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Forums - Sales Discussion - Something I have never quite understood about console sales

Technarchy on 04 January 2018

Hardware sales gives you a clue on software sales.



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VideoGameAccountant on 08 January 2018
RolStoppable said:
Console wars are very similar to sports leagues. People pick a team and root for it, so the hardware becomes more important than the software. What amplifies this is that the majority of top selling software is not exclusive to a single platform, so there aren't many real bragging rights to be had there.

From a business perspective, you are wrong on a few accounts. Continued high hardware sales are a necessity to maintain high software sales, because software sales aren't evergrowing over the years. They tend to peak in year 2-4 just like the yearly hardware sales, afterwards a decline sets in which is why console manufacturers put out new hardware.

Console manufacturers don't get $20 from a third party game, rather it's about half of that. Console manufacturers also can't book everything off a first party game as profit either, because first the game has to pay off its development and marketing costs.

In Sony's and Microsoft's cases the real money comes from subscription fees. Which in turn means that hardware sales are always very important, because the more consoles sold, the more subscribers there can be.

Just a clarification. On the income statement, they do book the profits for those sales as well as the cost. The rule for costing of software for sale is you recognize either the cost as a portion of profits (i.e. cost of goods sold) or you amortize it. Both happen when the game is finished and sold. You are correct that developers/publishers need to recoup their investment, but as far as booking goes, they recognize both as they sell the game. 

As for OP's point, I agree. But as Rol said, it's the team thing. It's also easier to look at hardware sales than software sales since you need to look at specific games and, in general, the internet is bad at judging what titles will sell well and which wont. I personally find software sales interesting but that's because I've mostly tracked Nintendo in this category. As an investor, I'd say its very important. 



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