Where does the money go when we buy videogames?

[Indy500]

http://www.eurogamer.net/articles/2011-01-10-where-does-my-money-go-article

If you bought a game in the run-up to Christmas and it cost £39.99 to buy, approximately £7 (17.5 per cent) went on VAT (that figure increased to 20 per cent as of 4th January), while £10.50 (27 per cent) went to the shop and £12 (30 per cent) to the publisher.

The rest goes on what's called cost of goods: the nuts and bolts of videogame publishing. 65 pence (two per cent) goes on distribution, £1.75 (four to five per cent) on marketing, and an £8 (20 per cent) licence fee goes to the platform holder (Microsoft, Nintendo or Sony). All these costs are paid for by the game's publisher. If a third-party is behind the game, approximately £3 goes to the developer, or 25 per cent of the publisher's revenue after deductibles, although developers are often paid in a series of advances as they meet milestones.

...

For independent developers, securing a good deal with a publisher ensures their continued existence. It is essential to their survival.

"We have a great relationship with THQ," Oliver explains. "It's mutually respectful. There are other people at companies, and maybe even THQ for all I know, that almost want to get it as cheap as I absolutely possibly can, and the minute you sign the deal, I'm going to squeeze you on getting more than I paid for. That's their job.

"In fact, a producer did say that recently to us, that that is his sole job, to get the money he's spending down and to get the content he's buying up.

"That doesn't help for a long-term relationship. Long-term relationships respect the other parties need to make a profit."

It's a three page article, I've quoted the more notable sections.

So I guess if you want to support developers, buy directly from them (eg the indie bundle) or wire them some money, because a retail game sale doesn't make them much beyond their basic salary during the production cycle (if they survive that is).

 

[bhavv]

I would buy my boxed copies directly from the publisher if I could and pay about £5 more for them. But no one has ever offered that. I was recently browsing through the Bethsoft store, but they only deliver to the USA and Canada so I had to get my Morrowind GOTY for £6 from amazon instead, from which the developers make next to nothing.

 

[Triggaaar]

approximately £3 goes to the developer

They could buy enough food to make a whole meal with that. Or a beer. But not both.

Interesting facts, thanks.

 

[OpenToSuggestions]

That £10.50 going to the shop is why high street shops can never compete as they have a lot of staff (for the stock they sell) and silly rent prices. That £10.50 is quite a large chunk when the games are so small and shifted in such high numbers.

I have no idea what the cut is that an online store takes but I doubt it is £10.50.

The £8 fee to MS/Sony/Nintendo sounds about right. This must be why PC games are cheaper.

£12 to the publisher, again OK fair enough, but why only £3 to the developer?

Why don't developers/publishers have an 'outlet store', say like a factory shop online for THQ games only? £
10.50 to the shop is stupid, but I have every confidence that is what GAME takes as their prices are pretty much always the RRP.

 

[MeMeMeMe]

Yes, it's pretty much the same with music. A tiny proportion goes to the artists who have often incurred debts to the publisher so they can only hope to break even, which is why their primary source of income is touring - retail sales is just advertising to them.

Back to games: i read an indie dev pointing out the different in the steam distribution agreement which was must more generous to devs (indie devs anyway) than retail distribution was.

 

[Ravenger]

It's not just indie devs that are benefiting from Steam - 1c, a european publisher have said that the advantages of Steam for payment is enormous, as they get the money much quicker, and get a bigger percentage.

http://www.mcvuk.com/features/808/OPINION-Retail-vs-Steam

And it has one of the best quotes ever about retailers reluctance to stock PC games:

I remember fondly the meeting in my office with a red-faced publisher who was explaining why their initial order from a major retailer for one of our new releases was just 30 units. At the time I had my browser open on the Steam product data page, which updates sales numbers every few minutes.

“They have taken one unit for each of their top 30 stores” he told me. “There is just no demand from their customers”.

