Scary Reality: Only 20% Of Video Games Become Profitable

[The 1 2 P]

I knew times were tough but damn: http://www.gamedaily.com/articles/ne...-ndash-eedar-/

How weird would it be working on a product where you have a 80% chance of failure(although some of them do break even). I guess we can look forward to more mergers like Square-Enix, Bandai Namco and Tecmo Koei. Question is: who's next? Capcom SNK? Konami Midway? What are your guys picks?

EDIT: I just updated the percentage.

[jcalder8]

I'm pretty surprised that the number is that low, I would have put it close to 50%

[TheRealist50]

thats it? 4%? I just can't seem to believe it.

[Cornelius]

I can't believe that either. Doesn't this industry now rival Hollywood? All that profit off of 4%?

[kedawa]

I wonder what the success rate is for XBLA games. I'd guess much better than 4%.

[otaku]

that's crazy! Why make games then? I mean I can understand the majority not making money because they suck and don't sell but the majority should apparently not be made then. Not only does gaming need designers (better ones to) but apparently it needs some business people to

[MonoTekETeA]

Just remember that 4% is all just after the dues are paid. So what happens are new things are developed out of some one else's pocket, and then they are paid back. That is how we get boundary breaking things like the Havok engine and what not. The fact is, everyone is still getting paid and breaking even to make the game and all that Jazz, and 4% is there for eaither greed or expansion, with that 4% less companies that have debt they have to pay off after the next game.

I mean really, there are a lot of people working on these games, each making(estimated) 30k, then add in costs for distribution, equipment, faculties, etc. It is a lot of expensive stuff, that does get paid off, allowing them to continue to make games. While it may not be profitable, they are still in business, doing what they love, and I think that is why it may be such a low percentage, because so many companies may keep their doors open, just for the love of games. They may hit negative sometimes, and just work together to cover those costs and troop on.

I really don't know what goes on, on the inside of companies, but I know it is a hard road, and only for those who are hard set on getting in the industry. Once they are entrenched in there with a solid job, I am sure they don't want out.

-Jeremy

[All Things Sega]

It's called creative accounting. Perfect example is the Coming to America movie. Some of the people involved are still trying to get money from it but they took a profit deal (same as what these game companies are claiming). Their just expensing every little detail and sometimes other bullshit to reduce any royalties or payments they have to make since technically the game or movie is not profitable. Gotta love hollywood and I guess game companies are following suit

[Leo_A]

This isn't really uncommon in any industry, most new products fail miserably. Only a very small percentage ends up being a success.

[j_factor]

I'd like to see more details. Like, what games were included in their examination? Does it include arcade games, mobile games, XBLA-style games, direct download PC game sales? Are they talking games released last year, or every game released since 1978?

When a game is released on multiple platforms, do they determine profitability collectively using the total cost and total profit from all versions, or do they separate it somehow? What about when a game is initially released for one system, and then ported some time after the fact? Do they factor in indirect costs such as marketing and basic operations? Do they factor in indirect revenue such as merchandise, product tie-ins, spin-off media (tv shows, comics), character licensing, etc.?

I would think that looking at these factors in different ways would produce a vastly different statistic. Also especially of note is stuff like the virtual console. I can imagine that there are old games that didn't quite turn a net profit initially, but are "in the black" if you factor in VC revenue.

Also, I would imagine there are games where the developer made a modest profit but the publisher had a modest loss, or vice-versa. If that happens, is the game considered "profitable" or not?

[Trebuken]

The oil industry has a 7% profit I believe so if the 4% represents a profit it's not so bad.

Personally I don't believe only 4% of games make a profit. I find it unlikely though it does explain the mergers of late.

[kedawa]

It doesn't say the industry averages 4% profit, but rather only 1 out of 25 games makes money. The ones that do make money obviously earn so much that they make it all worth it.

[heybtbm]

The oil industry has a 7% profit I believe so if the 4% represents a profit it's not so bad.

You're comparing two different types of percentages. It doesn't make sense.

[Jorpho]

With the endless quantities of shovelware that everyone forgets about, this doesn't surprise me too much, actually.

But then the question is, if shovelware is unprofitable, why publish shovelware?

[udisi]

I think another big difference with today's gaming is just the shear amount of competition.

Game system libraries are soooo big now. Even good games don't hold their price as long or sell for as long a period of time.

More games today are shorter and traded in for the next big thing within weeks, whereas SMB3 sold well for years.

Look at things like GTAIV. The game had a big splash when it came out, but fell in price and such quickly as the next big thing came out.

In the old days it could be months until the next big game came out, and that lack of competition allowed the big name games to stay profitable longer.

Also, you do have the buy/sell/trade market now, so a lot of gamers never buy the game new and thus never comtribute to profit...Add in the % of pirate gamers and you have 2 more things against new software today

[Nature Boy]

Here's my take: The word profit means something different if you're talking accounting profit versus economics profit. Not to poo-pooh the findings, but for something to be considered profitable from an economic standpoint they look at the opportunity cost.

4% of games could be considered profitable from an economic point of view, and yet 50% could be profitable from an accounting point of view (which looks simply at revenue and costs).

Again, I don't know if they're trying to mislead us in any way/shape/or form, but I do wonder if they're factoring things like lost revenue due to re-sale games or something similar into the equation. "4% make a profit" is just too 'gimicky newspaper' headline.

[mailman187666]

Information like this makes me think that another crash in the videogames industry could be on the horizon, possibly after this generation of consoles. With the low percentage of profit and all the mergers of companies, it makes me wonder, thats for sure. If game companies can no longer make profit off of thier games, they'll either have to make major changes to the industry itself. There has been speculation that all games may be downloadable only in years to come, and this may be closer to reality because the companies won't have unsold stock on the store shelves, they won't have to pay for production of booklets, manuals ect. I'll tell you though, I'll take downloadable games over a decrease in production values any day.

[Porksta]

It has been fixed. The number is actually 20%. Only 4% of games that begin production make a profit, while 20% of finished games do.

[SegaAges]

Don't forget about the Sega Sammy merge

[Nature Boy]

It has been fixed. The number is actually 20%. Only 4% of games that begin production make a profit, while 20% of finished games do.

That definitely makes a lot more sense. I was way off getting all semantical with it, but you just had to know 4% couldn't be a real number.