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#1
03-04-2011, 12:14 PM
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Please define profit, but in any case, the % are wrong. I think I have seen more profit and loss statements of video games (products) than you do. Unless you have worked for a major editor or studio, that is. My source is my job experience in the video game industry Quote:
- the company distributes online by its own means (no steam): has to buy servers, pay for bandwith etc... compared to manufacturing costs. Manufacturing costs are very low and essentially variable. Servers are fixed costs (could be variable if externalized). If you distribute a lot online, then fixed costs can be offset well. Main drawback of boxes, again, are the unsold inventory: in some countries, they can be send back by retailers; in most, unsold copies will see price decline rapidly, and those unsold to retailers will have to be destroyed (while manufacturing costs have been incurred) - the company distributes onlina via steam: they pay a service, steam charges for it, depending on the level of service & risk ; see below Quote:
Also, do not forget that Steam acts 2 ways: - online distributor, for instance for some THQ, Ubi etc... games: in that case, they take the equivalent of a retailer's chunk (20 to 30%) - publisher AND retailer: when an indie game for instance is distributed via steam: in that case, they take the equivalent of a retailer (20-30%) plus a chunk as publisher. And that can go high depending on the contract (40-60%). Main difference is , afaik, Steam doesn't prefinance a lot of games the way editors do; so their contracts with studios are quite different, and studios get money on each unit sold. On the other hand they get no guaranteed minimum (as is the case in most editor-studio deals; that's an advance on royalties system) The % given by Forbes are for publishers, not studios. And frankly, these are not at all the figures I've looked at (retailers take 20 to 30% max, including returns etc...). Gross margin includes manufacturing costs (Net revenues - Manufacturing costs, that's all) If they got 30%, they would all be bankrupt. As I said, average is above 50% (60%) on a full year and there are not enough online copies (at 70%) to offest the larger number of boxes sold (at 30% according to Forbes). I call BS on that one. Probably a question of wording: EA gross Margin (p107): from 60% in 2006 to 49% in 2010 with an increase of online distribution ...) http://files.shareholder.com/downloa..._Arts-2010.pdf Ubi gross margin: http://www.ubisoftgroup.com/gallery_.../1042/2360.xls around 60% on a full year (59% to 66%) To reach a 60% gross margin with the % (30% - 70%) given by forbes would mean that Ubi sells 3 times more games through steam than through retailers. and that is just plain wrong Steam is certainly a great platform and a good publisher for small studios, but asserting that these studios always get more than if they'd taken another (mainstream) editor is wrong. Some get more, some get less. If you don't need to prefinance your game, best deal can be steam (but hey, you can negociate with other editor) If you need to prefinance your game, today, I'm not certai at all that Steam is helpful. And you have to take into account that advance on royalties paid by an editor in the % of profit you mentionned in the first place.... Last edited by Vevster; 03-04-2011 at 12:37 PM. 
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#2
03-04-2011, 01:08 PM
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Personally I am want to trust the figure estimates of a large established financial market expert like Forbes over a gaming magazine whose name (if I am not mistaken) is commonly used to indicate satire in the French language. What's more is indie developers are a different animal from established developers like 1C who I am sure gets a more fair deal due to a decreased risk of loss on the part of Valve. What's more is I said profits on retail copies are 30% I think you are misinterpreting what I am saying here. 30% would be after costs from publisher and costs of manufacturing, and costs from retailers. You can't fairly include the profit margins of co-dev/publisher houses in that figure. We are talking about Developers (not indie) that have to use a 2nd party for publishing. I am sure Forbes has done their research on these things. I highly doubt they just guessed. Likely extrapolated those figures using financial algorithms. That said I am sure there is give and take as even Forbes would have some fuzzy area considering Valve's contracts with developers and publishers alike prohibit them from disclosing exact percentages. I can't seriously take into account anecdotal evidence as validation of proof either. Not intended to be insulting. It is a very interesting conversation, and I am rather enjoying it 
Last edited by Kikuchiyo; 03-04-2011 at 01:11 PM.
