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Economics of Game Prices


JackKieser
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DS EDIT: This is split from the Extra Credits thread.

I'm actually kind of sad they didn't give the two arguments against piracy that I feel are the most pressing:

1 ) Developers need to make more compelling software... and no, just because 2010 had ME2, a CoD, a Halo, and RDR, that does NOT mean that we're putting out quality titles. The ENTIRE VIDEO GAME INDUSTRY, across all consoles + PCs (without iDevices) released 1224 games in 2010. Note: that includes multi-console releases (ME2 coming out on 360 and PC counts as 2 releases)... but even taking that into consideration, over 1200 games were released in 2010, and how many of them mattered? How many of them sold? How many of them were even GOOD?

Hint: If you didn't know that many games were even released, then the answer is "very few".

Instead of studios sinking money into all of this shovelware (I cringe to think about how many of those games were Wii trash titles), how about NOT MAKING ALL OF THAT CRAP. Make less games, and make them ALL BETTER. How about only releasing 500, or 300 games total between all consoles, and using all that saved money to make those 300-500 games all AAA titles? If all of those games were must-have games, you'd be selling more. Which brings me to...

2 ) Make the games cheaper. No economist ever teaches this, but lower prices == more sales. If you raise prices, your profit per unit goes up, sure, but you sell less of them, so it doesn't matter anyway. That's how you cause inflation and kill economies. Lower prices means more people CAN buy your product, meaning you'll sell more and offset that lower cost. High costs will never break their ceiling of potential buyers, but low cost items can (and usually do) oversell estimations. You know, part of why I impulse buy gum and not video games is because an impulsive purchase of gum only sets me back 50 cents... and impulse buy of a video game sets me back 50$. I only impulse buy games 10$ or less, if even that. So, lower the cost of your games, and get more people to buy them.

Honestly, most people wouldn't pirate games if they didn't feel persecuted in the first place. No one WANTS to steal. People steal because they feel like they're getting a raw deal and want to stick it to the man. Don't fuck over your customers, and you won't have rampant piracy.

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I'm actually kind of sad they didn't give the two arguments against piracy that I feel are the most pressing:

1 ) Instead of studios sinking money into all of this shovelware (I cringe to think about how many of those games were Wii trash titles), how about NOT MAKING ALL OF THAT CRAP. Make less games, and make them ALL BETTER. How about only releasing 500, or 300 games total between all consoles, and using all that saved money to make those 300-500 games all AAA titles? If all of those games were must-have games, you'd be selling more.

You're assuming that all those bad games don't sell, and don't make money. Even the shittiest app game on your iPhone gets a few thousand people buying them, and that's tens of thousands of dollars in someone's pocket.

Shovelware sells, and it always will. It's just the way things work. No company will cut out their cheap, quick and dirty products when people willingly buy them again and again.

2 ) Make the games cheaper. No economist ever teaches this, but lower prices == more sales. If you raise prices, your profit per unit goes up, sure, but you sell less of them, so it doesn't matter anyway. That's how you cause inflation and kill economies. Lower prices means more people CAN buy your product, meaning you'll sell more and offset that lower cost. High costs will never break their ceiling of potential buyers, but low cost items can (and usually do) oversell estimations. You know, part of why I impulse buy gum and not video games is because an impulsive purchase of gum only sets me back 50 cents... and impulse buy of a video game sets me back 50$. I only impulse buy games 10$ or less, if even that. So, lower the cost of your games, and get more people to buy them.

First, most games these days cost millions to make. MILLIONS. Higher price tags at the store are there to help ensure they recover that cost as much and as quickly as possible. How many of those games must a studio sell to recover the investment? I don't know. But I'm willing to bet it's a lot. Every one that sells for $60 is doing them more good than every one that sells for $40.

Also, I have to point out your incredibly simple approach to economics. You say the economists don't teach "lower price = more sales". This is for a good reason. IT DOESN'T WORK THAT WAY IN REAL LIFE. Dropping the price only works in very specific circumstances. If it did work like that, everything in the world would be a lot cheaper. Cars, house, food, everything would be cheaper.

Honestly, most people wouldn't pirate games if they didn't feel persecuted in the first place. No one WANTS to steal. People steal because they feel like they're getting a raw deal and want to stick it to the man. Don't fuck over your customers, and you won't have rampant piracy.

That's hardly the most likely cause for piracy. I'd say it the fact that humans like to get things for nothing. We love it when something just falls into our laps. We love it when we can get around the work and effort it takes to get something. If you get food simply by picking it up, that a lot easier and instantly satisfying than having to do something for it.

Personal greed is what motivates piracy. Do other reason factor in? Yes, of course. But personal greed is the real reason.

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I'm actually kind of sad they didn't give the two arguments against piracy that I feel are the most pressing:

1 ) Developers need to make more compelling software... and no, just because 2010 had ME2, a CoD, a Halo, and RDR, that does NOT mean that we're putting out quality titles. The ENTIRE VIDEO GAME INDUSTRY, across all consoles + PCs (without iDevices) released 1224 games in 2010. Note: that includes multi-console releases (ME2 coming out on 360 and PC counts as 2 releases)... but even taking that into consideration, over 1200 games were released in 2010, and how many of them mattered? How many of them sold? How many of them were even GOOD?

Hint: If you didn't know that many games were even released, then the answer is "very few".

Instead of studios sinking money into all of this shovelware (I cringe to think about how many of those games were Wii trash titles), how about NOT MAKING ALL OF THAT CRAP. Make less games, and make them ALL BETTER. How about only releasing 500, or 300 games total between all consoles, and using all that saved money to make those 300-500 games all AAA titles? If all of those games were must-have games, you'd be selling more. Which brings me to...

2 ) Make the games cheaper. No economist ever teaches this, but lower prices == more sales. If you raise prices, your profit per unit goes up, sure, but you sell less of them, so it doesn't matter anyway. That's how you cause inflation and kill economies. Lower prices means more people CAN buy your product, meaning you'll sell more and offset that lower cost. High costs will never break their ceiling of potential buyers, but low cost items can (and usually do) oversell estimations. You know, part of why I impulse buy gum and not video games is because an impulsive purchase of gum only sets me back 50 cents... and impulse buy of a video game sets me back 50$. I only impulse buy games 10$ or less, if even that. So, lower the cost of your games, and get more people to buy them.

