Theres a reason why most software development is funded by publishers who take on the majority of risk. Individual development houses are few and far between because the losses of 3 games can be offset by the profits of 1. A large loss can cripple a small development house whilst a larger publisher can have multiple projects going at once and only one has to sell big to make a profit for the whole. Niche players can still be profitable, however since the large publishing houses produce and sell the majority of games and the data is more freely available I used them. Most "blockbuster" movies are made by the few larger studios such as MGM, Sony, Paramount, Universal etc and the same applies to games.

As I said, quick and dirty analysis. I didn't want to include PS3 games all I did was take the million sellers list, compare it to the number of reviewed Xbox 360 games and then I did simple division and multiplication. Still noone has disproved my point that 80% of revenue comes from 20% of games. If 68% of revenue is made by 9.5% of games its not hard to follow that aproximately a further 12% of revenue be made by the next 10.5% of games now?

Lastly profit is a function of revenue minus cost. It generally follows that a lot of profit goes hand in hand with a lot of revenue especially considering most games do not cost more than $20 million to develop.

DMJ,

this article is not about "rubbing in" Wii's success. It's about things going on right now, in 2008. It's about how the old market is reacting to being disrupted, right now, in 2008, by distorting their view of the market, and creating this magical, undefinable "casual gamer" demographic. (Not in 2006, but in 2008.)

Squill,

Even if your 80/20 "rule" has merit, there's a key difference. In the old market, the profit, revenue and production costs were fairly aligned, and profit margin reletively even across the board. GTAIV is one of the most expensive, but also highest selling and most profitable. Basically, those who spend the most money get the most differentiation, and sell the most.

But right now, some of the games with the lowest production cost are among the highest selling and most profitable, and blowing historical profit margins away, with Brain Age being example #1. This is because there has been a shift towards underserved customers and new values, motivations and processes. Nintendo is spending less money to get the most differentiation.

Maybe both are 80/20, but obviously there are two different business models, and obviously one is better.

(Of course the new market will eventually become oversaturated. At first, GH and GHII probably had some of the highest profit margins in gaming. But now with more peripherals with more and more inputs (slide neck, bottom buttons, motion control, etc.), and with more and more liscensing fees for not just more and more songs, but celebrity bosses and instruments, guitar games' profit margins will quickly erode.)

Why everyone is ignoring my posts. I think I made some valid points. There is no 80/20 rule. Damn.

That's funny. I coulda swore I heard...ah nevermind.

So, let's talk more about this alleged 80/20 rule, eh?

There is a variant of that silly "rule" that goes on, ItsaMii. A product which pioneers a particular set of values will stand above those that imitate it, and this dominance usually continues for at least 10 years. The split there actually usually is 80/20 or close to it at first, eventually evening out around the 10- or 15-year mark at 50/50, then going into decline. This applies to all products, not just games. 10 to 15 years is roughly how long brand loyalty can be counted on for disruptive and blue ocean products.

Could you please explain why Take 2 profits were aroun 90 million on the quarter that GTA 4 sold 12 million to retail?

I wasn't assuming that every publisher got every dollar at retail. I was trying to prove that a vast majority of revenue is made by the top 20% of games. The margin of uncertainty supports my point because most games sell the majority at full retail and the best selling games maintain their prices/margins for longer than the games which are quickly discounted and withdrawn from market.

As games are essentially a fixed cost once developed, therefore its quite a safe assumption to believe that the higest selling games are vastly more profitable, or that the games that sell the least lose the greatest amount of money.

You missed the point I was trying to make with the widgets. Its not about competition its the fact that a company can lose money on other endeavers but still come out ahead overall. A profitable company is a prosperous one.

The nice thing about sub-markets is that you can find all sorts of blue oceans within the limits of the demographics your relied-upon product appeals to. If you're really good, you can even extend what demographic the required product appeals to.

Over 20 years ago, a little collaboration between three renowned Japanese artists (one musical, one graphical, one programming) resulted in the invention of the simplified RPG genre (also called JRPG), and Dragon Quest became a blue ocean product that captured the attention of the Famicom's userbase. Not long after, a company made a similar game to Dragon Quest that tried making things more complicated but still accessible. And in the west, their would-be final product led them to become the international name in simplified RPGs, with the Final Fantasy brand name.

Also around that time, a clever software engineer called Will Wright was toying around the idea of with what he called "software toys": not really games by the standards of the time, but definitely still fun to play. He came up with an idea for a "software toy" that let you build and manage a city without much effort, and both SimCity and the no-goals simulation genre were born.

Less than a decade ago, a little game company came along and decided they were going to make online gaming accessible to the masses. They took the idea of the simple puzzle game, figured out how to streamline it so it could be played quickly and easily by anybody, and then released it online. The resulting game, Bejeweled, took over the online gaming scene like no other game had before and propelled its maker, PopCap Games, into fame and infamy.

You see, the true secret of the split in market success has absolutely nothing to do with some overarching 80/20 split, or any sort of constant pattern. The market divides and grows according to single events, which trigger many other events. Every shift has an origin point. Some look only at the shifts to try and solve them. I look at the origin points to find the reason for the shifts.

Take 2 loses a lot of money of other ventures? I dunno.

I getcha, but my point in return (which I admit I came to in a roundabout fashion) is that knowing the revenue divide doesn't tell us much that's useful. A company can bring in record revenue and still close down due to a lack of profit: sadly, something like that is happening to the gaming industry, which is seeing more and more developers get shuttered at the very same time that revenue is reaching record highs. Hell, EA achieved 25% higher revenue than it expected last year, yet still posted a loss for the fiscal quarter. If things are so bad that a billion and change ain't enough to guarantee profits...

But we begin to go off-topic. The origin of this sidebar was that we are experiencing more mergers and closures due to rising HD costs. The data I've seen supports this. True, a handful of developers are leaning the other way, but they are hardly representative of the majority.

To use a real world analogy, Walmart here in America made record profits last quarter. Am I then to assume that the American economy is doing hunky-dory, or shall I examine the field as a whole before passing judgment? And if Malstrom is right on this point (as I firmly believe he is), then one of the legs you're standing on to criticize Malstrom fades away. Now, don't take this as a personal attack; it's not meant as such. Nor should you take this as a message that Malstrom is infallible; it follows naturally that he is fallible. But the avenues you've chosen are fairly weak, all things considered.