What Your $US60 Really Buys

Seven dollars of a $US60 video game purchase covers expenses for games never even sold. That's according to a breakdown of retail game cost by an on-demand games service.

OnLive, of Palo Alto, California, says that $US7 covers, on average, "returns". That's the cost associated with returning unsold inventory - essentially, sales that don't meet expectations. By this analysis it is equivalent to the royalty paid to the platform holder - Nintendo, Microsoft or Sony.

By far the largest portion is to the publisher, nearly half of it. As it should be. But 25 per cent of a game's cost is the profit to the seller. That is a very nice margin, and it - plus the fudge factor on the returns, hint at how discounts on some new games can be justified even at release.

Anatomy of a $US60 Video Game [Los Angeles Times]


Comments

    This is in no way accurate as far as the way we price our games goes. Maybe it would apply to stores like EBGames, but we take a loss on every game we sell because we make a profit on our other items. We stock games cheap cheap to get customers in the store where they might buy our other items which we make a profit on.

      Rubbish - no business would survive selling at a loss - Why don't you just stand out the front and hand people $2 as they walk past... You may sell at cost but no-one sells under cost...

        Seriously, you people have never heard of businesses that sell flagship products at a loss? Wow.

        For starters...Xbox360 and PS3 were both sold at a loss at release. I believe the PS3 is still sold at a loss. The idea there being the profit on the game (plus marketplace exposure, brand worth et al) makes up for it.

        Another example - Do you really think Dominos/PizzaHut can make any money on a $5 pizza? (Hint: no, but they make a lot on that $4 bottle of drink that cost them 17c)

        Just...wow.

        The term used most often is "Loss Leader", look it up for more info. And it is a very common tactic in businesses

        JB Hi-Fi always do this, selling DVDs & CDs cheaply in order to get you in to maybe buy a TV or iPod. It's called loss leading.

      what items do you make profit on then?

      yeah Lance what company are you refering yourself as in the employment off i know that Jb sometimes loss sells although its rare they normally sell at a no gain point or 1-3dollars profit

      EB sell at max purely so they can sell the used copys 5 dollars cheaper at a 60dollar margin

    So where do we factor in the almost double price of Australian games compared to the US. Is this just for profit?

      I'd be interested in the margind in the AUssie market. I agree that on average, JB is by far the cheapest but when you consider the marginal extra distribution code to Australia compacted to the significant price increase that does not seem to fluctuate when the exchange rate does... If we are paying the margin to the devs and royalties to platform in their currency, where is the rest of the money or more importantly, who soaks up this additional producer surplus..?

      No. When publishers and retailers work out a products RRP it factors things such as the economy, wages and cost of distribution.

      The reason games are more expencive here than in the states is not just because they can be. It's because its actually more expencive to do business here.

      That said, I have no idea why Steam is still so expencive half the time. This is also why when I visit the states each year I always come back with about 10 or so games in my luggage.

        Some steam games are more expensive in australia because its a damn rip off plain and simple. Absolutely no reason to price differently other than the market will accept it.

        Its why I never picked up the new modern warfare. $89US give me a break.

        They charge so much here because they can shipping would cost nearly no more im sure these things and if you say its based off the dollar its still wrong because if its baed of any currrency conversion its based on an old Britain to Aus conversion when the dollar was really poor there but the aussie dollar hasnt been at 50c to a US in a long time

        They sell at that price because we pay it and nothing else

        steam isnt expensice sure developers have taken to screwing Aussie's as well now(with absolutely no reason other than they can) when you take into account hosting content servers all over that more than justifys the $4 of distribution that the game still has(also note this is a 60 dollar game so since steam is always 50 that takes out the majority of the returns&platform rules(and steam is still gonna take a sales cut anyways)

        Plus steam has awesome sales every weekend dont see EB doing that on anything worthwhile

          I said it earlier and I'll say it again, EVERYTHING is more expencive here. Wages, rent, utilities the cost of business is much higher here than in the states. That is the primary reason why games are more expencive.

          It's not just games, food, electronics and almost anything is cheaper in the States. The trade off is you have to actually tip your waitress up there.

    Yeah ebgames is cheap cheap? like new games that come out at $119.95, whilst they are $89 on day of release at jbhifi, ebgames just tell their plebian staff they are on tiny margins and corporate swim in the cash.

      Don't be ignorant.

      EBGames is not cheap sure. But I work there and I can tell you that when we pricematch to JB which is almost every second sale at my store we only make about 5 bucks on each copy. This is true. I don't know how cheaply JB get their copies from their publishers but we only make that much, when you factor in wages and rent for the day my store does not actually make all that much profit. Honestly, selling things at their RRP? OUTRAGEOUS!

      So corporate make perhaps really only enough cash for a spar, not a whole pool.

