Games Don't Need To Sell 1 Million Copies For Success

[vansau]

Games Don't Need To Sell 1 Million Copies For Success

Contrary to popular opinion, the idea that a game needs to sell over a million copies to be considered successful is "preposterous.".

Last year saw a number of high-profile games get released without selling the million-plus copies they were originally expected to. Case in point: <a href=http://www.escapistmagazine.com/news/view/105090-Enslaved-Made-Namcos-Sales-Worse>Enslaved: Odyssey to the West didn't sell nearly as well as Namco hoped it would and was considered a financial flop by some. However, according to one industry insider, the need for a game to sell a million copies in order to be considered successful is a complete myth.

High Voltage's chief creative officer Eric Nofsinger recently sat down with Eurogamer to discuss the issue. "That's a misnomer in our industry," he explained. "By and large people look at it and they say, if it's not a million unit seller it's a flop. That's preposterous."

Instead, a game's success should be determined by the fact that it managed to make a profit:

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

High Voltage is currently working on Conduit 2 for Sega, a sequel that many folks didn't expect to see because The Conduit didn't sell in crazy amounts. Nofsinger uses this as a perfect example of how the million-copy myth is untrue: "We'd always like to make money. Everyone would. But if we sold the exact same number of units as we sold with Conduit 1, we'd be high-fiving each other. But I think we'll do better."

Source: <a href=http://www.eurogamer.net/articles/2011-02-07-1m-game-sales-benchmark-preposterous>Eurogamer

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[Sgt. Dante]

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

Yeah, if you ignore the fact that you've invested $10million + in setting up a bottling plant and hiring dozens of dedicated, talented coke-making-folk and such other costs as, premises, bills, overheads, advertising.

But yeah, every copy of Enslaved that sold did make money, I mean the disk only costs about $1.

 

[Wicky_42]

I'd always wondered why it wasn't based on profit rather than numbers... would make more sense, imo. After all, if you sell millions of copies it's counter productive if they were all at a loss, right?

 

[sooperman]

It's not crazy to think that The Conduit is getting a sequel, but it's a bit of a surprise every time I hear it. It wasn't an awful game, but sales were underwhelming. Here's hoping they clean up the multiplayer.

Oh and Mike, it's "Conduit 2." They dropped "The," for some reason. FYI.

 

[Loonerinoes]

Reminds me of the old adage about companies that make it sound like they're losing money, but are in fact just not making as much of it as they'd like while still remaining profitable when all the chips fall down.

 

[Torrasque]

Its a success if they insert X to make the game, and get X+1. lol, I don't see what is so complex about that.
You can argue about how much of a success the game was, but that is just objective.

I think games are all about entertainment, and if I am entertained by the game, then it is a success.
So, by my standards, Black Ops was a huge failure; monetary profits be damned.

 

[RelexCryo]

This is just plain obvious. The Dreamcast was turning a profit, so why the hell did they discontinue making it so abrubtly? Sheesh.

 

[CitySquirrel]

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

Yeah, if you ignore the fact that you've invested $10million + in setting up a bottling plant and hiring dozens of dedicated, talented coke-making-folk and such other costs as, premises, bills, overheads, advertising.

But yeah, every copy of Enslaved that sold did make money, I mean the disk only costs about $1.

I assume that he is including those costs in his estimate of how much money the game made.

On a side note, he does not seem to know what "misnomer" means.

 

[More Fun To Compute]

Not sure how Enslaved ties into this. Conduit made money and is getting a sequel, okay, but this doesn't meant that Enslaved made money. Conduit never exactly looked to me like a game that cost a large amount of money to make and the average budget for a Wii game is supposed to be lower than it is for a HD console title.

 

[Ironic Pirate]

But it still has to overcome it's initial cost, right? Not sure what the average cost was, but MW2 cost 100 million dollars to make. If that sold a million copies, it would be a flop, even if it made money on each disk.

 

[RollForInitiative]

As somebody else already pointed out, the cost of development has a serious influence over the sales numbers required to actually be profitable. If you work with a small team, generating minimal overhead, then you need to sell significantly less units. If you pay a full sized team for several years, plus millions in marketing materials, then that argument goes right out the window.

 

[scarab7]

There are big differences between small commercial products and long term development. Even if a game makes money including net cost and profits, but it's not as big as hoped, don't you lose investors? Anyone who knows the industry knows that games cost $$$ so even if an investor took a risk by funding a project, and still made a little bit of money, wouldn't the small profit be a deterrent for future investments from the same developers? New big budget titles seem to be the huge risk as an investor not because you won't make a profit but rather that your money can be better invested in a whole other industry for quicker and/or larger returns.

