Games Don't Need To Sell 1 Million Copies For Success

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Games Don't Need To Sell 1 Million Copies For Success

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Contrary to popular opinion, the idea that a game needs to sell over a million copies to be considered successful is "preposterous.".

Last year saw a number of high-profile games get released without selling the million-plus copies they were originally expected to. Case in point: Enslaved: Odyssey to the West didn't sell nearly as well as Namco hoped it would and was considered a financial flop by some. However, according to one industry insider, the need for a game to sell a million copies in order to be considered successful is a complete myth.

High Voltage's chief creative officer Eric Nofsinger recently sat down with Eurogamer to discuss the issue. "That's a misnomer in our industry," he explained. "By and large people look at it and they say, if it's not a million unit seller it's a flop. That's preposterous."

Instead, a game's success should be determined by the fact that it managed to make a profit:

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

High Voltage is currently working on Conduit 2 for Sega, a sequel that many folks didn't expect to see because The Conduit didn't sell in crazy amounts. Nofsinger uses this as a perfect example of how the million-copy myth is untrue: "We'd always like to make money. Everyone would. But if we sold the exact same number of units as we sold with Conduit 1, we'd be high-fiving each other. But I think we'll do better."

Source: Eurogamer

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vansau:

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

Yeah, if you ignore the fact that you've invested $10million + in setting up a bottling plant and hiring dozens of dedicated, talented coke-making-folk and such other costs as, premises, bills, overheads, advertising.

But yeah, every copy of Enslaved that sold did make money, I mean the disk only costs about $1.

I'd always wondered why it wasn't based on profit rather than numbers... would make more sense, imo. After all, if you sell millions of copies it's counter productive if they were all at a loss, right?

It's not crazy to think that The Conduit is getting a sequel, but it's a bit of a surprise every time I hear it. It wasn't an awful game, but sales were underwhelming. Here's hoping they clean up the multiplayer.

Oh and Mike, it's "Conduit 2." They dropped "The," for some reason. FYI.

Reminds me of the old adage about companies that make it sound like they're losing money, but are in fact just not making as much of it as they'd like while still remaining profitable when all the chips fall down.

Its a success if they insert X to make the game, and get X+1. lol, I don't see what is so complex about that.
You can argue about how much of a success the game was, but that is just objective.

I think games are all about entertainment, and if I am entertained by the game, then it is a success.
So, by my standards, Black Ops was a huge failure; monetary profits be damned.

This is just plain obvious. The Dreamcast was turning a profit, so why the hell did they discontinue making it so abrubtly? Sheesh.

Sgt. Dante:

vansau:

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

Yeah, if you ignore the fact that you've invested $10million + in setting up a bottling plant and hiring dozens of dedicated, talented coke-making-folk and such other costs as, premises, bills, overheads, advertising.

But yeah, every copy of Enslaved that sold did make money, I mean the disk only costs about $1.

I assume that he is including those costs in his estimate of how much money the game made.

On a side note, he does not seem to know what "misnomer" means.

Not sure how Enslaved ties into this. Conduit made money and is getting a sequel, okay, but this doesn't meant that Enslaved made money. Conduit never exactly looked to me like a game that cost a large amount of money to make and the average budget for a Wii game is supposed to be lower than it is for a HD console title.

But it still has to overcome it's initial cost, right? Not sure what the average cost was, but MW2 cost 100 million dollars to make. If that sold a million copies, it would be a flop, even if it made money on each disk.

As somebody else already pointed out, the cost of development has a serious influence over the sales numbers required to actually be profitable. If you work with a small team, generating minimal overhead, then you need to sell significantly less units. If you pay a full sized team for several years, plus millions in marketing materials, then that argument goes right out the window.

There are big differences between small commercial products and long term development. Even if a game makes money including net cost and profits, but it's not as big as hoped, don't you lose investors? Anyone who knows the industry knows that games cost $$$ so even if an investor took a risk by funding a project, and still made a little bit of money, wouldn't the small profit be a deterrent for future investments from the same developers? New big budget titles seem to be the huge risk as an investor not because you won't make a profit but rather that your money can be better invested in a whole other industry for quicker and/or larger returns.

The 'myth' is based largely on the enormous budgets for AAA titles released by major publishers, most of which DO need to sell over a million copies to turn a profit + recoup opportunity cost. Eric Nofsinger is being a little disingenuous.

