Economics Of Game Publishing Analyzed 25
Thanks to 1UP for its feature discussing the precise financial details of videogame publishing, described by Mastiff Games publisher Bill Swartz at GDC in San Jose last week. Swartz "put together various slides showing where the money goes for a hypothetical game", revealing that "a publisher can clear seven dollars on a game [after all costs are taken into account]." However, it appears that "only one of every five games will sell enough copies to make money, since publishers have to consider things like taking back inventory that doesn't sell through to customers", and elsewhere in the article, photos of the GDC slides show "a breakdown of how much publishers, wholesalers, and retailers can make, as well as what risks they face."
Cutting out the middleman (Score:5, Insightful)
Alternatively, I think there might be marketing specialists in the future just for videogames. They'd take a smaller cut to just market the video game. The studio would make the game available on the website for download, or would contract with a CD publishing house for a nice package they could sell on a website. That would cut out the $10 retail profit.
The value that a small web publisher could add looks better and better the higher the middlemen push the game prices.
Re:Cutting out the middleman (Score:5, Insightful)
That $15 pays for shelf space, advertisement through store flyers, customer assistance, and other publicity. If a company sells directly to customers it has to figure out how to get eyeballs on the product. It also has to employ direct sales associates and manage individualized (as opposed to cheaper bulk) shipping. While some companies do sell directly to customers (in addition to retail channels), such as the EA Store [ea.com], their prices are not particularly competitive. Perhaps this is due to the extra costs associated with direct distribution.
Thinking back to the shareware companies in the early 1990s (id software in particular), word of mouth got games into the hands of people, but once the opportunity arose, successful titles like Doom were sucking up shelf space wherever they could. Even today, direct downloads are likely to be offered as an option along side retail-based purchase. You can even get WinZip in a box these days.
So, I suppose my point is that the $15 pays for quite a bit of service, and that the service is apparently useful for moving the product (otherwise, why wouldn't id, 3DRealms, etc. just keep up with the direct marketing angle and avoid brick & morter completely?).
Re:Cutting out the middleman (Score:4, Insightful)
That's because they're intentionally trying *not* to compete with their distributors. Don't want to piss off your partners.
In order to undercut them, they'd have to be willing to give up the retail channel forever.
Re:Cutting out the middleman (Score:2)
I do not want my mailbox full of "Buy cheap xanax herbal daikatana doom3" thank you very much.
Re:Cutting out the middleman (Score:4, Interesting)
Direct downloading would be a step in the right direction (and downloading through Bittorrent would be even better), but that economic model is well known... It's called shareware, and despite some high quality releases it tends to produce riches far below what would be attainable through traditional retail channels. If a player can't hold the box, can't feel it in his or her hands, it is much more difficult to convince them to pull out their credit card.
The manufacturer could also sell boxes to the public. However, you would still need to do basically all of the above... Ship to regional distribution centers around the US, manage the product, run a call center to interact with buyers, take returns... Aforementioned lower total sales aside, you still have the entire warehousing cost and much of the customer relations to deal with. You might manage to cut your total retail (equivalent) expenditure in half by storing your product in less expensive real estate, but you have to tack on an additional $5 for shipping. So, in essence, you have done nothing but bought the inventory control and customer relations side at the expense of the ability to aggregate the cost of selling the game with other games in a large pipeline.
Personally I want to see more direct downloads being used as a sales model, but I just don't see that happening any time soon. Having a physical thing in your hand is too tempting for the player, and broadband penetration is still too shallow. Plus, the model won't work for consoles unless a publisher were to design the console specifically around it. For more examples of the future as envisioned here, see Steam [steampowered.com], and The Phantom [phantom.net].
Re:Cutting out the middleman (Score:5, Interesting)
Valve Software, the developer of Half-Life, is trying to do just that with Steam. Basically when you buy any future Valve games, they'll come with a content-delivery program: Steam. This means you're going to Valve's portal, if you will, every single time you go to play online. I imagine it must be a huge logistics problem, but they did hire Bram Cohen (the BitTorrent guy)
This is Valve's perfect target for eyeballs, and they know it. For example, after their newest Counter-strike expansion pack released, I went to go play Half-Life online and got an ad for their new game, that I could download instantly. And 99% of the profit would goes to Valve. Smart.
