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Anatomy of a $60 video game

Ever wonder where your hard-earned money goes after you've plunked $60 down on a game at GameStop or Target? Here's one answer: 

Anatomy of a $60 Video Game

Much of the data came via a slide shown Thursday by Steve Perlman, founder of OnLive, an on-demand video game service based in Palo Alto.

Perlman, who spoke during the Design Innovate Communicate Entertain Summit in Las Vegas, showed the slide as part of an update on his company's service, which is expected to launch later this year.

Another way to look at it is to say publishers such as Activision and Electronic Arts receive $45 after retailers take a $15 cut. Publishers turn around and pay a $7 licensing fee to console manufacturers such as Microsoft, Sony and Nintendo. The cost of making, packaging and shipping game discs to stores carves up another $4. Finally, not all games sell, so the expense of returning unsold inventory eats up another $7.

That leaves publishers with about $27 per disc sold for development, marketing and other expenses. These are, of course, back-of-the-envelope averages. Each of these numbers can vary. For instance, a publisher could negotiate a smaller licensing fee with console manufacturers. And by deploying the Goldilocks method of inventory (not too much, not too little), they can also minimize returns. Tinkering with the margins in these ways lets companies tune their bottom lines.

-- Alex Pham



 
Comments () | Archives (16)

Interesting.

Wow, very interesting.

Retailer margin is different for brick and mortar versus online. Don't see that reflected here. I also don't see any mention of markdowns. This is more common than returning goods, unless the product is a real stinker.

Where did the creator of the slide get this information? What is his source and what evidence exists corroborate it?

Why on earth would the return cost be greater than the original cost of distribution and cost of goods?

Assuming this data is all true, console users should be given the option to buy an external terabyte drive and utilize overnight digital distribution. Eliminate the retail overhead, 26$ here, and let them go out of business or get their markup back in line. Secondly if physical distribution does add significantly to the cost of software where do digital distributors, such as steam, get off charging the SAME price as the physical product. I know bandwidth isn't free but there should be some price break.

I would also like to know what sources are used. I feel that I must also point out the PC games. They are usually the same price, yet there are no royalties to be paid (Microsoft don't take royalties for any software released on Windows, anyone is free to develop and release software that runs on the OS and Microsoft are in no position to take a cut). And as Ryan posted, this clearly does not take online distribution into account.

I find it very difficult to believe that making the game and distributing it costs $4, and that the returns are at $7. I would knock a buck off each and put it under Retailer Margin, but who knows, maybe I'm wrong. But I mean, hell, depending on the game, that $7 each might be all profit.

I will also say that no one should be charged the $7 except those that return it.

I do orders for a retail store. The one I work for only makes about $5 on new games. Most big title games cost around $51-54. A lot of people pay with credit cards and those have a 8% fee with usage. So, wow!!! There is no money for the retailers in New Games.

I love explaining that to upset customers. They want to know why we charge so much for a new games. When they find out they usually shut up and just pay for it.

I worked at a local store that sold video games, and our margin was way less than this graph lists.

Wow only 60 bucks?

like to see you do one for australia, where games can be around 100 dollars, and thats after currency conversion to USD.

Well, I understand publisher takes marketing, production, distributio costs, plus takes risks, and retailer taking marketing as well, but not ~50% and 25% od overall revenue distribution! 11% royalty? You must be kidding me - people already paid for those platforms?!

Well maybe that an opportunity to kill EA?;)

So for MW2, Steam probably gets equivalent or lesser margins (probably around 10-12, most likely less) and distribution probably only costs a dollar for bandwidth and etc. These are no royalties and (i think) no returns on Steam games. Therefore Activision is making around 48 dollars per PC copy sold versus 27 per xbox/ps3 copy. Hypocritical cretins who say they lose money to piracy...

A lot of you are misreading the term returns, I think. Typically this refers to UNSOLD units which the publisher must take back, not player returns.

From working in the industry for over 10 year now, it doesn't seem like Steve Perlman, founder of OnLive has all the information right. At best, a retailer makes $12 a unit on a new release $60 game. By the time you add in shipping and labor you are looking at about $8 margin, assuming you sell the unit. Dissapointing that the LA Times would publish this story with out doing some more fact finding first.

sorry but that doesnt even make any sense,it costs 4 dollare for the packeaging the actual game disc itself and the shipping ,but then he says it costs 7 dollars for "returns" the return of unsold copies back to where they came from ,how is that even possible?how can it cost 4 dollars for the ink to printing costs to print the insert and the manual ,the plastic for the jewel case the molding of the case and shipping of the jewel case and all shipping costs contained therin of shipping the case and packaging ,the stamping and shipping an distribution costs of the actual disc,but then cost you 7$,just to ship back the unsold copies?than makes absolutly no sense,since shipping would be a minor part of the $4 distributin cost,the return of that good should be an even smaller fraction,of that


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