Thursday, July 16, 2009

"Race to Zero"

James Mishler has pronounced our doom and it is inescapable.

No wait, that was Sauron after he got the One Ring in that fan fic I wrote.

One point from this article, which offers a lot of opinion backed up by very little fact, was his repeated assertion of downward price pressure on PDFs. Eventually, he refers to this as a "Race to Zero" in what he calls "the PDF price wars".

Ok, pithy turn of phrase and all, but just plain wrong.

Ive operated a storefront continuously on RPGNow since 2002. I wasn't the first by any means but I was real early.

And for most of that time (probably since 2003 or so) I've actually had hard data on TWO PDF companies, my own very small Vigilance Press and RPGObjects, who is one of the top 25 vendors on the site.

Ive seen the site split, which took RPGNow to the indie site, while RPGObjects remained on RPGNow, I've seen the rise of the smaller, low-cost sell in volume approach pioneered and mastered by Phil Reed and lots of other trends.

But the most inescapable trend has been one of increasing market visibility, viability and respectability.

Along with that comes an overall increase in prices.

When I first started selling in 2002, almost every PDF on the site was $5 or it was free.

If you wanted to make your product stand out, you made it bigger, without increasing the price.

Slowly, as our production values started to go up, we started inching our prices up to match.

I remember very vividly when Darwin's World 2 was in development, internal discussions about whether or not a $10 price point would fly.

I argued that it would not. That $10 was like the sound barrier. Even if you COULD break it, it would get mentioned negatively enough to not be worth it.

Obviously, I was way wrong on that and Chris Davis was right, that PDF prices worked like everything else- their perceived value would determine what folks would pay. There was no artificial top price.

And of course, today we know this is true. The average price of the top 75 products on RPGNow is 9.40 and that's with all of ENPublishing's products on sale for at least half price. Were they not running a sale, that average would be higher.

So the best selling products today sell for almost twice what the average product sold then.

And of course, the idea that very idea that PDF prices would trend toward zero flies in the face of simple economic common sense.

Sure, some folks are giving crazy deals on PDFs, either as part of a sale or as a permanent strategy to make buying their core book a no-brainer, so you have a larger pool of potential customers.

But this is like saying the existence of Dollar Stores means that eventually everything will be priced $1.

It just doesn't fly.

Times are tough economically right now, so people are running sales.

Many companies also have tried to emulate Phil Reed's strategy and concentrated on small products they intend to produce quickly, with low overhead and sell in volume.

But there is still a very healthy niche for the high quality, big book premium product, sold at a price point commensurate with its size and quality.

And it isnt just the venerable best sellers who can get away with this.

Number one product on the site right now has a price point of $10.

Number two is $7, three is $15, four is $12 and five is $1.50, for an average price point of $9.10

If this is a race to zero, everyone is going in the wrong direction.


David M Jacobs said...

What surprised me was that Mishler failed to adequately acknowledge the size of the pen-and-paper RPG market as a factor in pricing; even as a sector of the tabletop gaming market, RPGs are minuscule. In such an environment, print publishers and distributors simply can't recoup their costs on volume—they must rely on margins to make their profits.

To give an extremely simple model of this, imagine that you have a product, X, and that it costs $900 to bring X to market. Assume also that price isn't a factor in demand.

Now, you could sell 10 X for $100 each, or 100 X for $10 each, and still make a tidy profit. But if only 20 people ever want to purchase X, then you can't price X at $10 apiece without making substantial losses; in fact, if your unit price goes below $45, then you're stuck in the red. Unless, of course, you can reduce the cost to get X to market in the first place.

Surely this lower limit has greater influence on determining price than some nebulous upper limit imposed by stingy gamers?

(Obviously, this is less an issue in the PDF market, where production and distribution costs are lower. Nonetheless, it influences price, regardless of format.)

Chuck said...

You make a lot of really good points. And the observation that RPG pricing isn't really determined in the usual way is maybe the best point you make.

RPGs are the definition of discretionary spending. No one NEEDS a new RPG book in print or in PDF form.

So the chief motivator of sales isn't price, it's making the customer want your product.

This is what a lot of folks missed that tried to cash in on Phil Reed's small PDF business model.

To really make money that way, you have to deal in volume. Which not only means you have to have a constant stream of those small products, but it has to be a constant stream of GOOD products.

No matter how cheap, and how often a product comes out, if its not good, no one wants it.

And RPGs are definitely a "want" business.

Which is a big reason why the RPG business is largely seasonal.

In the summer, people go outside. The truly devoted (ie those folks most likely to venture outside the print market into PDFs) are also saving up for that gem of a book they hope to find at GenCon.

During the winter, people are stuck inside, they want something NOW for that pick-up game and they don't want to shovel the driveway before they go get it.

Dr. Comics said...

This reminds me of a recent call-in to NPR, when a fellow described his experience as a nature guide for hire. He raised his fee, and business went up. He raised it again, and business went up. If he lowered his prices below his competitors, business dropped because customers saw him as the "Cheap" option and they wanted "the Best."

But I guess Domingo Montoya could have told us that.

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