Digital Delivery

Forbes put out an article last December illustrating the breakdown the the price of next-gen console games, and why they carry that hefty $60 price tag. I think this article really serves to show why there’s so much hype about digital delivery systems. Under this breakdown scheme

Art/Design $15

Programming and Engineering $12

Retail $ 12

Console owner fee $7

Marketing $4

Market Development Fund $3

Manufacturing Costs, Packaging $3

Licensing $3

Publisher Profit $1

Distributor: $1

Corporate Costs: $.20

Hardware Development

The publisher profit is only $1 (1.5%) on each title sold. Many publishers claim that they need to sell 500k copies to even break even. With game piracy as rampant as it is these days on the PC, you can see why the scenario doesn’t significantly improve in that realm either. Digital Delivery, while coming aboard with many issues in its own right, at least solves the problem of many of these costs.

About 20% of the cost of the title is Retailer Profit. A digital delivery mechanism would allow publishers to move some of that money back into their own pockets. Another 5% of the cost is the Market Development Fund. This is the money the publisher pays the retailer to have premium location in their store, increasing the likelihood of sales. Digital Delivery could significantly reduce this cost as well. Another 5% is manufacturing cost. No Manufacturing, no cost.

Digital Delivery Mechanisms such as Xbox Live, GameTap, or Steam have the potential to turn a paltry 1.5% of total cost being publisher profit into 31.5%. Even with a reduced sales total, this is a mechanism that will definitely be exploited in the coming years to a much greater extent than it is now. There’s no challenging figures like that. Of course in my example I’ve neglected the distribution costs somewhat, making the assumption that the costs of distribution through mainstream retail channels is approximately equivalent to what one would have to pay to set up on Steam or XLA.