Cheers

Colin

I believe that having a product sell 1M+ copies gives the impression that it was extremely popular, which is something that a company can use when it comes to advertising, pitching for a larger budget, etc.

Loonerinoes:
Reminds me of the old adage about companies that make it sound like they're losing money, but are in fact just not making as much of it as they'd like while still remaining profitable when all the chips fall down.

You can mainly thank the shareholders and the stock market for that mentality. Publicly-traded companies need to have high stock prices to attract more investors, which causes the management to focus on products that sell a lot of units and generate a lot of profit over those that just generate profit.

Ironic Pirate:
But it still has to overcome it's initial cost, right? Not sure what the average cost was, but MW2 cost 100 million dollars to make. If that sold a million copies, it would be a flop, even if it made money on each disk.

I think the problem is the cost of making a game that had 90% of it's content made allready from the previous titles.

Sgt. Dante:

vansau:

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

Yeah, if you ignore the fact that you've invested $10million + in setting up a bottling plant and hiring dozens of dedicated, talented coke-making-folk and such other costs as, premises, bills, overheads, advertising.

But yeah, every copy of Enslaved that sold did make money, I mean the disk only costs about $1.

The example he's using is intentionally simplistic to make the point. All of those factors you mentioned would be included in the cost. For a business just starting though it can begin that small, all of the other stuff comes along if your doing well enough. If you say run a micro-brewery out of your basement making beer yourself for example, and do well enough at it where you decide to feed the profits back into the business where you start expanding your materials, perhaps moving from your basement to a dedicated building, and hiring more people to produce beer for you so you don't have to to it personally any more, or even just so you can produce it faster to meet demand. Of course things for small businesses are more complicated than that when you consider taxes and the like, but that goes beyond the scope of the arguement, as does big businesses keeping smaller ones down. For example with beer, once a company gets up to a regional level they frequently get bought out (even if nothing is done with the recipe) or hit a glass celling where pre-existing agreements with the bigger companies prohibit carrying other products. There are ways to deal with all of that, but it's a pain that brings down many a little guy. You'll also notice (to use the soft drink example) that most resteraunts and such will only carry one kind of cola despite people having preferances. That's because Coke and Pepsi don't play well together compared to even the beer companies (where you see multiple distributions from big companies to one business as a matter of course), there are exceptions, but as a rule landing an exclusive distribution deal for a large franchise or a big resort or whatever is how they make a lot of their money.

At any rate, I'm rambling. The issue today is that the game industry has gotten greedy, simply making a profit it's sufficient anymore. Like a lot of businesses that get too big they work off of projected profits. If a business it's seeing it's projected growth, they consider that a loss. If a product is projected as making 20 million dollars in profit, and it only makes 15 million in profit, then the company treats that as if they lost 5 million dollars. The problem is of course compounded by the people running businesses borrowing against projected earnings, due to their own stupidity not making the projected profits can hurt them in terms of interest, or result in a lot less going into their pocket when they
pay their debts.

Understand that while things can be complicated, typically it's not the game developers that are making money directly off these games, that's a lie that is perpetuated for the sake of us gamers who are being critical. If you've read much about the industry (which has been covered in places like Game Informer, and on countless websites) the developers are paid by a producer, who approaches it as an investment. Either the producer has an idea for a game he thinks will make money, or simply wants to invest money to make more money and sees video games as a way of doing it, so he leaves it to the experts. The development cost is largely what the game developers are putting into their own pockets, no matter how they divide it up. If a game costs 100 million dollars, the lion's share of that money goes towards the coders, graphics artists, and other people based on what they decide they want to be paid for the development cycle. The cost of materials (computers and office space) is fairly trivial in the scope of some of these budgets. When a game is released the developers have been paid, and are done except perhaps as far as any promises they made to support a product. The producer is the guy who is out to recoup the money he spent paying the developers, and takes the profits in the form of more money than he put in. In reality most investors and investment groups (anything from independants, to companies, to floating boards of directors) have their fingers in more than one pie when you get down to it. This is why they deal in projected profits, and borrow money to pursue investments, while using the money they project getting to guarantee the loans, or to keep down interest. It's a huge mess, and it's why companies like "Enron" and the like who got involved in everything without people realizing it were able to "cook the books" for so long by shuffling the web of money around to look like they had fortunes when they were actually running under a massive pile of debt. This kind of thing also brought about the more recent businesses crashes with banks and realtors, banks are all about investments.

