DRM News

Have you ever wondered how much of a $60 video game goes to developers, distribution, royalties, etc? Well wonder no more, the LA Times reported on Steve Perlman’s talk at the DICE summit in Las Vegas.

Another way to look at it is to say publishers such as Activision and Electronic Arts receive $45 after retailers take a $15 cut. Publishers turn around and pay a $7 licensing fee to console manufacturers such as Microsoft, Sony and Nintendo. The cost of making, packaging and shipping game discs to stores carves up another $4. Finally, not all games sell, so the expense of returning unsold inventory eats up another $7.

That leaves publishers with about $27 per disc sold for development, marketing and other expenses. These are, of course, back-of-the-envelope averages. Each of these numbers can vary. For instance, a publisher could negotiate a smaller licensing fee with console manufacturers. And by deploying the Goldilocks method of inventory (not too much, not too little), they can also minimize returns. Tinkering with the margins in these ways lets companies tune their bottom lines.

Overall pretty interesting, at least to me. I used to work retail at a video game store and knew our margin was not very big on new games. Sometimes not even the $15 Perlman states, so its good he mentions that these are just averages.

Two questions pop into my head though. Where does the $27 publisher piece get broken up into? How does a $60 game breakdown with a digital download purchase?