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Q: how much do retailers buy computer game software for? ( Answered 5 out of 5 stars,   1 Comment )
Question  
Subject: how much do retailers buy computer game software for?
Category: Business and Money > Small Businesses
Asked by: lostlittlesally-ga
List Price: $52.00
Posted: 29 Apr 2006 02:23 PDT
Expires: 29 May 2006 02:23 PDT
Question ID: 723896
How much do medium and large retailers (medium being at least 25
stores in the chain) buy their PC game software for? I believe this is
called "retail markup" but not sure.

My situation is that I am an independant game developer and will soon
be contacting large retailers and I want to know what is reasonable to
accept as a contract on bulk orders.

I have been unable to find the information. Some ideas are to look at
press releases or news articles from of retail or independant
developers, or financial statements, or whereever the information is
barried at.
Answer  
Subject: Re: how much do retailers buy computer game software for?
Answered By: belindalevez-ga on 01 May 2006 02:15 PDT
Rated:5 out of 5 stars
 
<How much do retailers buy computer game software for?

This presentation gives an example for a retail price of $49.99.
Retail price - $49.99 per unit.
Wholesale price - $32 per unit.
Retailers get approximately $17 per unit.
Here the retailer is getting 35% of the retail price.
The wholesale price is 64% of the retail price.
Source: Neil Robinson. ATI Research.
http://66.249.93.104/search?q=cache:RpZyAx0pejAJ:web.cs.wpi.edu/~claypool/imgd-seminar/robison.ppt+%22marketing+costs%22+++wholesale+retail++games+&hl=nl&ct=clnk&cd=11

According to a contributor in this forum
Wholesale on video games for game stores is around 35 dollars per unit
(depending on msrp of 49.99). Mass retailers like walmart (actually
just walmart) negotiate prices lower to around 30 dollars per unit
(hence walmart has lower prices). Electronic stores purchase games
around 35 dollars per unit as well.
Source: dragonfireflys.

At the 30 dollar wholesale price this is a wholesale price of 60% of
the retail price.
http://www.cheapassgamer.com/forums/archive/index.php/t-526.html

The top five brick-and-mortar retailers are responsible for
seventy-five percent of video game sales.
Top 5 video game retailers:
Wal-Mart ? 19%
Best Buy ? 17%
Game Stop ? 15%
EB Games ? 14%
Toys R Us ? 10%
Other ? 25%

Retailers capture forty percent of retail revenues.
This gives a wholesale price of 60% of the retail price.

Source: Use of a Game Over: Emulation and the Video Game Industry, A
White Paper. James Conley et al. 2004.
http://www.law.northwestern.edu/journals/njtip/v2/n2/3/

Retailers generally earn 30% margin on a $50 game. Source: The Game
Development Process.
http://66.249.93.104/search?q=cache:-MoD61YiC2MJ:web.cs.wpi.edu/~imgd1001/c06/slides/intro.ppt+Walmart+distribution+interplay+games+earn&hl=nl&ct=clnk&cd=7




This article gives three price points.
Retail $19 = Wholesale $15
Retail $29 = Wholesale $22
Retail $39 = Wholesale $30
The Economics of a 2D Adventure in Today?s Market. 0ct 19, 2004.
http://grumpygamer.com/4904226

The typical retailer gets games at 50% discount and distributors get 60%.
Source: The $1K company by Sandy. RPG.net.
http://www.rpg.net/news+reviews/columns/nov98.html

This article explains who gets what in the games market.
For a $30 game, the developer gets $12.15, the distibutor 10-20% and
the retailer receives the rest.
If the distributor takes 10% this works out as
Developer - $12.15
Distributor - $3.00
Retailer - $12.85

If the distributor takes 20% this works out as:
Developer - $12.15
Distributor - $6.00
Retailer - $9.85

Source:Why Games Cost What They Do by Greg Costikyan.
http://www.costik.com/whycost.html


