Wednesday, November 18, 2009

Digital Distribution

Why do digitally distributed items cost the same as their hard copy counterparts? Anyone who knows a bit about basic economics knows what I’m saying, but for those not in the know it goes like this.

Let’s say Game Guy Games releases Blood Shooter for a retail price of $50. When you buy a copy at the store the cost breakdown goes something like this.

$10: Developer profit

$10: Cost of printing the game (Data, CD, Case, labor, ink paper etc.)

$1: Cost of shipping

This means that the wholesaler/distributor is buying them for $21 a piece (maybe).

$13: Distributor mark-up/profit

$1: Cost of distribution

Now we arrive at the retailer who is purchasing them for $35 per unit

$20: Retailer Markup.

Keep in mind these aren’t hard numbers but its here to give you an idea of how much this process costs and where the money is going. But with digital distribution the cost breakdown works one of two ways. Either 1) The game is purchased through a second party (D2D, Steam, etc.) or 2) The game is purchased through the developer’s own servers and website ( for our example). And the cost breakdown for a $50 game looks like this.

Method 1

$25: Developer Profit

$25: Second party server maintenance costs & Profit

Method 2

$50: Developer Server maintenance costs & Profit

Again, keep in mind I don’t know how much costs what, but I can guaran-god damn-tee you that the profit margins are almost criminal because you don’t have to pay a distributor, you don’t have to print a copy of the game, you don’t have you ship shit, AND you don’t have retailer markup (unless we’re discussing method 1). So why in the blue hell does a $50 game cost the EXACT SAME if I download the bastard? It just doesn’t make any sense. I know for a fact that you can cut the retailer markup off the cost without hurting the profit margins, and entice me to buy through digital distribution (also I heard that general retail markup is something like 40% so you’re looking at about 10% - 15% price cut, if not more.).

Will I still buy games? Yes. I just try to avoid buying through digital distribution unless the savings are considerable.

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