Game Marketing Tips, Analysis, and News

Wednesday, February 24, 2010

Why $60 Isn't Really $60 For Video Game Publishers

This article in the LA Times breaks down the cost of a $60 video game. While the publisher takes in around $27, you might be surprised to learn that $7 goes to cover the cost of returns... that is, games that didn't sell. This shows just how much slack there is in game pricing. If publishers could sell their games directly, they could price them at $30 and still make just as much per unit... and I'd venture that sales would increase if the cost were halved. It might even be that sales would increase even more at $20, enough to cover the lesser amount of revenue per title. When you don't have to worry about retail margins and cost of goods, those are the experiments you can try. This is the logic of digital distribution, and it's inexorable. The only question is how long it will be before it takes over the lion's share of game sales, not whether or not it will.

It's not going to be an easy transition for Gamestop; I see no clear strategy for them to thrive in a world ruled by digital distribution. What happens to the used game market when there are fewer and fewer used games for sale, because people were buying them digitally? What does Gamestop sell if people aren't interested so much in buying a physical copy, and there aren't any used games? Do they just become a retailer for action figures and card games?


  1. I think saying there's no used market is a pretty big assumption. If you buy a digital download of something, then the first-sale doctrine pretty strongly suggests that you can then go and sell that digital thingie you bought. You know, burn it to a CD, sell it on eBay, whatever.

    Granted, there are some very largely practical problems, largely centered on trying to differentiate illegal copies from a legal first-sale, but that's exactly the sort of thing that someone like Gamestop might be able to deal with. And in fact, might have to.

    Saying there "aren't any used games", though, that's not only literally untrue, but also not legally sound.

  2. Publishers are working hard to prevent resale of digitally downloaded games, and I expect that trend to continue. For instance, buying a game on Steam is linked to your account. You can copy the game and give it to someone else, but unless you give them access to your account, they can't run it (unless they use an illegal crack, which is a violation of Steam's terms of service).

    Certainly Gamestop derives most of their profits from game resales, and therefore they have a strong incentive to keep that market alive. Publishers hate game resales since they don't make any money on them, so they are doing their best to stamp out the practice. Digital downloads allow publishers multiple ways to do this... and as Gamestop becomes less important to publishers, publishers will have less incentive to bow to their needs.

    I don't think the used game market will go away, but it will certainly be shrinking.

  3. I like the idea of what Catalyst games is doing selling a digital copy with their physical copies, there is also the idea of walking up to the expersso machine and buying a digital copy to run on your ipad, or as a print on demand kiosk.

    Wouldn't it be great if you as a publisher could get a part of that second sale of your physical product, provide that customer with a digitial copy for .99 cents.

    I still want my jet pack though

    Steve Russell
    Rite Publishing.