Fallout: Why Traditional Retail and Niche Games Don’t Work
Well, I sure opened a can of worms with my blog of 2/24/2005, Why Traditional Retail and Niche Games Don’t Work. The newsgroups have been posting about it and e-mails have been coming in and even forums have been buzzing. So, I thought I would take a few moments, and talk a little about my take on this, answer some of the questions, and generally set some things straight.
The Newsgroups
Comp.sys.ibm.pc.games.war-historical has a long set of posts on my blog, although it quickly deteriorates into a discussion over e-books (go figure?). One vocal poster there first doubts the validity of the average price point of games at retail of “$25.00” saying that is a fantasy number because he is at Walmart bi-weekly (poor fella) and finds games priced at $39 -$50. Okay, let’s do the math. No doubt new releases are priced in that range. But, and here’s the kicker, most games remain at that price for weeks (okay sometimes months), not years. In fact it is rare anymore for a AAA, solid selling title to be at the original price for 6 months. So what happens to a title after the initial sales period? It goes to half price, and then very quickly to around 25% of the original price point. So lets see… $45 game initially, then $22.50, then $11.25. Average those and you have $26.25. And that is assuming that each price point sells the same unit volumes. Guess what? About 20% of units sold are sold at the sell in (higher) price point. The other 80% are sold at reduced pricing. So there you have it - $25.00.
This same gentleman makes other statements that show a lack of knowledge of the industry such as: “…retail loading brings in big orders up-front while web sales are one unit at a time with inventory funding on the developer/publisher, not the retailers’ dime.” What he doesn’t understand here is that the retailer pays the publisher quarterly for what sells, not what is on their shelf, and the reality is that that quarterly payment schedule, easily and almost always turns into a 6-month schedule. With some companies, like EB, the publisher is lucky to see money once a year. So it is the publisher funding the stock, not the retailers.
Anyway, there is more good discussion on retail and niche games in this posting, if you can wade through the e-book discussions.
E-mails
Many of you have sent me e-mails asking some very pertinent questions. I am sorry I haven’t been able to answer each individually, but I thought I would answer a couple of the more prevalent ones here.
Q. Where did you get your figures?
A. This question was also asked and answered in the comments section of the original blog, but based on the number of e-mails a lot of folks don’t read the comments. So here is my answer: 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.
Q. Only 6% of PC games make money? Then how do the publishers stay in business?
A. The large publishers have no problems. You have to remember that one top seller cures a lot of ills from the other titles. And all the top publishers have franchise titles. These almost always make the top 20 list for the year in which they are released. Also, not only do you have the PC version, you have the consoles as well. Rarely does a PC only title get released by major publishers anymore. In fact, on internal development projects, almost all games are first developed for a console and then ported to the PC.
Now, the smaller publisher does have trouble staying in business. The most recent case of this is the bankruptcy woes of Strategy First. And it is our understanding that they are still in trouble. For a first hand account of this, go here:
(And before we are chastised for putting a link like this up about a competitor, we came across this link on Strategy First’s website, so we don’t feel it is out of line).
I was all set to cite another recent example, a smaller competitor’s forum post describing their venture into retail as being a disaster with their games ending up in the bargain bins very quickly. This publisher then went back to a web-based model. But now they seem to be giving retail another try, so who knows what their real story is?
Anyway, you really don’t have to look far into the past to see that there are far fewer small publishers today than even five years ago (go back 10 years and the difference is truly amazing!). There are fewer small publishers at retail because they can’t compete with the big boys - especially when so few titles are actually profitable.
My Take
My original post, Why Traditional Retail and Niche Games Don’t Work, is nothing new, this has been the trend since the mid-90s. I had a feeling though, that the post would garner some attention. We know through the feedback of customers, potential customers, and potential developers at Shrapnel Games that the gaming public, as a whole, was unaware of many of these trends. It is why I started Shrapnel Games to begin with and why we are still in business 5 ½ years later. Either the retail industry will have to change, or more of the niche developers will have to come around to the reality of the times. It is why I posted the blog, to get the reality out there in the open for all to see.
My next blog will talk about why the Shrapnel Games model works, and I will try to give you some interesting statistics on what kind of sales can be done through us, another prevalent question asked in those e-mails.
Happy Gaming!