Profitability in the Video Gaming Industry: Is there any, at all?
This entry was created by a student in Stanford's Rhetoric of Gaming class. For more about the class and the assignment, click here.
Modern video game companies have recently displayed interesting business models behind their cutting edge products. The state-of-the-art software and hardware that readily entertains us today are very complex and costly creations, taking years to develop and often requiring vast amounts of funds and resources to complete. Profitability is a key term that has been brought into question when analyzing current video games systems like Microsoft's Xbox 360, Sony's Playstation 3 and even Nintendo's Wii.
My research topic consists of a look into these business practices, and the motivations behind the sales of video game products that turn little to no profit, sometimes resulting in losses. The scope of the research will also include the actions that these companies take in order to boost revenue considering they cannot cut production costs by much. Thus, they turn to extremely well-developed marketing strategies and rhetoric in order to promote continued sales, which in the long run offsets poor gains from high production costs associated with the products.
One such source that points out this evolving trend in poor profitability among the modern video gaming industry is an article on the BBC news website titled " Game profitability 'under threat' ". The article, written in early 2007 during the advent of the current console gaming hardware generation, points out the general topic of profitability, but also adds the "exclusivity" of games as being a counter-measure for falling profits. Certain companies hold game titles sequels exclusive to their gaming platform, like the Gears of War series for the Xbox 360, in order to promote continued sales.
There are many articles that speak of the emerging business models among video game companies that care less about profitability, and more about number of sales. However, a big challenge in completing this research is finding sources that not only address the general topic, but dive deeper into the more technical aspects, and also shed some light on the marketing techniques that these companies utilize in order to sustain sales in a certain way, despite taking losses. The topic of research will focus on the North American video gaming market in order to be more specific and consistent with a proposed argument.
Some articles to consider:
Game profitability 'under threat' , BBC News
http://news.bbc.co.uk/2/hi/technology/6397527.stm
Why most video games aren't profitable
http://news.cnet.com/8301-13506_3-10106612-17.html
Only 20 Percent of Video Games Make a Profit – EEDAR
http://www.gamedaily.com/articles/news/only-four-percent-of-video-games-make-a-profit-ndash-eedar-/?biz=1
Comments
Hey Jesse from across the room,
I think it's a very interesting point that you make about the profit margin on video games and consoles, especially with the recent losses on the PS3 and the blu-ray reader. You also mention this razor - razor head mentality that companies have in order to offset those losses, to keep those consumers buying more of their products.
Some important key ideas to address are the sustaining vs. profiteering strategies in the company, ie. marketing vs. game production. Maybe you could track down how much money companies ration for marketing and how much they set off for game production. Best of luck on your research.
Posted by: John Do | April 30, 2009 10:47 AM
Check out VG Chartz (listed on your Research Guide) for detailed sales figures, etc.:
http://vgchartz.com/
Posted by: Chris Bourg | April 30, 2009 10:12 PM
Dear poster,
Cud u, u no, not mess around with mai leet leet gaming options? i mean, y just rag on game producing companies, bro? Y does ANYONE make ANYTHING that cud be a mony sink? i think the question is more like "what are game producers betting on for sales" lyke you sed about exclusivity. Y not just run wiff dat? Srsly; if game producers NEW wen games weren't gonna sell, they wudn't make them. Just slow yer roll a bit and focus on the techniques, maybeh on how/why they succeed/epic phail, y'know?
Peace,
Random illiterate gamer
Posted by: Alexandria Hicks-Nelson | May 4, 2009 09:24 PM
Profit margins are definitely getting tighter and no doubt a large part of this is due to the licensing issues as well as the fact that the retailers don't give the games time to sell at their natural RRP before drastically cutting in order to try and undercut the oppositions.
I see many similarities between the authors findings and that of the music industry, which is also in a dangerous cycle of cuttings costs to widen margins but expecting the end result to be as innovative as ever!
Andy
Posted by: Andy Games Console Fan | July 17, 2009 07:46 AM
I don't think that gaming profitability is ever going to be under threat. Yes, development costs money, but the games are getting more and more expensive, plus the online component means companies are getting regular subscription money. There's neve been more profit in gaming.
Posted by: Amy | July 29, 2009 03:47 AM
Of course the companies make the consoles to make profit. While the consoles make very little profit to start off with, they do towards the end of the console life. They make most of their profit from games and accessories.
Posted by: Xbox Avatars | August 20, 2009 12:41 PM
I think there is huge money to be made in video games. Obviously, or they wouldn't do it.
Posted by: blackjack betting strategies card counting | September 25, 2009 08:04 PM
There is loads of money in video games. The console manufacturers dont make a massive amount to start off with (actually make a loss), but they make plenty of money on accessories and games.
Posted by: Xbox Arcade Live | October 22, 2009 11:17 AM
As others have said there is millions of dollars to be made in video games, if there wasnt then 2 of the biggest companies in the world (sony and microsoft) wouldnt be in the business.
Posted by: Xbox Controller Mod | November 4, 2009 01:07 PM
There always seem to be confusion between what constitutes marketing, sales, and business development (BD). Business Development is a sales activity that is expected to deliver results in the medium to long term, for example developing a channel or partner strategy. As opposed to a pure Sales activity which is more short term and normally involves selling directly to end customers. Marketing is a function which supports both sales and business development allowing them to target specific market verticals/channels/customers by developing material, market knowledge and sales propositions which are relevant to these. Sales and BD go and sell what marketing (normally along with product management) have put together to describe, price and position the products.
Posted by: Paul Brown | November 7, 2009 10:12 AM