        Yea, I agree here. I also work in the industry, and let me tell you, the stores are not making a massive profit. I am in a similar situation to Dominic, we price match to JB a lot and this does affect margin. What people tend to forget, is that out of the $5 margin, we need to pay wages, rent, cost of stock, marketing, advertising and so on. It adds up really quickly and devours that $5 margin, most of the time, costing the store money to sell it that price. JB can make up for it with massive mark ups on TV's and the like, and yea I agree, It's a shit buisness model that can only last so long, so enjoy it while it lasts. Also, when was the last time you actually got served in JB by someone who actually has half a clue about what your talking about? All these things go into the pricing at other stores. I just dont think the general gaming public realises the amount of work and money required to bring these titles to the shelf, but i to agree, we pay too much in this country.

          why do they need to know what im talking about in any way shape or form there there to sell me a product the few times ive purchased from an EB there talking to someone else about there raid on WoW last night

          or im there doing the same with my mate but other than that there not very helpful service wise

        BS dominic you make your profit off the used copies and if every second sale is price matched to JB why dont you sell everything but your exclusives at that price oh thats right because you guys are trying to squeeze the cash cow

        JB dont get better deals they merely move more stock than you guys ever will and a large part of that also comes from price(hell i drive 20 minutes to the nearest JB just so my money doesnt go to the EB or GAME 2 min away from me(and with the prices they deserve it)) they sell DVDs and tvs and just about everything else they dont need to make 15 dollars profit per product 2-3 will satisfy them greatly

        Ive seen the profit margins on the damn used games hell one of the guys from school that worked at EB made a unique mark on one specific release to see how many times the same copy(s) of the game was returned to his store he averaged the same game 2-3 times making around 60 dollars each time and the used ones were still selling more than the JB copies

          We were talking about the new games dude, not about used ones. I already stated in another section in this thread that stores make much more money selling used copies.

          But I am telling you, for some stores such as ours it's the used sales that keep us afloat. If by 'squeeze the cash cow' you mean actually make a profit then yes, guilty. Sorry but I need to pay rent. The problem is that we don't have the other products to fall back on like JB does so we have to sell our games at RRP. We are a games speciality store.

          But by the looks of your other posts I doubt you are really interested in anything I have to say. Nor any insights I provide.

    Clearly Daniel isnt in the industry, take a look around JB's. For every $89 new release, (which is at cost or under) there are 10 back catalouge games, movies and CD's ABOVE RRP. After all, its just a reccomended price, but if you want that movie you will have to pay 33.95 etc. Its only the new releases that are discounted.

      there not above RRP there at RRP

      Exactly. Not to mention preowned games. Which is actually how most games stores make any real profits these days. As soon as I saw JB start doing preowneds I thought 'hoo boy'.

    san franciso rush for N64 back in the day cost me $120 .... !!! god damn it ....

      Dude, Mortal Kombat on SNES was $160 at release. Waaay way back in the day.

    As far as I can tell, places like JB Hi-Fi can do there deals because of the "Buying Power" they have. That cute little catch-all phrase is effectively what all big chains live by, especially supermarkets like Woolworths or the mega-examples like Tesco's in the UK and Walmart in the US.

    They can take a substantial hit to the margin because there volume of trade is huge. EB could never claim to sell as many games as JB Hi-Fi, actually probably not as many as K-Mart or Target who aren't really associated with games selling. Most people are savvy enough to stay away from retailers seen as gougers like EB or Harvey Norman. EB only attract people who don't know any better or because of exclusives (unavoidable but remember to try a price match on them even if its not real :P ).

    Lance is also correct in saying that some stores slash the price to make no money on it. They use the marketing of a big game to entice people to the store where that consumer may also buy a DVD or a peripheral. Sometimes just piggybacking on that Publisher hype by association is all a store wants. It's a big factor, why pay to advertise when someone just did it for you. AND, on top of some stores grabbing market share through other peoples hype they make publishers pay to be in prime position in the Catalogues (or they take some gratis like below cost buying or priority volume orders... something that feels win-win).

      Just a correction to your comment: EB is the largest retailer for games in Australia. JB Hi-Fi is second.

        Hi david,

        Could not see a recent 'Ask me stuff' but i am really interested in the price breakdown fo the australian market and who makes what profit/margin, what royalty.

        For example, if M$ only take $7US, of they only take $8.50 here??? Not sure how transparent this all is as I assume not but I am quite keen to see some more about this.. any thoughts?

          A lot of our games in Australia are imported from Europe. Given worldwide release dates this often means air freighting bulk cargo halfway around the world and this is EXTREMELY expensive! Once it arrives, slipcases have to be printed with those ugly rating logos, etc. Once all is done it's the transport costs to the shops etc.