Honestly, most people wouldn't pirate games if they didn't feel persecuted in the first place. No one WANTS to steal. People steal because they feel like they're getting a raw deal and want to stick it to the man. Don't fuck over your customers, and you won't have rampant piracy.

I've often wondered about game over-pricing (which in my opinion is far worse in the USA than it is in the UK where I live). "Rich people seem to be good at making decisions to keep them rich" is a sentence I can't get out of my head. Another potential benefit of lower prices would be a form of advertising - a more ubiquitous product is a form of free advertising.

Either they are just pig-ignorant, or it is more efficient to lobby governments to help them control supply and demand and those day 1 full price sales are worth the trouble.

Edit : PS @ The Damned, you're fighting assumption with assumption. Instead of patronising caps, you could either speculate or provide facts which prove your point and legitimise your arrogance.

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1 ) Developers need to make more compelling software... and no, just because 2010 had ME2, a CoD, a Halo, and RDR, that does NOT mean that we're putting out quality titles. The ENTIRE VIDEO GAME INDUSTRY, across all consoles + PCs (without iDevices) released 1224 games in 2010. Note: that includes multi-console releases (ME2 coming out on 360 and PC counts as 2 releases)... but even taking that into consideration, over 1200 games were released in 2010, and how many of them mattered? How many of them sold? How many of them were even GOOD?

I've personally come to believe that the only thing AAA games bring to the table these days are their production values. Every studio worth talking about in this regard is at least a hundred people. More likely a hundred people in every department. I can't find it right now, but there was a chart floating around a few months back about how much you're liable to make in the industry. Once you get up to asset creation (concept art, modelling, soundtrack, etc.), the company shells out a nice chunk of change in salary to these people every year. Multiplied by the sheer number of artists needed to make a AAA game into reality, and you're well into the multi-millions right there. Not to mention, as stated in the video, these people take a pay cut, sometimes a severe one, so they can do what they love.

Add in marketing costs, new software/hardware kits, any bonuses they decide to hand out, pressing the discs, getting them shipped, the cut that GameStop takes for stocking the damn thing... The amount of money that goes into making just one AAA game happen is ridiculous. Everyone wants to at least break even, any way they can. You see that philosophy in everything from shovelware to derivative game concepts to Project Ten Dollar. And because of market saturation, many games don't hit that mark. Which can and does sink studios, all the time.

2 ) Make the games cheaper.

Only way that's going to happen is if devs and publishers everywhere cut costs. The $60 model has been in place for a while now, it's worked out okay for most parties involved. Corporations are naturally averse to change, because there's no guarantee doing anything other than what you did before won't kill your profit margin. Add in the dizzyingly high stakes that come from the overinflated budget, and you get... Well, pretty much what we've got now.

The only way out, as far as I can see, is for the entire indie scene to explode with popularity. I'm generalizing here, but we're stuck in an arms race of sorts right now, where everybody's trying to add more glitz and more flash on top of the same (or less) gameplay. Somebody, somewhere, is going to have to back off and dial it down. But since small games with big ideas very rarely become smash hits, or even profitable at all, there's no incentive to do so.

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There's no such thing as "over-pricing". Every product has an equilibrium price - the price that results in the most revenue. That price is what all businesses strive for. At ANY OTHER PRICE POINT, the business will make less money. If you go down from $50 to $1, you will undoubtedly get more sales... but not necessarily more *total revenue*. Likewise, if you go up from $50 to $500, you'll make a lot more revenue per sale, but the loss in sales will not make up for it. This is what basic economics teaches, and there are basically no exceptions outside of complete monopolies for necessities like energy and heat (which are regulated anyway.)

Don't even get me started on the indie scene, BTW. Almost everyone that says they support "indie games" is being a hypocrite. The indie community is in many ways even more closed-minded than the mainstream game community. Look at all the indie darlings, the fan favorites: almost all of them are either platformers, 8bit, or both. Don't get me wrong, either. I love many of these games. But I've spent the last month trying to promote my own game, "Return All Robots!", which is not 8bit, nor a platformer, and basically not one single indie game site has paid it any attention. Meanwhile, 8bit platformer #5612 gets tons of attention.

So guess what we're going to do next? We're going to make an 8bit platformer, because apparently trying to be inventive and innovative isn't appreciated on ANY level. I'm overblowing it here a little bit for effect, but hopefully you get my point. If you're going to demand that developers make "better games" then you need to pay more attention on what's already out and support those developers who are legitimately trying.

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People who argue for piracy because they can't afford games (or because "they're overpriced," which is essentially the same argument but modified to say they can't afford as many games) have some weird sense of entitlement. If you can't afford something, you shouldn't have it. That's kind of the way life works. Sure we have a conscience as a society and introduce legislation to ease the "tough love" of this concept with basic necessities like food and shelter, but games hardly fall into that category. You don't have to play every game that comes out just because you're a gamer. Not only will that cost a ridiculously amount of money, it will probably take more time than you'll live. So just choose your games wisely and get over it.

That said, I really liked what you guys said about writing to developers. Pretty much every instance in which I've taken... less than scrupulous action in acquiring games was because I had no other way to try it out. And without trying it out, I'm not going to buy. Here's hoping developers will listen and give us some more (and better) demos.

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Wow, guys, way to misunderstand my arguments. Ok, let me break this down for you.

First of all, I never said that a AAA title was ONLY the titles with the best production value. A AAA title is the title with the highest QUALITY. Total quality. Pretty games with shit gameplay are NOT AAA titles; if ME2 was buggier than the first and had terrible gunplay, it wouldn't be AAA, even though it had amazing graphics and a great marketing campaign. The AAA distinction comes AFTER a game is released, not BEFORE.

