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The Economics of Downloadable Content (DLC) in Video Games

 

The video game Evolve just launched with a $70 base game, $100 premium edition, and $60 of additional downloadable content (DLC) features. That’s right, to get the full version of the game, you have to pay more than twice its base cost. Evolve is not alone.

 

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Batman: Arkham Knight will launch later this year as a $60 game with $140 of DLC, going so far as to make the Batmobile an extra. Even smartphone games have this problem. Clash of Clans costs $5 but has $12,000 of extras. We don’t even want to delve into the money traps that are Plants versus Zombies 2 and Candy Crush Saga. For players, these extras are new and strange. Many people think video game companies are not being reasonable. But are they? Let’s look at the economics of the video game industry.

Destiny, currently the most expensive game ever made, had a budget higher than $500 million.

 

The industry takes in over $46 billion a year, about twice as much as Hollywood. However, that number represents revenue, not profit. Profit is the money left over after all expenses have been paid. These expenses are called overheads. Although revenues are increasing, so are overheads. Around the year 2000, when The Sims and Deus Ex hit the market, most major games cost about $1-4 million to produce. In 2014, smaller games cost around $20 million, major titles cost a lot more. Destiny, currently the most expensive game ever made, had a budget higher than $500 million. It’s not only development costs that are increasing. Video games are also getting more expensive per unit, due to the costs of supporting multiplayer. This cost per unit is called a marginal cost. So, the overheads for game studios have increased between 400% and 49,900% in just 15 years. A product could cost up to 500 times as much to make.

 

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When overheads increase, profits decrease. Many businesses try to increase prices to keep profits up. For example, a Ferrari costs a lot more to make than a Chevrolet Spark, so it is priced much higher. Strangely, the same is not true for video games. A $1 million project like Super Smash Brothers sold 18 years ago for $60, and the $500 million Destiny juggernaut hit the stores for $55. Why do game prices always stay the same?

For this, we have to look at something called “elasticity.” Elasticity means the amount that demand is affected by price. Elastic demand means that small changes in price affect sales. Inelastic demand means that most changes in price don’t affect sales. For example, nobody needs to buy Destiny. If Destiny’s creators increased the price to $200, then everyone would just buy Wild Star or Borderlands 2 or the zillion other multiplayer sci-fi action RPGs. This means that Destiny’s demand is elastic. By contrast, the tap water you drink while playing Destiny so you do not die from dehydration after a 15 hour raid is inelastic. Houses need a lot of tap water and have no alternatives. The price of tap water could double, and it would not really affect sales. So, what do you do if your overheads are increasing, but you cannot raise prices because demand is too elastic? You find money wherever you can.

 

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The result, video game companies break up their products into several pieces to turn a profit. Although elasticity controls the price, it does not control the features of the game. By removing features from the game and selling them as DLC, game producers have a way to generate more money for the same product. It is annoying to be sold a product with some features deliberately removed. But is there a solution that works for both consumers and producers?

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5 Steps on How to Become a Studentrepreneur

More and more teens are getting jobs while still in school, either to pay for things parents won’t buy or to help with the family’s income. Besides the obvious fast food or retail jobs, there aren’t many opportunities out there. Why not learn the hustle of starting your own business?

Starting your own business isn’t hard if you have the determination, but it takes a bit of time to plan and get it going. You use your critical thinking skills to figure out what kind of a business you can be successful doing. Starting your own business doesn’t even need much money, if any, to get started. A teen can look at different business ideas based on their interests and passions or even think about the things they buy the most to get ideas based on profitability.

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 Brea and Halle Holmes founders and CEOs of Sweet Dream Girlz
 

Below are 5 simple steps to follow to get your business started. Timing is also important, if you start on your idea in the spring you could launch your idea in time for summer break.

1. Start with a good idea.

Go do new things and see what interests you. Also observe the people around you and see what everyone complains about, that’s usually a sign that a solution is needed. Your next step is to select an idea and create a brainmap that outlines how this idea will evolve into a business.

