Understanding Revenue Distribution in Video Games: A Closer Look
There is often confusion around how much revenue a video game company actually makes from the sale of a game. Many believe that if a retailer sells a game for $60, the game company only receives $15. However, the reality is more complex and involves multiple parties and varying agreements. In this article, we will break down the revenue distribution process for a $60 game and explain why the industry structure exists the way it does.
Revenue Breakdown for a $60 Game
The revenue distribution for a $60 video game can vary based on several factors, including agreements between the video game company, publisher/developer, and the retailer. Here’s a general breakdown of how the pricing works:
Retail Price
The game is sold to consumers for $60.
Retailer Discount
Retailers typically buy games at a wholesale price, which is often around 50-60% of the retail price. This means if a retailer sells a game for $60, they might have purchased it for approximately $30 to $36.
Revenue to the Game Company
After the retailer's cut, the remaining amount goes to the game company. Taking the lower end of the retailers' purchase price (e.g., $30), the game company would receive about $30. If the retailer bought it for $36, the game company would receive around $24. However, the company then has to cover the costs of development, marketing, and distribution from that revenue, which can be substantial.
Example Calculation
- Retail Price: $60
- Retailer Purchase Price: $30 (50% discount)
- Revenue to Game Company: $30
Conclusion
The claim that the game company makes only $15 from a $60 sale is likely referring to a specific scenario or particular agreement. Generally, they would receive significantly more than that—often around 20-30% depending on the retailers' discount.
Summary
Retailer sells for $60. - Retailer likely buys for $30-36. - Game company receives about $24-$30 after retailers' cut.
Variable Revenue Distribution
It's important to note that the $30 figure can vary based on the game and the company. For example, an AAA title from EA or Ubisoft, expected to sell millions, might have a lower percentage but the cut for other platforms like PSN, Steam, or MS Store is generally the same—30%. A $60 price point for a blockbuster console game is often considered too low to cover the substantial costs involved in developing, producing, and marketing a game.
Additional Revenue Streams
This is why there are various additional revenue streams, such as season passes, downloadable content (DLC), loot boxes, and other methods the game companies use to try to make more from what they have. These methods help offset the costs of development and marketing, and ensure that the company recovers the investment in the game.