In this business there are three key players: developer, publisher and distributor.
Developer writes code, etc: ID software in Doom's case. They take risk, with advances against royalties from their publisher. New, unknowns get a 15-25% royalty and advances against hitting milestones totalling about 600K-1,500K for each title. Basiclly, they get paid to develop, and if major hit, backside bonus, once advances are paid off.
Publisher is the guy who fronts the advances and executes all advertising and marketing plans. He has his advances on the line and stands to win big on hits. This is GTIS in Doom, Quake, etc. Now, in ID's case because of their success with Doom they are getting about 2 million up front against bigger royalties, probably 35-40%.
Publisher sells to retailer, in some cases via distributor, who sells it to the consumer.
The distributor is simply a reseller of published product, GTIS is much more than that. Distributors get 5-9% better margin than retailer.
Numbers look like this typically:
Retail Price to Consumer $50.00
Retailer paid 32.00 retailer makes 36%-40%
Publisher Cost of Goods 4.00 2.5 times that for Sony or Sega
Publisher pays developer 20% of net selling price, $32.00 or
6.40 in our case.
Conclusion:
Publisher, like GTIS is making about $21/unit, or 65% margin. Out of this they pay all ad costs, co-op charges, returns etc. In addition it is comon for licensing fees, pd by publisher, to be 7-12% of net sales price, the 32.00. Most sport licenses are around 8-9% for NFL, NHL, etc.
So, if GTIS sells 600,000 copies of Quake at 30.00 to retailers for example:
Developer will make 6.3 million, asuming 35% royality
GTIS will make 9.3 million less ad costs.
Retailers will generate (at $49.95 assuming 100% sell through), almost 30 million dollars. Nice huh? But rememebr the Lion King prerecorded video sold 30 million copies at $20.00...SIX HUNDRED MILLION DOLLARS!!!!
HOPE IT HELPS, MY APOLOGIES TO THE OTHERS ON THIS THREAD. Email me if more questions.
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