Video games are about to get more expensive as the console wars return

Key Points
  • Microsoft and Sony are set to ship their respective next-generation Xbox and PlayStation consoles next month.
  • Major publishers are expected to bump up the standard price of AAA games to $70 for the new consoles.
  • Hiking prices is a risky gamble that could put some gamers off, but many in the industry argue it's well overdue.
Game enthusiasts and industry personnel walk between the Microsoft Xbox and Sony PlayStation exhibits at a trade show.
Christian Petersen | Getty Images

LONDON — Gaming can be an expensive hobby. Blockbuster video games typically cost around $60 at launch. Now, as gamers race to get their hands on a shiny new console this year, the industry is betting they'll be willing to pay even higher prices for their games.

Microsoft and Sony are set to ship their respective next-generation machines next month. Consumers are already rushing to preorder them, with units quickly selling out within hours of listing. As a refresher, both Microsoft's Xbox Series X and Sony's PlayStation 5 cost around $500, while they're also releasing cheaper versions without disc drives. Sony's digital-only PS5 retails at $400 while Microsoft's more affordable Xbox Series S costs $300.

Both consoles' manufacturers are promising much more powerful performance and better quality graphics than their predecessors. For example, each comes with storage devices called solid state drives to enable faster load times, as well as a feature known as ray tracing which offers ultra-realistic graphics by simulating how rays of light bounce off of objects.

But with those premium specs, game publishers are expected to bump up their prices due to additional development and marketing costs. Take-Two Interactive, which owns the well-known Grand Theft Auto and Red Dead series, was early to the party, announcing in July that it would price its upcoming NBA 2K21 title at $70 on Xbox Series X and PS5. Then, earlier this month, Sony confirmed a price ceiling of $70 following the announcement of its PS5 release date and price.

Xbox head Phil Spencer on the $7.5 billion deal to buy Bethesda parent ZeniMax
Xbox head Phil Spencer on the $7.5 billion deal to buy Bethesda parent ZeniMax

"Our own Worldwide Studios titles will be priced from US$49.99 to US$69.99 (RRP) on PS5," Sony Interactive Entertainment CEO Jim Ryan said in a blog post earlier this month. Such a price increase would end the standard $60 that has been the industry norm for 15 years.

Microsoft hasn't comment on what Xbox's first-party games will cost yet, but Xbox chief Phil Spencer said in an interview with the Washington Post he thinks "the customer will decide what the right price is for them," adding: "I'm not negative on people setting a new price point for games." Microsoft declined to comment on this story.

Could higher prices put gamers off?

Bartosz Skwarczek, CEO and co-founder of video game reselling marketplace G2A, said increasing the price of AAA games "risks jeopardizing gaming for a new generation of young gamers." He warned that higher prices, coupled with the economic fallout of the coronavirus pandemic, may put cash-strapped consumers off buying new titles.

"I think this is not a good idea to increase prices when people are suffering and the economy is suffering because of coronavirus and the economic crisis that we have," Skwarczek told CNBC. "I think that could be played with a little bit more empathy towards gamers."

Nine in 10 gamers believe a new video game should cost less than $60, according to a survey undertaken for G2A by research firm Censuswide. The study, which surveyed 1,031 Americans in August, found all respondents think a price of more than $60 is too much for a single game, while 59% say gaming has become too expensive.

Those figures make grim reading for the industry's gamble that consumers will be willing to pay an extra $10 for their games. But some experts highlight there are now many more ways to access video games, sometimes without paying a penny.

Free-to-play games are a common sight now thanks to Fortnite, and there are plenty of subscription services on offer that allow gamers access to a library of content for a monthly fee. Microsoft for example has been heavily marketing Xbox Game Pass, which offers access to a catalog of over 100 games and is being bundled in with monthly financing plans for the new Xbox consoles. Sony, meanwhile, has its PlayStation Plus service that gives players access to two free games each month.

Microsoft's subscription offering also includes cloud gaming, meaning users might not even need a console to play their favorite titles. Companies from Amazon to Google are launching their own game-streaming services, however the space is still emerging. And some industry leaders are skeptical, with Take-Two Interactive CEO Strauss Zelnick recently saying cloud gaming won't be "nirvana" for the industry.

Is now the right time to raise game prices?

Many in the video game industry argue a price increase is well overdue. Call of Duty 2, credited with setting the current $60 standard when it launched in 2005, would cost almost $80 today, according to the U.S. Bureau of Labor Statistics' inflation calculator.

Mediatonic CEO on the rise of 'Fall Guys'
Mediatonic CEO on the rise of 'Fall Guys'

"There's no good time for a price increase," Steve Bailey, principal games analyst at research firm Omdia, told CNBC. "But saying that, there may be times where it's more suitable for there to be a price increase, and I think this is quite a suitable time."

"If you have to bite the bullet with a change like this, it's best to do it in sync with major transitions," he added.

Bailey said the gaming market has changed significantly over the years, with free-to-play games, digital discounting and subscription services now widespread on console. There are also "special edition" versions of games that cost an extra few bucks for additional content. According to Bailey, major game publishers already "have the data" on gamers' reception to charging extra for different tiers.

Plus, given the demand the sector has seen during the coronavirus pandemic, it's clear why big publishers are making such a gamble. Gaming companies have reported rising earnings this year as a result of government-enforced lockdowns, while video game research firm Newzoo forecasts the global games market will generate revenues of $159.3 billion this year.