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Forums - Sales Discussion - Shouldn't Activision Blizzard be making more money?

Degausser on 15 November 2010
Miguel_Zorro said:
darkknightkryta said:
Miguel_Zorro said:
darkknightkryta said:
Miguel_Zorro said:

Look at the financials of the companies involves in this industry.  95% of the video game creators and producers are either losing money, or just barely making a small profit.  The retailers aren't making money on games, either.  The economics of the video game industry are broken as they currently stand.


Retailers are making money on games... I recon 20 dollars per game.

You recon?  I *know* they're not.

How do you know they're not?  You work as a retail manager? 

My girlfriend works as a category manager for a major electronics retailer.  Before that, she worked for another major electronics retailer.  She states that they make no more than five dollars per game.  In many cases, when they discount/have sales, they sell below cost.  It's a loss leader to drive traffic for other higher margin items.  If she had her way, they wouldn't bother with the category, but the people at the VP level want to continue to play in that space.

I'm worked extensively in analytics for two major diversified retailers, and I've seent he same results.  The profit margin on games is slim to none.


Gamespot were posting record profits last year and are still performing extremely strong into this year, albeit down from last year.

 Game profit margins are very low (With the 'general' figure being a $60 RRP game being sold wholesale for $48), which of course doesn't include costs on top of staffing, tax, store rent etc. So what you're saying is correct, however...

 You're forgetting that the video game retailers make pretty much all their profit on used games, where the margins are much higher. The model of first hand sales doesn't 'work' on it's own, but with used game sales it's a thriving retail space. Electronic retailers (Such as the one i assume your girlfriend works at) do indeed use games to drive traffic for other products, however many general electronic retailers have now entered the used-game market in the UK (HMV, ASDA, Tesco etc) I'm sure the same can be said of the USA. 

 So no, the retail model isn't broken, it's just different to that of movies, music and whatever else. 

 Also, with regards to Activisions profits, they're one company who don't like keeping things as simple as 'money in minus money out' and they do alot of crazy business things in their fiscal reports I don't totally understand such as buying back shares, diverting revenue and whatever else. Ali touched on that with his post, and I doubt many people on these forums really have the economics understanding to get a grasp on it...



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Degausser on 15 November 2010

 Also, random fact as supermarkets came up, they work on an approximately 1% profit margin overall.

Obviously 1% of a lot of money is still alot of money, but it baffles me how they're making about a penny off of every pound I spend and still the juggernaut companies they are lol,

.



darkknightkryta on 15 November 2010
Degausser said:

 Also, random fact as supermarkets came up, they work on an approximately 1% profit margin overall.

Obviously 1% of a lot of money is still alot of money, but it baffles me how they're making about a penny off of every pound I spend and still the juggernaut companies they are lol,

.

The produce department I work for sells everything we buy at 100% profit...



Degausser on 15 November 2010
darkknightkryta said:
Degausser said:

 Also, random fact as supermarkets came up, they work on an approximately 1% profit margin overall.

Obviously 1% of a lot of money is still alot of money, but it baffles me how they're making about a penny off of every pound I spend and still the juggernaut companies they are lol,

.

The produce department I work for sells everything we buy at 100% profit...


 Well major supermarkets in the UK are 1% profit margin roughly, obviously not every product is a 1% profit margin with some lossing money ('loss leaders') and some being really high margins.

A quick bit of research shows that the 1% example i read was a one off case, and supermarkets are typically running off a more modest 3%-5% overall profit margin, still amazingly small.

 Was just a random fact anyway.



Danybrown on 15 November 2010

hasn't it occured to anyone that their quarterly numbers are what the accountants want them to be??? think about it less profits mean less taxes, less dividends to pay out less bonuses and so on and so forth it happens all the time in the movie business,why not with videogames?



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spaceguy on 15 November 2010
Miguel_Zorro said:
darkknightkryta said:
Miguel_Zorro said:
darkknightkryta said:
Miguel_Zorro said:

Look at the financials of the companies involves in this industry.  95% of the video game creators and producers are either losing money, or just barely making a small profit.  The retailers aren't making money on games, either.  The economics of the video game industry are broken as they currently stand.


Retailers are making money on games... I recon 20 dollars per game.

You recon?  I *know* they're not.

How do you know they're not?  You work as a retail manager?