2. Create a plan of action.

This will help you be successful. Start on your business plan,  which details what your business is about and helps you set goals for your business. It spells out in a step-by-step method what the business is, how you will market your business, what you need to start your business (money, supplies), and how you will grow your business. This doesn’t have to be a hefty 50 page bible on your business, nowadays the more creative you get with your presentation the better. Powerpoints, slideshows, videos, whatever you think will get people to fall in love with your idea.

3. Come up with ways to monetize your idea.

How will you make money? Will you give some things away for free or charge for every part of your business? Sometimes it’s good to give people a sample or to “dangle a carrot”. Give them a teaser of what they really want and then charge them for the full experience or product.

4. Get help as you grow.

If your business is successful, you will need a support system that will help with the growth. Never be afraid to ask for help and find a mentor that will become your biggest cheerleader. Don’t just bring friends on board because they’re bored or you’ve known them since kindergarten. Bring people in because they have a skill and add value to your business. Sometimes this is how you start new friendships, you may end up working with that kid you’ve never spoken to in the cafeteria.

5. Learn how to handle money better.

The rule of thumb in business is that the owners are usually the last to get paid. You don’t want to go spend all of your money as you earn it. You will want to save at least some of it to help your business. Make sure you pay for your business first before you buy that new iphone or crispy pair of J’s. You want to make sure you can do it all again next week.


Product vs. Service

Do you prefer a product or a service? That is one decision you will have to make when you write your business plan. According to JuniorBiz, a product is an item you make once and sell many. You can sell locally or worldwide. The downside to a product is you may take quite a bit of time and money to produce and you will have competition. On the other hand, a service is done right away, but you have to convince people you have a great service to offer.

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Caine Monroy, founder of the world famous Caine’s Arcade

 

JuniorBiz breaks down products and services by cost and by how easy it is to start a particular product or service. For example, arts and crafts are harder to get started and don’t make as much money than selling cookies or lemonade. On the other hand, most of the services mentioned are fairly easy to start, like baby-sitting, pet sitting, tutoring, and lawn mowing all make good money.

Three other websites offer some different examples of businesses teens could start. For example, Entrepreneur offers suggestions such as making jewelry, running errands, selling items on eBay, and repairing bicycles.

Another website full of ideas for teens businesses is My Top Business Ideas. These top twenty businesses offer little or no start up costs and include social media management, kids’ taxi service, freelance writing, virtual assistance, and video creation.

Mike Michalowicz gives a unique perspective that teens can run a business. He offers thirty-seven different choices, including computer repair service, device set up, greeting cards, gift baskets, upcycling, online personality, and photography.


Studentrepreneur: Case Study – Mo’s Bows

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Mo Bridges, a twelve-year-old owner of Mo’s Bows, started making bow ties at nine years old. Mo has made progress since he started making bow times at age nine with the help and support of his family. His grandmother taught him how to make bow ties, and his mother helps him run his business.

Mo’s mother lets him set his own business hours and makes him put his schooling ahead of his business. He sells his bow ties in twelve stores across the South as well as on Facebook, Twitter, and Instagram. Mo has a charity he supports called Go Mo. Proceeds from one of his bow ties helps other children go to summer camp. His mother is proud that Mo can see this is more than a business.

So remember, love what you do, find work that you are passionate about and get paid to have fun.

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The Entrepreneur Brain: How Is It Wired Differently?

Right or Left?

Brain Scans performed at MIT show that Entrepreneurs tend to use their brains differently than most people, and think in a very specific way.  While we use both sides of our brains simultaneously without thinking about it, people tend to think “more with their left brain” or “more with their right brain” when making decisions.

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“Left brained people” are more analytical and this is the side of the brain that uses logic, reason and critical thinking. They also use information that they already know.  “Right brained people” have been known to be more creative, free flowing, and use emotions when it comes to making decisions, turning outward to learn in order to think.   As it turns out, to handle the decisions of running your own business, it is beneficial to think both creatively, and think logically at the same time, that way you are following your heart and your brain – making emotional yet well thought out choices.

