I can tell you a little about the retail end of it since I use to sell games with my vendors.
If you are a small outfit, you need to get your games through a distributor. The distributor will give you some deals on occasion and will reduce the price somewhat based on volume moved. But generally, I was buying games for about $42 each (Which were $50-$55 in store around here.)
Hardware is much worse. You don’t make anything on new hardware, the markup is less than $10 for a $200 console. And typically the distributors demand that you order 3 titles per hardware unit upon release. Since launch titles generally suck for every console, you get screwed with a bunch of games nobody wants to buy.
If you work for a large company, they probably handle their own distribution, so they probably gain a few additional dollars per title and console. But in those cases, they negotiate everything. It’s probably something like, “We’ll give you 500 units of Halo 2 at launch, but you have to accept 2,000 units of our general title library for sale as well.”
PC software is also completely different. The prices are wild and there are some distribution companies that do a lot of switcheroo stuff to the prices. For instance, stuff that’s supposed to go to Europe will be much cheaper than domestic software from the distributor. I was often able to get some really amazing deals at around $20 per game for $50 titles. The problem is that they don’t happen reliably enough to build an entire business off of. More times than not, the mark-up on domestic PC games is in-line with console titles. They don’t hold their value nearly as long however.
So with the games once you take shipment into your store are you stuck with them, no sending them back to the distributor like you can do with some magazines and books?
If that’s the case it sounds like games that have been out for a year or so selling for $20 are being sold by the store at or below cost just to get them off the inventory list.
Also can anyone speak for a general split between game developer and publisher? I’m sure since a lot of publishers are publicly traded companies there should be some information on this. Can anyone point me in the right direction or speak from experience about past contracts that have been negotiated?
Right, there are no refunds to a distributor, as far as I know. If the game is damaged, or missing (We had a couple cases where some games were missing a bonus disc that was supposed to be included) they will exchange them.
It works both ways though. If the distributor over-orders too many titles, they can cut deals and sales. Unfortunately, these are almost always crap nobody wants. Like trying to sell off their sports titles from the Sega Genesis.
This is why used titles are so much more lucrative for game shops. They can buy your $50 game for $10, sell it for $45 and if the game drops in price to $20, they can still clear a profit.
In addition, some distributors won’t carry products you may want. I had one distributor who refused to carry the Neo Geo Pocket Color, as they were going with a wait and see approach. So I had to order from another distributor, but they were out of town so I got stuck with shipping charges which cut into my profit.
So it sounds like it works the same way for developers as for new writers. There’s an advance and a deadline, if the game sells enough that your royalties are bigger than you got on your advance you get more money. If you don’t sell enough copies to cover your royalties people quit publishing you. Is this right?