Dale Dietrich
friedman: always supply your comparative advantage
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Cost Components that Make up a Typical Video Game’s Retail Price

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video game price breakdown

What are the cost components that make up the retail price of a typical video game? Put another way, how much does each participant in the video-game development / distribution chain get?

I get this question all the time.

In this presentation to Columbia University students, Steve Perlman, OnLive’s founder, both demos the OnLive system and discusses their business model. At the end of part 3 and the beginning of part 4, Perlman discusses the graphic to the left (click for larger view) which shows the cost breakdown for a typical video game.

As you can see, for a typical console-based video game that costs U.S. $60:

  • $15 goes to Retailers: eg: GameStop, Electronic Boutique, Walmart, Amazon
  • $7 goes to Returns/PP/MDF: Returns are money paid-out to retailers for product returns. PP stands for “price-protection” which is money paid back through the chain if/when the publisher reduces the video game’s price. MDF stands for  ‘Marketing Development Funds” which are paid to retailers for promotions such as TV ads, local flyers, and in-store marketing displays.
  • $4 goes to Distribution/COGs: Distribution = shipping and warehousing. COGs = Cost of goods sale. ie: the cost of the physical DVD, manufacturing, the instruction manual and the case.
  • $7  Platform Royalty Fee: For every game sold approximately $7 goes to Microsoft, Sony or Nintendo, as applicable, for whatever platform the game plays on – eg: Xbox 360, PS3, Wii.
  • $27 goes to the Publisher. Unfortunately this $27 is not further broken down to show how much of the $27 typically goes to independent developers. The amount paid to independant video game developers can be anywhere from 10% to 70% of the amount paid to the publisher – but often only after the publisher has first recouped any advances paid to such third party developers.

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OnLive Video Game System & Business Model Presentation to Columbia University

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onlive logoIn this terrific presentation, Steve Perlman, OnLive’s founder, both demos the OnLive online, video-game system and discusses their business model. This is the most complete discussion of the OnLive system and business model I’ve seen yet – complete with a compelling demo of games being played  on a laptop, the OnLive micro console and on an iPhone. 

Part 1 – OnLive Company & System Background

In part 1, Perlman gives a basic introduction to the OnLive system, discusses his history with Apple and the technical limitations (compression/latency) that OnLive had to overcome to make their system work.

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Sony’s E3 2009 Press Conference Summary

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sony e3 2009 - jack trenton

Sony’s 2009 E3 Press Conference can be viewed here.  See also my 2008 Sony E3 coverage. Click on images below for larger views.

Exclusive PS3 Games Shown

sony e3 2009 press conference - god of war demo God of War III:  (demo’d – coming March 2010 ) Looks terrific! Except, that is,  for Sony’s continued reliance on quick time events in boss battles. Grrr! But I still can’t wait GoW 1 and 2 were terrific games.

sony e3 2009 - gran turismao teaser trailer Gran Turismo 5 (polyphony – teaser trailer – still no ship date) – photo realistically gorgeous as you’d expect – first time cars show damage in this franchise – still a SIM that is likely only playable by extreme racing gamers.

e3 2009 sony - uncharted 2: among thevesUncharted 2: Among Thieves (demo’d – naughty dog – no ship date – multi-player beta starting immediately) I’m looking forward to this one! Uncharted: Drake’s Fortune is still my favorite PS3 game to date. Demo looked terrific but the female lead has changed. Elena Fisher seems to be gone :( 

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Nintendo E3 2009 Press Conference Summary

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nintendo e3 2009 press conference

Nintendo’s 2009 E3 Press Conference can be viewed here. This has to be the most boring E3 conference I’ve ever watched.  See also: My 2008 Nintendo E3 coverage.

Announcements

  • Multiplayer Mario co-op: (holiday 2009 – yawn)
  • nintendo E3 2009 - wii fit plusWii Fit Plus: 6 new exercise modes, 15 new balance games, available as software-only (fall 2009)
  • User Generated Content: Some user generated DS content initiatives discussed:
    • FlipNotes Studio: animation drawing app (this summer)
    • WarioWare DIY: Microgame creator
    • Mario v. Donkey Kong: Minis March Again – level editor and online sharing (DSi – June 8, 2009).
    • Will be able to upload DSi pictures to Facebook this summer.
  • nintendo e3 2009 - wii vitality sensor Wii Vitality Sensor: Monitor health, pulse. Some kind of health / relaxation / stress diagnostics tool (no release date)
  • Super Mario Galaxy 2: New 3D Mario game

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Microsoft Games on Demand Service – One Step Away from Microsoft Points