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Nature Vs Nurture

Do people become entrepreneurs because of the way their brains are wired or do entrepreneurs evolve their way of thinking and brain activity as a result of their work? This is a question for further research, whether entrepreneurs’ brains function this way because of the kind of decisions they’re used to making, or whether people with these more interconnected brains are more likely to identify problems in the world and create solutions in the form of a business. “It’s a nature versus nurture question,” said Professor Maurizio Zollo, the lead author of the study.

Working Differently, Together

Despite the differences between either side of the brain, both sides of the brain really do work simultaneously, most of the time.  In one study by researchers at the University of Utah, more than 1,000 participants had their brains analyzed in order to determine if they preferred using one side over the other. The study revealed that while activity was sometimes higher in certain critical regions, both sides of the brain were essentially equal in their activity on average.

“It’s absolutely true that some brain functions occur in one or the other side of the brain. Language tends to be on the left, attention more on the right. But people don’t tend to have a stronger left- or right-sided brain network. It seems to be determined more connection by connection,” explained the study’s lead author Dr. Jeff Anderson.

The debate over the differences between the two sides of the brain will undoubtedly continue, and perhaps more studies will shed a clearer light on the relationship between the hemispheres.  Perhaps people who are more left or right brain oriented, and who desire to become skilled in using both more simultaneously will be able to legitimately train themselves in the near future.

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Networking with the Many Faces of Jimmy Fallon

 

Lights, Camera, Action!

Networking is a type of performance. Professional relationships are different from friendships in that the fundamental purpose is mutually benefitting each other’s careers. This means that networking conversations are not exactly about getting to know the other person. Instead, a networking conversation consists of several people performing to each other as more valuable versions of themselves.

This sounds dishonest, but it isn’t. Every job requires some form of performance, from pretending to be more excited about your company’s products, to performing friendliness to coworkers and bosses, to even performing as accessible and fun on social media. Acting as a better version of yourself is part of every job.

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You Catch More Flies With Honey

When networking, professionals perform as their most trustworthy, most likeable, and most important selves. It’s no surprise that Jimmy Fallon, who performs as likeable characters, is a master at networking.

Fallon’s roles and personas are all based on likeability and accessibility. Even his Southie teen Sully is based on an open, good-hearted style of humor. His celebrity impressions, from Adam Sandler to Neil Young, are friendlier, more honest versions of the real celebrities.

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What Would Jimmy Do?

All his characters, in real life, would be excellent at building professional relationships.  In this lesson, students will use these characters as foils for developing networking strategies. They will decide how to approach the Weekend Update guy, how to impress Jarret of the slacker webcast, and even think about what they could offer Tonight Show Jimmy Fallon himself. Finally, students will act out a networking event with their classmates.

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The RLL Podcast: Ep. 6 – Curiosity, Hustle and Fear of Failure with Bilal Zaidi from CreatorLab.fm

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Our mission here is to help you find the path to your goals by sharing the journey others have taken. I sit down with Bilal Zaidi, the host of one of the best new podcasts out there today CreatorLab.fm. We learn his amazing life story from hustling as a kid in London, to working at Google and now getting a chance to interview with entrepreneurs at the top of their game from Brian Wong to the Young Turks. I do my best to try and identify the life skills he’s learned along the way and we discover how curiosity, hustle, self-teaching and even the fear of failure can all serve as stepping stones to success.

Subscribe on iTunes 


Ep. 6 – Show Notes:

Be sure to check out CreatorLab.fm or subscribe to the show on iTunes here.

You can find Bilal on Twitter @BZaidi

Creator Lab is @Creatorlabfm on Twitter, Instagram and FB

Some cool guests mentioned to appear on his show are:
Nico Perez of MixCloud
Scott Harrison of charity:water
Brian Wong – Forbes 30 under 30, youngest person to raise VC money, founder of Kiip and author of the Cheat Code
Esther Tricoche – Forbes 30 under 30, Associate Partner at NewSchools Venture Fund
The Young Turks – Online news icons

Also, gotta give my fam a shoutout, here’s the student leadership organization I mentioned I was a part of along with J. Cole. Haraya, always doing big things and turning students into game-changing leaders.