Found this interesting (publisher revenues and profits)

Company: Revenue; Net Income; % of Sales

EA (ends March 31)

  • FY07: 3.091 billion; 76 million; 2.46%
  • FY06: 2.951 billion; 236 million; 8.0%

Activision (ends March 31)

  • FY07: 1.510 billion; 85.8 million; 5.68%
  • FY06: 1.406 billion; 40.3 million; 2.87%

Take-Two (ends October 31)

  • FY06: 1.038 billion; (184.9) million; n/a
  • FY05: 1.201 billion; 35.3 million); 2.93%

THQ (ends March 31)

  • FY07: 1.026 billion; 68.0 million; 6.63%
  • FY06: 0.806 billion; 32.1 million; 3.98%

Ubisoft (ends March 31)

  • FY07: 0.917 billion; 24.27 million; 2.65%
  • FY06: 0.734 billion; (12.27 million); n/a

Two surprises:

  • Would have never expected that THQ brings in more money than Ubisoft
  • Thought that net income / revenue would be much higher for all publishers

Edit: Added information for Take-Two

Unlike Microsoft, they can’t just keep selling updates to existing software that everyone has to buy… but yeah, for such a risky business even the good years seem pretty bad. Why was EA’s last year so unprofitable?

Would have never expected that THQ brings in more money than Ubisoft

The software aimed at the kids/family market is partially responsible for that. Cars sold like crazy. They also distributed games like that one where you get to play a veterinarian or something, which did really well without ever popping up on the radar of hardcore gamers.


Cars sold like crazy.

Yeah, it really, REALLY did.

According to another source:

"EA have announced the company’s financial results for the last quarter and also the the previous financial year. The bad news is they’re down around US$28 million from the same time last year, a decrease which they’re attributing “to the transition to next generation systems”. The good news though is that their profits are up - this financial year saw a $1.879 billion (yes, with a b) profit - up six percent from last year.

Also especially interesting is that their digital revenue was a record $127 million - up 47 percent from last year."

Console transition years are invenstment years for game publishers. All of those companies spent a lot of money staffing up development teams and in R&D for new engines, pipelines, etc.

Wow. I would never have guessed the margin was so slim in publishing.

Well, like EA’s press release said. The transition to this generation has been painful because everyone is freaking out dumping tons of cash in to establishing next gen tech. Old engines just didn’t cut it.

On top of that, games for this gen are expensive as all hell to create. I expect their earnings next year to be equally slim, as content creation is unlikely to get cheaper.

Historically, are margins that slim? It’s terrifying to me to think that anyone would stick long-term in a business with sub-5% margins. Then again, once you have enough sunk capital…

I’d always assumed publishers were more in the 10% - 12% profit margin area, on average. Of course, I had no reason to assume that. But sub-5%? Wow. That’s harsh.

I hear grocery stores (Safeway, etc) can have 2-5% margins. When you have low margins, it’s about scale. The question would be, if you’re interested in dividend payback from stocks,what % do you own? And, well how often does the company pay out dividends?

Grocery store standard margins are a half a percent. 1% is doing fantastic. But it’s on high volume.

What the hell do you think has been fueling Madden for all these years?

I suspect the highly variable, R&D aspect of publishing cuts a lot into the margins. On good years where you have a surprise hit (like Activision with GH2) it can be a huge difference.

Oh yeah, totally. R&D can be quite expensive and cut into everything frankly.

THQ produces an assload of multi-platform products every year (a lot of franchises and movie licenses) which always makes them some pretty good money for halfway decent titles.

— Alan

EA Sports has to be the gold standard of game publishing. They get to do an update every twelve months with new rosters and new wrinkles and sell it for full price, and market doesn’t care and buys anyway.

No other genre seems to support that kind of publishing, however. Valve looks like they are trying to do something similar, with a new HL2 bundle every year for about $50. That model is still unproven, though.

Sports games are certainly the biggest culprits when it comes to “full-priced annual updates,” but there are other franchises with either annual sequels (e.g., a new Need for Speed every year for the last decade) or minor variant releases (seriously, how many Harvest Moons do we need in a single generation?).

Sports games were the first to recognize this.

In 1994, I was having conversations with sports game developers who were making the point “The product isn’t the individual game, the product is the product line”.

EA is definitely at trough margins:

Fiscal year / net profit margin
(end mar)
2005 16.1%
2004 19.5%
2003 12.8%
2002 5.9%
2001 -0.8%

Numbers per Bloomberg.

That’s referring to gross profit (i.e. revenue - COGS) without taking into account salaries (SG&A), marketing, R&D, and taxes. I’m guessing COGS here refers to the actual costs of the physical media and transportation costs. Pretty amazing that they’re blowing through almost $2 billion on those things though.

Thanks for providing this. It does look like the transition years are horrible. 10-20% is more in line with what I expected.

That’s reassuring. If the margins were constantly around 3%, then I’d worry about the publishers going out of business.