Now, there are exceptions to this, such as when a game development company approaches a bank or whatever for a loan to develop a game, as opposed to being approached themselves by a producer (or arranging to meet one). In such a case the gaming company borrows whatever money they want to pay themselves for the development cycle, and hopes that when it's done their idea will lead to them making enough money to pay off the lone and accurued interest and then making a profit besides.

The thing is that the industry has gotten so big, and so greedy, that simply coming out ahead isn't enough. It's all about how big the profits are, coming out a few million ahead on a few titles is a "loss" because such "chump change" isn't worth their time. As it gets bigger, it also changesin perspective and becomes more irresponsible where a company loses money from debts it took out by not making enough off a product to cover them, even if the product actually did come out ahead all on it's own.

This is one of the reasons why I am so critical of the gaming industry, and think they need to be taken down a few notches. Gaming has become too much of a big business, and in the end that hurts us as consumers. Of course the people at the top of the totem pole only care about their millions right now, which is why I think we need more in the way of consumer advocacy among gamers to make these guys listen and chill the heck out. As the "Ryan Quickbender" character from ENN cynically points out, "Cashbags" is pretty much how we're viewed.

It's ridiculous that people actually think it's normal for games to sell millions of copies, I personally lean away from the big companies who only want to sell to as many people as possible without really considering the aspects of the game itself.

If a game cost £1 million to make but made £1.1million, then that is a profit. Ok it isn't the kind of profit you wanted but you still made money on it.

Well it costs the dev 20-40M to make a "AAA" game they get about 20-30$ for every 60$ game sold so 1M comes in close to paying off the debt incured to make the game, FYI whatever the publisher makes selling the game dose not go to paying off what debt the game has.

Regardless for anything that comes close to a normal modern 3D game you are going to need to sell nearly a million to make a profit.

Therumancer:
[quote="Sgt. Dante" post="7.263274.9956364"][quote="vansau" post="7.263274.9956255"]/snip

I do see what you mean and i was exaggerating the point as it seemed over simplified. Yes coke costs 10p and sells for £1 meaning 90p profit, but that speaks nothing of the other usually hidden costs and obligations to the process.

And altough the game industry seems more and more interested in getting it's money back on a title, wouldn't you be? If you invested $100 Million in a game and ended up making $10 million profit would you see it as worth your while? (Cut off the millions if you want a more, 'indie' level budget) And a lot of companies don't see that kind of return.

As Enslaved seems to be the popular example here lets look at some numbers; (if you'll indulge me)
(x)Cost to make; Uncomfirmed, estimated between $20-30 million
(y)Copies Sold; 460,000
(z)Price New; $60

Now hopefully y*z>x
460,000*60 = $27,600,000

So if every copy was sold at full retail it would hopefully make about $7.6Mil. however harldy a month after release it was selling for £20 here (approx $32)

So looking at the figures if a generous half sold at $60 and the other half sold at $35 (not very accurate i know but this should account roughly for the numbers that sold between these marks) then

(230,000*35)+(230,000*60) =
8,050,000 + 13,800,000 = $21,850,000 Approx

So to look at the tl;dr it made somewhere around $1.85 million profit. For a presumed $20million budget. About 8% profit on thier investment. And that's before you consider how much of the selling value the publisher actually see's, a game selling at $60 will not make the publisher $60, not even close.

Now again, to consider this from a small buisness point of veiw imagine that for every $20,000 you invested in a buisness you could make $1,850 profit. But you were limited to this amount once a year, at best. Would you consider this a successful buisness venture? Yes it's a profit, but it hardly seems worthwhile when you consider that black ops wouldn't have cost significantly more to make but has SO FAR pulled in £360 million dollars, that's over 10x the investment or 1000% compared to enslaved's 8%.

And yes that kind of sucess is limited to exceptionally few games and isn't to be expected from many titles, but whatever Modren Warfare is doing you can be damned sure that other companies in the buisness would like to do as well. And yes this can lead to stagnation in the market with too many games being released in a hurry that are too similar to the status quo and that don't innovate and whatever. But whatever game is popular will dictate the trends in gaming today. When a game does come out that can match Modren warfare's sales figures you can be damned sure that other publishers aren't going to want to chase a 8% return when there is a potential 1000% they could be making. It just doesn't make sense. They will almost alwasy go for a 'safe' option rather than risk losing out on a much higher profit margain, and i think that is probably the reason the games market seems so stagnent at the moment. In a risk/reward enviroment, especially coming out of a recession the lower the risk (whilst retaining the potential reward) the safer the investment.

