By Dr. Serkan Toto – On Japan's Game Industry

Price Breakdown Of A $70 Video Game: Digital Vs Physical

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One of the three client groups I serve with my consultancy Kantan Games Inc. is financial institutions interested in the gaming industry.

A common question over the last decade from investors has been: “What is the share for digital versus physical video game sales among publishers and retail stores or platform providers?”.

Strangely, information about this important topic for the gaming business is all over the place, outdated or straight-out incorrect.

Here is my own analysis, but please note:

  • This is not and can never be an exact science because the numbers below are typically never disclosed, fluctuate over time and vary – depending on who you ask, where and when. The below is not meant to be a mathematics exercise.
  • I made some adjustments for simplicity, i.e. rolling developers and publishers into one.
  • The discussion can be almost endless, so factors like sales taxes, a deeper economic comparison of physical vs digital (inventory and return costs for physical games, no second hand market for digital games, costs for managing digital stores, etc.) as well as an entire ocean of other details like retail boxes containing download vouchers etc. etc. etc. are left out for brevity.

Digital Game Price Breakdown

Starting with the simpler case first, the standard rate that Nintendo, Microsoft and Sony charge publishers for distributing games on their digital stores is generally fixed at 30%.

So third-party console publishers retain 70% of the price for digital downloads of their games.

In the case of these platform providers doubling as publishers, the economics are even more favorable: Microsoft retains 100% of a sale of a self-published Xbox game on their digital Xbox store, for example.

(With that 70% and 100%, respectively, publishers need to cover marketing, the development of the game in question, corporate costs etc.)

For a $70 video digital game, this is where the money goes:

Kantan
Games Inc.
Digital sale 
(3rd-party publisher)
Digital sale            
(1st-party publisher)
Price w/o tax$70$70
– store cut 30%-$210
= publisher share$49$70

Physical Game Price Breakdown

In the case of physical sales, retailers generally pocket around 30%.

Additionally, third-party publishers need to calculate with around 15% in licensing fees to Sony/Microsoft/Nintendo and another 5% to manufacture the physical media.

So third-party console publishers get around 50% of the full price of a physical game.

First-party publishers need to calculate with around 5% for manufacturing and shipping the physical media in addition to the retailer cut – leaving Sony, Microsoft and Nintendo with around 65% of the full price.

Once again, this is not an exact science: there are cases where percentages are slightly higher or lower, i.e. depending on the country market.

For a $70 physical video game, this is where the money goes:

Kantan
Games Inc.
Physical sale  
(3rd-party publisher)
Physical sale           
(1st-party publisher)
Price (w/o tax)$70$70
– retail store cut ~30%-$21-$21
– licensing fee ~15%-$10.500
– manufacturing ~5%-$3.50-$3.50
= publisher share$35$45.50

So third-party publishers make $49 on digital and around $35 on physical (40% less).

First-party publishers make $70 on digital and around $45.50 on physical (53.8% less).

That means from a purely financial perspective, Sony, Microsoft and Nintendo are more incentivized to shun physical media on both an absolute and relative basis – which largely explains the launch of the digital-only PS5 variant as well as the Xbox Series S.

As mentioned, there would be many, many points to consider in a broader “digital vs physical” analysis – maybe in another update.

About the author

Dr. Serkan Toto

I am the CEO & Founder of Tokyo-based Kantan Games Inc., an independent consultancy focused on Japan’s game industry.

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By Dr. Serkan Toto – On Japan's Game Industry
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