Curmudgeon Gamer
Curmudgeoning all games equally.
25 May 2006
Console game profit calculator (or: why Sony wants to get rid of used games)
Given development cost, revenue per unit, and attach rate, you can estimate how much a publisher makes on a game. This calculator I made lets you play with these numbers. Among other things, I think it makes a good case for why Sony, and in fact all hardware and software players, want to get rid of used games: used games reduce the new game attach rate.

The first time you load the page, you'll see my assumptions for a possible PlayStation 3 game's costs and revenue (in North America). In particular:
  • 1.6 million North American PlayStation 3 machines. Sony says they'll sell 4 million by 31 Dec 2006 and typically 40% of Sony's hardware sales are North American.
  • $38 for the publisher per sale. For a $60 game, I'm figuring $12 for the retailer, $10 for Sony, leaving $38 for the publisher to take home.
  • $15 million to develop an average next-generation game. Some will be more, some will be less.
Then attach rate is how many of that game will be sold per console sold. So an attach rate of 0.3 means that 3 of that game will be sold for every 10 consoles sold.

The break even attach rate is the attach rate the game must achieve to recoup its costs. Any higher than this, and a game starts making money. For the given hardware sales, you can also see this as a total number of game units sold.

You can set your own user-defined attach rate if you don't like the ones provided.

Finally, you can set things automatically with some buttons provided at the bottom. These include the unique case of Call of Duty 2 for the Xbox 360 where we know the hardware sales, software sales, and development costs:
  • Approximately 1.5 million Xbox 360 consoles had been sold in North America by 30 April 2006.
  • Call of Duty 2 (Xbox 360) sold about 854,000 units by 30 April 2006.
  • It has been reported that Call of Duty 2 cost $14.5 million to develop.
That's an attach rate of 0.57 for a profit of around $18 million.

You can try the PlayStation 3 sales by 31 December 2006, which I've estimated to be 40% of the 4 million that Sony plans to move by that date. The PlayStation 3 sales by 31 March 2007 I've estimated to be 40% of the 6 million that Sony plans to move by that date.

Here's a little test: Try the PlayStation 3 by 31 December 2006 button and then alternate between the $50 button (assumes $32 profit per sale) and the $60 button (assumes $38 per sale). Watch the break-even attach rate move and the total number of sales.

If you know another example of a game for which we know concurrent hardware and software sales, as well as development cost, it would be interesting to see what kind of profit it made...if any.

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--Matt Matthews at 22:17
Comment [ 3 ]

Comments on this post:

I am not an accountant, but I do buy used video games. The guys in suits should consider that people think about value when they buy something. Just because we're willing to plunk down a couple of fins for that game used, does not necessarily mean we'd happily give twice as much for it new. I'd say there's a very high probability that if the price never reached a point at which it looked to be a good value to them, people just wouldn't buy the game. The publishers could very well wind up just having a fifty-sixty dollar game sitting on a shelf unsold.

I'm surprised they constantly discount the added value that being able to resell a game gives to the early adopter, gotta-have-it-now crowd. Knowing that they can beat the game and then get some money back out of it probably nets a good number of early sales.

And in the end, if they don't like it, they need to find ways to compete in this market instead of just upsetting consumers and quite possibly winding up shrinking the videogame market. I'm flabbergasted that a big publisher doesn't already have a buy back program that gives people a small incentive to sell that game back to the original publisher. Just offer a couple of dollars off the next new game they buy or something like that. Then the publishing company can be making that giant margin on used game sales instead of Gamestop.

And a disclaimer, I will buy a game new if it appears to be a good value. But I have to really believe I'll still be playing the game several months from now. Of course, everyone's perception of what value is will vary.

By Blogger BruceC, at 26 May, 2006 12:52  

Boy, I hope I get a royalty on all the click throughs for this one.

Anyway, the corollary for this is--what's up with the rental market?


By Blogger Michael, at 26 May, 2006 13:00  

I can see some negative possibilities. Here are a few possibilities to consider:

The divide between the few "hit games" and "everything else" may get wider. People will pay more for those hits, but not necessarily the rest. (And certainly not all of the rest.)

Some of the "everything else" may outright suffer. Not only may they not gain original sales from the fence sitters, they could potentially lose some original sales from those that were only willing to pay full price with the knowledge that they could then sell or trade the game.

Videogame stores in particular will suffer, as they make a lot of their money on reselling games, and that will not be saved even if new game sales increase. (Some may say this is a good thing.) Cost cutting could affect both how fast games are discounted as well as how many games are ordered by the store (so that they will be less likely to be stuck with dud copies that they need to discount to move.)

Damage to the dedicated videogame store market could further hurt smaller titles. Some games, while only scarcely ordered by game stores, aren't ordered at all by general stores like Wal-Mart.

By Anonymous Baines, at 26 May, 2006 23:42  

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