So, when I say make less shovelware and more AAA games, I mean take the time and money that you're spending making bad games just to sell to stupid people for a quick buck, invest that money on increasing the dev time of your other games by 6 months to a year, and DESIGN THE GAME WELL. Make sure the game is GOOD before you blow money on an art budget. Listen to me when I say this: as someone who has studied AT NINTENDO, I can tell you from experience that games are made and broken on the Game Design Document. That's before even a prototype is made. If your concept is bad, if your story is bad, if your gameplay is shallow and poorly designed, you can't fix that later in the design process. Make less games less often, but ensure that what you DO make is so good, that your consumers literally cannot live without playing it. Not only will you (ultimately) save money (because shovelware is no guarantee by any means), but you'll sell more product because it will be a quality product that people will WANT and NEED to buy.

Secondly, according to current statistics, the ratio of CEO pay to worker pay in the USA (this includes ALL American companies, including companies like Epic, for instance) is 263-1. That means that for every dollar we expect a game coder or graphic artist at EA to make, his CEO is making 262 more dollars. That's. Ridiculous.

Zircon, you say that there's no such thing as "overpricing"? Yeah, that's because economists look at everything in the short term these days. The long term is irrelevant. Make your money now, get your fat bonus, fuck the customer as hard as you can get away with, and if it bankrupts your company, at least YOU got paid. That is the state of American economics, and all it takes is a cursory glance at the state of affairs in America to figure THAT out.

Restructure your business and you will make more money. My family (well, my dad) immigrated to the US with no knowledge of English and about 2$ US. Now, my family is worth multiple MILLIONS of dollars. We did it by building businesses that don't fuck the consumer, and by making our money more slowly, but more surely. It's safer, more effective, and you won't kill your company or burn out your consumer base by doing so. We are living proof that economists are retarded, because by their "laws" we should have run out of money years ago, and yet the BANKS are the ones failing.

If the CEO of EA took a pay cut, it'd lower the cost of the games. If the producers and publishers and stockholders took a pay cut, it lower the cost of their games. Again, after studying at Nintendo, I know how much a AAA title costs to make, and I know that the biggest burden of recouping costs ISN'T paying your designers and artists... it's paying your stockholders, producers, publishers, and CEOs. And, they ALWAYS get payed first.

But... if they took a pay cut, paid the artists and designers better, and cut the cost of the games, not only would they produce more quality work (because the people MAKING the games are working better), but you'll sell more copies that the equations SAY you should sell because people will be more capable, and thus more willing, to buy them. And, you'll sell more copies because pirates who only do it because they think they HAVE to (re: the majority of American college student pirates) will also start buying more legit copies. You'll make less per sale, but your game's shelf life will increase, and you'll sell more copies in the long term.

Part of why it's so hard to recoup game investments is because companies jack up the prices expecting all sales to happen in the first week. No shit, because you're flooding the market and making sustained sales impractical with high prices. The industry is literally manufacturing its own problem... because that problem may be bad for developers and designers, but it's actually GOOD for publishers and investors.

I'm sorry, Zircon, but I'm only going to take what you say about economics with a grain of salt; you're the guy selling mp3 files to college students for hundreds of dollars. That shows a degree of bias and disillusionment.

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Zircon, you say that there's no such thing as "overpricing"? Yeah, that's because economists look at everything in the short term these days. The long term is irrelevant. Make your money now, get your fat bonus, fuck the customer as hard as you can get away with, and if it bankrupts your company, at least YOU got paid. That is the state of American economics, and all it takes is a cursory glance at the state of affairs in America to figure THAT out.

Most of your post seems to be railing against how companies decide to spend their money and pay their workers. That's fine. I agree with you on basically all of it.

However, what does this have to do with product pricing? There are no exceptions to the rule of equilibrium price. There is always a single price point that will result in the most revenue. This has nothing to do with wanting more profit in the short-term than the long-term - profit isn't even what we're talking about here. This is strictly a matter of what price will yield the highest revenue (calculated by total sales * per-unit price.)

Now, if you want to get into more complex aspects of pricing, such as sales and consumer perception of value, we can. But "overpricing" is a term that makes no sense. If you are charging more than the equilibrium price you are ensuring that you're going to get less total revenue, because fewer people are going to buy at that higher price point.

I'm sorry, Zircon, but I'm only going to take what you say about economics with a grain of salt; you're the guy selling mp3 files to college students for hundreds of dollars. That shows a degree of bias and disillusionment.

What are you talking about?

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Most of your post seems to be railing against how companies decide to spend their money and pay their workers. That's fine. I agree with you on basically all of it.

However, what does this have to do with product pricing? There are no exceptions to the rule of equilibrium price. There is always a single price point that will result in the most revenue. This has nothing to do with wanting more profit in the short-term than the long-term - profit isn't even what we're talking about here. This is strictly a matter of what price will yield the highest revenue (calculated by total sales * per-unit price.)

You're correct that, according to economic formulas (which are oddly self-proving, by the way... it's odd the way that economics these days basically treats itself as a religion: "our formulas are correct because when you plug in numbers, you get the expected outcome"), there is a "price" that will yield the higest revenue... But what happens when that revenue isn't high ENOUGH?

For instance, I am EA. I'm making a game. The game has a budget of 10 million. I want to get paid 100K for this game, and I know that each investor will also want that much, AND the producer will want at least that much. So, aside from the ACTUAL price tag of only what the designers, artists, and writers who ACTUALLY make the game are being paid, I now have this overhead cost of what we WANT to be paid. And, because we are EA, the investors, and the producer, we are guaranteed our money first. We get paid first. So, I plug in our expected sales for this game into our little equation, put in a price tag of 50$... but, uh oh. The game won't make that much at 50$. But... 50$ is the equilibrium price... Crap. Oh well, looks like we have to raise the price of the game... because the same economic principles that give us the equilibrium price and the formulas that dictate how to get that price tell us that we shouldn't reduce OUR pay... So the price of the game gets raised.

This is all because the industry has this bizarre sense of entitlement in which publishers and producers HAVE to make their money back first, before the people who actually MAKE the product. I understand that this is a hypothetical, but it's not that far out there, and it's the simplest explanation for the rising cost of games, because the average pay of game employees, just like every other American worker, hasn't risen much in the last decade (if anything, its fallen) and the average team size has only gotten larger for the biggest titles: the Mass Effects, the GTAs, the Red Deads. Meanwhile, EVERY GAME for 360 / PS3, shovelware or not, starts at a 60$ price tag. There's a disconnect there.