Whoops, double post. ^.^;;

Basic business is basic.

There is a lot to be said about this. Because you don't make enough to open up a second office studio somewhere doesn't make it a flop. Total units sold is great for telling us how a title did in general, it literally means nothing on a profit making level. Sure, who wouldn't want to make more, but just because you can't buy your own island from the profits of a single thing, doesn't mean it wasn't a success.

I have a business of my own, as long as I make enough money to live and fund the next project, it was a success really. I would love to make more off of renovating a house, but there is only so much to be had, you can't get blood from a stone. I can pay my overhead, live comfortably, and then buy supplies for the next job, I'm a success. On paper and off. I would appear more successful if I had 10 crews of 10 guys doing work for me, but in the end it comes down to the same equation. I must pay my overhead, live comfortably, and have enough money for the next project(s).

Any game company works the same. Unfortunately, so many industries, including this one, borrowed success. And then your overhead is simply more, so you still have to make more. But you don't need to sell a million to be successful, unless of course your awful at resource allocation, then maybe you do. But there is a place for poor business, it's in the gutters.

ZippyDSMlee:
Well it costs the dev 20-40M to make a "AAA" game they get about 20-30$ for every 60$ game sold so 1M comes in close to paying off the debt incured to make the game, FYI whatever the publisher makes selling the game dose not go to paying off what debt the game has.

Regardless for anything that comes close to a normal modern 3D game you are going to need to sell nearly a million to make a profit.

I'm not really sure I follow your reasoning on this one. If a game costs $1 Million dollars to make, and a company get $1.1 Million in sales, it made $100,000. Now, they have made back their initial $1 Million, and unfortunately, that means they don't have much more to work with on their next project, but they recouped the cost of the initial release.

Then we have to take into account long term sales of a game. Most people only track what a game does for the first month or possibly two, but the reality of it is that a game still sells for a long while after that. I personally just bought Wrath of the Lich King for the first time. I was out of WoW for a while, then I had friends who got into it, so started playing again, then when I hit 70, I needed Wrath. They don't give a crap about Wrath sales, but the game still needs to be bought in order to enjoy what Cataclysm has to offer down the road. Take into account new WoW players. Someone who was amazed by the ridiculous ad campaign of Cataclysm, but has never invested in it before, has to purchase all other expansions before they can get Cataclysm. They aren't tracking these numbers, but they are selling these products again.

Edit: Basic Math - If you spend $30 million dollars on a game (this of course includes digital production, physical production and advertising), you need to sell 500K copies at $60 each to break even. And none of this breaking it down stuff to decide who gets what. If you spent $30 Million on this game, that is all included into the initial cost of the game. If you follow my reasoning, at 500k units, you have recouped the cost of the game, and you can use it on the next project. It doesn't look good on paper though. The company is in the same spot as if it did nothing at all. But, in real terms, the company has done something. It has produced a piece of software that 500k people have bought. In the future, they want to do better, but if they did not, they are not worse off, and they have lost no money. But on paper and in terms of stock value, it hasn't done anything. In business this is undesirable, in art, this is GREAT. Haha, now people just need to decide what they think the medium is supposed to be.

Well, Frictional Games said they had a good profit with Amnesia and that game didn't sell a million copies.

(Seriously, I'm f**ing sick of ReCaptcha)

Sgt. Dante:

Therumancer:
[quote="Sgt. Dante" post="7.263274.9956364"][quote="vansau" post="7.263274.9956255"]/snip

I do see what you mean and i was exaggerating the point as it seemed over simplified. Yes coke costs 10p and sells for £1 meaning 90p profit, but that speaks nothing of the other usually hidden costs and obligations to the process.

And altough the game industry seems more and more interested in getting it's money back on a title, wouldn't you be? If you invested $100 Million in a game and ended up making $10 million profit would you see it as worth your while? (Cut off the millions if you want a more, 'indie' level budget) And a lot of companies don't see that kind of return.