I glanced at my screen, hit refresh and advised him: “In the time it’s taken you to tell me that there is no demand, Steam has sold 45 units”.

 

[MikeHunt79]

£3 isn't bad, a band often gets less than £1 for every one of their albums that they sell...

 

[Indy500]

i read an indie dev pointing out the different in the steam distribution agreement which was must more generous to devs (indie devs anyway) than retail distribution was.

Valve also discovered that low prices do attract more sales:

http://www.rockpapershotgun.com/2009/02/19/gabe-newell-valve-are-very-rich-its-awesome/

£3 isn't bad, a band often gets less than £1 for every one of their albums that they sell...

Albums don't sell for £40 though? Also, as above, a band can make money from live performances. A videogame dev doesn't have that option.

 

[MikeHunt79]

I agree Steam is awesome, allowing small devs to release titles that would otherwise not see the light of day...

Albums don't sell for £40 though? Also, as above, a band can make money from live performances. A videogame dev doesn't have that option.

DLC I guess is the closest thing to that maybe? £40 is a lot though, but the cut is around the same, ~10% or so.

 

[Triggaaar]

Albums don't sell for £40 though? Also, as above, a band can make money from live performances. A videogame dev doesn't have that option.

And it can take only a few people to write and record a song in a few weeks. Game development requires a much bigger investment.

 

[ic1male]

£10 for a shop? Grabbing buggers!

I never knew Steam had all kinds of sales tools. Wouldn't mind have a gander to see just how many units are sold on Steam. Bet it's a buzz when you can keep clicking refresh and watch your product's numbers climb up.

 

[Shamikebab]

£10 for a shop? Grabbing buggers!

I never knew Steam had all kinds of sales tools. Wouldn't mind have a gander to see just how many units are sold on Steam. Bet it's a buzz when you can keep clicking refresh and watch your product's numbers climb up.

That's a 25% margin for the store, that doesn't seem particularly unreasonable. I thought 20-30% was a traditional target margin for companies

 

[Rezident]

Gabe uses it to add to his already-impressive collection of ornamental knives.

Saw a photo somewhere and it did look very impressive. Also, if your boss had a load of knives on the wall of his office would you slack off instead of selling more hats?

 

[Jay.D]

nice find, it'd be cool to see the music album equivalent.

 

[ThomasTheTankEngine]

Steam must have pretty high profit margins to begin with, otherwise how are they able to reduce stuff by 75% in the sales?

 

[ic1male]

Not to mention paying for all the bandwidth costs!

 

[Stewy]

20% goes to the platform holder? Wow, didn't think it would be nearly that much.

 

[ic1male]

20% goes to the platform holder? Wow, didn't think it would be nearly that much.

LOL, probably why Microsoft doesn't put much effort into PC games. They get diddly squat compared to the Xbox.

 

[Indy500]

And it can take only a few people to write and record a song in a few weeks. Game development requires a much bigger investment.

All that money poured into Black Ops, and it isn't exactly the pinnacle of FPS unless accessibility is your yardstick. Then again, it broke sales records so what do I know

 

[bhavv]

nice find, it'd be cool to see the music album equivalent.

8-15% royalty for the singer / artist / band, 5-8% for the songwriter(s) or £500 - 1000 per song to buy the rights to it, with 20% max between the two (you get both if you write and perform your own music), 20% to management, 60% to the record industry for marketing, tour costs (including free travel, food, clothes and rent fully covered for artists on tour), studio recording costs, and paying the staff like studio engineers, CD printing, make up artists, and video shoots plus lots of other expenses.

Songwriting includes producing the song as well, you cant just write or produce. If you can only write or produce, or co produce a song, then the songwriting part is split between all the people involved, same as if your in a band.

Large bands make next to nothing - S Club 7 had earned around a pitiful £100,000 each at the end of their band career, which sounds like a lot but it isnt really for how many albums and how many years they had been in the industry for when Natasha Bedingfield made over £1 million from her first album as it was mostly self written and good enough for her to get a decent contract.