What do retailers pay for games? - AVS Forum
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post #1 of 16 Old 05-10-2012, 12:38 PM - Thread Starter
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This is something I've wondered for a while, and a recent comment in another thread prompted me to ask it here.

How much does a publisher get from a retailer for each copy of a $60 game? What about when those games start selling for $30, or $20? Can they return unsold games?

I know that with books, there are mechanisms in place for bookstores to return unsold copies. There is also a mechanism for bookstores to buy remaindered books for less than the cost of printing; when you see books on the bargain table at a store, those are remainders, and the authors get no royalties from the sales. Does anything similar happen with video games?
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post #2 of 16 Old 05-11-2012, 10:25 AM
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My brother worked for CompUSA several years ago in their retail stores. At that time he was able to get an employee discount which he and his manager believed to be "cost" on games. Most $60 games had a $10 discount, and some of the larger ones (like guitar hero w/ guitar), had like a $15 or $20 discount. On clearance and on sale items they generally received little to no additional discount on this stuff.

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post #3 of 16 Old 05-11-2012, 01:37 PM - Thread Starter
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Hmm, interesting; thanks for the info.

Could that employee price really be what the retailer pays? If so, Target could easily lose money when it offers a 3-for-2 sale; if a customer picks three new titles, s/he'd pay $120 for three games that would have cost Target $150. Even if the customer only picked two new titles, those two would cost Target $100; the third game would have to cost Target less than $20 for them to make any profit.

I had assumed that the margins were higher than that. Not necessarily huge, but more than that. Does anyone else have any info?
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post #4 of 16 Old 05-11-2012, 01:45 PM
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Quote:
Originally Posted by TedSeattle View Post

Hmm, interesting; thanks for the info.

Could that employee price really be what the retailer pays? If so, Target could easily lose money when it offers a 3-for-2 sale; if a customer picks three new titles, s/he'd pay $120 for three games that would have cost Target $150. Even if the customer only picked two new titles, those two would cost Target $100; the third game would have to cost Target less than $20 for them to make any profit.

I had assumed that the margins were higher than that. Not necessarily huge, but more than that. Does anyone else have any info?

I'm curious too.

I've always assumed that the margins were more like the standard retail 100% markup. I mean, for years I've been force fed the notion that "Console Makers/Retailers" don't make anything of console sales, they make it all from the games. The 16.66% markup that 10 bucks off lends doesn't seem right if retailers make zilch off console sales.

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post #5 of 16 Old 05-11-2012, 02:16 PM
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I worked at the late Circuit City for a bit and we too had a employee discount. It wasn't at retail but instead at some percentage off based on what retail was.

So for new $60 games, i could get for $55, yippee. So the $50 retail price sounds right. It highlights the need to turn over inventory of things like gaming as game prices don't stay at $60 for that long.

I remember the consoles themselves, at least at launch, had no markup/discount.
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post #6 of 16 Old 05-11-2012, 02:20 PM
 
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I've also heard they buy in bulk for a $10 discount, but that's new and I'm not sure on old. I'm not aware of any return policy or discount options for unsold merch. As far as I know they buy wholesale, and sell retail. Typically stores like to have a 3 weeks stock for any given title, and they order more when batches get below that to insure they're never short. Obviously the amount per title changes on demand, since some games might sell quickly, while others a slow.

Lots of retailers used to use both games and systems to get you in to buy the extras (magazines, books, toys, 3rd party accessories). Box retail does this all the time with multiple products, inducing games in their electronics area. Gamestop more and more has relied on used game sales for income, which is a good thing for them now, but easily could be a huge issue if things change.
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post #7 of 16 Old 05-11-2012, 09:26 PM
 
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CompUSA is the big example, since they were the last big electronics retailer to offer their employees an "at cost" discount. Computer City and Good Guys also did this, and both in the days before becoming part of CompUSA. The idea was that a person that owns a product is better at selling a product. There was no reason to markup "cost" to the employee.

