How to manage costs to match sales expectations?

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13 comments, last by Orymus3 9 years, 7 months ago

Yeah, if you're producing a boxed product, you will know what prices are involved. That information is confidential / commercially sensitive, so you're not likely to find accurate info as an outsider.

Typically 0% of the money you pay at retail goes on to the pocket of the developer - that's not how things are typically structured tongue.png

The developer will be paid up-front by the publisher to create the game (typically in milestone payments).

The retailers buy each box from the distributor at a wholesale price, and then they increase it to a retail price.

The platform-holder (Sony/etc) take a fixed cut per disc, charged at the time that you print the discs.

The distributor will have a cost to deliver each box to the store, and the rest goes to the publisher.

The publisher will then internally do accounting to determine whether those profits have paid off the advertising, marketing, support and development costs.

If the developer is lucky, they have a royalty agreement with the publisher. Usually, these agreements state that royalties only begin to be paid after the publisher's initial costs have been repaid. This is where Hollywood accounting comes in. Say the publisher originally paid the developer 10x $1M milestone payments during the development phase, and also spent $10M on advertising. You might think that the developer will begin getting royalties after the publisher has made $20M... but no. The publisher will also add on the costs of their internal publishing, accounting, marketing, social media, financial and quality assurance services. They might claim that these are worth $30M -- who are you to argue. They might also claim that printing and distrubuting the boxed products cost them $5M. Now, the royalties only begin to flow after the publisher has received $55M in profits.

So if, just for example we say that 50% of the retail price goes to the publisher, and a game costs $50 at retail, that's $25 to the publisher per sale. You have to sell ($55M / $25 = ) 2.2 million copies before the publisher has "broken even" and received their $55M in profits.

After that point, the royalty contract is active. Say the dev has negotiated to get 25% royalties on each sale. From now on, for each sale, the publisher gets $18.75 and the dev gets $6.25.

If the game goes on to sell 3 million copies total, that's a total retail revenue of $50 * 3M = $150M.

However, the dev only gets royalties on (3M - 2M = ) 0.8 million of them, for a total of $5M in royalties, plus the $10M they were paid in advance = $15M revenue for the dev -- which is 10% of the retail revenue.

On the other hand, if the game only sells 1 million copies total, then the publisher hasn't "broken even", and the developer gets zero royalties, only getting the $10M they were paid up-front to create the game. In that case, the total retail revenue is $50 * 1M = $50M, so the dev received 20% of the total revenue!

As you can see, it's not entirely useful or meaningful to ask what percentage of the retail price goes to the developer ph34r.png

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How about a situation where the dev studio has the funds to create a game, has created a game, and is looking for a publisher to distribute the game?

So the publisher has paid the dev studio nothing. I would imagine in this game, the publisher will split revenue to the dev right?

How about a situation where the dev studio has the funds to create a game, has created a game, and is looking for a publisher to distribute the game?
So the publisher has paid the dev studio nothing. I would imagine in this game, the publisher will split revenue to the dev right?

They'll probably try to negotiate similar terms, where they'll start splitting the profits with you after their costs have been paid off. If you're not careful, you could end up in the same situation where you never receive a cent in royalties.

There's no standard deals. It's all down to the specific contracts that you agree to.

There's a bit of a change recently with digital distribution, where many developers are self-publishing -- i.e. selling games to consumers without a traditional publisher at all. From what I hear, it's fairly common in these deals for the middleman (Steam/etc) to take about 30% of the customer's money, with the developer receiving 70%.

Keep in mind that in this kind of deal, you'll also have to pay for your own marketing/advertising/support.

^

Again, wonderful and insightful advice. Much needed! Digital distribution is indeed very enticing. You mentioned marketing $10M spent on advertising alone for a game?! That is just a theory right? Can you shed some further light on the marketing costs of a handheld RPG game?


You mentioned marketing $10M spent on advertising alone for a game?!

That's a figure for a AAA.


That is just a theory right?

That would be practice. I've seen budgets of this magnitude go for marketing on AAAs.


Can you shed some further light on the marketing costs of a handheld RPG game?

Are we still talking PSVita?

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