http://ve3tro.com/2442/gta-dlc-exclusivity-a-lost-and-damned-financial-idea/?
Back in 2007 Microsoft made the seemingly shrewd business maneuver of paying Rockstar a cool 50 million dollars for exclusive downloadable episodic content for Grand Theft Auto 4. The deal stated that Microsoft would pay Rockstar 25 million dollars per DLC episode over the course of two episodes. Microsoft’s hope in this deal was to lure gamers waiting for GTA before buying a next generation console to the Xbox 360 by offering exclusive content. While at the time keeping any content related to GTA , arguably the most controversial and recognizable franchise in all the land, exclusive to the Xbox 360 appeared to be a good idea some simple math and sales figures point to the deal being a failure for Microsoft possibly on two fronts. First, the Lost and Damned itself as a stand alone entity may not be profitable at all. Second, DLC exclusivity and GTA4 did nothing to increase the Xbox 360’s lead over the PS3. Microsoft took a huge gamble on this deal and may have come up snake eyes.
While we do not know exact sales figures because neither Microsoft or Rockstar will confirm anything regarding Lost and Damned other than it taking place in Liberty City, the closest thing we have at this point is industry analyst/pariah Michael Pachter quoted as guestimating sales to be in the ballpark of 1 million copies. This would place generated revenue from Lost and Damned at 20 million. He also goes on to curiously add he expects another 1 million copies of Lost and Damned to be moved before the end of 2009.
Beginning with simple indisputable fact, Microsoft payed Rockstar 25 million dollars for what eventually became The Lost and Damned to be exclusive to the Xbox 360. The Lost and Damned was released at the price point of 1600 MS points or the cash equivalent of $20. Having little to no information on the details of the actual deal itself and the revenue sharing involved if any between Microsoft and Rockstar I’ll consider the simplest and what I feel to be an unlikely scenario first: The 25 million dollar payment was a lump sum to Rockstar and every dollar spent for Lost and Damned is going directly to Microsoft. Under this scenario 1.25 million copies would need to be sold to break even.
If Pachter is accurate, this would place Microsoft at the very least with pure profit generated 5 million in the red already on this deal. And while I am one of the few people who will admit in writing that I do read and take into account what Pachter has to say, I seriously have to disagree with his another million by October prediction. I simply do not see how and where another million copies of Lost and Damned is going to come from especially if Rockstar some time between now and the end of 2009 reveals its plans for the second episode or another fully fledged GTA game. However, selling another 250,000 copies of Lost and Damned seems like a far more attainable number and will likely happen.
Now let’s consider another scenario in line with what is known about other DLC. Let’s say the 25 million payment was only to keep the content exclusive and off the PS3 and the known revenue sharing model between Microsoft and publishers selling content over live falls under the usual 70/30 split in the publisher’s favor. This puts out of 1600 points/20 dollars 6 dollars back in Microsoft’s pocket. To break even under this scenario, 4.17 million copies would need to be sold. Microsoft couldn’t have possibly been silly enough to garner a deal where turning a profit began at sales exceeding 4.17 million copies. Right? Maybe this is where they expected to make up ground on all the additional consoles they were going to sell by having something tied to GTA 4 be exclusive.
Admittedly, I don’t know which if either scenario is correct. The truth is likely somewhere between the two but heavily leaning toward the latter. For Rockstar/2K I suspect they analyzed the development costs and decided a guaranteed 25 million per episode plus the usual market share was enough profit on one console for them to justify such a deal. None of this was a massive gamble on the part of Rockstar. After all, it’s only smart business to strike a deal with the company that has deep pockets and is in the sales lead.
As impressive as 1 million copies of anything sold is, it’s a little less impressive when it’s exclusive and tied to the words Grand Theft Auto. It’s even less impressive when currently according to vgchartz.com, Xbox 360 has 6.98 million copies of GTA 4 sold compared to PS3’s 5.55 million. At the end of the day, there hasn’t been a significant difference between the number of copies sold overall which is astounding considering the difference in current userbase. In North America the 360 enjoys a 2:1 lead over the PS3, and a 1.5 million console advantage in Europe. So the prospect of missing out on episodic DLC at best has proven marginal if not negligible on the market.
However, what is most striking is looking at the hardware sales figures leading up to, during, and after GTA 4. It was basically a dead heat leading into the release in April 2008 and remained so in the months afterward. Over the summer months, the PS3 even pulls closer to the Xbox 360. At the end of the day, it’s safe to conclude based on these numbers that GTA 4 did nothing to increase Microsoft’s console sales. Add that to the almost negligible sales difference and what can from a certain point of view be characterized as lackluster sales of Lost and Damned and Microsoft burned a 50 million dollar hole in their wallet with nothing to show for it.