 

[maantren]

The 'myth' is based largely on the enormous budgets for AAA titles released by major publishers, most of which DO need to sell over a million copies to turn a profit + recoup opportunity cost. Eric Nofsinger is being a little disingenuous.

Cheers

Colin

 

[LunarCircle]

I believe that having a product sell 1M+ copies gives the impression that it was extremely popular, which is something that a company can use when it comes to advertising, pitching for a larger budget, etc.

Reminds me of the old adage about companies that make it sound like they're losing money, but are in fact just not making as much of it as they'd like while still remaining profitable when all the chips fall down.

You can mainly thank the shareholders and the stock market for that mentality. Publicly-traded companies need to have high stock prices to attract more investors, which causes the management to focus on products that sell a lot of units and generate a lot of profit over those that just generate profit.

 

[neolithic]

But it still has to overcome it's initial cost, right? Not sure what the average cost was, but MW2 cost 100 million dollars to make. If that sold a million copies, it would be a flop, even if it made money on each disk.

I think the problem is the cost of making a game that had 90% of it's content made allready from the previous titles.

 

[Therumancer]

"If I make this bottle of Coke, and let's say there's 10 pence of materials here - coloured water, sugar and a glass bottle - if I sell this for a pound, I've just made money.

"Whatever the product is, if it costs you less to make than you end up making off the thing, you make profit. As long as the profit margin is strong enough, then you get enough of a return and you can make another."

Yeah, if you ignore the fact that you've invested $10million + in setting up a bottling plant and hiring dozens of dedicated, talented coke-making-folk and such other costs as, premises, bills, overheads, advertising.

But yeah, every copy of Enslaved that sold did make money, I mean the disk only costs about $1.

The example he's using is intentionally simplistic to make the point. All of those factors you mentioned would be included in the cost. For a business just starting though it can begin that small, all of the other stuff comes along if your doing well enough. If you say run a micro-brewery out of your basement making beer yourself for example, and do well enough at it where you decide to feed the profits back into the business where you start expanding your materials, perhaps moving from your basement to a dedicated building, and hiring more people to produce beer for you so you don't have to to it personally any more, or even just so you can produce it faster to meet demand. Of course things for small businesses are more complicated than that when you consider taxes and the like, but that goes beyond the scope of the arguement, as does big businesses keeping smaller ones down. For example with beer, once a company gets up to a regional level they frequently get bought out (even if nothing is done with the recipe) or hit a glass celling where pre-existing agreements with the bigger companies prohibit carrying other products. There are ways to deal with all of that, but it's a pain that brings down many a little guy. You'll also notice (to use the soft drink example) that most resteraunts and such will only carry one kind of cola despite people having preferances. That's because Coke and Pepsi don't play well together compared to even the beer companies (where you see multiple distributions from big companies to one business as a matter of course), there are exceptions, but as a rule landing an exclusive distribution deal for a large franchise or a big resort or whatever is how they make a lot of their money.

At any rate, I'm rambling. The issue today is that the game industry has gotten greedy, simply making a profit it's sufficient anymore. Like a lot of businesses that get too big they work off of projected profits. If a business it's seeing it's projected growth, they consider that a loss. If a product is projected as making 20 million dollars in profit, and it only makes 15 million in profit, then the company treats that as if they lost 5 million dollars. The problem is of course compounded by the people running businesses borrowing against projected earnings, due to their own stupidity not making the projected profits can hurt them in terms of interest, or result in a lot less going into their pocket when they
pay their debts.

Understand that while things can be complicated, typically it's not the game developers that are making money directly off these games, that's a lie that is perpetuated for the sake of us gamers who are being critical. If you've read much about the industry (which has been covered in places like Game Informer, and on countless websites) the developers are paid by a producer, who approaches it as an investment. Either the producer has an idea for a game he thinks will make money, or simply wants to invest money to make more money and sees video games as a way of doing it, so he leaves it to the experts. The development cost is largely what the game developers are putting into their own pockets, no matter how they divide it up. If a game costs 100 million dollars, the lion's share of that money goes towards the coders, graphics artists, and other people based on what they decide they want to be paid for the development cycle. The cost of materials (computers and office space) is fairly trivial in the scope of some of these budgets. When a game is released the developers have been paid, and are done except perhaps as far as any promises they made to support a product. The producer is the guy who is out to recoup the money he spent paying the developers, and takes the profits in the form of more money than he put in. In reality most investors and investment groups (anything from independants, to companies, to floating boards of directors) have their fingers in more than one pie when you get down to it. This is why they deal in projected profits, and borrow money to pursue investments, while using the money they project getting to guarantee the loans, or to keep down interest. It's a huge mess, and it's why companies like "Enron" and the like who got involved in everything without people realizing it were able to "cook the books" for so long by shuffling the web of money around to look like they had fortunes when they were actually running under a massive pile of debt. This kind of thing also brought about the more recent businesses crashes with banks and realtors, banks are all about investments.

