post profits without microtransactions or that they require bloated budgets to be successful. In fact, PlayerUnknown’s Battlegrounds managed to accrue $100 million in sales within two weeks without an aggressive marketing campaign, and it’s a low-budget Unreal Engine 4-produced title that ended up becoming the biggest selling game of the year, moving more than 20 million units.
The media and the industry’s money men continue to push these narratives that gamers need to give up their enjoyment of games in order for publishers to make bank and keep producing games. This false narrative is repeatedly defended without question or criticism by the media in order to edge closer to getting gamers to pay upwards of $70 for AAA games, whether they warrant that cost or not.
As mentioned previously, Star Wars: Battlefront II is built on the Frostbite engine that EA and DICE own, which cuts down on costs. Majority of the assets were already designed and in place from the original Star Wars: Battlefront, which also cuts down on costs. And the analysts were expecting the game to move 13 million units over the course of fiscal 2018, which would roughly put the game at three quarters of $1 billion in revenue (not counting special editions, collector’s editions, or microtransactions).
Wingren doesn’t bother to explain why the game should cost more than $60 even with all the cost-cutting measures mentioned above, but laments that the game may not hit the 13 million estimated figure following the controversy about the loot boxes and unregulated gambling.
CNBC reached out for comment from Electronic Arts and Activision, but didn’t bother asking Wingren any of the basic questions posed above. They uncritically and unrepentantly published his words as law, and left it at that.
This is just added fuel to the fire that makes many educated and informed gamers angry at the media for not only failing to fact check, but also failing to even ask questions from the people giving advice about an industry they don’t even have any basic knowledge about.
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