Selling to Retailers


As explained by [Schoback02], gaining wide and deep access to the retailers' shelves is the determining factor in a game's commercial success. Securing good shelf space is therefore the game publisher's most important job.

A Concentrated Business

In North America, a small number of major national retail chains accounts for the overwhelming majority of the game industry's total sales. For publishers, this makes relationships with these retailers especially crucial: if Wal-Mart refuses to stock a game, many potential buyers will not see it on the shelves—and if another major retailer notices the refusal, there is a chance it might reconsider its own decision to buy the game.

The largest brand-name publishers, like Electronic Arts and Sony, can usually assume that anything they publish will be stocked in every retail store. For smaller companies that can't supply stores with a steady stream of sure-fire novelties every month, the situation is much more difficult: store buyers will decide on a case-by-case basis, and they have very limited shelf space to allocate. Even then, an effective strategy can yield success: Case Study 1.3.1 describes how a small development house with a single product line has achieved success self-publishing in its national market.

Case Study 1.3.1: Self-Publishing

start example

Kutoka Interactive, a small developer of children's edutainment titles starring a mouse named Mia, chose an unusual approach: they publish their games themselves in their home country (Canada) and sell licenses to publishers elsewhere on a country-by-country basis.

"We felt that establishing partnerships with multiple companies was less risky than to rely on a single, big company to market our game every-where," explains Tanya Claessens, Kutoka's vice president. The strategy has paid off: today, the Mia series is distributed in 42 countries and in 14 languages. Moreover, finding the partners was easier than most people would expect: "When we first introduced Mia at MILIA, we received 43 proposals before the show was even over!"

Like many other companies in the field, Kutoka started out as a contract development house and used the income generated by this work to fund development of its own intellectual property. Mia's success on the trade show floor led to great press coverage, which in turn helped Kutoka secure precious shelf space for the games in Canada. "Thanks to the media's enthusiasm, we were able to get our first title into stores in December, which is almost unheard of." Since distributors could not handle the game at this late date, Kutoka's employees had to assemble the boxes in the office at night and ship the games directly to retailers themselves. And despite the positive press, even the retailers who ordered the game remained skeptical: "All we got at first were trial periods of two to four weeks. The game had to sell by then, or it would have been taken off the shelves."

Fortunately, Mia did sell, and today the 25-person company is expanding to a second line of original games and will soon begin publishing third-party software. "We're glad we're not starting out today, though," Tanya Claessens concludes. "With fewer and fewer major retailers in the market, it is becoming more difficult to win 'mindshare' and to sell original properties."

end example

The Publisher's Headaches

Convincing retailers to put a game on their shelves is unfortunately not nearly enough to ensure a game's financial success. This is because games are sold as consignment items: the retailer will only pay the publisher for copies of the game that consumers actually buy—the rest will be returned, often at the publisher's expense.

Therefore, not only must publishers convince retailers to order the game, they must also entice them to put it on the best shelf space, at the right time, and for as long as possible. Retailers will therefore study the publisher's marketing plan, sell the right to advertise the game in their store fliers, demand preferential pricing to convince consumers to buy the game in their stores instead of the competitors', and so on.

And sometimes, a relationship with a retailer will be so important that the publisher will be forced to accept the retailer's demand for a temporary exclusivity, or even to change the game's content to satisfy the retailer's standards.

The Channel-to-Market Throttle

Compared to other popular forms of entertainment such as music CDs and movies on DVD, games suffer from three serious disadvantages in the retail market:

  • Retailers don't stock many titles. The major specialty music stores routinely offer tens of thousands of different recordings. Game shops rarely if ever have more than a few hundred games in stock. And the large surface discounters often propose 10 to 100 times more movies and music CDs than games.

  • Games are perishable. A weak-selling game will be taken off the shelves in six to eight weeks—there is no second chance. A success story like that of the Austin Powers movie franchise, which was revitalized in home video after the first film drew poorly at the box office, would be impossible in our medium. Even moderate hits rarely last more than a year in the marketplace.

  • Platforms are perishable. When music lovers were forced to switch from vinyl to cassette tapes and then to CDs—two platform changes in 50 years—the public rose into an uproar. Game players have been through six generations of consoles, from the Pong machines to the Atari VCS to the 8-bit Nintendo to the 16-bit Sega Genesis to the 32-bit PlayStation to the Xbox, in half that time. And unlike the music of the Beatles, the overwhelming majority of the classic games of the DOS and 8-bit era have never been re-released commercially. While players can still enjoy many of these games (despite publishers' best legal efforts to the contrary) thanks to emulators and the so-called salvage community, this sort of non-commercial effort generates no income for the developers who created the games in the first place.

The Developer's Headaches

Suppose that a developer sells a game to a publisher for an advance of $2,000,000 that matches its development cost exactly, plus a royalty of $10 per copy. The developer will earn royalty checks and turn a profit only if the game sells more than 200,000 units.

Now, if the publisher invests $400,000 in the game's manufacturing and marketing and sells it to retailers at a gross price of $30, it will have earned back its own investment as soon as the game sells (2,400,000 / 30) = 80,000 units. Therefore, if the game's sales begin to decline after 100,000 units, the project has already achieved profitability from the publisher's point of view. Consequently, the publisher might not be highly motivated to stimulate sales any more, because such an effort will quickly run into diminishing returns. Meanwhile, the developer hasn't received one dollar in royalties.

Of course, if the advance paid to the developer didn't even cover the cost of developing the game, this phenomenon can lead to profits for the publisher and disaster for the developer. For this reason, smart developers will negotiate the largest possible advance, even at the expense of a modest royalty rate.




Secrets of the Game Business
Secrets of the Game Business (Game Development Series)
ISBN: 1584502827
EAN: 2147483647
Year: 2005
Pages: 275

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