As Enslaved seems to be the popular example here lets look at some numbers; (if you'll indulge me)
(x)Cost to make; Uncomfirmed, estimated between $20-30 million
(y)Copies Sold; 460,000
(z)Price New; $60

Now hopefully y*z>x
460,000*60 = $27,600,000

So if every copy was sold at full retail it would hopefully make about $7.6Mil. however harldy a month after release it was selling for £20 here (approx $32)

So looking at the figures if a generous half sold at $60 and the other half sold at $35 (not very accurate i know but this should account roughly for the numbers that sold between these marks) then

(230,000*35)+(230,000*60) =
8,050,000 + 13,800,000 = $21,850,000 Approx

So to look at the tl;dr it made somewhere around $1.85 million profit. For a presumed $20million budget. About 8% profit on thier investment. And that's before you consider how much of the selling value the publisher actually see's, a game selling at $60 will not make the publisher $60, not even close.

Now again, to consider this from a small buisness point of veiw imagine that for every $20,000 you invested in a buisness you could make $1,850 profit. But you were limited to this amount once a year, at best. Would you consider this a successful buisness venture? Yes it's a profit, but it hardly seems worthwhile when you consider that black ops wouldn't have cost significantly more to make but has SO FAR pulled in £360 million dollars, that's over 10x the investment or 1000% compared to enslaved's 8%.

And yes that kind of sucess is limited to exceptionally few games and isn't to be expected from many titles, but whatever Modren Warfare is doing you can be damned sure that other companies in the buisness would like to do as well. And yes this can lead to stagnation in the market with too many games being released in a hurry that are too similar to the status quo and that don't innovate and whatever. But whatever game is popular will dictate the trends in gaming today. When a game does come out that can match Modren warfare's sales figures you can be damned sure that other publishers aren't going to want to chase a 8% return when there is a potential 1000% they could be making. It just doesn't make sense. They will almost alwasy go for a 'safe' option rather than risk losing out on a much higher profit margain, and i think that is probably the reason the games market seems so stagnent at the moment. In a risk/reward enviroment, especially coming out of a recession the lower the risk (whilst retaining the potential reward) the safer the investment.

To be honest though, the thing is that the industry is claiming failure when they didn't have it. Granted, making a million bucks or so over costs on a twenty million dollar investment is not a huge return, but at the same time it's not a loss either. They covered all their costs, everyone involved got paid, and the producer made more money than he put in. It's a win, just not the massive success they hoped for.

Along with everything else, I think the industry is also too hung up on what other people are doing and getting. The success of a "Modern Warfare" is a good example, but as far as gaming goes you also see it with consoles. People, including those from Sony, act like the PSP is some kind of failure simply because it's not doing as well as the DS, yet it's still got millions of units out there and has been making major bank. It's pretty much an attitude where being the best, or seeing a ridiculously massive return is the only success, and anything short of that is a huge failure.

I'll also be honest in saying that I think part of the problem is that the industry's corruption is it's own undoing. Simply put the way most games are reviewed nowadays amounts to advertising. The sites/critics that are supposed to be critical of games tend to wind up singing their praises and generating hype based on the money they receive. This kind of came to a head with the whole Gerstmann/Kane and Lynch fiasco. The problem with this is that one o the biggest safeguards for the industry itself is gone. When money largely determines what people are going to say and tell you about your product, it means that nobody is going to call a turd a turd when the checks arrive. I mean nobody cares what the product is like if they are getting paid off of it, and three months after release you'll have already hyped a couple of other games and few people are going to really care or even remember what you were saying about the last games unless they REALLY follow things, and anyone who calls them on it is usually pressured right down.

I think "Enslaved" was one of those projects where I'm surprised they made money off of it, and that's probably due to the advertising. While it sounded like it might have had some interesting ideas, the basic concept seemed both contrieved and retarded. It was also trying to make a loose connection to a literary classic that has been sort of beaten into the ground over the last decade or so. I mean it was kind of "cool" when you find out that Dragonball Z's "Goku" is loosely based on the character from that novel (especially in the regular "Dragonball"), then of course you had Saiyuki which did pretty well for anime, and of course "Soul Hunter". The fandom community overlaps and most people who would be drawn to the idea have probably already seen variations on the premise up the wazoo. Heck, even David Carridine did a movie called "The Iron Circle" based on this. So basically it's drawing from a fringe source (in the western market) that has been oversaturated among those to whom it would matter, it features a pretty weak and contrived premise, some generally unappealing characters, and it's major point of discussion has been gender politics due to the whole idea of a girl forcing a guy into slavery as her personal war-mook.