Here's how it works: Retailers get bent over and screwed hard in the console business, from Sony and Microsoft. Nintendo is actually a pretty good partner. The cost varies depending on platform and publisher, but it breaks down in to a couple categories. The big publishers (EA, Activision, Sony, Microsoft) run a cost of about $52 to the retailer on a $60 game. Ubi, Atari, Square and the like run about $47. $40 retail games are about $34 across the board. Contrary to futurecode's assumption, consoles are a bit different. For example, a launch 360 at a $400 sticker price cost Microsoft like $450 to make. They sold that to the retailer at about $385. The retailer makes a little bit on a guaranteed sale since stock is restricted everywhere, and Microsoft loses a little bit more than everyone assumed. Over time, cost of production on that console drops, it costs say $390 for Microsoft to make, and the retailer cost drops to the $355 range.

No there is no buy-back program like with books. Any stock that a retailer buys is theirs. When a $60 retail game that cost $52 drops to $40 retail, the retailer eats that $12.

For the vast majority of retailers, selling games is a losing proposition. At best they break even, but more than likely they use games as part of their marketing strategy. Every time you see a Sony, EA, MS, etc game in a weekly ad, the publisher paid a part of that ad's cost. Sometimes that dollar value is greater than the video game business is worth to the retailer, and it drives people in to the store to buy other things.

So, why do retailers put up with getting gang-banged by Sony and Microsoft? It's very simple. People want to buy PCs with Windows on them, and TVs with the Sony name across the front. The retailer is very plainly told "You will sell our consoles and related products, otherwise you will not get our other product lines".

Now, I agree that Gamestop is a piece of crap and a cancer on this nation. They absolutely could not survive without the used market though, so at least their "buy used, buy used, BUY USED" strategy makes sense. That's the same reason that it's very difficult to find stock on a newly released game there. It's already disingenuous when an industry professional complains about the used market. It's even more so since the used market is so vibrant as a direct effect of Sony and MS being such bad partners to their retailers. If Gamestop got better margins on their new product, they wouldn't push used product nearly as much.
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post #8 of 16 Old 05-11-2012, 09:34 PM
 
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Oh, Nintendo. A $50 piece of Wii software costs about $35-40 depending on publisher. Nintendo titles are about $35. EA, Activision are closer to $40 to pay for the $5 licensing fee that kicks back to Nintendo. You'll notice that those are larger profit dollar amounts on a cheaper product.

Nintendo consoles are also different. Taking the Wii as an example: a launch Wii cost probably $220 to make, the retailer bought it for $235 and sold it for $250. Everybody made money. As cost to produce dropped to the $150 range, the retailer bought it for $200, and sold it for $250. Everybody made more money.

Walk in to a Target and see how much space is dedicated to Nintendo versus MS and Sony. Last I checked, it's about a 60/40 split. 60% Nintendo, then 40% everybody else. Walk in to a Gamestop and look at how close to the front door the Wii and DS sections are. They are the only new product that Gamestop can make money on, therefore Nintendo is the first thing you see when you walk in.
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post #9 of 16 Old 05-12-2012, 03:49 PM
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Scanning a new release game at Walmart using their handheld scanner you can find the store cost of any item, a new release game at $59.97 cost walmart $44.?? on average based on what I saw when I worked there. Never checked the hardware (aside from the $99 blue wii on Black Friday, which sold at a 03 cent loss) most TVs also sold at a loss.

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post #10 of 16 Old 05-12-2012, 04:55 PM
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Quote:
Originally Posted by djb5f View Post

I worked at the late Circuit City for a bit and we too had a employee discount. It wasn't at retail but instead at some percentage off based on what retail was.

So for new $60 games, i could get for $55, yippee. So the $50 retail price sounds right. It highlights the need to turn over inventory of things like gaming as game prices don't stay at $60 for that long.