Now, if you want to get into more complex aspects of pricing, such as sales and consumer perception of value, we can. But "overpricing" is a term that makes no sense. If you are charging more than the equilibrium price you are ensuring that you're going to get less total revenue, because fewer people are going to buy at that higher price point.

Technically, capitalism makes no sense at ALL. Something is worth a set amount... so you're going to pay me MORE than that? Because you say so? Logically, it's unsound. Logically, we had a name for capitalism before "capitalism" was born by the Calvinists... and it was called extortion. But that's another debate for another time. The main point is, capitalism and American economics is self-proving and self-referencing. "There is no such thing as overpricing because we SAY there is no such thing" is not good logic. Something is worth X and we are being charged X+10... that's overpricing. It's really simple, and it's done every day.

What are you talking about?

Dude, look at your signature. When you first started promoting ZirconTrax on the boards, I checked it out, and for one song to be used in a student project for non-profit purposes, your auto-quote calculator gave me a 120+$ price tag. For one MP3. That wasn't even going to be sold. All I'm trying to say is, that shows a pretty loose hold on the reality of digital distribution / media / supply & demand models, so you're obviously not the best guy to turn to about how the game industry has its economics all messed up.

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For instance, I am EA. I'm making a game. The game has a budget of 10 million. I want to get paid 100K for this game, and I know that each investor will also want that much, AND the producer will want at least that much. So, aside from the ACTUAL price tag of only what the designers, artists, and writers who ACTUALLY make the game are being paid, I now have this overhead cost of what we WANT to be paid. And, because we are EA, the investors, and the producer, we are guaranteed our money first. We get paid first. So, I plug in our expected sales for this game into our little equation, put in a price tag of 50$... but, uh oh. The game won't make that much at 50$. But... 50$ is the equilibrium price... Crap. Oh well, looks like we have to raise the price of the game... because the same economic principles that give us the equilibrium price and the formulas that dictate how to get that price tell us that we shouldn't reduce OUR pay... So the price of the game gets raised.

None of this makes any sense. Raising the price of the game beyond the equilibrium price doesn't somehow equate to more profit or revenue, nor does it equate to more profit or revenue faster. You'll have to explain how that works, because it isn't supported by any logic or economic principles that I know of.

Additionally, "rising cost of games"? How old are you? I remember going to Funcoland when I was 9 and seeing SNES games *routinely* selling for $80-90 or more. Games on average are cheaper than ever when you factor in iPhone, XBIG, XBLA etc., but even looking at premium console games, they were definitely more expensive in the days of the SNES.

Technically, capitalism makes no sense at ALL. Something is worth a set amount... so you're going to pay me MORE than that? Because you say so? Logically, it's unsound. Logically, we had a name for capitalism before "capitalism" was born by the Calvinists... and it was called extortion. But that's another debate for another time. The main point is, capitalism and American economics is self-proving and self-referencing. "There is no such thing as overpricing because we SAY there is no such thing" is not good logic. Something is worth X and we are being charged X+10... that's overpricing. It's really simple, and it's done every day.

I don't even know where to begin. First of all, the "worth" of any good or service varies from person to person. Note that I'm not talking about the COST of something (eg. the literal value of the materials used to make it), I'm talking about "worth" in the sense you're using it. Look at luxury cars. I would never pay $50,000 for a car. A luxury can "on sale" for $50,000 would be "overpriced" to me by about $40,000. Meanwhile, to someone who loves driving luxury cars, $50,000 might be an amazing deal - they might be willing to pay up to $100,000 for the same car.

This is true for ANY good or ANY service. When you aggregate the subjective value that all consumers place on a given good or service, you get a "demand curve". This isn't some magic, abstract law, you've experienced it yourself countless times - any time you look at a product or service and say "that's a deal" or "that's too expensive", and someone else says the opposite. It's because we all value things differently.

If a company tries to charge "too much" for a product, what that means is that they are overestimating the equilibrium price. But guess what? If they do that, fewer people will buy it, and the company will make less money. This will always happen 100% of the time.

Dude, look at your signature. When you first started promoting ZirconTrax on the boards, I checked it out, and for one song to be used in a student project for non-profit purposes, your auto-quote calculator gave me a 120+$ price tag. For one MP3. That wasn't even going to be sold. All I'm trying to say is, that shows a pretty loose hold on the reality of digital distribution / media / supply & demand models, so you're obviously not the best guy to turn to about how the game industry has its economics all messed up.

Not only is that inaccurate, but it's also not relevant to the discussion. Suffice it to say that my entire career revolves around running businesses based on intellectual property successfully, and I'm doing just fine. Move on.

Edit: The ridiculous thing about this discussion is that you're talking to someone who is probably more liberal than 90% of the people on these forums. I support extensive government regulation and I've posted hundreds of times about how opposed I am to the libertarian philosophy of unfettered capitalism. However, there's a difference between not supporting unfettered capitalism and lacking a basic understanding of economics and logic.

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Edit : PS @ The Damned, you're fighting assumption with assumption. Instead of patronizing caps, you could either speculate or provide facts which prove your point and legitimize your arrogance.

How's this: basic theories of economics applied to complex real world economic systems don't work, because said complex systems are complex. There are hundreds of other factors involved, like politics, materials, demand... Anything that difficult to follow and get into can't just be looked at with an easy solution or explanation. There is a reason why being an economist is a career, and not a hobby. You have to send time to learn these things. Hell, even just a beginner-level class will show you how complicated it is, and that's not even a full-blown, multi-year graduate course at an actual school that specializes in economics.

On the subject of personal greed, it is a known factor of people. Everyone has experienced greed, be it themselves or been the victim of another person's greed. Sephfire said it already: a lot of people are claiming all kinds of reasons why they don't wan to pay for the games, but they want to play them any way. It's totally disingenuous and it's bullshit. They aren't downloading the games to make asocial message; they're downloading them to get shit for free.

As for my "arrogance", call it what you want. Jack spouted obviously flawed points and I called him on them. If you think that's bad, just read what Zircon is giving him: point for point counters, and he's doing a damn good job of it. Oh hey! Look at Zircon and Jack's posts. They're both patronizing caps. Hell, in just one of Jack's posts, I counted 13 uses of unnecessary caps use. 13 in one post! Are you going to call them out as well?