This article looks at the situation in Europe.
Current average premium retail prices in the UK are as follows: 
PC CD-ROM: 29.99 - 34.99
The gross margin per unit that retailers can expect on a full price
game varies widely from around 2 up to 15 reflecting the variance in
wholesale price paid but more importantly the final retail price that
the retailer chooses to offer the product at. A rough method of
determining retailer margins is to assume that half of the recommended
retail price of a software product is retail margin but from that
comes VAT(@17.5%) and any retail price discount applied by the
retailer. Thus a 40 RRP game might be sold for 34.99 leaving the
retailer with a margin of around 8 (net of VAT).
Source : Games Investor.
http://www.gamesinvestor.com/Business_models/Retail_Distribution/retail_distribution.htm>


<Search strategy:>

<"retailer gets"  "per game">
<://www.google.com/search?hl=nl&q=+%22retailer+gets%22++%22per+game%22&lr=>

<"retailer gets"  "a game">
<://www.google.com/search?q=+%22retailer+gets%22++%22a+game%22&hl=nl&lr=&start=40&sa=N>

<"marketing costs"   wholesale retail  games>
<://www.google.com/search?q=%22marketing+costs%22+++wholesale+retail++games+&hl=nl&lr=&rls=GGLG,GGLG:2006-12,GGLG:en&start=10&sa=N>

<"wholesale price" retail  games "per unit">
<://www.google.com/search?hl=nl&rls=GGLG%2CGGLG%3A2006-12%2CGGLG%3Aen&q=+%22wholesale+price%22+retail++games+%22per+unit%22&lr=>

<Hope this helps.>

Request for Answer Clarification by lostlittlesally-ga on 03 May 2006 01:23 PDT
Unfortunately none, or maybe only one, of the references actually
specifies the ultimate source of the information (which exact store
experienced it, or which developer quoted it, or which publisher
devulged the information). It is hard to base a sound decision on
forum notes or presentation "examples", especially since on a couple
of those links, there were 15-20 references to only 5-15% margins
(most but not all for independant stores), which slightly conflicts.

Would you be able to find a couple references that are actually
traceable to a credible source.

Thanks a bunch!

Request for Answer Clarification by lostlittlesally-ga on 03 May 2006 01:28 PDT
PS: I would consider any of these as credible: any press release,
financial document of a not completely unknown company, news article
that quotes a specific developer, publisher, distributor, or retailer
discussing it, or the website of a publisher, distributor, or 25+
store retailer, or a forum post from someone who discloses what
store/distributor/publisher he is basing his note on, etc...

Clarification of Answer by belindalevez-ga on 03 May 2006 05:19 PDT
<Is the kind of report you are looking for?

According to Marc DeForest, S2 Games' co-founder and lead developer, 
"Savage: The Battle for Newerth" is sold through traditional retail
outlets for US$49.99. The company makes about $20 on the sale of the
game.

The retailer is therefore paying a wholesale price of 40% of the retail price.

Source: Marc DeForest, S2 Games' co-founder and lead developer. S2 to
Offer Online-Only Distribution for 'Savage 2' by Jennifer LeClaire.
TechNewsWorld.com
http://www.macnewsworld.com/story/49161.html>

Request for Answer Clarification by lostlittlesally-ga on 03 May 2006 14:30 PDT
Yes that I would definately consider a credible or "traceable" source.
Would you be willing to find a few more of those kind of results, I'll
up the anty $12 if you could. (along with how you found them).

Clarification of Answer by belindalevez-ga on 04 May 2006 01:54 PDT
<According to Gabe Newell under the current system, most developers
make only about $7 for each game they sell. But an online distribution
platform like Steam--which cuts out the middleman and delivers a game
directly to the consumer's desktop--could net developers more than $30
per copy.
Source: Gabe Newell. The Final Hours of Half Life by Geoff Keighley. Gamespot.com
http://www.gamespot.com/features/6112889/p-8.html

According to Laurent Paret, co-founder and vp of business development
at NP Cube, the developer of massively multiplayer online role-playing
games (MMORPGs) will use a unique three-step distribution method that
focuses on digital distribution.

