Self destructive graphics arms race is wiping out game devs.

[SonytendoAmiibo]

VAMatt said:

SonytendoAmiibo said:
The thing that blows my mind is that 91 billion dollars was made in 2016, yet all these devs are going under. Where is all that money going?

The $91 billion number refers to gross sales.  Only a tiny fraction of that is profit.  Theoretically, the industry could experience sales of $500 billion, but make zero money.  

In reality, some of the big guys are profitable.  So, of that $91 billion, there was probably a few billion in profit "made" by developers and publishers. 

Lets think about something here.  If a game costs $100MM to develop, publish, distribute, and promote, that means the publisher needs to get $100MM back just to break even.  There's also the retailer that has to get paid.  So, Gamestop isn't paying $60 for games that they sell at $60.  Typically, retailers are paying about 50% of the selling price to acquire the goods that they sell.  In gaming, I imagine the retailers pay a bit more than that though.  So, lets say they pay 66% of the retail price to the publisher.  So, on a $60 game the publisher sees $40.  Just to break even, on a game with a total budget of $100mm, they must sell 2.5 million copies *at full retail* just to break even.  

Of course, many sales do not take place at that full retail price, once the game is 3-6 weeks old.  So, the real break even is probably more like 3-3.5 million units sold just to break even.  Then there's the fact that companies don't exist to break even.  They have to make a decent profit, in order to justify their existence and raise money for the next project.  That sounds like 4 million units of our theoretical game sold, just to turn a profit of a few million dollars on that $100MM investment.  

These big numbers are the reason that we see annual iterations on some franchises, and the disappearance of so many studios.  New IP is risky.  Bigtime.  

 

And it takes a fraction of that $100 million to make a mobile game for an installed base of a billion smart phones. $1 dollar from each of those billion smart phones is $1 billion dollars. Less risk and money from investors with a far greater profit margin making games for mobile devices.