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bugrimmar on 26 October 2008
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SlorgNet said:
bugrimmar said:

Alright, I'm obviously too idiotic to understand these things (i'm a philosophy major who can't use math for anything). Can anyone help me answer these questions:

 

1.) how does a strong currency make a local company lower their profits? i.e., sony lowering profits because of the yen being strong.

2.) when i buy a game, where does the $59.99 actually go? i.e., how much goes to the developer, the publisher, the retailer, and who else gets a piece.

3.) how much is the production cost of the consoles today?

 

There's no such thing as a foolish question! Games are a $42 billion annual global industry, and incredibly complicated, so you're not alone in wondering just how the heck the industry works. Here's the deal:

1. Currencies are the price of a nation's money, and they can go up or down, depending on how competitive that country is. If the currency is strong (like Switzerland or Japan), your economy is top-notch, but your costs are also very high. If your currency is weak, your costs are low. So companies try to produce things in countries with cheap currencies (China) and sell to countries with expensive currencies (US). Example: all consoles are manufactured in China, where the currency and wages are cheap.

2. Most analysts say on average 15% of the retail price tag goes to the console manufacturer, 20% to the retailer, and the rest is split between the developer and publisher (usually, the publisher gets more, but you never know - it depends on the contract the developer signed with the publisher). Developers often get a raw deal out of this, especially when dealing with greedy publishers who care only about making a fast buck, which is why digital distribution is a Good Thing - you cut out the retailer, and potentially the publisher, too! But more and more sales are moving to non-retail outlets - online sales at Amazon, things like that. So the retailer share is probably dropping - we don't really know by how much. 

3. All the consoles today are profitable, i.e. their price is higher than their manufacturing cost. The Wii was profitable from the start, the 360 was profitable since 2007, and the PS3 has been profitable since early 2008. Estimates vary, but the hardware folks I've talked with say the Wii probably costs $150 to make, the 360 costs $250, and the PS3 costs $300. Remember, this doesn't include marketing and shipment costs, which is why Sony is still losing small amounts of money on the PS3, while Microsoft is slightly profitable.

thanks that made it clearer :)

so you mean to say that if we buy digitally, we don't pay the retailer, so the developer gets more profit?