Video Game Production Costs
The amount of people and resources required to produce a video game has exploded over the past 20 years. Back in the golden age, you could create a video game with a couple people, as programming required nothing more than simple vector graphics and a few sound-effects. Those days are long gone. Now your average video game is produced by hundreds of people, from voice-over actors to texture artists, researchers, physics programming, musical composition, etc. In many ways, the video game industry mirrors the movie business and we're now at a point when spending $20-million to create a game is commonplace.
Let's take a look at an average $60 next-gen video game and see where the money goes, according to a recent Forbes analysis.
Everything from motion-capture to painting textures on walls requires the labor of an artist. Considering the amount of art required for a next-gen game, it's no wonder this aspect of game design accounts for 1/4th of the production cost.
Programming artificial intelligence, developing multiplayer infrastructure and even translating a game between regions all add up. Some of this cost can be reduced by developers purchasing an engine license like Epic's Unreal, which automates some aspects of creating a game, but players rarely, if ever, see any savings passed onto their wallet.
Retailers need to make a little money or they have no reason to sell a product. An average next-gen game wholesales for approximately $48, offering stores like Gamestop a $12 markup, of which only $1 may find its way to the retailer's bottom line.
Console Manufacturer Fee: 11.5%
Microsoft, Sony and Nintendo don't just sit back and make money off of every machine they sell. On the contrary, each of these console manufacturers receives a fee from every game publisher for each game you purchase.
If a company wants their video game to sell then they need to spread the word to consumers. Running full-page magazine ads, television commercials and banner ads is not a cheap endeavor.
Market Development Fund: 5%
You know those advertising circulars you see in the morning newspaper from a game retailer that spotlights a new release? A game publisher usually pays a small fee to attain that kind of placement. Even positioning your game in a lucrative store aisle or near the cash register can cost the publisher a small fee.
Manufacturing Costs: 5%
Everything from the printed manual, the DVD (or Blu-Ray), game box and special edition goodies cost money for the manufacturer.
If a game is based on an existing property, like a movie, comic book or even the NFL, then a licensing fee must be paid.
Publisher Profit: 1.5%
After all is said and done, a publisher can only expect a paltry 1.5% return on their investment.
A product has to get onto a store shelf somehow, and this is usually done by a distributor, which typically receives a 1% cut.