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Microsoft Points Card

In my opinion, the biggest Microsoft announcement at E3 today was made after their press conference was over. They announced a new Games on Demand service (coming this August). It has two important features:

  1. Full Games Available for Purchase on Demand: Microsoft will start selling full games on-demand via download through the Xbox Live Service starting this fall. Following in the footsteps of Steam (and to some degree Sony), this may be a critical inflection point on the path away from retail game sales. The 30 announced games are all older games (eg: Mass Effect, Assassin’s Creed and Bioshock). Games are to be sold at regular retail prices (no disk-free, Gamespot/E.B.; disintermediation discount). Nothing was said about the future availability of new titles day-and-date with retail releases. With the service in place there is, of course, no technological reason why this couldn’t happen. It’s just a matter of time.
  2. A Step Away from Microsoft Points: Anyone who is a regular reader of my blog knows that I am a critic of Microsoft Points (see this post, for example). Games purchased through the Games on Demand service will be purchasable with a credit card. No Microsoft Points required. Amen! Let’s hope this is the beginning of the end for Microsoft Points. 

For details see:

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Microsoft E3 2009 Press Conference Summary

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image

The Microsoft Press Conference can be viewed here. See also: My 2008 Microsoft E3 coverage.

Big Announcements:

  • halo reach logoHalo Reach: Bungie teased this new Halo game, set for a fall 2010 release. Whoo hoo! If its a Bungie shooter, and it has the name Halo on it, I’m in! Is ‘Noble 1’, Will Master Chief?
     
  • metal gear rising logoMetal Gear Rising: The next Kojima / Konami Metal Gear game is coming to the Xbox!!! Holy Cow! The final coup de gras against Sony.  Kojima seemed genuinely happy to appear on stage for the announcement.
  • lyons gate mylo demoProject Natal: A ‘controller free’ , full body motion capture, item scanning, facial and voice recognition. Will work on every 360. See demo here. I’ll believe it when I see it! I don’t believe the Lion’s Gate Milo demo pictured on right. It had to be heavily scripted (click for larger view).

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Best Video Game Podcasts – Updated

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video game podcasts - co-op review of riddick, dark athena
This is an updated version of the earlier ‘Best Video Game Podcast’ post I made on April 18, 2008. I have listened to, and abandoned, many video game-related podcasts. Those listed below have survived the culling and, with one exception, are recommended without hesitation. At the bottom I list the deadpool – formerly good podcasts that are now deceased or reincarnated. :)

1. Listen Up – formerly The 1Up Yours Podcast:

listen up podcast iconListen Up is the successor to the 1Up Yours Podcast. Oddly, the name was changed after 1UP.com was purchased by UGO Networks in January 2009, but the format and content is largely the same. It ‘airs’ Friday evenings. The show is still hosted by Garnett Lee, but most of the former cast (who make occasional guest appearances) have moved on to other things: Luke Smith – now with the Bungie podcast; Bryan Intihar -now with Insomniac Games; Dan ‘Shoe’ Hsu – now on permanent vacation; John Davison now at what they play; and Shane Bettenhausen, now Director of Business Development at Ignition Entertainment. Despite the constant cast changes, Garnet continues to provide an interesting set of revolving guests that consistently provide an entertaining and informative podcast week-in and week-out. My original 1Up Yours criticism still remains – the show is often too long and the interesting content (ie: the news) is usually held back to the the end. Not quite as good as it was when the old cast was there, but still the best video game podcast out there.

2. CO-OP – formerly The 1Up Show (video) Podcast:

co-op podcast iconThe CO-OP podcast (pictured above), continues on where the cancelled The 1Up Show left off. It shares the same cast and terrific production crew. It’s still my favorite video podcast. It provides a comprehensive set of visual video game previews and reviews. It also features interviews with industry luminaries and provides trade show coverage. If you want to watch a video game before purchase, this  is the best place to do it. This video podcast comes in small and large sizes (3x the size) suitable for viewing on the iPhone/iTouch and AppleTV respectively.

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November 2008 NPDs – Nintendo Blowout

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Nintendo Wii Console It’s time to create a whole new category for the Wii phenomena. Holy cow– more than 2 MILLION in sales in North America in November is crazy. Yet, to this day there still isn’t a single game on the Wii I’d want to play – not one. Yet you can’t deny those sales numbers.

Video game industry sales are UP 10% year over year. Terrific given the economic downturn.