EDIT: I'd like to also point out that one of the most successful series ever made is Madden, a game where each version is barely any different from the previous, costs lots of money to make, and sells insanely well despite it's flaws and the company that makes it. How do you respond to that, Jack?

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None of this makes any sense. Raising the price of the game beyond the equilibrium price doesn't somehow equate to more profit or revenue, nor does it equate to more profit or revenue faster. You'll have to explain how that works, because it isn't supported by any logic or economic principles that I know of.

It equates to more short term profit, sure. The hardcore, the ones that will buy your game at any price. How many times do we hear this in a game market analysis? Your sales are made in the first week. Why is this true? The hardcore, the early adopters, the ones who do your word of mouth advertising that (hopefully) will get you longer term sales, will pay almost ANY price. You forget, this is a new age, a digital age, and when you can make a profit selling marked-up PS3s on launch day for 200-300$ of launch price, it becomes obvious that a portion of the consumer base blatantly disregards the economic principles of "equilibrium price" that you're espousing so much.

So, in the short term, you spike the prices of something, expecting that you'll make enough launch week sales off of the hardcore to "pay" for your "project"... only, to an investor, "pay" only means "GET PAID". Remember, the investors get first dibs on profits, so if an investor expects to make investment+5%, then he WILL get that I+5% before the dev studio gets ANY money. Why do you think publishers are posting record profits, but DEVELOPMENT STUDIOS are shutting down left and right? Because the dev studios rely on long term sales, but the publishers and producers only need short term sales to make THEIR investment back. So what if a dev studio fails? This is the 21st century: programmers and graphic artists are a dime a dozen. One fails, and EA just acquires a new one to take its place.

TL;DR: Publishers and producers only care about short term sales, so they sacrifice long term sales by ignoring the equilibrium price. It is the same basic concept that brought down the American financial system: sacrifice long term stability for short term gains.

Additionally, "rising cost of games"? How old are you?

Old enough to remember my dad shelling out A LOT of money to buy me my Genesis. 23, exactly.

I remember going to Funcoland when I was 9 and seeing SNES games *routinely* selling for $80-90 or more. Games on average are cheaper than ever when you factor in iPhone, XBIG, XBLA etc., but even looking at premium console games, they were definitely more expensive in the days of the SNES.

Sure, but GCN games routinely went for 40$, and PS1/2 and Xbox games NEVER sold for 60$; when the current gen systems came out and the prior E3 let us know that game costs were going up, we all shit bricks. I'm sure you remember. I'm not comparing game costs relative to costs 15-20 years ago... I'm talking about how games jumped up in price over 10-15$ in a single generation.

I don't even know where to begin. First of all, the "worth" of any good or service varies from person to person. Note that I'm not talking about the COST of something (eg. the literal value of the materials used to make it), I'm talking about "worth" in the sense you're using it.

I'll take the blame for that. I'm definitely not using the established economic definitions when I say that "cost" == "worth". It's my opinion that, logically, anything that makes "cost" =/= "worth" is bullshit economics. "Cost" should ALWAYS == "worth", or else you are extorting money. And, yes, that means that I think it is logical to imply that "profits" == "extortion".

Look at luxury cars. I would never pay $50,000 for a car. A luxury can "on sale" for $50,000 would be "overpriced" to me by about $40,000. Meanwhile, to someone who loves driving luxury cars, $50,000 might be an amazing deal - they might be willing to pay up to $100,000 for the same car.

But, if the car only costs 15K$ to produce total, I challenge you to find a single average person (re: NOT a car salesman, manufacturer, or aficionado) who WOULDN'T think that selling a car that cost 15K to produce for 50K$ isn't extortion.

This is true for ANY good or ANY service. When you aggregate the subjective value that all consumers place on a given good or service, you get a "demand curve". This isn't some magic, abstract law, you've experienced it yourself countless times - any time you look at a product or service and say "that's a deal" or "that's too expensive", and someone else says the opposite. It's because we all value things differently.

If a company tries to charge "too much" for a product, what that means is that they are overestimating the equilibrium price. But guess what? If they do that, fewer people will buy it, and the company will make less money. This will always happen 100% of the time.

What you're not getting is that digital goods break that rule wide open because there is no such thing as supply / demand for digital goods because digital goods have infinite supply. Selling music, movies, games... aside from physical copies, digital media makes no sense to sell because you can produce infinite supply at no additional cost.

So, producing a game, song, or movie has a cost, a cost that I do think should be compensated for (note: this is only my opinion; I don't think it is logically sound to argue that it should be REQUIRED). But, past that initial cost, any extra sales are extortion, because there is no cost to copy digital data infinitely. So, you had better give the consumer pretty damn good reasons not to pirate, because the data is there.

The point is that this is the 21st century, the age of digital media. The rules about buying and selling are changing.

Not only is that inaccurate, but it's also not relevant to the discussion. Suffice it to say that my entire career revolves around running businesses based on intellectual property successfully, and I'm doing just fine. Move on.

Not trying to say you're totally unknowledgeable. I'm just saying that you have a conflict of interest here, so we should take what you say with a grain of salt.

Edit: The ridiculous thing about this discussion is that you're talking to someone who is probably more liberal than 90% of the people on these forums. I support extensive government regulation and I've posted hundreds of times about how opposed I am to the libertarian philosophy of unfettered capitalism. However, there's a difference between not supporting unfettered capitalism and lacking a basic understanding of economics and logic.

I have a perfectly good understanding of economics... it's economists that doesn't have a good understanding of economics, because they are applying pre-digital age economic structures to post-digital age economies. You can't do that. Economics needs to evolve into the 21st century, or risk exactly what Extra Credits is implicitly saying when talking about the PS3 Linux users: don't fuck with hackers, because you will lose, and all of your stuff will be pirated. Grow up, evolve, or lose.

EDIT@ The Damned: I respond by saying that Madden shouldn't be sold anymore. Seriously, we have DLC now; just update the roster and stats every year, save yourself the money of dev costs, and sell the game update as required DLC for online play. Screw the hard copies... or rather, sell them at drastically reduced prices each year, so that people without the game can get it, so that they CAN get the DLC updates. Really, the only reason Madden still sells is because stupid frat boys aren't intelligent enough to know they're getting screwed.

