Why Traditional Retail and Niche Games Don’t Work
Defining Niche Games
The place to start with an article with the above title is to make sure everyone understands what a niche game is. Niche games can be broken down into three categories for the purpose of this essay.
The first category of niche games would be any product genre that a traditional publisher rarely publishes within due to the small fan base. This includes such genres as wargames, turn based strategy games, text based games, well… you get the idea.
The second category that would be considered niche games would be any genre of game that a traditional publisher would be interested in, but that the product in question has a production budget under $1.0 million.
And the third category would be a traditional product genre, where the developer has added influences from other genres. A 4x game for instance that had wargaming turn based elements to it, or an RTS that tried to depict in detail the elements of war. In other words, originality!
While I am on a defining kick, I might as well add an explanation of traditional retail. For Computer Games, this would be e-stores such as Electronics Boutique, CompuMart, etc., or mass merchandisers such as WalMart, Target, etc.
The Big Picture – 2004
Okay now for all those numbers… Last year, sales of Computer Games (and I am not including Video Games – the Console Game Market) was down $100 million dollars from the $1.2 billion mark in 2003. There were two, count ‘em, two games that had sales of 500,000 units and 18 games that had sales of 250,000 units or more. It is projected that less than 6% of all Computer Games made a profit. Based on the varying definitions of what is a new release, it is hard to know for sure how many products were released in 2004, but a number that I can live with is 1100 titles (in 1999 that figure was over 2200 titles). The average budget for development of a computer game is now over $2 million per title. And the average breakeven point in unit sales is around 110,000 units. The average retail price point is $24.45. And the average game at retail sales under 5,000 units!
And I got it all into one paragraph!
Now what do those figures really mean to the developer? It means that if you want to go into traditional retail with your new shiny niche market computer game because you will get rich, well, it just isn’t going to happen. The mainstream titles have a hard time turning a profit for the publisher and that means a hard time turning a profit for the developer. And these are products with development budgets in the millions, marketing budgets in the $1 million range and depth of distribution only attainable from the likes of EA, Ubisoft, and their peers. These corporate giants aren’t going to be interested in your game, and the smaller traditional publishers will have a hard time getting you market penetration, both from a marketing budget standpoint as well as from a distribution standpoint.
So You Don’t Believe Me?
Now you ask, what makes you an expert on all of this? Well, I’m not an expert, the experts aren’t even experts. What I do have to back this up is 3 titles with my name on them that were in retail with major publishers. And that equates to first hand knowledge of what type of sales to expect.
Look at the reality for a minute. If the average price point of a game is $24.45 at retail, then the average price the publisher makes is $15.89. Let’s say you negotiate a generous retail contract and get 50% of that. On an average offering selling 5,000 units that means you will make $39, 725.
Oh, but you say, my game isn’t average. Oh, that’s right your game is niche. I know AAA title games with $2 million plus budgets that did less than 1,000 units worldwide at retail. So how will your game really perform? Who’s to say, but it is a safe bet that it will come in under these numbers.
So What Does this Mean?
I don’t know what it means to you. I think each of us have to look inside ourselves and honestly decide what we are after from this business. If it’s to make money, well there are better avenues than traditional retail. If it is to see your game on the shelf of your local Electronics Boutique all I can say is hurry there once it enters distribution. Because as a niche game, it won’t be there for long. You may however find it in the bargain bins.
Hi,
“Stating the obvious” is nice, blogging about how Shrapnel sees the alternatives to retail (own web store, specialised web stores, digital download, …) would be better
Greetz,
Eddy Sterckx
Comment by Eddy Sterckx — 2/25/2005 @ 2:41 am
Hi! I would like to know if there is some website or some other source for the numbers you gave about the costs and the average number of copies sold by a PC game?
Comment by vincenzo beretta — 2/25/2005 @ 4:10 am
>blogging about how Shrapnel sees the alternatives to retail (own web store, specialised web stores, digital download, …) would be better
This is set for a future blog.
Comment by Tim Brooks — 2/25/2005 @ 5:54 am
>I would like to know if there is some website or some other source for the numbers you gave
Sure there is. Check out the Entertainment Software Association, the NPD group, and Gamasutra. Some of these numbers require the purchase of reports, others are readily available, most through the above sites. Some info came from sources at the major publishers I mentioned in the article and I promised anonymity. You should be able to find most of the info though.
