The economics of game publishing

[Vault Dweller]

It's a few month old article, but I don't recall seeing/discussing it before, so here you go - <a href=http://games.ign.com/articles/708/708972p1.html>The Economics of Game Publishing</a>, courtesy of <a href=http://www.ign.com>IGN</a>:

<blockquote><b>Distribution</b>

The final cost of publishing a game that we'll delve into is the distribution of the game, and that's the process of getting the game sold to wholesalers and then to retailers where you'll then have a chance to buy it. Wholesalers typically pay around $30 per game and with the costs of getting the goods to the wholesalers, any co-op advertising or marketing, and return of good contingencies being roughly $14 per game, the publisher is going to typically get $16 for every unit sold. The key part of this arrangement, however, is for the publisher to have really good relationships with the wholesalers and retailers because space is limited and unless a company's relationship is good, the wholesaler or retailers won't want to buy-in as many units, which means the sell-through can't be as good. A lot of time, money and effort is put into making sure publishers are in good with these distributors, however the bottom line is often that if your game sells they'll want to buy it. Or, if at least one of your games sells really well, then they'll want to buy or be forced to buy others.</blockquote>Discuss.

 

[Gambler]

That's why digital and direct distribution will replace retail when it comes to computer games. Retail is too expensive, complicated and unflexibel. Marketing is still a problem, though.

...

BTW, does anyone know how much does it cost to produce box, manual, CDs, etc?

 

[Vault Dweller]

I've been quoted 5-15 bucks per unit.

 

[Mantiis]

based on how many units? Or is that a flat fee?

 

[Gorath]

I've been quoted 5-15 bucks per unit.

This can only mean one of three things:
1) they don´t take you seriously.
2) your chosen box, manual and CD case deviates so much from standard material that it drives up the costs.
3) you need to pay console royalties to one of the three gorillas.

I assume you have a gold master and everything else on a CD ready for printing, in whatever exotic format is required.

Google for "DVD replication" and you´ll find various offers of $1200 - $1800 for 1000 DVDs in DVD-box with 4 color inlet & DVD print, barcode, shrinkwrap, glass master, etc.

The details are slightly different everywhere, but $1.50 per unit should be doable for a 5k run. Closer to $1.00 if you get closer to real retail numbers. Minus discounts if you release 1 game per month because you´re a publisher.

Add about $0.20 to $0.30 for CP.

More paper = much more money, though. Spectacular card boxes and cool digi-packs can also get very expensive.

 

[Dhruin]

That's why digital and direct distribution will replace retail when it comes to computer games. Retail is too expensive, complicated and unflexibel. Marketing is still a problem, though.

This is why digital distribution will take a large slice from retail but retail won't go away altogether for the foreseeable future. Retail puts a signficant and quantifiable market in front of the product...no digital distribution site can get even close to that, and when they can (be it Steam or whatever), the costs will start to approach retail. At least, for the foreseeable future.

The real battle will occur when a monopoly (ie, a console such as Xbox goes 100% to Live Marketplace) moves to DD.

 

[Koby]

...
Discuss.

Then lets change it, the open source community has proven that there is a way to battle companies like microsoft, a company that is way bigger then most if not all of the big names (EA) in the game industry.

There has to be some kind of constellation in which every individual/company that can and want to support and contribute to a unified network of independent game developers, be offered a way to do so, but in a much more meaningful way. And not just by means of pooling talent but other resources like web hosting, marketing, distributing, and so on.

Someone that is known and respected in the gaming industry [drama] has to raise and take the leading role [/drama] in this highly unrealistic scenario, (like Linus Torvalds in the open source community), someone that can also (with some help) organize all the small time indie in a way that every effort that IS being done is also collectively beneficial to the rest.

EDIT----------------------------------------------------------------------------------------------------

Here are some examples of just how much this can be beneficial off the top of my head:

Online publishing can become a much easer task. Let's say the main web address of the indie network is "indiexchange.com", a high traffic web of course, that is actively promoting all the games it helped to make, and the main publishing site of your new game is "mynewgame.indiexchang.com". Once that it show signs of being near completion, experts in html, jave, shockwave and flash that want to contribute can be called to arms, and easily and quickly make all the web pages and applets for online promoting your game.

Distribution will take on new forms. Let's say you and your team just finished making this rouge like game, the "indiexchange.com" can offer retailers some kind of "IndiExchange 2007 rouge-like collection" for 39.99$ featuring 10 different rouge-like games, giving your game the opportunity to get to a wider audience. I mean let's face it, your game that you made with a team of 4 dudes wouldn't sale for 5-15$ in large quantities, let alone get on to retailers shelf.

To be continued…

 

[GhanBuriGhan]

I've been quoted 5-15 bucks per unit.

For you as developer, after the publisher has taken his share, or as the share of the publisher?

 

[Twinfalls]

The real battle will occur when a monopoly (ie, a console such as Xbox goes 100% to Live Marketplace) moves to DD.

Why would this be any different to the present situation? None of the consoles is an open platform - you already need MS approval to sell an xbox game. DD will cut out WalMart's share in the proceedings, but won't further monopolise what is already so monopolistic.

