Squilliam said:
Fine if you don't like my quick and dirty analysis how bout a more thourough database.
302 games in the database The number of games in the American database to prevent repeats. ( Conservative assumption because the games not included would have sold poorly anyway, the bias from this assumption further supports my point.)
142,000,000 games sold.
60 games comprise the top 20% (rounding down)
42 million sellers + 18 non million sellers. (94.6+14.8 = 109.4 million games sold comprise the top 20%)
The top 20% of games have therefore sold 77% of the total.
Therefore my assertion that 20% of games make 80% of revenue holds true.
Furthermore it is also well known that the top selling games hold their prices higher for longer and that most games sell in the first few weeks after the release (front loaded) These two factors further support my statement that 20% of games make 80% of the revenue.
Now consider that software development is a fixed cost once the game is released to the public with very little in terms of variable costs. So you see my assertion that 80% of profit goes to 20% of games is probably wrong, its closer to 90% actually. Since only about a 3rd of games actually break even.
This is typical of creative industries. Bookes/Movies/Games/Music all share the model where the lions share of actual profits go to very few endeavers. This would be an atypical model for other industries. This is not to say that profit cannot be found in smaller niches, what im saying is that most of the "total" profit goes to very few works.
The same would hold true of the software market on the Wii or PS3 or DS or PSP.
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Hmm, we're getting closer, but we're not quite there yet. Assuming your figures are correct (and note that we're getting different figures, as I count 45 million sellers, not 42) the raw numbers do lean towards a split of revenue being as you say. Note though that I'm still not completely convinced: massive numbers of sales occur after a game achieves Greatest Hits/Player's Choice/Platinum Games status, wherein the revenue brought in plummets dramatically.
What dissatisfies me is that this still does not tell us about profits. I apologize for sounding like a broken record here, but I don't think you've directly addressed my concern just yet. For starters, I strongly disagree with your assertion that a game's costs are done when it's released.
You're forgetting the cost of advertisement, a cost which can absolutely massive when one includes television and print ads (as the best-sellers almost always do). You've seen the commercials, I assume, and the billboard ads for games like GTA, Wii Fit, etc. Indeed, we know that a game's advertisement costs are a hidden cost that can eat into the game's ultimate profitability.
http://www.gamasutra.com/php-bin/news_index.php?story=18699
"The margins on these games are good when you look at development, but it takes a lot of marketing dollars," said (North American president of Ubisoft Laurent) Detoc. "It's like packaged goods. You have to think about marketing, retail space, branding."
I also don't quite follow you on your logic leap between these revenue figures being 80%, with profits therefore being 90%. In fact, we differ on that count by quite a bit. You're forgetting that a game's profits don't depend on its revenue, they depend on the revenue and the total costs. To give an example, we know that despite selling over a million copies, Heavenly Sword was still not profitable. By contrast, Zak and Wiki selling 400k copies (many of them for $20 or less) is still enough to make Capcom happy. Thus, revenue arguments don't tell us anywhere near enough to gauge profitability.
In fact, it appears that companies that focus on the low-revenue DS games tend to be more profitable in general than those which focus on making HD games (in general), even when the DS games barely crack six figures. Marvelous and Majesco are the prime examples of the latter, while Sega is a great example of the former.
I guess what I'm ultimately getting at is that these generalities, while simple to calculate, don't give us the angle we need to actually understand what in the blazes is going on. I won't call it "down and dirty", but it's still not enough for me. (I know, I'm kind of a jackass, huh?) While far from being worthless, the numbers you've brought are not yet a convincing enough counterpoint to Malstrom's assertion that rising HD costs are killing off gaming companies, not when there are so many signs that the times are a'changing.