I remember the consoles themselves, at least at launch, had no markup/discount.

When I worked at circuit city we paid at cost plus 10% for everything. I never tried to get a console (that was around the time the 360 came out), but I know some co-workers got no discount.

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post #11 of 16 Old 05-12-2012, 05:21 PM
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they pay too much, just like we do. when i can buy a copy of a 100+ million dollar movie, but it costs three times as much for a video game, i know i'm getting ripped off.

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post #12 of 16 Old 05-12-2012, 07:56 PM
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Originally Posted by blklightning View Post

they pay too much, just like we do. when i can buy a copy of a 100+ million dollar movie, but it costs three times as much for a video game, i know i'm getting ripped off.

While I may not disagree with the first sentence, I don't think the rest of your post is a fair comparison unless that $100+ million dollar movie was never released in theaters and disk/rental sales are the only source of income.

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post #13 of 16 Old 05-12-2012, 09:15 PM
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Originally Posted by pjb16 View Post


While I may not disagree with the first sentence, I don't think the rest of your post is a fair comparison unless that $100+ million dollar movie was never released in theaters and disk/rental sales are the only source of income.

Games do miss out on theatrical sales, so a direct comparison to movies is impossible. However, games are priced too high, that is why price drops are so drastic early on, and now people know that if they wait a few weeks they can save $20, a few months $30+ it is a downward spiral that needs something to stablize the freefall. We just haven't found a happy medium yet.

At least Nintendo has kept their prices the same for the last two gens, it adds some stability to their product line.

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post #14 of 16 Old 05-12-2012, 09:43 PM
 
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"At least Nintendo has kept their prices the same for the last two gens, it adds some stability to their product line."

Nintendo product also holds it's value for far longer than anyone else, including the juggernaut that is COD. Look at Mario Kart Wii in example. It has been $50 for 4 years straight, and is consistently in the top 20 in terms of sales. There are plenty of other Nintendo-held cases where this holds true.

Kind of kills the "games are priced too high, that is why price drops are so drastic early on" argument, huh? People are very willing to spend $50 on a quality title, regardless of age.

There are plenty of reasons for rapid price drops, but the initial $60 starting point has very little bearing here. The same thing would happen at $100 or $30, in somewhat equal ratios and rates. Rapidly paced, high quality releases are a big part of the price-drop problem, as is the habit of cramming far too many of the potential releases in to the Sept-Dec window, leaving the Feb-May window relatively sparse. You'll notice that my Mario Kart Wii example is of the only Mario Kart game on Wii. Looking at the title that holds value the best on PS3 and 360, COD, it is a yearly release that sees it's previous iteration drop to $30 when the new $60 version comes out.
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post #15 of 16 Old 05-12-2012, 10:19 PM
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Nintendo has always been the exception to the rule. And your right, their games are quality and retain value even after new systems are released. I'm just starting to rebuy my Wii collection and I'm finding few bargains in my quest.

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post #16 of 16 Old 05-12-2012, 10:30 PM
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It isn't as simple as "all games cost X at wholesale." Like darklordjames describes above, retailers don't buy single games. They buy huge quantities, so even if they get Y number of units for Z total cost, they can't just do simple division to arrive at a cost per unit that makes any sense. Even if they sell it as a new release for a marginal profit (~$10-15), they can't keep that up forever. They often have stock remaining that they need to dump later at reduced prices. Earlier profits offset later losses.

But it's all to the good because game sales can be used by retailers to leverage other, much more profitable goods and services like peripherals, accessories, and pre-orders (effectively risk-free, interest-free loans from consumers).

This is why in the other thread in the Xbox area, I pointed out that Nintendo's proposed approach to digital sales looks so good to retailers (and potentially to consumers). By selling wholesale digital game "coupons," they allow retailers to continue the same process. They can leverage game prices to incentivize other purchases, and prices would decrease over time (because retailers would need to dump stock). All while slowing down (without killing) the used market.

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