 | Forbes on game costsDecember 20th, 2006 |
So Forbes has an article on why games cost so much breaking down where your $60 goes when you buy a game. (Be sure to click on the graph at the bottom of the article). But there’s a lot of stuff off with this analysis.
To start with, you don’t take 20% on every box sold for the programming cost. Once you have made the game, the costs are known and fixed; you recoup, and then this chunk turns into publisher and developer profit (mostly publisher). Same goes for the art costs and so on. In fact, in general, this graph tends to mix the categories of costs in this way.
It also ignores the fact that this isn’t really how the business works. There’s a portfolio of titles; not all will have the same mix. You rely on tentpole titles to carry the losers — which are most games made, really. And major tentpole titles often have far higher programming and art costs.
It’s also curious that this doesn’t actually give the story as regards how developers get paid…
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Raph points us to the Forbes article on breakdown of costs of ‘next gen titles’ (using Gears of War as the case study). As he points out, there’s a gross oversimplification here. All of these percentages(for an individual title, as well as over a portfolio of titles) dial up/down over the lifetime of a title, as does teh ASP of the title. ALso, there’s a tradeoff of risk/reward that
Discussion: Joystiq, CyberNet Technology News, TechSpot, The Tech Report, Raph’s Website, Xbox 360 Fanboy and digg
[...] binarystream (binarystream) wrote,@ 2007-01-10 15:05:00 Entry tags:tech Digital Downloads So, I had a… discussion with a friend. He doesn’t agree with me, which I don’t mind. Anyway…I have an Xbox 360. So far, I’m enjoying the games. What really surprised me is how much I like the dashboard interface. From it, you can play games, listen to music, and watch movies. It’s a slick and easy-to-use interface. The dashboard has a lot of potential. One idea: I think Microsoft should consider allowing users to buy or rent games, and I don’t mean the arcade games. This is where my friend and I disagree: I think that digitally downloaded (DD) games should be sold for a discount.Back in December, a number of sites commented on an article published in Forbes: Why Gears Of War Costs $60. This is their cost breakdown summary:Art Design: 25%Programming and Engineering: 20%Retail: 20%Console Owner Fee: 7%Marketing: 7%Market Development Fund: 5%Manufacturing: 5%Licensing: 5%Publisher Profit: 1.5%Distributor: 1.5%Corporate Costs: 0.3%Hardware Development: 0.05% Brass tacks: publishers make about $1 from every game sold. It takes a lot of games sold before one becomes profitable. Ralph Koster also had some good comments on this article. In particular, about how most publishers depend on tentpole, or very profitable, games to make up for the losers.Back to the argument: A digitally downloaded (DD) game would immediately save the publisher money by avoiding manufacturing costs. For 100k units sold that adds up to $300k. Without the retailer markup or manufacturing cost, a DD game could be discounted by as much as 25%, selling for $45 instead of $60. However, it doesn’t make sense to discount by that much. Instead, if the game was sold for $50 (about a 17% discount), an addition $5 in profit could be split between Microsoft and the publisher. Let’s just assume that they split it 50/50. So, for 100k units sold the publisher would receive $250k.I also believe a discounted DD game would probably sell more units, though I have no idea how many. Gears of War, for instance, has already sold 1 million units. Let’s use that for a wild-ass guess. Assume 10% of buyers would download, and that we’d get only a 1% boost in sales due to the discount. So, for 1.1M games sold there would be 110k downloads. This would mean the publisher would make almost $1.6M instead of $1.1M, an increase of $500k. Rentals could be done in a similar way; the download would simply expire after a certain time or number of plays. Microsoft does this with movies, so why not with games?This is all a moot point, however, since Microsoft doesn’t allow games to be digitally downloaded and might never allow it. Also, there is no obligation to discount the game at all. The publisher and Microsoft might just decide to take as much profit as they can. Which is the stance my friend took.I personally believe that a discounted DD game would result in more profit, but it’s just my guess. So far, I haven’t seen any digital download provider, such as Steam, discount games this much. A good idea or not? I guess we’ll see.(Post a new comment) [...]
[...] Forbes article on breakdown of costs of ‘next gen titles’ (using Gears of War as the case study).As he points out, there’s a gross oversimplification here. All of these percentages(for an individual title, as well [...]