[Heliocon]

Originally Posted by Vevster

There is a small problem here: Gross margin is simply:
Net Revenues - Cost of Sales (Manufacturing costs for instance):
Divided by revenues if you want to express it as a %
http://en.wikipedia.org/wiki/Gross_margin
http://www.investopedia.com/terms/g/grossmargin.asp

To explain briefly, with some simplification, pardon me:

+ Gross Revenue = what you sell to retailers (before their chunk / after, depends on the countries)
- retailers chunk (margin, rebate, returns etc...)
------------------------------------------------
= Net Revenues
- cost of goods sold (manufacturing costs, storage, delivery, ...)
------------------------------------------------
= Gross Margin

Just look at the financials if you doubt this

So, there is absolutely no difference on that between an in-house game and an external one.
Development costs are not part of Cost of goods sold.

They are booked at a lower level (Operating expenses) with marketing and royalties (giving a Margin on direct costs for some companies)


If you look at EA Financials, hey are on the Research and development line
If you look at Ubi's financials, they are also on the line R&D expenses;


all below the gross margin .

Forbes talk about the gross margin, I maintain there is something wrong in
their article (either the term, or the % , at least about retailers)







Yes, if the developper didn't need any pre financing. Again: it depends. Don't make it an absolute truth for all cases.



I know how publisher pay a developper. It can be many things:
- per unit (doesn't happen that often, but can happen in a purly distribution contract, ie the dev has already the boxes done)
- % of sales (not htat often either)
- % of gross margin (more often, still not the majority)

- % of a margin, defined in the contract as for instance:
Gross magin - some marketing (can be capped or not) - distribution costs (commissions) - own development of publisher (sometimes happen) etc...

That is the majority of the caes (each contract is different)



It's not a loan per se , as it is a minimum revenue guaranteed: if, based on the calculations given in example above, the royalties to be paid exceed the advance made, the publisher (editor) will pay more to the developper.

If the royalties calculated do not exceed the advance made, the developper doesn't give money back to the editor.

Threfore, to calculate the revenue of a dev, you have to include the advance made if any and the royalties paid above that.

Wrong - gross revenue is the profit from the number of units sold to a retailer, the chunk a retailer takes is not factored into gross revenue/returns because the retailer marks up the price from the original sales price (say the publisher/dev sells the game for $45 to the retailer that sells it for $60. The $45 is the gross revenue/profit). Therefore this is purely a mechanism of units sold x unit price. The only time you would remove revenue from this is if you were calculating that the revenue would go to more than 1 source (publisher and dev for example).

Net profit takes into account all the associated fees with manufacturing, shipping, loans/interest etc and gives you the end profit all things being equal (all factors accounted for).

What steam is giving is a higher net profit - not gross (although it is also higher because more copies are moved). So since there is less overhead and steam takes a much lower chunk then a publisher usually does there is MUCH higher net profit (30% vs 70%+).

As for the cash forwards to develope a game - yes you are correct, but it many companies have survived without it (look at EVE).