Let's continue our discussion of the business of games with a focus on where games are sold. Games are typically sold at retail, via resale and rental, in the arcade, and via digital distribution, let's start with retail. Retail, or at brick and mortar stores, once was the primary sales channel for games. And it still represents a significant portion of AAA game sales. Getting a game on the store shelf is often viewed as a major accomplishment in the game industry. Store shelf space is viewed as valuable real estate. Publishers often pay upfront for premium store shelf space and in-store displays to promote games. The shelf life of a game is as little as two weeks to prove a game's worthiness. If a game does not meet rigid sales targets, then publishers feel immediate pressure for markdowns and returns. Therefore, publishers must generate maximum demand for a product prior to ship. This means there is often a carefully coordinated rollout schedule for a game, with things like manufacturing and marketing planned out long before a game is actually done. This careful coordination has led the retail market for games to be very high pressure for both the publishers and the developers. This diagram from Ernest Adam's Game Career Guide shows the flow of money at retail. If, for example, a customer pays $50 for a console game at a retail store, the retailer and distributor gets about $16 of the total sale. That means $34 flows back from the sale. About $3 goes to the cost of manufacturing the media. $7 goes to the platform-holder, like Nintendo, Microsoft, or Sony. $10 goes to the publisher, $6 goes towards advertising the game, and $8 goes back to the developer. The actual numbers may vary depending on negotiations. But this gives you an idea of how the money is broken up across the distribution channel. Small publishers often are not able to get their games into brick and mortar stores. They have fewer titles per year, they have a much smaller marketing budget, and retailers often deem them too risky. That is, they worry that if a game does not sell well, they have no chance to get their money back on future game sales from that publisher. Therefore, small publishers usually cannot get into brick and mortar. It is just the big name publishers that have the volume and capacity to do this. Of course, there's also online retail stores that do not have the restrictions of brick and mortar. So box product games from smaller publishers are able to be sold at retail via places like Amazon. Another sales channel is, of course, resale of used games. Unfortunately, secondhand resale of used games is a big business that does not typically directly bring money back to the publishers and developers. That is why they typically try to prevent it. Another smaller sales channel for games is rentals, companyies like Redbox. The publisher sells a rental version of the game, which is the same as the retail version, but more expensive, since it'll be used for rentals by many potential players. But once purchased, the rental outlet typically makes all the money on the actual rentals. Another sales channel for games still exists today through arcades, amusement parks, and the like. This is definitely not a big piece of the game sales pie today, but it still exists. And there have been some breakout indie successes here, like Fruit Ninja, Crossy Road, and Killer Queen. But let's move on to the elephant in the room. As we discussed earlier in this lecture, digital distribution has risen to become the dominant sales channel for games. Over 80% of game sales now come from digital distribution. These channels include the Apple App Store and Google Play for mobile games, the console platform stores, and the PC platform stores, dominated by Steam, for PC game sales. Less popular today since the death of Flash, but still existing, is web-based distribution of games through websites such as Kongregate and Gamejolt. This may return in popularity as WebGL and/or other web browser technologies come on the scene and increase in capabilities. Okay, to continue our activity, take a few minutes to think through the different sales channels. Which channels make the most sense for your game? And are there other possibilities that I did not discuss? [MUSIC]