Also, Zircon is arguing theory. I'm arguing reality. Reality > theory every time, my man. I learned that making competitive video game rulesets; I didn't even needformal science training to know that. Try telling a physicist that his theory is better than the observable evidence that he's getting in his lab; if the evidence contradicts the theory, the evidence wins.

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EDIT@ The Damned: I respond by saying that Madden shouldn't be sold anymore. Seriously, we have DLC now; just update the roster and stats every year, save yourself the money of dev costs, and sell the game update as required DLC for online play. Screw the hard copies... or rather, sell them at drastically reduced prices each year, so that people without the game can get it, so that they CAN get the DLC updates. Really, the only reason Madden still sells is because stupid frat boys aren't intelligent enough to know they're getting screwed.

So... I'm a stupid frat boy? And a few people I know, who hold very non-frat boy jobs like telecommunications, website design, newspaper layout, and my own line of work, non-destructive testing (based upon engineering standards and requiring both math and physics skills), are also stupid frat boys?

I'm not a continuous player of the series by any definition, but I have played it before. Others, including members here, I would like to point out, are players of those games, and I think they would be insulted by that comment.

You know, Zircon said something about you seeming to have issues with the companies, rather than with the games pricing. I can see that quite plainly now. You're not mad about pricing; you're mad about the companies. Did you get turned down by all the big studios or something? Did they personally anger you or do something that affected you in some way other than prices?

Also, the things you said about economists comes off as almost hateful as well. Are you just venting because of bad experiences with one or more? Seriously, it's coming off like that.

I'd also like to point out that most of the time, when people buy a game, they do so in an actual brick-and-mortar store. A store that isn't owned by the developers or publishers of said games. Did any of you take into consideration of the amount the store charges for the games? I beat some of that money isn't the publisher, but the store trying to make money as well. Why aren't you arguing that the stores should lower prices as well, because they're part of the problem.

Also, Zircon is arguing theory. I'm arguing reality. Reality > theory every time, my man. I learned that making competitive video game rulesets; I didn't even needformal science training to know that. Try telling a physicist that his theory is better than the observable evidence that he's getting in his lab; if the evidence contradicts the theory, the evidence wins.

You started this by using very basic economic theory to support your argument, and now you're using "video game rulesets", which are make up for a system that was itself made, entirely in the imaginations of those making them, to be made into a virtual world that doesn't exist in our actual, physical world, to back your argument up.

Are you sure this is the path of logic you wish to follow? I'm asking because this may very well open yourself up to all kinds of counterpoints, as well as outright heckling from the masses. You're making poor arguments and offering poor defenses for them.

As for "the evidence wins" thing, I like to point out the theory of the flat Earth. All the evidence in the world at various points in history proved it was so. So... how did that turn out? No to mention string theory, as well as quantum theory. All the empirical evidence says it can't work, and shouldn't work in any way. But here we have physical experiments that indicate they do exist and do work they way we think they do.

So... what about that?

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Let's just focus on one thing here, since it's a pretty fundamental disagreement.

But, if the car only costs 15K$ to produce total, I challenge you to find a single average person (re: NOT a car salesman, manufacturer, or aficionado) who WOULDN'T think that selling a car that cost 15K to produce for 50K$ isn't extortion.

It's not extortion. It's the basic underpinning of any market-based system, also known as "profit". Unless you're absolutely, completely opposed to all market-based economies and literally only support communism, you have to accept that "profit" is a fundamental part of economics. Why bother to sell something if all you're going to do is recoup your costs? In other words, if you have $1 million to make a game, but you can only make $1 million back... why make the game to begin with? What's the point?

Now believe me, if you want to talk about things like health care, I'm 110% AGAINST the concept of insurance companies making anything more than a tiny profit, because it's a basic necessity of life. If someone pays $1 for health care, 99 cents of that dollar should pay for health care, not a CEO's vacation. But when we're talking about PURE LUXURIES, like cars and video games, businesses need incentives to get together the budget to produce products or services. If all they can do is recoup what they spent, then all they're doing is wasting a year (or however long it takes to make the product) since they're just getting however much money they spent back.

Before you bring up indie games/artists/music/open source (etc) yes, I know that some people do things for free or spend their own money to release a game/product and expect nothing back. That's fine. If you've noticed, I've released dozens of free remixes and songs myself. But it's entirely unrealistic to expect every video game developer to stop caring about earning any money and just being content to essentially volunteer their time and resources at cost. If nothing else, earning only what you put in prevents you from ever expanding in scope or size - remember that not all profit simply goes into the pockets of CEOs, but is often reinvested back into new employees, new equipment, new technology, and so on.

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As a Canadian, I'd like to point out that we have pretty good healthcare coverage. Even if you go into a private clinic, the government still picks up the tab for it.

Come on, Zircon. Join us. We have pancakes and bacon as our national foods, and the climate isn't that much different from Philadelphia. Our winters can be much more mild, and our summers can get just as hot, depending upon where you are.

Did I mention the all the free maple syrup you can carry? How about a dog sled team for your personal amusement?

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I still don't understand why itt we are still having arguments about the equilibrium price. Raising price over equilibrium absolutely will not result in more revenue period -- this is high-school level economics.

An extremely simple example, but nonetheless relevant:

Let's say that you can sell 500 units at $50, and that's your equilibrium price. That becomes $25,000 in income. At $30 you sell 800 units, and at price $60 you sell 400 units. The lower price point sells more copies for less total revenue ($24,000), and the higher price sells fewer copies for less total revenue (again, $24,000).

Those numbers are arbitrary obviously, but the principle of there existing an equilibrium price is not. There will _always_ be one price that generates the highest possible revenue for a product -- a graph of price and units sold will basically never have a straight line on it, always a curve.

Why then, do companies lower the price of games that have been at retail for an extended period of time (usually between 3 and 6 months)? Partly to make space for new games on the shelf, and partly because just like a car, the perceived value of the vast majority of them decreases over time -- the lowering of the price point accommodates this.

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So... I'm a stupid frat boy?