My girlfriend works as a category manager for a major electronics retailer.  Before that, she worked for another major electronics retailer.  She states that they make no more than five dollars per game.  In many cases, when they discount/have sales, they sell below cost.  It's a loss leader to drive traffic for other higher margin items.  If she had her way, they wouldn't bother with the category, but the people at the VP level want to continue to play in that space.

I'm worked extensively in analytics for two major diversified retailers, and I've seent he same results.  The profit margin on games is slim to none.

Yea my brothers girlfriend has a  sister  and her boyfriend works at some hugh electronics retailer and they lose 50 dollars off of one game.

blah blah blah.



spaceguy on 15 November 2010
Miguel_Zorro said:
thranx said:
 

i never once said they make a killing. I said they make money. you said they make no profit or lose money. I do not see that happening as i do not see gamers buying enough other items to offset that, it would be a bad loss leader item. Unless you disagree with that. When you go buy games what else do you buy with them?

I agree that it's a bad loss leader (in this case, it's more like a "break even" leader).  My girlfriend is not a fan of the category for their business.  We talk about this often.  She states that in her business, the highest margin is on a few categories, such as consumables (blank DVDs,etc - especially printer toner cartridges).   They also make a few bucks on certain gaming accessories.  They stay in the gaming category because:

- Even though they're not really making money on it, they're not really losing money on it either (unless you account for staff time, and things like that).

- They want to maintain the relationship with companies that are very important to their business - in this case, Sony and Microsoft.

- It's a traffic generator - so even though you or I might not buy other things along with our games, some people do.  Most of their business is online, and it gets people to the website.      While browsing a store or website, people do often buy additional products. They sold Uncharted 2 online for $10 off on release day.  They sold out of their inventory, and even though they lost $5 per unit, they did make enough on additional items purchased to make it up.

I'll note that when I go into Best Buy, HMV, etc to look at games, I do buy other stuff from time to time.  If I buy a DVD, they make a little bit of money on that.

This is why so many companies are getting into used games - the profit margins are so much bigger for the retailer.

What about game stop? oh all used games right, thats why they want you to pre-order and buy new games. They make money off new games or they wouldn't stock them or give deals like 35 on a new game. They make around 20 bucks off  of each one new.

Your full of it, you have no data.  NO link. your buddy's sister dad works for a big store in africa. get off it already.

You just think you know what your talking about but you have no clue.



dunno001 on 16 November 2010
spaceguy said:

What about game stop? oh all used games right, thats why they want you to pre-order and buy new games. They make money off new games or they wouldn't stock them or give deals like 35 on a new game. They make around 20 bucks off  of each one new.

Your full of it, you have no data.  NO link. your buddy's sister dad works for a big store in africa. get off it already.

You just think you know what your talking about but you have no clue.

*sighs* Okay, what is the margin on a new game, then, if you're calling it bull? A store isn't going to divulge their margins on products to Joe Public for obvious reasons. Best Buy is in fact one of the few retailers where the employees can get an idea of what wholesale is, based on their employee discount. What if I told you that 8-pack of Dynex batteries that costs you $6 or so, costs BB 80 cents? A lot of people would be asking why is it so expensive to them, then. (Oh, and yes, that is the wholesale for that item... or it was, a few years ago.) I also saw the average margin on a game: 20%. A $60 game, under normal cases, costs $48. Of course, certain deals may be negotiated to lower this, or some larger titles may ask for a bit more, to max the publisher's profit.

So yes, Gamestop does make money on new games. However, note how they also want you to leave a deposit- pay money before you get the item. They use this $5 per person, and invest it, getting more than $5 worth by the time you get your game! But, unless there was a great deal negotiated, there is not a $20 margin on new games- unless it's MSRP is at least $100.

I can see why more and more companies are looking at getting into the used game market- margins are better. For Gamestop, the worst case margin for them is a new game, that they're still paying $30 for (and this is already a rare price; most new only go to $25), and they gave a 25% bonus as a trade-in toward another preorder. Total cost to GS: $37.50. They turn around and sell this to a member, for the discounted price of $49.50. The margin on this, the worst case scenario to the retailer, is almost 25%, or 5% more than a new game! Best case, they pay someone $30 and get $55, which, well... you can do the math.



-dunno001

-On a quest for the truly perfect game; I don't think it exists...

darkknightkryta on 17 November 2010
dunno001 said:
spaceguy said:

What about game stop? oh all used games right, thats why they want you to pre-order and buy new games. They make money off new games or they wouldn't stock them or give deals like 35 on a new game. They make around 20 bucks off  of each one new.