I was happy to see the 360 outsell the PS3 and PSP combined. Though I’m starting to worry about the PS3’s long-term prospects given its continued poor results. Despite the industry upturn, the PS3’s sale’s numbers are LOWER than its November 2007 numbers.  The PS2 results show its time is coming to an end. I wonder how many months before Sony kills it?  But, it still hasn’t reached the $99 price point. Perhaps it can grasp a few more months of breathe with a price drop before Sony puts it out of its misery.

gears of war 2 cover art Meanwhile my copy of November’s top selling Gears of War 2  is collecting dust as I finish Resistance 2 for my review. Gears 2 sold 1.56 million sold – trouncing Resistance 2’s comparatively meagre 385K unit sales. I’m really looking forward to Gears when I get the time – especially online co-op.

November 2008 Console and Game sales results after the break.

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Most Anticipated Fall 2008 Video Game Releases

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gears of war 2 box art little big planet box art resistance 2 box art mirror's edge box art tom raider underworld box art image max payne movie poster call of duty world at war box art

Below are the fall 2008 video game releases that I’m most looking forward to, not sure of and two 2009 games that I’m chomping at the bit to play.

Fall 2008 Can’t Wait

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E3 2008 Sony: Movie-TV Service Launch – Not Much More

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 E3 2008 Sony Press Briefing - Jack

Sony Movie and TV Service: The biggest ‘news’ of the Sony press event was the U.S. launch, today, of the previously announced (see here) video service. Sony, Fox, MGM, Lion’s Gate, Warner, Disney, Paramount and Turner Entertainment have partnered with Sony to provide movie and TV content for the on-demand download service. The system uses progressive downloads so users can watch as a movie/TV show as it downloads. Sony says, content is playable a minute or so after ordering. Purchased content only plays on PS3 and PSP. No PC, iPod, iPhone or other device support was announced. No official word yet on how long rentals will be available for viewing – one site mentioned that it will be the usual 24 hours and 14 days to start.

E3 2008 Sony Press Briefing - New Movie-TV Service

Note: While the previous announcement stated that a service like this would be made available ‘world-wide’, I checked my PS3 in Canada and there was no such content available. Note the "video" button circled in red in the picture above (click for larger view). If it isn’t there, no movies for you!

E3 2008 Sony Press Briefing - Resistance 2 Resistance 2: They showed a little of Resistance 2. It’s looking good and includes 8 player online co-op support (probably only for certain missions). I quite enjoyed Resistance 1 so I’m looking forward to this one. What is it with the ‘brown’ colour in all the PS3 and 360 games this year?

E3 2008 Sony Press Briefing - Massive Action Game (MAG)Massive Action Game ("MAG"): This massively multiplayer shooter looked interesting. MAG supports up to 256 simultaneous players with 8 player squads, ongoing faction campaigns and character growth. The trailer looked great. It’s hard to imagine that 255 players will follow a command hierarchy that goes up to one or two generals. In my experience 8 players will rarely ever co-operate in an online shooter battle. I’ll have to see this one to believe it. See the blatantly pre-rendered trailer below.

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E3 2008 Nintendo: Wii Music, Wii Speak, MotionPlus, Wii Speak

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E3 2008 Nintendto Press Briefing - Reggie

And nothing happened. Nothing captured my interest and certainly nothing was announced to satisfy the hard-core gamers.

New Products

Wii Speak Wii Speak: A microphone that sits atop the TV that picks up all the sounds and voices from a room. This will be used in games in lieu of a headset. But the Wii doesn’t have a system-wide voice system (let alone a decent online game strategy). This will need to be supported from game to game.

Wii Motion PlusWii MotionPlus: An add-on that plugs into the WiMote to add wrist based twisting motions to its repertoire of recognized real-time movements. One wonders how developers are going to appreciate the burden of developing titles that work with both the WiiMote alone and with the MotionPlus adapter.[gizmodo review here]

 

E3 2008 Nintendto Press Briefing - Wii Sports Resort Wii Sports Resort: A new game, similar to Wii Sports, but situated at a beach resort. They demoed Frisbee throwing (with a cute dog catching it), sword fighting and lumber chopping. This game uses the new Wii Motion Plus for accuracy. Coming March 2009.