I'm assuming that means you buy Madden games, possibly every year? If so, that doesn't mean you're a frat boy... but it does mean you're stupid. Why would you reward EA for that? For doing almost NO work and getting a full 60$ in return? Especially if you get the new iterations, you should want vehemently for EA to switch Madden to a DLC-only system; it's in your best interests for them to do so. If you're using your capitalist vote (read: dollar) to reward EA for doing something that is obviously illogical and extortionist, then you ARE to blame, and it's people like YOU that cause Madden to keep going, despite it's horrible premise.

And a few people I know, who hold very non-frat boy jobs like telecommunications, website design, newspaper layout, and my own line of work, non-destructive testing (based upon engineering standards and requiring both math and physics skills), are also stupid frat boys?

Again, they may not be frat boys, but they sure as hell are stupid, if they keep buying Madden games. Seriously, stop buying them. Force EA to move on to a better, more 21st century system of Madden development.

I'm not a continuous player of the series by any definition, but I have played it before. Others, including members here, I would like to point out, are players of those games, and I think they would be insulted by that comment.

Good. They should be. You are enablers, enabling EA to continue an outdated and fundamentally flawed (from a consumer standpoint) business model. You know who you're like? People who still buy CDs of music. Seriously, move on to the 21st century, and force the record publishers out of business already by buying digital music. We don't need them. Technology has replaced them and made them obsolete. Just let the industry fade into irrelevance. Same. Basic. Concept.

You know, Zircon said something about you seeming to have issues with the companies, rather than with the games pricing. I can see that quite plainly now. You're not mad about pricing; you're mad about the companies. Did you get turned down by all the big studios or something? Did they personally anger you or do something that affected you in some way other than prices?

No. I've never produced or designed a game (to be sold), and I've never pitched to a game publisher or company. I've never even been in contact with anyone from a publisher or developer.

That being said, if I have issue with the pricing, and the companies determine the game's pricing, I suppose that transitively means I have a problem with the companies... which I don't think I've ever said I didn't? OBVIOUSLY I have a problem with them, because their business practices are fundamentally flawed.

Also, the things you said about economists comes off as almost hateful as well. Are you just venting because of bad experiences with one or more? Seriously, it's coming off like that.

Well, I certainly don't want to somehow make people think that I think negatively about economists. That might somehow make me a socialist or something, and we can't have pinkos in America, now can we?

Simply (and without the sarcasm), I am a pragmatist, a logician, and a philosopher by trade; I have problems with ANYONE who acts in an illogical manner, and economists depend on illogical stuff in order to thrive in this world. Again, who do you think made money during the market crash in 2008? Hint: it was the economists who did stupid stuff to kill the economy for short term profits. It's not that hard.

I'd also like to point out that most of the time, when people buy a game, they do so in an actual brick-and-mortar store. A store that isn't owned by the developers or publishers of said games. Did any of you take into consideration of the amount the store charges for the games? I beat some of that money isn't the publisher, but the store trying to make money as well.

The standard video game markup that Gamestop adds to any given console game is anywhere between 10-15$. Again, I've studied this. Look up Professor Christopher Erhardt and Claude Comair; I learned this stuff in their classes. I know what I'm talking about.

Why aren't you arguing that the stores should lower prices as well, because they're part of the problem.

They should. But, Gamestop has worse problems than video game markup. This isn't a discussion about used game sales, however; this is a discussion about piracy, and Gamestop's markup, while substantial and relevant, isn't as important as the base MSRP that the publisher's dictate.

One topic at a time.

You started this by using very basic economic theory to support your argument, and now you're using "video game rulesets", which are make up for a system that was itself made, entirely in the imaginations of those making them, to be made into a virtual world that doesn't exist in our actual, physical world, to back your argument up.

I am? No, I'm not. That was banter, not a premise in an overarching argument. Seriously, take a college level logic course; learn how to identify arguments and their component premises and conclusion.

Are you sure this is the path of logic you wish to follow? I'm asking because this may very well open yourself up to all kinds of counterpoints, as well as outright heckling from the masses. You're making poor arguments and offering poor defenses for them.

Poor arguments? My argument, the real overarching one, has been, simply, "Publishers and producers have a flawed concept of how 21st century market principles work in relation to digital media, and thus should restructure their business practices to compensate for the increasingly powerful advantage piracy does, and will continue to, have over legitimate sales". Then, I went on to explain how pre-digital age economic values fail miserably when put in the context of the digital revolution and digital content distribution.

All Zircon has been able to say in defense is "economists are right because the formulas they created say they should be right". Who has the poorer argument?

As for "the evidence wins" thing, I like to point out the theory of the flat Earth. All the evidence in the world at various points in history proved it was so.

No, it actually didn't. The evidence was misinterpreted. Properly interpreted and studied, real-world evidence wins every time. Also, you're talking about a time period when saying the Earth is round got you burnt at the stake for heresy, so I think you're argument has a hole or two.

So... how did that turn out? No to mention string theory, as well as quantum theory. All the empirical evidence says it can't work, and shouldn't work in any way. But here we have physical experiments that indicate they do exist and do work they way we think they do.

Which means that we have empirical evidence that says it DOES work. Which means, something is being mishandled or misinterpreted, somewhere along the line. But, we don't throw out the old or new evidence entirely just so we can say we have a working theory. We accept that we don't understand everything, make the theories where we KNOW they can work, and we move on. Current economics would rather throw out the very real evidence that digital media breaks supply / demand models, as well as the common-sense logic that says digital data has, by definition, an infinite supply, in order to keep acting like they have for the past 100 years.

So... what about that?

...that. The above.

I'll get to Zircon's post in a bit. Also, I have off of work until next Wednesday... So, plenty of time to lurk and discuss. ^_-

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I'm assuming this is going to double-post so... oh well. Sorry guys.

Let's just focus on one thing here, since it's a pretty fundamental disagreement.

Ok, I'm game for that. Even though I'm replying to you here, please explicitly say at the top of your next post which topic you'd like to talk about now; no sarcasm or talking down or anything. I'd just like it to be clear so I can prepare some data and counter-arguments for you properly.

It's not extortion. It's the basic underpinning of any market-based system, also known as "profit". Unless you're absolutely, completely opposed to all market-based economies and literally only support communism, you have to accept that "profit" is a fundamental part of economics.