Your full of it, you have no data.  NO link. your buddy's sister dad works for a big store in africa. get off it already.

You just think you know what your talking about but you have no clue.

*sighs* Okay, what is the margin on a new game, then, if you're calling it bull? A store isn't going to divulge their margins on products to Joe Public for obvious reasons. Best Buy is in fact one of the few retailers where the employees can get an idea of what wholesale is, based on their employee discount. What if I told you that 8-pack of Dynex batteries that costs you $6 or so, costs BB 80 cents? A lot of people would be asking why is it so expensive to them, then. (Oh, and yes, that is the wholesale for that item... or it was, a few years ago.) I also saw the average margin on a game: 20%. A $60 game, under normal cases, costs $48. Of course, certain deals may be negotiated to lower this, or some larger titles may ask for a bit more, to max the publisher's profit.

So yes, Gamestop does make money on new games. However, note how they also want you to leave a deposit- pay money before you get the item. They use this $5 per person, and invest it, getting more than $5 worth by the time you get your game! But, unless there was a great deal negotiated, there is not a $20 margin on new games- unless it's MSRP is at least $100.

I can see why more and more companies are looking at getting into the used game market- margins are better. For Gamestop, the worst case margin for them is a new game, that they're still paying $30 for (and this is already a rare price; most new only go to $25), and they gave a 25% bonus as a trade-in toward another preorder. Total cost to GS: $37.50. They turn around and sell this to a member, for the discounted price of $49.50. The margin on this, the worst case scenario to the retailer, is almost 25%, or 5% more than a new game! Best case, they pay someone $30 and get $55, which, well... you can do the math.

I used to get 15% off working at eb games.  And knowing that company they wouldn't give us 15% off if they didn't get more than that off of games.  The reason why I suggested 20 dollars before was because I've noticed games quickly being cleared out for 39.99 and that seems to be the consistent clear out price.  And even though I work at a completely different retail store currently (I'm a produce clerk), when we reduce product, it's at our cost price so I'm guessing their cost price of 39.99.  20 dollars my estimate though it probably is closer to 10 dollars.



Degausser on 17 November 2010
spaceguy said:
Miguel_Zorro said:
thranx said:
 

i never once said they make a killing. I said they make money. you said they make no profit or lose money. I do not see that happening as i do not see gamers buying enough other items to offset that, it would be a bad loss leader item. Unless you disagree with that. When you go buy games what else do you buy with them?

I agree that it's a bad loss leader (in this case, it's more like a "break even" leader).  My girlfriend is not a fan of the category for their business.  We talk about this often.  She states that in her business, the highest margin is on a few categories, such as consumables (blank DVDs,etc - especially printer toner cartridges).   They also make a few bucks on certain gaming accessories.  They stay in the gaming category because:

- Even though they're not really making money on it, they're not really losing money on it either (unless you account for staff time, and things like that).

- They want to maintain the relationship with companies that are very important to their business - in this case, Sony and Microsoft.

- It's a traffic generator - so even though you or I might not buy other things along with our games, some people do.  Most of their business is online, and it gets people to the website.      While browsing a store or website, people do often buy additional products. They sold Uncharted 2 online for $10 off on release day.  They sold out of their inventory, and even though they lost $5 per unit, they did make enough on additional items purchased to make it up.

I'll note that when I go into Best Buy, HMV, etc to look at games, I do buy other stuff from time to time.  If I buy a DVD, they make a little bit of money on that.

This is why so many companies are getting into used games - the profit margins are so much bigger for the retailer.

What about game stop? oh all used games right, thats why they want you to pre-order and buy new games. They make money off new games or they wouldn't stock them or give deals like 35 on a new game. They make around 20 bucks off  of each one new.

Your full of it, you have no data.  NO link. your buddy's sister dad works for a big store in africa. get off it already.

You just think you know what your talking about but you have no clue.

 Actually most of what he says is correct, a $60 RRP game is bought for $48 a copy. Margins are relatively small in the games retail market and Gamespot probably don't make a great deal of money off of first hand sales once you account for all their costs.

 Obviously there would be no used market if there were no first hand games sold in the first place - so that right there is why they push new games so much, and also why so often new games are offered at a discount if you trade in a game that came out a month before. 

 Without the used market the retailers would take a much bigger cut then $12... and thats why when publishers complain about the used game market 'stealing their sales' they fail to neglect the fact they have the most luxury retail margin in retail...