The Game Industry - Breaking Down the Console Business Numbers

For game development execs at E3, I'll expose Kinect's business problems with easy-to-grasp bullet points, pictures and expletives.

Okay, I admit I have already offered a few choice comments about how Natal, er, excuse me, Microsoft's Kinect is an admission the video game industry's console business is effing broke. But it's such a good topic, I cannot resist flogging the dead, I mean, thoughtfully exploring the topic in careful non-incendiary terms.

Video Game Console Installed Base
Let's talk about the number of seething fanboys and girls out there who we can potentially separate from the bucks in their sweaty little hands:
  • Wii: 71 million
  • PS3: 35 million
  • Xbox360: 40 million

The venerable PS2 had sold about 100 million units by about this point in its life-cycle. Even the whippersnapper upstart the original Xbox managed 24 million units before Microsoft killed it.

To summarize how well this generation of video game console has done compared the previous:

Video Game Console Year-to-Year Sales
  • Wii: down 72% from previous year
  • Xbox: down 70% from previous year
  • PS3: down 67% from previous year

To describe the current state of video game console hardware sales:

Video Game Console Development Costs
Let's look at a break down the cost of a typical console title:
  • $60 retail price
  • $15 goes to the retailer. Surly teenager clerks at Gamestop don't come for free.
  • $7 or so goes to returns, price protection and other business stuff nobody wants to think about. 
  • $3 to $4 goes to cost of goods - the expense to press disks, print manuals, etc.
  • $7 to $10 is extortion, er, license fee to the platform holder
This leaves us about $25 per title going to the Publisher and the Game Developer. If you assume a budget of, say, $20M to develop and then another $5 million minimum in marketing (which means your marketing effort is one step above updating your Facebook status) - you'll need to move a million units just to cover the money you already spent and keep the lights on.

From here, the money is split between the Publisher and the Game Developer. Here's what that process looks:

Modern Warfare 2 cost about $50M to develop and $200M to market. Red Dead Redemption cost $70M and easily spent $100M in marketing.

The average video game sells about 500,000 units.

The way things are going, Nintendo's Reggie Fils-Aime thinks it's going to cost $60M to develop an average next generation title. Sure, he can be a jackass but he does run a way bigger company than you do, so he might know something. With titles that are that big a bet, I can't imagine spending less than $10M in marketing (probably more). In that case, every game would probably need to sell 3 million units just to cover costs.

Let's summarize what it's like as an independent video game developer:

Extending the Life of a Video Game Console
This E3 is all about adding gimicky junk, er, I mean motion control to the existing generation of console in an attempt to resuscitate the flatlining patient.
  • Move: $100 for the bundle, or 28.5% of the price of a PS3. 
  • Kinect: $150, 50% of the price of an Xbox360.
So to develop a title Kinect or Move means your install base - in other words, your potential customer pool - will be considerably smaller than the total number of Xbox or Playstation owners.

To summarize the business wisdom of an independent developing a title for Kinect or Move:

But, hey, don't fret. Social gaming will save us with a never-ending happy train of viral growth and casual gamers.

Look at Farmville, it has 85 million players!

I mean, uh, 80 million.

Err, okay, that's 70 million.

Ummm, 64 million...?

- Sean Dugan is The Boss Monster’s founding editor and all-too-frequent contributor.

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Images by Foxgrrl, Mill Zero, Brent Weichsel, Duo de Hale, Canis Wolfie, Cobalt123


  1. Great images! They're so evocative of modern game development I can practically smell the cubicles.
    Yeah, my reaction to reading the E3 coverage about all the console gimmicks (motion sensing! 3D!!) was, "they sure seem desperate," and my first reaction to the various motion sensing inputs was, "who the hell is actually going to develop a game that uses any of this?" I mean, good gods, do they really expect developers to actually develop games that use all the various features of the new peripherals? Not only is no one thinking about how to design games with those input methods in mind (looking at Microsoft's first video "simulating" Natal games, it was clear even they didn't have much of an idea what to do with it), but it absolutely guarantees that your game can't be ported to any other platform. Are they naive or just cynical, trotting out peripherals they know won't be significantly developed for, just to get some more press for their consoles?

    I hadn't realized the console sales numbers for this generation were so much worse than last, which raises the question for me: what the f*ck happened? I can understand the last year-and-a-half having slow sales, but that doesn't explain the disparity. Coupled with the fact that PC (boxed) sales have been in free-fall since the first Xbox was introduced, this is pretty dire news. Have so many players abandoned consoles? Are that many people still playing their PS2s and Xboxes? Are people playing games on phones and through web-browsers, instead? There may have been some sort of demographic shift, but was it age, income or something else? Did WoW (and all the second and third-tier MMOs) kill the game industry with its large audience of traditional gamers who now don't have time to play anything else?

    Perhaps it's time to end the "console wars," I mean we've got three different consoles with different architecture and capabilities. No one can really afford to develop exclusively on one platform, and the differences in architecture between the Xbox and PS become more of an expensive obstacle in cross-console development than anything else. Wii aside, you end up with more or less the same games, of more or less the same quality, on different consoles - what's the point in even having the non-choice of multiple consoles? Perhaps it's time for an open standard for consoles; the differences between them would become more obvious and development would be much easier.

    It's not really a surprise that Farmville and some of the other Facebook games are hemorrhaging players now that they've gotten rid of some their spam-ier recruiting mechanisms. They've been great at recruiting people but lousy at retention - there just isn't enough there to keep people involved in the very long term. That doesn't stop them from making tons of money while people are there, though... Not that that is great news; social/casual "Flash" and cellphone games don't support the same sort of industry that larger projects do. I feel like the best we can hope for out of those "casual" markets is that they'll recapitulate the history of the old game industry, as cellphones and browsers develop to allow for more complex games. That's obviously a step backwards for the industry as a whole, however...

  2. Hey Bob - if you're interested, drop me an email. I'd like to ask you a couple questions offline about what kind of game dev stuff is interesting to you.


    - Sean