The point here being that it's not innovative despite what they were trying to claim, and it was just a ridiculous mess. Many years ago, impartial reviewers and critics probably would have said "this is stupid" as it was being developed and saved them a lot of trouble. In comparison what actually happened was you had reviewers doing the usual "Oh yeaaah, I'm really looking forward to this innovative new game called "Enslaved" coming out in a few months. It just absolutly oozes awesome and style" (counts money), that did cause the thing to more than recoup it's costs, but at the same time I think whomever expected that to be a huge success was fooling themselves the whole time, and really needed to be called on it.

Basically the game industry's own profiteering and information control seems to do damage along with it helping.

Of course then again since I'm not a troll, I generally don't go around saying games under development look retarded since as one of the masses that generally isn't well received (even if that's what I think). Occasionally I think about doing it, but resist the temptation.

sooperman:
It's not crazy to think that The Conduit is getting a sequel, but it's a bit of a surprise every time I hear it. It wasn't an awful game, but sales were underwhelming. Here's hoping they clean up the multiplayer.

Oh and Mike, it's "Conduit 2." They dropped "The," for some reason. FYI.

Thanks. I just figured it was an error. Corrected.

Okay, but, the thing is, even though the bottle costs 10 pence worth of material and is bought by a pound, it took a long time trying different flavours to figure out what is the right amount of the 10 pence worth of stuff that will taste the best. In fact, let's say it cost, say, 100 pounds to figure that out. So even though technically you make a 90 pence profit on each bottle, you'll only get your money back when you sell 100 bottles (well, if my math serves me 110 when you factor in the cost of the material). That is why people usually say that. If not, well, this is a magical bottle that you can put on the internet for virtually no cost; if any sale was a profit you could just sell it for a penny and watch yourself get rich.

The Random One:
Okay, but, the thing is, even though the bottle costs 10 pence worth of material and is bought by a pound, it took a long time trying different flavours to figure out what is the right amount of the 10 pence worth of stuff that will taste the best. In fact, let's say it cost, say, 100 pounds to figure that out. So even though technically you make a 90 pence profit on each bottle, you'll only get your money back when you sell 100 bottles (well, if my math serves me 110 when you factor in the cost of the material). That is why people usually say that. If not, well, this is a magical bottle that you can put on the internet for virtually no cost; if any sale was a profit you could just sell it for a penny and watch yourself get rich.

You are of course talking about R&D, and that can be included in budget. Think about it in these terms: A company decides it wants to try out a new product before releasing the final product, so it puts together a team to get random groups and of people to try it out. They knew that they were going to try to put out a new brand of soda for example. So, they make a cola flavor, a cherry flavor, a lemon lime flavor, and a dog crap flavor. And they test it out to the groups to see who likes what flavor. This is kind of the equivalent to Alpha testing and is included in the budget. In video games for example, you employ a staff of people that do this, so they are included in my previous $30 million budget.

Wicky_42:
I'd always wondered why it wasn't based on profit rather than numbers... would make more sense, imo. After all, if you sell millions of copies it's counter productive if they were all at a loss, right?

Because at the top, the Publishers are gauging long-term investment potential whenever they publish a title.
In plain words, I can summarize the practice as "Not profitable enough", but in Economics, there are two separate types of profit.
"Accounting Profit" (which is what you're referring to) and "Economic Profit", which is how much money you made compared to what you could have made; in the long term it's a measurement of how well your company is performing compared to your competition.
In extreme cases (like Microsoft in the 90s) it can become a measure of how much of the market you are gaining/losing control over. This is especially noticeable in the cases for Oligopolies and Monopolies (the mainstream gaming market would definitely fall under the former category).

Let me use an older, real life gaming example.
Back in the mid to late 90s, there was this company called "Westwood". They made this little series called "Command & Conquer". They made profits; enough to continue to make more titles.
However, their economic profit was not strong enough to keep them from being bought out by EA; they were turning a profit, but EA was turning more, and they wanted to bring Westwood's profit-potential into their fold.

If you want a direct "Oranges-Oranges" comparison, then I offer up the late Sierra Entertainment as another example. Vivendi Universal picked them up around 2003 and acquired all of their intellectual properties. Today, Sierra is effectively dead, and their IPs went to Activision.
Why? "Not Profitable Enough". They got bought out, dissected, and ultimately dissolved for business reasons.

That's the mindset these investors are seeing their projects from. Once you break into the AAA publisher territory, you do not have a choice. It's "Eat or be eaten."
Ideally, developers would make enough money to self-publish (and so they would have actual control over their IP rather than having to beg their superiors into let them use something they created) but that obviously isn't the case and barring most of the smaller indie-games market, it never will be.

