DLC: The Business Perspective

As gamers we’re constantly looking at the video game industry’s decisions from our own point of view. To us video games are art forms as well as entertainment, and as consumers we see games in terms of value and quality. But the senior staff and board members of big video game developers and publishers see video games in an entirely different way. If they aren’t in charge of some part of the game’s creative development than they’re looking at video games as letters and numbers. It’s not about the quality of the game, it’s about how much profit the game can make that matters to them. And that goes for DLC, too.

Let’s make it clear, I’m by no means trying to justify the paid for DLC process. In fact, I’ve written articles before that attack the practice of paid DLC  and in the worst case scenario the only time we should have to pay for added content. But I think it’s important for us as gamers to see the situation from both points of view, at least to understand why every new release is going to have some kind of DLC.

AAA title video games are expensive to produce. Their staff is made up of hundreds of employees, from the game development team, and then to the rest of its departments from finance to marketing. In fact, games can sometimes rival movie production prices. Take Halo 4 as an example. It’s been reported that Halo 4 cost around 100 million dollars. It’s also been reported that around 8 million copies of the game have been sold. Halo 4 was lucky to be produced by Microsoft, who was able to pay for the console fees, marketing, and publishing as well as the development. So for every game that’s sold let’s say they’re making 60% of the price tag.

If we do the math correctly that means Halo 4 made 288 million dollars off just the standard release of the game. That’s 188 million dollars of profit, a whopping 188% profit margin.

Now let’s take a look at DLC, which costs a lot less to produce. Not only is its development usually done by a much smaller of staff, like in Halo 4’s case a small team of level designers, but it’s marketing and publishing fees are much smaller. Halo 4 gets free marketing to over 8 million gamers they already know are fans by putting the DLC offer up on the loading screens. So, if they sell a mere 1 million copies of a DLC map pack for $20, reaching only 1/8 of the players that own the game, they’re still going to come out with a much bigger profit margin than the original game. It’s easier to push an extra $20 out of gamers that have already declared themselves fans as opposed to convincing new players to shell out $60.

Does this justify making games with the intent to sell DLC later? I don’t think so. But for the CEOs and board members of big game developers they’re not going to be able to say no to the DLC practice. It makes them too much easy money that requires little work and little risk. So unless something changes, don’t be surprised if every new release has DLC coming out with it.