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#3
03-04-2011, 01:47 PM
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Kikuchiyo,
no problem. You do not have to believe me or something you haven't read  Just explain me how Forbes figures (30% -70%) can be accurate when I showed you financials from two publishers showing a profit margin (gross margin) of 50% or 60% . To reach an average of 50% with Forbes figures, that would mean EA sells as much through Steam than on boxes (70+30)/2 = 50 ; at the same average price I do not think that is the case. Therefore, the 30% figure seems highly doubtful To reach 60% average (Ubi) , that would mean 3 sales on steam to 1 box (70+70+70 +30)/4; at the same average price. Not possible either. Therefore, 30% gross margin on retail business is just wrong. As I said, Forbes probably means something else, though they say: "Publishers earn a gross margin of around 70% on Steam, compared with 30% via retail stores" Again, look at the figures I presented from two publishers, and tell me how that works with what Forbes say. Figures from the publishers are official ones (listed companies) Heliocon: 1- there has been many articles saying that Steam does not take the same % for each game too. So a broad statement (stam gives more to all compared to others) is not necessarily true. That was one pf my point. 2 - I never said I am a developper, just that I have experience in the industry, and given the way your request for name & company, you won't get anything. It's the internet, correct, and there are some bullies out there.  I frankly do not care if you believe me or not regarding my experience. Those who count for me know, and some are on this forum. I don't even ask them to vouch for me, as it is utterly useless. You're mixing some suff here: you talk about the % given to publishers then conclude that Steam gives more to studios (devs). Problem is, Steam gives only something per copy sold (your own words). A publisher (EA, Ubi etc...) sometimes (often) prefinance the game. So you do not have to compare only the % given after release, but also incluse the advance on royalty paid to make an hones comparison of what the devs receive. I hope you agree with that... Anyway, I personnally like steam, use it, am grateful because I think they helped the PC market and like that retailers are whining about it while at the same time often refusing to put PC games on their shelves. Think what you want about the figures, they do not compute in the case of those given by Forbes. Last edited by Vevster; 03-04-2011 at 01:50 PM.
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#4
03-04-2011, 01:58 PM
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I didn't say that Steam gave more to developer's than publishers at any point. I said the profit margin for a developer that went solely with DD rather than DD and a Publisher would see a higher profit margin per unit sold. As do publishers. If you believe that publisher pay a developer per boxed unit produced you are sorely mistaken. They pay out to developers a percentage of sales. As to the prefinance aspect the publisher then takes that money back off of the initial sales until the loan is paid off, because financing is a loan after all. Edit: Sorry for the multiple edits I just dropped some talking points unintentionally and wanted to address them. Last edited by Kikuchiyo; 03-04-2011 at 02:14 PM.
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#5
03-04-2011, 02:15 PM
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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) Quote:
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- 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) Quote:
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. Last edited by Vevster; 03-04-2011 at 02:26 PM.
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#6
03-04-2011, 02:30 PM
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But they will not pay out on that money already paid to the developer I was saying that it is not additional revenue to the developer. It is as you said a loan made on projected sales that the publisher will not pay out on initial sales. I never said the developer has to pay back if the game flops, but the developer will not see additional revenue either. I agree and never refuted that, but it is not money over and above the flat percentage rate paid to the developer on sales.
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#7
03-04-2011, 02:38 PM
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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).