In my opinion, the business side of the gaming market has expanded the market, but will ultimately choke to death on its own bloat. (That's precisely the driving force behind today's Sequel/Remake-Exploitation. It's no coincidence that we're seeing knock-offs and sequels greatly outnumber new IPs.) No market can expand forever, and heads will eventually roll. Sadly, I can see 2-3 publishers owning most of the gaming market in 10 years (probably Activision-Blizzard).

Just as a final word on the article; I agree with the sentiment wholeheartedly (the 1 million unit mark is completely unreasonable; niche markets rarely hit that number even today), but at the same time I also understand the business side of things.

Good post, Atmos. Still.. Modern Warfare proves that anything can be sold in masses if you just advertise enough for it, and organise the feedback to the press in the right way. In that sense, the economic profit for games in the largest niches (fps) is not dependent on the game at all, but exclusively in the willingness of the publisher to commit resources to achieve the success they want. Case in point - MW2 has an advertisement budget that's bigger than most blockbuster movies. And it sold a lot of units, in spite of the game being pretty average as a shooter.

What it means is that games that make a steady profit is much more desirable from a business-perspective, simply because they do not require you to commit as many resources, or succeed so thoroughly with the media-operations.

Just imagine what it would take to copy MW2 again now. You can see a lot of people trying, even going so far as creating a game about invasion from North Korea, etc. But it's just not doable to do a repeat, simple as that.

So the real question is why publishers believe it's possible to churn out MW2 titles over and over again, while anything original and new means death, basically...

Only 1 problem with everything he said : The Conduit sucked balls, regardless of how many copies it sold. I bought one, then I traded it in the next day because it was so terrible. Did that count towards his sales figures? I guess, but I'd have to be out of my mind to buy the sequel.

(I mean seriously, how do you not put Local Split Screen Multiplayer in an FPS, especially one for the Wii, a console that was made for people to come over and enjoy in the SAME ROOM? I digress.)

Atmos Duality:

Wicky_42:
I'd always wondered why it wasn't based on profit rather than numbers... would make more sense, imo. After all, if you sell millions of copies it's counter productive if they were all at a loss, right?

Because at the top, the Publishers are gauging long-term investment potential whenever they publish a title.
In plain words, I can summarize the practice as "Not profitable enough", but in Economics, there are two separate types of profit.
"Accounting Profit" (which is what you're referring to) and "Economic Profit", which is how much money you made compared to what you could have made; in the long term it's a measurement of how well your company is performing compared to your competition.
In extreme cases (like Microsoft in the 90s) it can become a measure of how much of the market you are gaining/losing control over. This is especially noticeable in the cases for Oligopolies and Monopolies (the mainstream gaming market would definitely fall under the former category).

Let me use an older, real life gaming example.
Back in the mid to late 90s, there was this company called "Westwood". They made this little series called "Command & Conquer". They made profits; enough to continue to make more titles.
However, their economic profit was not strong enough to keep them from being bought out by EA; they were turning a profit, but EA was turning more, and they wanted to bring Westwood's profit-potential into their fold.

If you want a direct "Oranges-Oranges" comparison, then I offer up the late Sierra Entertainment as another example. Vivendi Universal picked them up around 2003 and acquired all of their intellectual properties. Today, Sierra is effectively dead, and their IPs went to Activision.
Why? "Not Profitable Enough". They got bought out, dissected, and ultimately dissolved for business reasons.

That's the mindset these investors are seeing their projects from. Once you break into the AAA publisher territory, you do not have a choice. It's "Eat or be eaten."
Ideally, developers would make enough money to self-publish (and so they would have actual control over their IP rather than having to beg their superiors into let them use something they created) but that obviously isn't the case and barring most of the smaller indie-games market, it never will be.

In my opinion, the business side of the gaming market has expanded the market, but will ultimately choke to death on its own bloat. (That's precisely the driving force behind today's Sequel/Remake-Exploitation. It's no coincidence that we're seeing knock-offs and sequels greatly outnumber new IPs.) No market can expand forever, and heads will eventually roll. Sadly, I can see 2-3 publishers owning most of the gaming market in 10 years (probably Activision-Blizzard).