 

[Vault Dweller]

I've been quoted 5-15 bucks per unit.

For you as developer, after the publisher has taken his share, or as the share of the publisher?

For me as developer/publisher, the cost of getting the game to the shelves, including the store's cut. 10k units.

 

[GhanBuriGhan]

I've been quoted 5-15 bucks per unit.

For you as developer, after the publisher has taken his share, or as the share of the publisher?

For me as developer/publisher, the cost of getting the game to the shelves, including the store's cut. 10k units.

So what you would pay the publisher to put the game on the retailers shelf, right?
So assuming a best case and you sell all 10000 units for $30 at the retailer.

total revenue $300.000
Assuming Retailers buys it for $20, Retailers get 100.000
Publisher gets $5 per unit: $50.000
leaving $150.000 for you
Team of four: 37500 per person
3 years work: 12500 per person/annum

Would the publisher do PR, too? Otherwise that would have to be paid for too.

Hmmm, not a way to get rich quick.. And likely the retail price would have to be lower and the publisher would be a larger share.

What are the costs of DD?

 

[Seboss]

Hmmm, not a way to get rich quick.. And likely the retail price would have to be lower and the publisher would be a larger share.

Considering it's not a day-time job, it's not that bad, isn'it ?

 

[Vault Dweller]

I've been quoted 5-15 bucks per unit.

For you as developer, after the publisher has taken his share, or as the share of the publisher?

For me as developer/publisher, the cost of getting the game to the shelves, including the store's cut. 10k units.

So what you would pay the publisher to put the game on the retailers shelf, right?

No, that's if I'm the publisher and want to pay the costs myself. If I deal with a publisher, the publisher takes care of all that, pays me an advance against royalties (the highest I've been offered is 45k - not much, but something), and hopefully won't screw me with the rest.

Hmmm, not a way to get rich quick.

No, but it's something we all enjoy doing.

What are the costs of DD?

I didn't look into that yet. Well, one big-ass internet pipeline and probably a few bucks per unit transaction cost (online merchants).

 

[FrancoTAU]

Hmmm, not a way to get rich quick.. And likely the retail price would have to be lower and the publisher would be a larger share.

Considering it's not a day-time job, it's not that bad, isn'it ?

It's nothing to sneeze at, but it's probably not a great return on what amounts to a time consuming part time job. I assume any expansions or sequels would take much less time, which is how I think Vogel manages to make a full time living at it. Hopefully the Digital Distribution is sucessful for them since I'd imagine the gross margins on that have to fantastic. Basically it's just your bandwidth costs.

VD, just curious... It looks like your self publishing AoD and doing it DD only. Is there any scenario that could happen where you'd change your mind with hypothetical future releases. For example, AoD does really well and you get a much bigger than 45K upfront for your sci fi RPG.... would you be interested?

 

[Vault Dweller]

First games rarely do spectacularly well (even Fallout), but they do build up awareness, interest, fan base, developer's brand, etc. It's the second and third ones are the ones that can make real money.

 

[Vault Dweller]

VD, just curious... It looks like your self publishing AoD and doing it DD only.

I will probably do a publishing deal for Eastern Europe where $25 is too much to spend on games. There was a strong interest there.

Is there any scenario that could happen where you'd change your mind with hypothetical future releases. For example, AoD does really well and you get a much bigger than 45K upfront for your sci fi RPG.... would you be interested?

Not sure I understand the question. Would I see some value in publishing or would I sell out for a lot of money? No to both.

If AoD does well via DD, then why fix what clearly isn't broken? If it doesn't do well, well... there won't be any awesome offers, that's for sure.

Overall, here is an [oversimplified] analysis:

1) Publishing. The game being an indie with very questionable graphics sells at $30-40 a piece. Most likely 30. The publisher gets $20. I get 10%. Yay! $2 per unit. I can probably bump up the cut to 20-25% since the game is almost ready and doesn't require heavy investments. $5!

2) DD. I boldly sell the game at $25. Let's say $5 is what it takes to sell a unit. I'm left with $20. Ten fucking times more. Of course, I won't sell as many units on-line as I could through stores, but I would have to sell 10 times more to make the same amount which is doubtful.

And in conclusion, now would be a good time to quote Michael McCarthy:
...
Why Steam... the reason Steam is so fantastic, is because the game can be developed and distributed without any publisher involvement. Laidback will get to keep the IP, which means that the idea and world the game takes place in will still be ours. Laidback can make a great title, put it up there and people can download it for less than they'd pay in the stores. On top of that, Laid Back will only need to sell a very small number of copies to recoup its cost and keep the company going.

To help everyone better understand, I will explain Publisher funding vs. Developer return process. I'm going to simplify it a lot, but this is more or less how it works.... and it's really quite amazing...

After they agree to fund your game for 6 million, you begin production. They give you 500k a month upon receiving, reviewing, and approving your milestone. They are basically checking every month to make sure the game is actually being made and going in a good direction Fair enough. To keep things easy, let's say the game ships on time and they've given you a clean 6 million bucks.