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#8
03-04-2011, 03:43 PM
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As for "the only time" etc...) please, expalin me what would be the difference between gross revenue and net revenue in your explication.... Gross revenue = price at which the game is sold to the retailer. In some countries, you sell them at retail price (minus VAT) and you emit a credit note for a rebate (the retailer margin) at the same time or after + other credit notes for returns, price protection (when the price of a product already sold to the retailer is lowered) etc... In other countries, the original invoice is at the retail price (minus VAT) - retailer margin. But in any case, that invoice could not take into account returns (they come later), price protection (they come later), back end rebates (when a -5 USD -for instance- sticker is applied to the product for a limited period of time ) or period end rebates (calculated on total volume done with retailer for instance): all these are removed from gross revenue to make net revenues Gross revenue = original invoice - Credit notes (returns, BER etc...) = Net revenues Please look at EA & Ubi financial: they show only Net Revenues (which is the net they get from sales to retailers). I can guarantee you that they do have in their accounting the difference between gross revenue & net revenues. (That is if you finally admit the possibility that I do have some experience in that industry) Quote:
Again, I know quite well what net profit is, thanks. Sorry put Forbes doesn't talk about net profit but about gross margin. You quoted the article, please check it. Gross margin is defined clearly. I quoted the definition and it is also writtent in both Ubi & EA financials. As I said several times I disagree with what Forbes write because: - either the term "gross margin" is wrong in their article - the % if they do talk about gross margin is wrong Either case, they are wrong somewhere (it's just an article, some people, even from Forbes can make mistake) As for the cash advance, many companies would not have survived without. If they do ask for these advance, there is a reason; if they could do it differently, they would. I'm just saying that you have to take these advance in the calculation of revenue given to the dev (and frankly, in most articles, these are forgotten). Last edited by Vevster; 03-04-2011 at 03:46 PM.
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#9
03-04-2011, 01:16 PM
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2. Stop the: "I am a game developer" because its the internet and anyone with half a brain knows you can claim whatever you want and there is no way to verify it. So please tell me your name and the company you work for so I can verify your statements. If not dont make stuff up. Steam gives a FAR LARGER profit margin to devs because 1. They dont require a publisher (and steam IS NOT a publisher, purely distribution and in console advertisement). 2. They dont have to pay for the physical distribution and creation of the hard copies. This gives steam sales a far far larger profit margin then normal retail sales especially with a publisher. - calling you on your bs, this article is from Darryl Still the 1C Publishing director and his opinion on Steam vs retail: http://www.mcvuk.com/features/808/OP...etail-vs-Steam Forbes confirming similar numbers: http://www.forbes.com/forbes/2011/02...ne-mayhem.html *cleaned up the language Last edited by Heliocon; 03-04-2011 at 02:26 PM.
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#10
03-04-2011, 06:55 PM
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- This is what I addressed earlier - you are comparing profit from retail store sales to steams sales on the basis of number of units shipped, NOT % profit margin which is what the 30% vs 70% is. Thats a gross profit margin, not % of end gross profit. "Also, do not forget that Steam acts 2 ways: - online distributor, for instance for some THQ, Ubi etc... games: in that case, they take the equivalent of a retailer's chunk (20 to 30%) - publisher AND retailer: when an indie game for instance is distributed via steam: in that case, they take the equivalent of a retailer (20-30%) plus a chunk as publisher. And that can go high depending on the contract (40-60%)." - Thats a lie, Steam DOES NOT publish anyone elses games but Valve's (the company that owns/created Steam. Your numbers are not true, Steam never acts as a publisher, just a distributer. The only time it may act as a publisher is posting advertisements in the console which is advertisement and not "publishing". Steam does however charge royalties for using the Source engine but that is a different matter. "The % given by Forbes are for publishers, not studios. And frankly, these are not at all the figures I've looked at (retailers take 20 to 30% max, including returns etc...). Gross margin includes manufacturing costs (Net revenues - Manufacturing costs, that's all) If they got 30%, they would all be bankrupt." -Gross margin does not include manufacturing costs. You are now contradicting yourself in later posts. Also you are interchanging and confusing terms and numbers. Again like I hae tried to point out earlier, you are confusing yourself. Also again the point is wrong anyway because if I make 30% gross profit per sale and my other costs are only 5% of the products cost then I can easily cover my expenses. -The EA and Ubi financial reports you gave do not include any accurate data that is relevant to your argument. Their gross sales profit is a conglomerate from many products, many distribution methods and many regions. It does not support the argument you are making. Also EA is a developer AND publisher, while Ubisoft is a publisher. The argument is over publisher vs no publisher and its effects on the development studios end profits if publishing on steam. Again you did not show developer figures. Also your assesment of a decline in profit due to digital sales as you said in your post is idiotic. First these profits include CONSOLE game sales aswell, second there is currently a recession and that reduces sale quantities among other things. Basically your full of it.
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