Just as a final word on the article; I agree with the sentiment wholeheartedly (the 1 million unit mark is completely unreasonable; niche markets rarely hit that number even today), but at the same time I also understand the business side of things.

But Atmos' theory on "Economic Profit" is disturbing as if the company is broken up for not making ENOUGH Profit then it will make even less profit or suffer a loss! What sense does that make? Surely that goes against the very principals of Capitalism that it must be profit based, as in follow the profit.

Atmos, you have described it but you have not explained WHY any investor would ever want this. EA made a huge loss from the way they handled Westwood, their drive to "maximise profits" did the EXACT OPPOSITE!

'"Economic Profit", which is how much money you made compared to what you could have made'

My issue is how can anyone know how much a game "could have made" that sounds like baseless speculation on the part of the executives, the market is incredibly large, complex and unpredictable. Surely the only way to know what is the maximum amount of profit you could have made is all the profit you did ACTUALLY make.

Sure a Publisher Executive can ASSUME if a game had released a few months sooner it might have made more money, but changing that variable would have compromised the game quality. This seems like asinine and simplistic logic that shows zero understanding of games that doesn't appreciate the reason people bought the games in the first place.

Sgt. Dante:

Therumancer:
[quote="Sgt. Dante" post="7.263274.9956364"][quote="vansau" post="7.263274.9956255"]/snip

I do see what you mean and i was exaggerating the point as it seemed over simplified. Yes coke costs 10p and sells for £1 meaning 90p profit, but that speaks nothing of the other usually hidden costs and obligations to the process.

And altough the game industry seems more and more interested in getting it's money back on a title, wouldn't you be? If you invested $100 Million in a game and ended up making $10 million profit would you see it as worth your while? (Cut off the millions if you want a more, 'indie' level budget) And a lot of companies don't see that kind of return.

As Enslaved seems to be the popular example here lets look at some numbers; (if you'll indulge me)
(x)Cost to make; Uncomfirmed, estimated between $20-30 million
(y)Copies Sold; 460,000
(z)Price New; $60

Now hopefully y*z>x
460,000*60 = $27,600,000

So if every copy was sold at full retail it would hopefully make about $7.6Mil. however harldy a month after release it was selling for £20 here (approx $32)

So looking at the figures if a generous half sold at $60 and the other half sold at $35 (not very accurate i know but this should account roughly for the numbers that sold between these marks) then

(230,000*35)+(230,000*60) =
8,050,000 + 13,800,000 = $21,850,000 Approx

So to look at the tl;dr it made somewhere around $1.85 million profit. For a presumed $20million budget. About 8% profit on thier investment. And that's before you consider how much of the selling value the publisher actually see's, a game selling at $60 will not make the publisher $60, not even close.

FYI the 3rd party Publishers only get about $16 for every game sold, as they sell the discs to the retailers/middle-men for about $30 each but each disc has costs:
-packaging/disc
-console manufacturer licence fee
-Royalties of other licensing (music talent etc)

http://vgsales.wikia.com/wiki/Video_game_costs

So with Enslaved selling 450'000 global that works out to effective income as $7'200'000 to offset all the lump costs of development and marketing.

IF they spent $20 million on this game (I doubt) then they made a significant loss. More likely this game cost closer to $10 million, there certainly was very little spent on marketing as everyone seemed to miss it entirely and for reference Killzone 2 was made for about $20 million.

BUT it's not game-over yet as Enslaved has only been out for 4 months, there is a long tail on this and DLC and Ports to be factored. DLC on PSN/XBL sells with 30% of selling price going to Microsoft/Sony respectively, so they can actually make almost as much per DLC pack as from the full retail disc!

There is also the ongoing likelihood of a PC-port, where in store they get a much higher cut (less licensing costs) and on Steam there is the same 70%-30% profit deal, so selling the game for $30 they'll take home $21 per game. Even if it was cut down to $10 in a Steam sale (where I suspect Valve takes a smaller cut of the price) they'd be taking home a lot. Oh before you ask, PC ports are relatively cheap, studios usually do it for a couple 100k if the game has been co-developed on PS3 and 360 as then you have central assets that can be compiled for any system.

And lets not forget the most important thing that this can be used as a springboard for later works, either sequels or "from the team who made the critically acclaimed..." for another non-sequel. If everyone game up at the first hurdle no one would achieve anything. I hope Namco realises that they are more likely to have success continuing with Ninja Theory than sending this horse to the glue factory.

They may not need to, but I'd imagine it'd help.

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