Comment by Tim Brooks — 2/25/2005 @ 5:59 am
I understand why things like digital download or totally online gaming (such as browser games) are still being ironed out. The “developer turned publisher” purchase-thru-website model seems to have been the most stable lately. is there any chance of saving the retail model at all? Or is there some way that the web-only model might be strengthened until someone works the kinks out of another.
Comment by Gandalf Parker — 2/25/2005 @ 10:02 am
>is there any chance of saving the retail model…?
Now that is an interesting question, and I will go into detail about this in a future blog – the one that will talk about what does and might work for niche games. I would say though that even retail can’t figure a way to make it work. The reality is computer games have been getting ever decreasing shares of retail shelf space – saying, to me at least, that retail has given up on the computer games market. Well, not given up, but realize that in any given year only 50 to 60 titles will actually be worth their shelf space (that is why premium shelf space must be purchased!). With this mentality and the short shelf life of computer games, I don’t see it happening.
As to the web only model being strengthened, that will require a paradigm shift among the computer gamer. They will need to realize that some of the truly unique titles will be found not in stores but over the internet, and that these titles can’t afford to have a team of 20 artists working for 2 years to compete with the art in retail AAA titles.
Comment by Tim Brooks — 2/25/2005 @ 10:38 am
Do you think that the retail model did actually run smoothly in the recent past? I suspect the market was somewhat “inflated” in the last 5 years or so, with too many titles being released at once. Sooner or later they had to be reduced to a more reasonable number.
BTW, the re-releases are IMO interesting because they prolong the shelf time for what is basically the same software (Civilization III is a good example). I think people simply won’t buy an “old” game, even if the “new” game is simply the old one with a new patch. I suppose this would extend to the web sale model as well, but without a package creating the illusion of a new game might be harder.
> As to the web only model being strengthened, that will require a paradigm shift among the computer gamer
Maybe I should not say this, but I don’t believe the web only model will require a paradigm shift - P2P piracy already uses this model, the only change would be to persuade the users to pay for what they download (it won’t be easy, of course). You’re probably right about the art, anyway.
Comment by Lisif — 2/26/2005 @ 6:32 am
>Do you think that the retail model did actually run smoothly in the recent past?
I don’t think the retail model has worked since the late 80’s when the motion picture studios got into the gaming business. If you remember, they produced a bunch of “crap” and then to get rid of it, to get it to stay on retail shelves, they started buying shelf space. Now, retailers expect this payment, and without it your game is relegated to spine display. Add to this the lack of knowledgable sales clerks, and the only thing you have to sell your game is screenshots which means that more money has to go into art than actual gaming.
As to re-releases at retail I agree. As to the web model, we find that it is an education process, but we have titles that still sell very well 5 years after release. Still ‘making it new’ never hurts sales :).
No doubt piracy is a huge problem.
Comment by Tim Brooks — 2/26/2005 @ 7:15 am
>but we have titles that still sell very well 5 years after release.
So just how well is SE4 still selling then?
Comment by Imperator Fyron — 2/28/2005 @ 4:53 am
Hi,
This topic generated a good discussion at the war-historical ng
For those wanting to read/particpate over there :
http://groups-beta.google.com/group/comp.sys.ibm.pc.games.war-historical
Greetz,
Eddy Sterckx
Comment by Eddy Sterckx — 3/3/2005 @ 1:57 am
>So just how well is SE4 still selling then?
Well, it is usually in our top 3 for any given month - I think it has only dropped out of the top 3 a couple of time. For the last two months, it has been number 1. So, although it has been out for quite sometime, it is still selling very well.
Comment by Tim Brooks — 3/3/2005 @ 4:45 am
http://www.livejournal.com/~act_of_war
Comment by The Dude — 3/18/2005 @ 4:04 pm
the more a company invests - the more it profits - but aren’t you forgeting MMO’S?
Blizzard has about 1.5 mill subscribers - and every month you must pay 15$ - figure out how much money they are making EVERY MONTH - and the nubber of subscribers is constantly growing
Comment by Rimus — 3/22/2005 @ 7:44 am