The profit margins from this gen are kicking last margins in the butt.

[dobwal]

Ubisoft has an interesting chart in their earnings.

https://www.ubisoftgroup.com/comsite_common/en-US/images/32ubisoft fy16 slides conf call final_tcm99-250799_tcm99-196733-32.pdf

Look at the last slide which is the average historical profit margins for the big 4 pubs. During the release of the 360 and PS3, profitability margins drop from 15% in 2005 to close to zero in 2007 and then spent the rest of the gen getting back to 15%. During the transition to XBO and PS4 and over the last 3 years, there have been no such drop in profitability. In fact profitability currently hovers at 25% and profit margin have done nothing but grow year after year.

Ubisoft seems to credit this phenomenon to two things. One, the growth of DLC/digital titles and other digital goods and two the lower cost due to barriers, which I am guessing is because the learning curve for the hardware was much easier this gen.

 

[BRiT]

I can definitely see a majority of the improved profit margins having been in the minimization of the second hand market as more users switch over to the digital delivery market.

Could part of the sunk costs for last gen have been in all dev houses having to improve their production tool chains dealing with higher definition assets? If so, that investment from earlier would have carried forward into the current gen consoles.

 

[dobwal]

I can definitely see a majority of the improved profit margins having been in the minimization of the second hand market as more users switch over to the digital delivery market.

Could part of the sunk costs for last gen have been in all dev houses having to improve their production tool chains dealing with higher definition assets? If so, that investment from earlier would have carried forward into the current gen consoles.

Or wasting effort on tech like Move and Kinect. 2010 represents the worst year in terms of profit margin outside of 2006 and 2007. LOL.

But the more I look at the data, the more I seem to think that the profit model has flip itself inside out. The old model was to drive down console prices in effort to broaden the userbase of consoles by driving casual adoption in an effort to drive up game unit sales which impact positively on profits. I don't think that model is a reality anymore. The more I look at the market the more it seems the model is now to drive up the spending of the most dedicated console gamers in effort to drive profits.

Look at the market now. You got PSVR, elite controllers, slims, Pros and 1000s (LOL) of different console skus. In Amazon's hot new releases 100 list, you have 6 skus of the XBO's Slims with the BF1 Green at 36, Madden at 52, 2TB launch at 60, 500 GB BF1 at 62, 2TB GoW at 65 and Minecraft at 75. The XBO Slim has only been out since August. There has been dozens upon dozens of official xbox controllers released by MS not including its rainbow controller factory. How many different controllers do you remember from last gen?

For every major titles there are like 2 or 3 more expensive skus outside of the base sku. On amazon those skus can rival base skus during preorders. The physical deluxe ed of BF1 is currently outselling the base sku right now.

While most of this started last gen, I think MS, Sony and pubs are pushing it to another level and monetizing individual gamers at greater rates.

 

[Rangers]

I can definitely see a majority of the improved profit margins having been in the minimization of the second hand market as more users switch over to the digital delivery market.

Could part of the sunk costs for last gen have been in all dev houses having to improve their production tool chains dealing with higher definition assets? If so, that investment from earlier would have carried forward into the current gen consoles.

Part is likely consolidation too. We have moved to where it's Ubi/EA/Acti/Sony/MS and...?? maybe a Take Two with 2 games only. You dont see Epic's, Id's, or Crytek's really anymore.

These big corps are like factories, and they've mastered churning titles out profitably to some extent. It's good to know it can be done, because people like Epic have claimed it cant.

Also, triple A titles in general have gotten to be bigger and bigger productions, resource wise. Neither here nor there, just a statement on which way the market moved.

Nowdays you see a few extremely large, extremely polished, Triple A releases a year arguably. Your COD, Ubi titles, Battlefield, etc. Of course leaving aside a indie scene flourishing in it's own right. It's a good time to be a gamer.

 

[orangpelupa]

or the demographic is getting older, so more money to spend on games.

ages ago on PS1 era, theres so many local multiplayer games that is fun for kids and adult alike. Crash Team Racing local race was a blast.
PS2 comes and its more or less the same as PS1
PS3 comes and..... so little fun local coop games. if want these, need to go nintendo.
PS4 comes and yuck. I don't even need the 2nd controller most of the time.

i miss those Local-play sessions. Heck, a few months ago my cousin and i played Destiny in one same room and it was a blast!

 

[Sigfried1977]

Part is likely consolidation too. We have moved to where it's Ubi/EA/Acti/Sony/MS and...?? maybe a Take Two with 2 games only. You dont see Epic's, Id's, or Crytek's really anymore.

These big corps are like factories, and they've mastered churning titles out profitably to some extent. It's good to know it can be done, because people like Epic have claimed it cant.

Both a blessing and a curse. I mean everything these guys do right now is pumping out product that's been focus-tested to the nth degree here. Room for the odd experiment outside the super low budget zone there is not. Every once in a blue moon you may get a Shadow of Mordor, i.e. a full-priced game made for slightly less than a possibly studio-bankrupting fortune, and which also doesn't immediately get buried by all the titans, but it's a really, really rare occurence. Alien Isolation was probably another such title, but then both were probably helped a great deal by their respective licenses.

