IndustryGamers - Informing the Games Industry

The Divnich Debrief: Long-term Impact of DLC Pricing

Posted April 19, 2010 by Jesse Divnich

Recently, I did an interview regarding the success of the Stimulus Package released by Activision for Call of Duty: Modern Warfare 2. In the interview I was asked about Activision’s aggressive pricing strategy and whether charging nearly 50% more than previous DLC packs was a financially sound decision. My response and sentiment remain unchanged. Because nearly 25% of Modern Warfare 2 owners purchased the DLC at $15, it is clear that the pricing strategy was effective, and yes, an economical argument could be made that the $15 pricing was either just right or too low (given the success of the product).

So why the uproar? Consumers have been previously anchored to expect a $10 price tag for map packs, and the news of the price increase, over standard, was simply upsetting – upsetting because many consumers were left with little options but to buy the Stimulus Package, especially die hard Modern Warfare 2 fans. These are gamers that have invested a lot of time in building their stats; maybe they joined clans, or regularly play with friends. Not buying the map pack meant they were excluding themselves from enjoying the full Modern Warfare 2 experience.

Additionally, the Stimulus Package was highly anticipated; it was a reason why many gamers still played Modern Warfare 2 long after maxing out their stats, and they wanted to stay fresh for when the new maps were released. Finding out only weeks prior that the price was much higher than previous content was certainly a shock, and likely exasperated their frustrations. In my opinion, it was not necessarily the price that upset gamers, but how Activision went about it. 

While my original argument was that the Stimulus Package was a success, just by the sheer volume of purchases, does it justify Activision’s actions? Just because you can charge more, should you? And what could be the long-term effects of increasing DLC pricing?

It reminds me a lot of oil prices over the last five years. When the “oil shortage” hit, prices skyrocketed, and most consumers had no choice but to pay the market price. After all, it wouldn’t be economically feasible to trade in your gas guzzling SUV on such short notice, nor feasible to search for a new job with a shorter commute. However, over the long-term consumers changed their behaviors, and they began to purchase more hybrids, they bought smaller cars, found jobs closer to home, or began to telecommute.  At the same time, companies such as Exxon Mobil were posting record profits measured in the billions and by no coincidence they quickly reached the top of many “Most Disliked Companies” lists.

The long-term implications with Activision and the Call of Duty brand may be similar, in that the cost to continue to be a part of the Modern Warfare 2 circle is now much higher than what consumers anticipated. Sure, in the short-term it doesn’t seem like the higher priced DLC negatively impacted sales, but it could in the long-term. Future Modern Warfare 2 content could actually under-perform, washing away all the financial upside from the Stimulus Package. Activision could have very well sold 2.5 million map packs at $15, at the cost of selling 2 map packs at $10 each at 2.5 million units.

Consumers could also jump ship to competitors, such as Battlefield Bad Company 2, since the long-term costs of being part of that circle are now much lower in comparison to Modern Warfare 2. Additionally, consumers could avoid the next iteration of the Call of Duty franchise, since again, cost of dedicated ownership is now much higher. Unfortunately, given the recent environmental changes at Infinity Ward, it will be nearly impossible to measure the impact of higher DLC pricing, in this scenario, since any positive or negative impact on future sales of Modern Warfare 2 and its DLC could be in large part due to other factors.

Am I happy with Activison’s actions? As an economist, yes, since someone needed to test the boundaries on DLC pricing. DLC is a new market opportunity for publishers, and it is because of the intrepid actions of Activision that we now have a few more answers.  If consumers deem it unfair for companies to overcharge their products, it is similarly unfair for businesses to unknowingly under-price their products.

Jesse Divnich is the VP of Analyst Services at Electronic Entertainment Design and Research (EEDAR). He's been an industry analyst for over 7 years.  All views and opinions are that of Mr. Divnich and not necessarily the views of EEDAR or its clients.