Now, there are exceptions to this, such as when a game development company approaches a bank or whatever for a loan to develop a game, as opposed to being approached themselves by a producer (or arranging to meet one). In such a case the gaming company borrows whatever money they want to pay themselves for the development cycle, and hopes that when it's done their idea will lead to them making enough money to pay off the lone and accurued interest and then making a profit besides.

The thing is that the industry has gotten so big, and so greedy, that simply coming out ahead isn't enough. It's all about how big the profits are, coming out a few million ahead on a few titles is a "loss" because such "chump change" isn't worth their time. As it gets bigger, it also changesin perspective and becomes more irresponsible where a company loses money from debts it took out by not making enough off a product to cover them, even if the product actually did come out ahead all on it's own.

This is one of the reasons why I am so critical of the gaming industry, and think they need to be taken down a few notches. Gaming has become too much of a big business, and in the end that hurts us as consumers. Of course the people at the top of the totem pole only care about their millions right now, which is why I think we need more in the way of consumer advocacy among gamers to make these guys listen and chill the heck out. As the "Ryan Quickbender" character from ENN cynically points out, "Cashbags" is pretty much how we're viewed.

 

[bushwhacker2k]

It's ridiculous that people actually think it's normal for games to sell millions of copies, I personally lean away from the big companies who only want to sell to as many people as possible without really considering the aspects of the game itself.

 

[ZippyDSMlee]

Well it costs the dev 20-40M to make a "AAA" game they get about 20-30$ for every 60$ game sold so 1M comes in close to paying off the debt incured to make the game, FYI whatever the publisher makes selling the game dose not go to paying off what debt the game has.

Regardless for anything that comes close to a normal modern 3D game you are going to need to sell nearly a million to make a profit.

 

[Sgt. Dante]

/snip

I do see what you mean and i was exaggerating the point as it seemed over simplified. Yes coke costs 10p and sells for £1 meaning 90p profit, but that speaks nothing of the other usually hidden costs and obligations to the process.

And altough the game industry seems more and more interested in getting it's money back on a title, wouldn't you be? If you invested $100 Million in a game and ended up making $10 million profit would you see it as worth your while? (Cut off the millions if you want a more, 'indie' level budget) And a lot of companies don't see that kind of return.

As Enslaved seems to be the popular example here lets look at some numbers; (if you'll indulge me)
(x)Cost to make; Uncomfirmed, estimated between $20-30 million
Copies Sold; 460,000
(z)Price New; $60

Now hopefully y*z>x
460,000*60 = $27,600,000

So if every copy was sold at full retail it would hopefully make about $7.6Mil. however harldy a month after release it was selling for £20 here (approx $32)

So looking at the figures if a generous half sold at $60 and the other half sold at $35 (not very accurate i know but this should account roughly for the numbers that sold between these marks) then

(230,000*35)+(230,000*60) =
8,050,000 + 13,800,000 = $21,850,000 Approx

So to look at the tl;dr it made somewhere around $1.85 million profit. For a presumed $20million budget. About 8% profit on thier investment. And that's before you consider how much of the selling value the publisher actually see's, a game selling at $60 will not make the publisher $60, not even close.

Now again, to consider this from a small buisness point of veiw imagine that for every $20,000 you invested in a buisness you could make $1,850 profit. But you were limited to this amount once a year, at best. Would you consider this a successful buisness venture? Yes it's a profit, but it hardly seems worthwhile when you consider that black ops wouldn't have cost significantly more to make but has SO FAR pulled in £360 million dollars, that's over 10x the investment or 1000% compared to enslaved's 8%.

And yes that kind of sucess is limited to exceptionally few games and isn't to be expected from many titles, but whatever Modren Warfare is doing you can be damned sure that other companies in the buisness would like to do as well. And yes this can lead to stagnation in the market with too many games being released in a hurry that are too similar to the status quo and that don't innovate and whatever. But whatever game is popular will dictate the trends in gaming today. When a game does come out that can match Modren warfare's sales figures you can be damned sure that other publishers aren't going to want to chase a 8% return when there is a potential 1000% they could be making. It just doesn't make sense. They will almost alwasy go for a 'safe' option rather than risk losing out on a much higher profit margain, and i think that is probably the reason the games market seems so stagnent at the moment. In a risk/reward enviroment, especially coming out of a recession the lower the risk (whilst retaining the potential reward) the safer the investment.