Ready?.... You get 10% of the royalties of the game! So like if the game sells 1 million units at Electronics Boutique for 50 bucks a piece, you get 5 million dollars coming back at you right?!??!

WRONG

EB bought the game for 40 dollars and sells it for 50. Now the publisher takes away their expenses of producing the full color manual and the pretty box and such which we'll say is 10 bucks (usually more like 7 - Gorath, this line is for you - but let's keep the math easy). So now we are down to 30 bucks, and you get 10% of that... 3 bucks.... but WAIT!!! Your 3 dollars doesn't go into your pocket, your 3 bucks goes to pay back the publisher what you borrowed to make the game. They did give you 6 million dollars. So before the developer see's a check in the mail, you would have to sell 2 million units!!!!! So the developer before the developer gets a check, the publisher gets 30 million dollars coming in.

Crazy huh?

So why choose Steam? I have chosen Steam because if you buy Valves engine to make your game with, you get to keep 100% of what you sell on Steam. That's right 100%. So using our math from above, if I can sell the game on Steam for 30 bucks and cost 6 million to make, I'll be seeing a check after the game sells 200k units instead of 2 million. AND the check I get for the units I sell will be 10 times more than it would be from a publisher AND after all this wonderfulness, you guys all get the game for 30 bucks instead of 50....

It's an all around winner.

If Troika was able to sell the games they made through Steam and sold only a 1/4 of the units they did, they'd be thriving today and everyone would have really cool RPG's to play. The more people who download, install, and actively use Steam the better. It's really small developers only hope to get their games out to people.

 

[GhanBuriGhan]

The big question then is how do you promote a self-published game? If you have no advance from a publisher your PR budget will be very limited. And if you don't go through something like steam, there will be little "automatic" exposure.
Esposure in reviews and interviews is probably the best "cheap" advertisement, but is it enough?

 

[FrancoTAU]

I guess I was basically asking if you would sell out for the right price :-P. Good for you though. I don't really see the retail business model being good for you from a financial standpoint alone. Not to bash your game, but I doubty you could pull the kind of retail sales to make the payout worthwhile for your team

The business model sounds great and I don't really see the niche market being flooded anytime soon. The only active indy RPG devs that I have any faith in are Iron Tower, Spidersoft and Laid Back(thanks, forgot that name!). Zero Sum too if they ever got up and running again. There are a bunch others out there but I'd wager that most of them turn out to be vaporware.

 

[Vault Dweller]

The big question then is how do you promote a self-published game? If you have no advance from a publisher your PR budget will be very limited. And if you don't go through something like steam, there will be little "automatic" exposure.
Esposure in reviews and interviews is probably the best "cheap" advertisement, but is it enough?

The site is getting 150-200,000 hits per month and I'm just getting started. Any PR guy with a clue will tell you that "word of mouth" is the most powerful form of advertisement there is.

I guess I was basically asking if you would sell out for the right price.

No. Otherwise, I would have made something like Avencast:

http://www.avencast.com/index.php?id=32

Challenging game play: Keyboard-and-mouse-based controls that enable skilful and dexterity-based special moves and combos

 

[obediah]

And in conclusion, now would be a good time to quote Michael McCarthy:

I know this was just an example, but Steam is probably about the only thing that could keep me from getting AoD at this point.

 

[Vault Dweller]

No, no plans for Steam.

 

[Araanor]

What are the costs of DD?

I didn't look into that yet. Well, one big-ass internet pipeline and probably a few bucks per unit transaction cost (online merchants).

Have you considered Bittorrent? It's a really affordable and versatile distribution method. Your server wouldn't choke even under a massive storm of downloaders. In fact, BT grows more efficient with more peers.

 

[Vault Dweller]

Thanks. Will look into it.

 

[Nightjed]

So why choose Steam? I have chosen Steam because if you buy Valves engine to make your game with, you get to keep 100% of what you sell on Steam. That's right 100%. So using our math from above, if I can sell the game on Steam for 30 bucks and cost 6 million to make, I'll be seeing a check after the game sells 200k units instead of 2 million. AND the check I get for the units I sell will be 10 times more than it would be from a publisher AND after all this wonderfulness, you guys all get the game for 30 bucks instead of 50....

It's an all around winner.

You are paying for steam with more than money, you pay with your freedom, you are not really "buying" the game, you are licensing it

1- You have to be online to play even single player games, if steam goes down by any reason (server downtime, connection probs, or a very likely valve goes bankrupt/gets bought/changes CEO and decides to stop steam support)

2- You wont even get the whole game, releasing in chapters is faster, cheaper and gets money flowing in less time, that might sound good but more often than not game stories will never end either because they are making too much money or too little

3- And eventually you wont even get the game, youll have to "pay-for-play" just like mmorpgs

 

[obediah]

steam gripes

Dont forget that it requires you to install a huge brick on your machine coded by a company that has demonstrated multiple times their inability to grasp basic security concepts.

Installing Steam on your computer to manage purchases and DRM is like buying a voting machine from Diebold....FUCK we're screwed.