 

[milk]

Both a blessing and a curse. I mean everything these guys do right now is pumping out product that's been focus-tested to the nth degree here. Room for the odd experiment outside the super low budget zone there is not. Every once in a blue moon you may get a Shadow of Mordor, i.e. a full-priced game made for slightly less than a possibly studio-bankrupting fortune, and which also doesn't immediately get buried by all the titans, but it's a really, really rare occurence. Alien Isolation was probably another such title, but then both were probably helped a great deal by their respective licenses.

I think the net result is positive. As much as its cool to hate on the comercial formulaic hollywood-like AAA game style, they are consistently turning out as polished and entertaining games. All the while indies and small devs are producing titles way more varied and creatively ambitious than most mid-sized studio from 20 years ago ever did, and they are doing this by much larger numbers, and with much less crap along the way (or maybe the crap is there, but its burried deeper within the pc space anf doesn't even ever surface on consoles).

 

[Sigfried1977]

I miss those mid tier games. Heck, the big games of the past were all basically mid-tier games by today's standards, and as such they could afford to not be all things to all people. They did it all without having to look like bad pixelart too.

If games were movies, we'd have a choice between Disney franchise blockbusters and the self-important stuff from the Cannes film festival designed to be watched and enjoyed by film critics exclusively. All the good stuff in between? your Kick-Asses, your Dredd 3Ds, your Shallows? your gnarly, unapologetic actioners or horror movies? - gone.

Just as I don't hate the big movies I also don't hate the big games, by the way. I just find them both rather hard to love most of the time.

 

[Shifty Geezer]

There are lots of mid tier games. They just don't get coverage. I'm presently playing Helldivers.

 

[Globalisateur]

Fair enough because the prices of digital EU games are kicking us in the butt as well.

 

[tuna]

or the demographic is getting older, so more money to spend on games.

ages ago on PS1 era, theres so many local multiplayer games that is fun for kids and adult alike. Crash Team Racing local race was a blast.
PS2 comes and its more or less the same as PS1
PS3 comes and..... so little fun local coop games. if want these, need to go nintendo.
PS4 comes and yuck. I don't even need the 2nd controller most of the time.

i miss those Local-play sessions. Heck, a few months ago my cousin and i played Destiny in one same room and it was a blast!

I think you are seeing a market economy in action. If people bought more games like that they would make more (and they do for cerain genres/audiences).

 

[Silent_Buddha]

I miss those mid tier games. Heck, the big games of the past were all basically mid-tier games by today's standards, and as such they could afford to not be all things to all people. They did it all without having to look like bad pixelart too.

If games were movies, we'd have a choice between Disney franchise blockbusters and the self-important stuff from the Cannes film festival designed to be watched and enjoyed by film critics exclusively. All the good stuff in between? your Kick-Asses, your Dredd 3Ds, your Shallows? your gnarly, unapologetic actioners or horror movies? - gone.

Just as I don't hate the big movies I also don't hate the big games, by the way. I just find them both rather hard to love most of the time.

Lots of mid tier games. That's currently the largest segment of games, at least on PC, and I would guess on console as well.

The only difference from the past is that mid tier games don't get physical releases anymore as that isn't economically feasible is most cases. They are all almost exclusively digital only. Rare exceptions exist like with Crowd Funded games if you opt into a funding tier that has a physical package. But even those games once they release, physical packaging will be unavailable if you didn't fund a tier with physical packaging.

Regards,
SB

 

[Silent_Buddha]

I can definitely see a majority of the improved profit margins having been in the minimization of the second hand market as more users switch over to the digital delivery market.

Could part of the sunk costs for last gen have been in all dev houses having to improve their production tool chains dealing with higher definition assets? If so, that investment from earlier would have carried forward into the current gen consoles.

Less titles going into the used channel is certainly going to be a factor.

But far larger, IMO, is just the fact that digital sales are massively more profitable (higher margin) than physical sales. Combined with consumers increasingly moving to digital sales on consoles means that publishers get a bit of a reprieve from ever shrinking profit margins due to physical sales combined with a stagnant price point.

IE - up until this generation of consoles. Games were getting sold for less and less every year when considering inflation. Physical packaging and shipping was getting more and more expensive every year. And games were getting more expensive to produce.

Something was going to have to give at some point. Lucky for the console industry, Digital sales have taken off making physical sales much less relevant. IE - making it less likely that any particular game release would push a company into bankruptcy if it was a major title that tanks in sales.

Regards,
SB

 

[DuckThor Evil]

Less titles going into the used channel is certainly going to be a factor.

But far larger, IMO, is just the fact that digital sales are massively more profitable (higher margin) than physical sales. Combined with consumers increasingly moving to digital sales on consoles means that publishers get a bit of a reprieve from ever shrinking profit margins due to physical sales combined with a stagnant price point.

IE - up until this generation of consoles. Games were getting sold for less and less every year when considering inflation.

The price point of games hasn't been stagnant though. Every game seems to have a season pass these days and special editions are more common as well imo. In game purchasing and DLC in general is more common. Digital Distribution is certainly a lot more profitable for EA and Ubisoft for not having to deal with Steam. EA has the Access bringing in money as well. These bigger companies have had time to oil their money making machines.

 

[Cyan]

Microsoft reports $1.9 billion in gaming revenue in FY17 Q1 earnings