          Trust me... it all adds up very quickly!

        ...which is crazy really. Why people pay the overinflated prices at EB just escapes me...

        You've got to keep your eyes on JB though too. Every now and then they like to inflate there prices too.

        Always best to check the BigW catalogue even if you have to wait that whole extra day.

        I stand corrected. I guess having a store (or 2) in every major complex and sucking up all the exclusives has paid off. My point is still the same though. Many people stay clear of EB and shop elsewhere. Now if you want to tell me that EB is far out in front of the other retailers and JB, Kmart, Big-W and Target combined still don't beat EB I will stand corrected again. ;)

    "but we take a loss on every game we sell because we make a profit on our other items" don't know about everyone else, but that sounds like a shit business model to me..

      its the same model all busines's use when you see those SALE cataloges you see something that you want so you go to the store there hope is that while your there youll see something else you want that might not be on sale its all about getting people into your store and getting them on the impulse buy

        I've been reading a lot of this "selling at a loss" stuff and it's kind of amusing. I know that most shoe stores in Australia sell at around double cost price which is simply the RRP.
        And I figure "cost price" is about double the price it is to actually make the shoe since the manufacturers need to get money some how.

    I'd be very interested in seeing the developer's cut in that graph (for cases where they are not the publisher).

      I agree. I was looking for it too.

    The distributors are useless sponges who are skimming the Australian consumer. They're the ones soaking up the difference in price.

    We'd all be better to just import the games ourselves.

    If region-coding on consoles like the Wii didn't deliberately make that impossible, of course. (Check out that Endless Ocean 2 game - $30 in the US - $80 here. Dear Nintendo Australia, get stuffed.)

      Damn Straight, Blame the publishers for the igh prices and stop having a go at the store person, we cant do anything about it, just doing our jobs.

      i think our release comes bundled with wii speak, the US's doesn't

    Well that certainly explains why Metro 2033 is up on Steam for a preorder price of ONLY US$80!!! I'LL BUY TWO!

      Some Steam games are heaps cheaper than store brought. However some are not, for example the Napoleon regular edition is the same at Steam as it is in my store. I have no idea why Sega didnt make it cheaper.

      ONLY in AUSTRALIA that is

      http://store.steampowered.com/?cc=UK

      use that its there for the low price of 29.99 pounds which is about 45AUS dollars(hey cheaper than
      http://store.steampowered.com/?cc=US

      :P

      although according to steam its agaisnt the ToS agreement but i say ripping one country off should be to

      Steam has no excuse. Should be the same price as the US store (ala impulse)

        Yes I agree. I was in the States until January and just before I left I preordered Bioshock 2 and Bad Company 2 on Steam right then and there because it was so much cheaper to do so.

    there is no real reason as to why the costs in Australia are massive. The games are not imported from the States or their original countries. They ship over a couple of disks and then hand off to a company here for mass production.

    Actually that probably explains why our games are so expensive. Australia has one of the highest minimum wages in the world. Because the cost of business in australia is expensive, the prices are higher to cover our higher wages.

    Yeah, sure, all that, converted... plus fifty dollars... you know... because they can.

    Some of the games are imported and made from Singapore ... But yes, freighting is expensive especially from Europe. I believe if the item value of the freight exceeds 1000AUD there's a GST.

    One thing I don't like about jb hi-fi and eb games, they sometimes sell used games as NEW ... -_-'', and I prefer my new games still sealed XD.

    I think all games for all platforms should be region free, which therefore gives us consumers a choice. I know some 360 games are region free, and ps3 games are region free but still region locked to the psn network it was meant for. I think that it should be FULLY region free.

    I don't understand why people argue that the cost of freighting is an expense to be added ontop of the US price. The games are manufactured in Asia, then shipped from there to the US and EUR and AUS (and everywhere else). So the cost of freighting the game from Asia to the US is not added to the AUS shipping costs, because the AUS version comes directly from Asia aswell.

    So it's not a price added ontop of the $4US, it's a different price altogether (although still significantly more).

    On a different note, I buy my games at about $27US. I'd like to think that a large percentage of that (75-80%) is going to the publisher. That way I can spend the same amount of money on 3 games rather than 1 and have MORE of the money get to the publishers/developers, where it belongs.

      the only difference would be tax if anything it should be less because
      A) there shipping less stock
      B) we're closer to asia than america is

        Well if you're shipping less stock then the cost is actually higher. Thats why 'buying in bulk' is cheaper. There's a few reasons why, but the bottom line is shipping 100 games costs, let's say $100. But shipping 1000 games costs $500. So the average price of shipping per game is reduced by X%.

        Australia is closer to Asia than the US though.

    I'd be interested to know how much of the publisher's $27 goes to the developers who actually made the damn game...

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