Honestly, yeah. I have something you want, you have something I want. We trade for them. Unless I think I can strong-arm you into giving me MORE than you want to for my thing. That's, in a nutshell, what profit is: knowing that something you have is worth X amount, and tricking people into paying X+Y amount instead. I honestly think that if we, in elementary in middle school, gave students a fair shot to have an HONEST discussion about the flaws and merits of profit-based economies, they'd come to the logical conclusion that profit systems == bad. Quick example: Catholic officials have gone on the record saying that capitalism is not only bad, but it's evil and a sin. Now, I'm not one to espouse religion or anything, but those are the guys who claim to be the moral authority.

...that says something.

Why bother to sell something if all you're going to do is recoup your costs? In other words, if you have $1 million to make a game, but you can only make $1 million back... why make the game to begin with? What's the point?

Because you don't make more money by selling at a profit, you make more money by producing more. People think that you HAVE to make money through strict profit, but that's not true at all. We can discuss this in another topic, if you'd like, because it's tangential to this thread.

Now believe me, if you want to talk about things like health care, I'm 110% AGAINST the concept of insurance companies making anything more than a tiny profit, because it's a basic necessity of life. If someone pays $1 for health care, 99 cents of that dollar should pay for health care, not a CEO's vacation. But when we're talking about PURE LUXURIES, like cars and video games, businesses need incentives to get together the budget to produce products or services. If all they can do is recoup what they spent, then all they're doing is wasting a year (or however long it takes to make the product) since they're just getting however much money they spent back.

Before you bring up indie games/artists/music/open source (etc) yes, I know that some people do things for free or spend their own money to release a game/product and expect nothing back. That's fine. If you've noticed, I've released dozens of free remixes and songs myself. But it's entirely unrealistic to expect every video game developer to stop caring about earning any money and just being content to essentially volunteer their time and resources at cost.

Tell that to the guys who put out the Humble Indie Bundle. The HIB#2 brought in a combined total of over $1,825,290. And that was by selling a FREE PRODUCT. And the product was a bunch of poorly-advertised indy games! Yes, you can make money giving something away.

If nothing else, earning only what you put in prevents you from ever expanding in scope or size - remember that not all profit simply goes into the pockets of CEOs, but is often reinvested back into new employees, new equipment, new technology, and so on.

I'd LOVE to get a full breakdown here, because I'm pretty sure that CEO paychecks don't get re-invested anywhere but into the private interests of the CEO. Yes, investors re-invest (it's kind of their thing), but they ARE out to make a lot of money, money that they plan on keeping.

The problem with the current model of game development investment is that the cash flow is totally wrong. Here's an example.

I want to make lemonade to sell, but I need capital to buy the lemons. Let's assume that profit is ok, so you agree to give me 100$ to buy lemons and want me to give you your investment + 5% back. So, I take your money, buy lemons, and make lemonade. I sell it, meaning I give it to a customer, and he gives me money in return. (I know, it's obvious, but stay with me here; I'm being this explicit for a reason). Now, I have your investment + 5%. I have it because the customer gave ME the money. So now I give you your money back.

In this example, the cash flow works kind of like a game of Magic: last-on, first-off. The cash flows from you to me, from me to the customer (in the form of product), then from the customer back to ME (in the form of cash), and finally from me back to you. You get your cut last, but that makes sense, because you're the investor... YOU'RE at the biggest risk here.

Now, contrast that with how GAMES are sold. Investor to Publisher, Publisher to Developer, Developer to Consumer... then from Consumer to Publisher, bypassing the Developer entirely. The most important link in the chain, the people without whom the game couldn't ever exist, get paid last. In this model, profit doesn't help the Dev team expand in scope. In this model, the Dev team has a cyclical dependency on the Publisher for capital, which is never broken. Unless the Dev team is paid more, which happens at the whim of the Publisher only, they can NEVER expand in scope because they have no control over their own profit stream.

Now, how does THAT make sense?

EDIT@Gollgagh: Hey, man. You're the one who's providing the RIAA with so much money. You're the one helping to enable draconian copyright laws that serve to do nothing but punish the consumer. I have no personal beef with you (I've never even met you), but your money is the reason my music and games have DRM, including the stuff I purchase legally.

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[Holy shit there is so much bullshit here]

EDIT@Gollgagh: Hey, man. You're the one who's providing the RIAA with so much money. You're the one helping to enable draconian copyright laws that serve to do nothing but punish the consumer. I have no personal beef with you (I've never even met you), but your money is the reason my music and games have DRM, including the stuff I purchase legally.

You do realize that in this magical land called the internet that you champion so much, you can get a CD made with your own music, sell it to people, make money, and not involve the RIAA in any way, right?

You did realize this before posting on a forum with several turned-pro musicians, right?

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You do realize that in this magical land called the internet that you champion so much, you can get a CD made with your own music, sell it to people, make money, and not involve the RIAA in any way, right?

You did realize this before posting on a forum with several turned-pro musicians, right?

Of course I do, but how much easier, simpler, faster, and more profitable is it to just put your song up on iTunes and be done with it? It's just SMARTER in this day and age to sell digitally. I buy Bad Dudes albums because I like the Bad Dudes and want them to keep making music... but more so that I can have kitschy nerd cred vs. my other nerdy friends when I have physical copies of nerdy music.

If I didn't care about the IRL nerd cred, I'd just buy digital, because it's one less disc I have to hassle with and I get it instantly. On a related note, when I bought OneUps Vol. 2 and Chronotorious (sp?), I torrented both albums while waiting for my physical disc. I bought it already... waiting for the disc was just waiting for a mantelpiece. So, yeah. I pirated OneUps / Bad Dudes music get at me. ^_-

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EDIT: We're turning Sephfire's video series thread into some sort of dumping ground.

Jack, you've openly insulted members here for games they like. You've admitted to pirating music from people who happen to be members here. You've made comments that show you only, at best, partially know what you're talking about. You've even gotten into pissing contests with people that are far better suited for it, what with their personal, hands-on experience.

I'm sorry to say it, but I fear for your time here. At best, this will end with a fair bit of resentment on both sides. At worst, I fear a banning or two. (Not mini-modding)

I'll see you guys around. I suspect this is going to end , at the very least, entertainingly.

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