"It's so much more cost-effective than signing a contract with a
publisher," said Paret. "One peer-to-peer company wants to charge us
$300 a month to distribute 'Dark And Light.'

Paret estimates that by publishing the game itself, NP Cube can save
approximately 10-15% of costs from the get-go. "That's because we
won't have to pay to burn a master and press CDs and produce boxes and
manuals and ship the game and so forth.

But Mark Jacobs, president and CEO of Fairfax, VA-based Mythic
Entertainment, which also develops MMORPGs, disagrees.

"I know they think they can make up some of their development costs
earlier if they distribute online," says Jacobs. "If they charge $40,
which is the price of 99.9% of MMORPGs, they can make, say, $30 a
copy. That's a lot more than the $15 they'd get with a good
distribution deal.

Source: Video game developer experiments with digital distribution.
http://www.hollywoodreporter.com/thr/columns/tech_reporter_display.jsp?vnu_content_id=1000501222


Revenue sharing with deveopers under the Steam system is 60/40 developer/valve. 
10-20% for traditional retail/publisher deals.
60% for Steam developers.
86% for Valve.
Source: Steam?s Finances.
http://www.steamreview.org/?p=16


3D Realms' Miller has high hopes for online digital distribution, and
he intends to be at its forefront.

"The bottom line is that you make a lot more money off of direct
sales," he explains. "If a game sells for $50, you'll probably be
making $8 to $10 more per box than if you sold it through a retailer.
Digital Distribution: Keep the money and run? By Paul Hyman.
http://www.thehollywoodreporter.com/thr/columns/video_games_display.jsp?vnu_content_id=1000955338>


<Search strategy:>

<Searching for reports about online distribution finds articles with
developers talking about margins.>

<developer game  "online distribution" "each game " ?deforest>
<://www.google.be/search?hl=nl&as_qdr=all&q=developer+game++%22online+distribution%22+%22each+game+%22+-deforest&meta=>

<"according to" "digital distribution"  developer game "sale of each">
<://www.google.be/search?hl=nl&q=%22according+to%22+%22digital+distribution%22++developer+game+%22sale+of+each%22&meta=>

<"digital distribution" developer game "wholesale>
<://www.google.be/search?hl=nl&q=%22digital+distribution%22+developer+game+%22wholesale+price%22+%22sold+for%22&meta=>

<developer game distribution "wholesale price" "sold for">
<://www.google.be/search?hl=nl&q=developer+game+distribution+%22wholesale+price%22+%22sold+for%22&meta=>


<Hope this helps.>

Request for Answer Clarification by lostlittlesally-ga on 04 May 2006 02:16 PDT
Thank you, thats definately the credible info I wanted.

Clarification of Answer by belindalevez-ga on 04 May 2006 04:35 PDT
<Thanks for the tip.>
lostlittlesally-ga rated this answer:5 out of 5 stars and gave an additional tip of: $12.00

Comments  
Subject: Re: how much do retailers buy computer game software for?
From: frde-ga on 29 Apr 2006 06:57 PDT
 
You would be wise to check out the News Groups

I would suggest that you stick out for 50% of the retail price and
only accept returned goods if you want to.

'Markup' is how much they multiply cost price to get retail price
- eg: you charge $10 they sell it for $20 - that is 100% markup

'Margin' is the percentage of retail price that they keep
- eg: they sell at $20 - they keep $10 - their margin is 50%

There is also 'discount', but that is not worth bothering about.

Basically, you are in for a hard time, retailers are hard to deal
with, they will demand very high margins and insist on SOR (Sale or
Return), they will also offer lousy payment terms

- you might find yourself 'giving' them the initial stock, and only
getting paid on re-order

- an even worse situation is you having to pay them to display your
product, that is called 'payment for listing'.

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