E.g. I just bought a game 85% off on Steam (for a discounted series and I own all the previous titles). Assuming the publisher makes no profit from this sale, how do they make future revenue from me?
In: Economics
Older games have already made the money their going to make any money they can make on the discounted sales is just a bonus
A couple of ways
1) the 85% could be from a wildly inflated price
2)they’ve already paid off all of their development costs, and were previously making about 15% profit when back when they had all those bills.
One of the major advantages of digital anything is that you have major upfront costs but making digital copies is practically free.
Similar to how the first pill a pharmacy company costs billions of dollars, but the second costs a few cents.
The first x amount of sales aren’t really profit, it goes into development costs. After a time it goes from in the red to black because after say 100000 copies at 60.00 it’s paid all the costs associated to releasing the game. (This is way oversimplified) now they can sell it for say 1/2 price and are still making 100% profit.
Okay so most games are discounted after peak sale windows, also getting people into the game that is perhaps going to be a series will hopefully produce future sales, also if you enjoy the game you will express that to your friends and they will also purchase the game.
There’s a point where most games have sold at their peak value and companies know there’s a audience waiting for the discount, people pay a premium to play the game from day 1, other are happy to wait for the price drop. It will all be a strategy as to when the discount is applied.
Steam doesn’t take a flat rate of the sale. Steam takes a 1/3 cut of the sale. So the publisher makes money even on a 85% discount.
The logic is that the discount is going to 1.) entice the people who won’t buy the game for a higher price. 2.) make the price competitive with other games during a seasonal sale.
So the publisher is still earning money and is potentially reaching different demographics of players when they lower their price.
Let’s say I make a thing, I actually make 1000 of them.
They cost me £10 each in parts and labour to make.
I sell 500 for £50 each, and the other 500 go to warehouse.
Over the next year I sell another 100 for £50 but I have 400 in my warehouse costing £1 per year storage and the sunk costs of £4000 making them in the first place.
I discount them 85% and clear them to stop paying storage and get some production cost back, or I just pay to warehouse them indefinitely.
If we take steam as an example. Steam take 30% of retail so the game maker still made 10% of the original, there’s no production cost so its all free cash.
It’s often even not about money, but growing the audience. With games, you basically have to make back what making a game cost – work hours, outsourcing, engine licensing and such. If game sells at all, it’ll usually happen in first couple months. Games, generally, have fixed production cost, unless you’re maintaining support teams and multiplayer servers.
Now huge discounts will attract players, and since many players stream or make videos, it’ll attract even more players. Discounts tends to be time-limited, but extra publicity will get you new sales even after the discount window.
Also, discounted games get extra publicity on Steam, like getting “on sale” pages and such.
That game probably has had close to 0 sales in the last several months. Whatever sales they make at 15% original price is 100% more than they would make otherwise.
Your base assumption is wrong.
Whatever you still pay them, they make profit from (-a percentage that steam takes).
So digital goods and physical goods have differences.
In the steam case digital goods, publishers make 2/3 of the money off steam. They ideally start by selling at full price to everyone who is going to buy it at that price point. Usually at this point if it’s reasonably successful they made a profit already. Everything else is gravy. They usually slowly drop the price of the game to have the customers what are willing to purchase at the price point buy more to make more profits. Butt even if they discount a 60 dollar game to 20 bucks it’s still profit most of the time.
For physical goods, sometimes the manufacturer fills in the gap in price of a product with rebates, so they just make money. When a store is trying to get ride of a product on there own they effectively are choosing to potentially loss money, but gain shelf space to sell other stuff they can make money on. If I can take a 10 dollar loss and put a product I can make 100 dollars on it makes sense. This is considered opportunity cost.
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