But this has been covered before: here [slashdot.org] and here [slashdot.org]. Read up more if you'd like, I think it's pretty interesting. While this probably won't spell the doom of EB Games quite yet, I do agree with the parent that there is some market inefficency in the current system.
Re:Cutting out the middleman (Score:1)
Finally a financial view (Score:4, Informative)
only one of every five games will sell enough copies to make money, since publishers have to consider things like taking back inventory that doesn't sell through to customers. They have to be smart about the number of copies they ship into the market. Wholesalers have a smaller amount they can make on a single game, and face risks such as dealing with retailer payments. Retailers can sometimes make good money on a single game, but that margin drops when the game price falls.
Lets see the immediate pitfalls.
Back inventory: Costs due to having to rent/own land and a warehouse. Shipping costs (both in and out). Occasional maintenance (taking inventory to make sure the neighborhood kids aren't stealing and selling the game on the street 1 week before the game actually hits store shelves).
Limiting actual number of units sent out: Again, have to maintain back inventory. Lack of demand/supply may damage public relations.
Wholesalers dealing with retailers : May have to sacrifice profits to wholesalers to stock more units of your game. Bungie may have to pay wholesalers $5 for each unit, but you better believe Valve is gonna pay pennies when it comes to stocking Half-Life 2. Nuff said.
Retailers being reluctant to sell games at a lower price due to lower profit margin : Bad bad bad. Consumers don't like high prices, bad. Lowering prices makes retailers angry, bad. Not being able to clear inventory because of low demand and high supply, bad.
Eliminate the middleman! (Score:2, Interesting)
Bypass the chain (Score:3)
Publishers have an opertunity to offer it at a lower price and still make as much money as they do from wholesale. A lower price also means a likelyhood to sell more copies. A publisher selling software direct to the consumer at near or slightly aboce wholesale is a win win situation for publisers.
Re:Bypass the chain (Score:3, Informative)
Mostly it relates back to the console-IQ demographic of gamers, who want to buy the nice shiny things on the shelves and don't know what the internet is for apart from possibly pr0n.
Publishers find that game sales are roughly proportional to shelfspace used by thier product in EB/whatever. Publishers find that by keeping good relations with retailers, they get more shelfspace and hence more unit sales. Completely t
Bypass the chain.. and feel its wrath (Score:3, Interesting)
An current example here in Oz: telstra supplies broadband services to smaller ISP's and telco's, but also sells it under its own brand. Telstra recently dropped their own retail broadband price to below their wholesale prices, gaining the ire of the ACCC (australian competition comission) and getting a lot of their retailers angry.
Now, telstra, being a goverment monopoly has a lot of power and so far has withstood the t
Re:Bypass the chain.. and feel its wrath (Score:2)
Firstly, ISPs (and everyone else) despise Telstra already. Telstra is a monopoly however, so it's just like having God and the Devil in the same body. Just bend over and take it, resellers.
Of course the ACCC is working to put Telstra back in thier place, and Telstra really is afraid of the ACCC in general, so you need to ask why Telstra would do such a thing. Here's our second point. Telstra has seen the writing on the wall with regards to tel
Re:Bypass the chain.. and feel its wrath (Score:2)
Re:Bypass the chain (Score:2)
Figures seem a bit optimistic (Score:3, Interesting)
Take a small to medium sized dev team - 8 programmers, 10 artists, 1 designer, 1 project manager, 1 audio guy. Give them 18 months to take a game from concept to finished product. Even with a modest average salary of $35k, you're looking at over $1.1m for wages alone. Add in equipment costs, software licences, non-dev staff, QA staff, office rental,
Re:Figures seem a bit optimistic (Score:3, Informative)
His costs are too high (Score:2)