E3 2008 Nintendto Press Briefing - Wii Music Virtual BandWii Music:  A new music game featuring 50 virtual instruments was announced. A virtual piano, violin, sax and drum kit were demonstrated. Unlike Rock Band and Guitar Hero, the user doesn’t need to purchase physical plastic instruments. Nor do they follow note patterns on a screen to play. The instruments are ‘virtual’. Waiving/moving the WiiMote around in a manner similar to the instrument being played simulates the instrument. The virtual drum kit (see picture below) that uses the WiiMote and Numchuk as the drumsticks and a WiiFit board as the drum peddle was clever. But the other instruments looked like little more than air-instruments where regardless of what the user does some facsimile of music will be produced. Lame. And it sounded pretty awful. [more info here]

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E3 2008 Microsoft: New Dashboard, Netflix, Final Fantasy XIII

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E3 2008 Microsoft Press Briefing

(Click image to watch abridged version of Microsoft’s 2008 E3 press briefing)

[Full Microsoft E3 2008 coverage is here]

E3 2008 Microsoft Press Briefing - New Dashboard Interface A new Dashboard Interface for the 360: It’s coming this fall. [ Watch demo here]It’s nicer than, but seems influenced by, the PS3 ribbon. It looks like it will be easier to use than the current blade system. I question whether people will want to learn a whole new interface.

E3 2008 Microsoft Press Briefing - New Avatar System Avatars coming on 360: Looks like Microsoft is trying to bring a bit of the Wii and Playstation Home to the 360. I’m not sure if my adult friends will take the time to create their own avatars.

E3 2008 Microsoft Press Briefing - Netflix Coming to 360 Integrated Netflix coming to the 360: Netflix users will be able to queue up their Internet ordered videos to be played on the 360. This probably won’t be available outside of the U.S. for years (if ever). Regrettably, it appears that movies will only be streamed through the Netflix service and not downloaded. This means (i) fastforwarding and rewinding will janky; and (ii) the quality of the picture will vary depending on your Internet connection speed.

E3 2008 Microsoft Press Briefing - Final Fantasy XIII Coming to 360 Final Fantasy XIII Coming to the 360! The hitherto PS3 exclusive franchise is coming to the 360 on the same day and date as the PS3. Final Fantasy XIII coming to the 360 is another Microsoft coup. Other than Sony Studios first party games and Metal Gear Solid, I can’t think of any major game franchise that is a PS3 exclusive any more. Interestingly there will be no Japanese 360 version.

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The Best Video Game Podcasts

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Below is, in my opinion, a list of the best video game podcasts ordered by preference. I have listened to, and abandoned, many video game-related podcasts. Those listed below have survived the culling and, with one exception, are recommended without hesitation.

1. The 1Up Yours Podcast:

1Up Yours Podcast LogoThis is my favourite video game podcast. It ‘airs’ Friday evenings. Despite 1Up Yours seemingly continuous personality turnover (Luke Smith – now with the Bungie podcast; Bryan Intihar -now with Insomniac Games; Dan ‘Shoe’ Hsu – now on permanent vacation), Host Garnett Lee, with Shane Bettenhausen, John Davison and a revolving set of guests consistently provide an entertaining and informative podcast week-in and week-out. My only criticism of the show is that it is often too long and the interesting content is usually held back to the the end. Otherwise, its the best video game podcast.

[January 22, 2009 Update: I’m saddened to report that with the demise of EGM and the purchase of 1Up by UGO, the January 22, 2009 episode of 1UP Yours was the last (read: The Last 1Up Yours). Another victim of the economic downturn. :( Shane Bettenhausen, a cornerstone of the show is joining game publisher Ignition Entertainment as Director of Business Development. Another show hosted by Garnet Lee is scheduled to replace it on the same feed starting January 30. ]

2. Game Theory Podcast :

game theory podcast logo The Game Theory podcast (formerly the Next-Gen.biz podcast) is also a terrific weekly video game podcast. While 1Up Yours is strong in  games coverage, the Game Theory podcast’s strength lies with its strong industry coverage. Gary Whitta & Colin Campbell are veteran video game industry reporters who put on an engaging and enlightening podcast. And, there’s something about their British accents that seems to elevate it. I highly recommend this podcast.

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Are the Days of Microsoft Points Numbered?

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Microsoft Points Card I recently listened to the March 31, 2008 EGM Live Podcast (download) where Garnett Lee interviewed Aaron Greenberg, Microsoft’s Director of Product Management for the Xbox 360 and Xbox Live. Among other topics, Aaron had the unenviable job of defending the concept of Microsoft Points (time index 17:40).

[Update: June 1, 2009: Today Microsoft announced ‘Games on Demand’. A feature to be launched in fall 2009 where full games can be purchased with credit cards. Finally, one small step away from Microsoft Points! See Gamasutra article.]

Reading several articles today on Sony’s pending PS3 on-demand service (see here, here and here) and Sony’s pending Playstation cards, to be denominated in local currency (here), it occurred to me that Microsoft’s use of points alone is going to become increasingly untenable as Microsoft’s key game/movie/TV show download competitors all offer competing products denominated and purchasable in local currencies.

Below I discuss Aaron’s arguments for Microsoft Points and what, to me, are overwhelming competitive arguments against them.

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