Great post as always. Thanks for the insight.
The $12 license fees the platform holder get regardless got me wondering though, does this mean that anything sold at $20 and under is effectively being sold at loss? Between the $12 license fee, the distribution fees, the retailer cut...etc I don't imagine there's much room for profit under such a price.
I wish there was reliable sources explaining how this retail game business works but all I've seen is random articles with no sources and dubious information.
Yes, margins become very slim at $20.
So from one of EA's fiscal calls, they mentioned their margin on full priced $60 retail games is 60% versus 70% (walled garden platforms) to 95% (Origin) on digital when explaining their margin expansion and why it would go up pretty slowly past 60%. This means if you're selling a $60 retail game and have similar arrangements to EA, you're bringing in $36.
From talking to someone in the industry, by comparison, unless you have some kind of special deal (which you usually don't), a $20 retail game nets you a $3 margin. This is about the same as what you earn on a $5 Steam game, which is why you see major publisher titles bottom out at about $20 at retail while they bottom out around $5 on Steam. This is also why publishers are quite fond of long tail digital sales, since when they're selling $40 or especially $20 copies, they're making *a lot* more money than they do with the console equivalents, even if it's not so different at full price.
Now, this part I'm not sure of since I don't work in the industry, but judging by what happens, I'm guessing there are two exceptions here. One is the scenario where you take a downloadable game, sell it in a box, but inside the box is a download code. I can't imagine any scenario where people would do this unless the first parties decided that this would have a notably lower licensing fee. The second is, I'm suspicious that the Greatest Hits line, given the price point they start at, and the fact you have to actually earn a spot on those lines, have a reduced licensing fee as well in exchange for providing low cost content to help onboard late-gen adopters.
Great post, I just want to add that Sony also offer to localize Japanese games into Traditional Chinese for Asian market, which help a game like Yakuza Zero that sold ~300k (I only counted total from their weeks on Top 20) to 500k which I think is also a very attractive incentive and very good for me personally since I'm Chinese.
Yeah, there are a lot of little incentives platform holders can provide to essentially ease people into either making games for their platforms at all or making games for the platform exclusively. It's quite rare for a "money hat" to actually consist of handing over cash, but they will do all sorts of things ranging from license fee reductions to comarketing to even things like this where they can really add up meaningfully to a small developer. Similarly when selling bundles, they actually buy the copies from the publisher so that the publisher has a guaranteed number of sales for their game.
One thing I do want to hit on for why we don't see everyone taking these nice sounding incentives though (or only taking the ones where they can still be multiplatform) is that for mid-sized or especially bigger titles, the math just doesn't work out.
Let's take Dragon Ball: XenoVerse for example and use some rough math here.
First let's start with ideal situations for sales, but bias it heavily toward PlayStation. We know the game sold 300,000 copies on PC, and let's just really low ball it and say it sold 300,000 between 360 and XB1. We'll also start by setting everything to being sold at full price and adjust for this later.
300,000 PC copies * $50 * 0.7 + 300,000 XB1/360 copies * $60 * 0.6 = $10,500,000 + $12,600,000 = $23,100,000
Now let's say they only made half of that due to the fact not everything sold at full price, setting us at $11,550,000.
Now let's take the fact it shipped 2 million copies and pretend every copy was sold, and that Sony, if the game was exclusive, would have given them a $6 license fee reduction.
1,400,000 copies * $6 = $8,400,000
So even assuming a very high 70% sales bias to PS4/PS3, a very generous license fee break for a game that was coming to PlayStation anyway, and an improbably high margin decay given how fast the 2 million copies shipped out, it still makes no sense to make it exclusive because you're leaving a big chunk of money on the table. When we use a more realistic forecasting, the multiplatform release becomes very attractive.
Now, if your game is basically only releasing in Japan (or selling such a high percentage there it doesn't really matter otherwise), then it makes a lot of sense to hit up Sony for whatever they're willing to give you to do what you were probably going to do anyway, and even then they'll often let you do an international PC despite this since they know third parties want multiplatform money and the audience overlap isn't so strong as with another console.
Not that this actually has too much to do with what you just said, but I just wanted to use this as a jumping off point since I've seen a lot of people ask over time about why some games would take this (say your everyday niche Japanese titles) versus why others wouldn't (Kingdom Hearts 3, Final Fantasy XV) and the answer is basically that those games are going to have very notable sales in North America where the Xbox One is strong and at the sales volume they're aiming to hit, it would be incredibly expensive to off-set that with incentives. They're also not as likely to want to do that since they're limiting brand growth on brands they want to continually become bigger as opposed to something where the developer is pretty resigned to "This will sell about X hundred thousand units forever."
I've always wondered how the fees work out for crossbuy games. It seems to be a real lucrative incentive for very small releases but as you get to larger and more established third parties almost none of them have joined on, even with their smaller releases.
It's possible that there might not actually be incentives and they just view it as a way to entice people to buy more copies of their indie game. I'd guess at most it gets Sony to market it more on PSN for free and consider paying you to put it into PlayStation Plus given how infrequently the offer is taken up by anything larger than a small indie title.