Economics Of Game Publishing Analyzed

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."

Comments

Cutting out the middleman

[Profane MuthaFucka]

The charts show that a full $15 of the price is profit to the wholesalers, and the retailers. I'm surprised that more studios don't try the direct channel, selling right to the customer. It seems that there's some serious inefficiency there.

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

[An El Haqq]

The charts show that a full $15 of the price is profit to the wholesalers, and the retailers. I'm surprised that more studios don't try the direct channel, selling right to the customer. It seems that there's some serious inefficiency there.

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, 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

[Teddy Beartuzzi]

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.

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.