Study: Average dev costs as high as $28m

[Squilliam]

When you're trying to sell a digitial distribution service you tend to over emphasise the physical distribution costs.

 

[JPT]

And what does "returns" include? DOA and/or Stock Return etc?

 

[dobwal]

Development costs are a drop in the bucket once you start looking around the annual reports of some of the big pubs.

Activision's 2008 annual report.

Net revenue...................................................$2.9 billion
Costs of sales-product costs...........................$1.24 billion
Costs of sales-software royalties.....................$294 million
Costs of sales-Intellectual property licenses.....$110 million
Product development......................................$269 million

EA's 2009 annual report

Net revenue...................................................$4.2 billion
Costs of goods sold........................................$2.13 billion
Product development......................................$1.36 billion

I think its kind of odd to says that sky rocketing development costs are killing pubs when pub like Activision pay more in royalties fees than they do for product development.

 

[obonicus]

Is the cost of failed projects included in the product development costs?

 

[dobwal]

Is the cost of failed projects included in the product development costs?

Yes,

We seen figures of $40 million for the development of COD:MW2, but with 10 million units sold, that figure pales to the royalty cost. Now factor in manufacturing and distribution costs and you produce a figure thats makes $40 million in development cost cheap in comparsion.

 

[obonicus]

EA's product development number does suggest a LOT of cancelled projects, too, which we probably already knew from ERP's comments.

 

[dobwal]

EA's product development number does suggest a LOT of cancelled projects, too, which we probably already knew from ERP's comments.

We seen people reference "only 3 out 10 titles" make money. I an beginning to believe that percentage relates to 3 out of 10 titles makes outrageous amounts of money for the big pubs. Those dollars then go out to fund more and more development.

The "3 out of 10" figure isn't a symptom of high development costs but the need for the publishers to constantly seek to grow the top performers portfolio or at the very least maintain the portfolio. In fact the better the top performers generate revenue the more money the publishers will pour into more projects.

The recession has actually forced pub like EA to scale back their offerings where there top 20 this year will represent about 55% of all their packaged releases. Their top 20 packaged titles for the upcoming years are estimated to generate 80% of EA's packaged revenue, In comparsion, in 2008 or 2009 the top 20 generated 76% of the revenue while representing about a third of title releases. Even if the gamers went crazy and pour money into the market allowing EA to triple the the amount revenue generated by their top titles, they would simply triple the amount they pour into new development either by expanding title offerings, allocating more development dollars to new projects or a combination of both.

Publishers use this model as public corporations their shareholders want to see growth, general consumers flock mostly to a small segment of total retail offerings and because like record and movie companies their products have a short life span..

 

[Silent_Buddha]

Development costs are a drop in the bucket once you start looking around the annual reports of some of the big pubs.

Activision's 2008 annual report.

Net revenue...................................................$2.9 billion
Costs of sales-product costs...........................$1.24 billion
Costs of sales-software royalties.....................$294 million
Costs of sales-Intellectual property licenses.....$110 million
Product development......................................$269 million

EA's 2009 annual report

Net revenue...................................................$4.2 billion
Costs of goods sold........................................$2.13 billion
Product development......................................$1.36 billion

I think its kind of odd to says that sky rocketing development costs are killing pubs when pub like Activision pay more in royalties fees than they do for product development.

Interesting, as I thought duplication and packaging costs are far higher than many in these forums will admit.

And yes, sky rocketing developement costs are killing pubs. Especially if you consider that it's quite likely that 70-80% of revenue is brought in by the top 10-20% of titles.

It's the whole deal of justifying average developement costs by pointing to revenue that is inflated by the occasional blockbuster.

The higher your developement costs go up the more dependant you are on having a blockbuster in order to hopefully post a profit.

I'm wondering where EA hides their royalty payments, theirs should be higher than Activision with their various NFL, NBA, and NCAA licensing fees, along with any movie titles they decide to release.

Regards
SB

 

[Squilliam]

Development costs are a drop in the bucket once you start looking around the annual reports of some of the big pubs.

Activision's 2008 annual report.

Net revenue...................................................$2.9 billion
Costs of sales-product costs...........................$1.24 billion
Costs of sales-software royalties.....................$294 million
Costs of sales-Intellectual property licenses.....$110 million
Product development......................................$269 million

EA's 2009 annual report

Net revenue...................................................$4.2 billion
Costs of goods sold........................................$2.13 billion
Product development......................................$1.36 billion

I think its kind of odd to says that sky rocketing development costs are killing pubs when pub like Activision pay more in royalties fees than they do for product development.

So cost of sale - software royalties would be console owner fees because ~300M lines up about right with expected royalty figures or would this number be in the product cost line?

So looking back at EA. Lets say they shipped roughly 150M units of software in the single year at an average sale price of $28 to account for discounted titles, Wii titles (which have lower ASPs) and retailer margins. It also alligns up about right with statements made regarding publisher cut of sales. I think its fair to say that each disc released costs about $10 given the royalties, packaging, duplication and shipping costs to get to market. So the remainder would be about $600M in advertising expenditure.

Does that sound about right to people? Im assuming a few things but it seems to work in with various statements made in the past.