At the beginning of January, I wrote up a detailed breakdown of how much a publisher actually makes for each new copy of a game they sold. With today’s release of BioShock Infinite, I thought it would be a good time to apply these numbers to a practical example to show how profitable games actually are.

First, let’s remind you of the key numbers. Using GameStop’s financial statements, I was able to find out that publishers receive about 75% of the price of a new game. Therefore, for every $60 copy someone buys, 2K would get $45 from the retailer who sold it to you.

The cost of producing an actual copy of the game was calculated using Activision’s financial statements since they most clearly lay this information out. Rounding to a conservative percentage, the costs of putting a box and disc on the shelf is about 35% of the publisher’s revenue (that $45 mentioned above) and the royalties paid to the console manufacturer is about 7.5% per copy sold. That means it costs a publisher approximately $20 for every copy of the game shipped.

That means that for every $60 copy of the game sold, a developer will get about $25 from that sale. That’s called Gross Contribution. It’s the gross profit when you subtract the costs of producing a product and subtract that from the revenue for said product. However, it’s not net profit because this gross contribution has to cover the fixed and sunk costs

That’s where an interesting New York Times article comes in. The Times cited estimates from unnamed analysts that suggested that the development costs of BioShock Infinite is $100 million and the marketing costs for the game are another $100 million. That makes the cost to get the game to market an estimated $200 million. Ken Levine denies this amount is accurate but let’s run with the assumption that the number isn’t completely out in left field.

So how many copies of Infinite have to be sold in order to cover the expenses already spent to make the game? Using a very simple calculation, the estimated break-even quantity sold is approximately 8 million units. In terms of gross sales (retail sales dollars), that about $480 million. That’s a lot of money but that’s also less than half of the gross sales of the last two Call of Duty games.

There are some very important caveats to go with that estimate. First, it has been noted that the gross contribution on games sold and distributed digitally is better than physical copies. So, to 2K, every copy of the game sold through Steam or downloaded digitally is worth more than the physical copy you have reserved at GameStop.

Also, this doesn’t include the effects of revenue and expenses related to DLCs. Presumably, some work has begun on the DLCs though we don’t quite know when they’ll be released. If the cost of the DLCs is included in the $100 million development cost estimate, the revenue from selling them is, for the most part, gross profit. After the 25% retailer margin, only royalties of 7.5% would be part of the cost of sales for the DLC. That means that, effectively, 2K would get $13.85 from every DLC Season Pass sold (or about $6.90 for each individual piece of DLC sold).

Given the additional gross contribution from each digitally distributed piece of software, the break-even number of units sold will be less than 8 million. How much less than 8 million can’t be calculated. That depends on digital copies and DLCs sold. Suffice to say that it’s only fitting that a game as ambitious as BioShock Infinite would have as ambitious a sales target.

Sources:
GamesIndustry International – BioShock Infinite: $100m to develop, $100m to market
The Lowdown Blog – The Economics of Video Game Development

Disclaimer: This article is based on publicly available information. All assumptions made have been stated. The author, et geekera and The Lowdown Blog make no guarantees of the accuracy of these calculations. You shouldn’t make any decisions about investing in a video game company or starting one yourself based on this analysis. This is simply an exercise to bring some transparency into the opaque world of video game finances.

Cross-posted from The Lowdown Blog.