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Well are they? When you buy something from the soft shop where do your pennies go? Eugene Lacey has inked his investigative pen and has been taking a look at who benefits from this business.

Things are not all sweetness and light in the world of software right now. The whingers are having a field day. The talk is of reduced margins, software sales down "year on year", summer slump, and too many games.
Only the shops, particularly the local independent shops, have a different tale to tell. They put the summer slump down to the dearth of good quality full price software. Of course people like to moan and if it wasn't software sales it would be England's cricket team (awful aren't they), interest rates or how you can't eat anything these days without catching some infection or another.
Pricing is another issue. Ask the punters what they think and they will almost unanimously tell you that games are too expensive - as countless letters to CU and other mags will testify.
But are they? Judging from the number of Porshes and Ferraris in the car park at the recent PC show it would be easy to conclude that big bucks are being earned in computer games.
But before we get down to the nitty gritty let's establish the ground rules. All software houses are out to make money. They have fronted the development costs of the game, paid for the adverts in CU and elsewhere, employed people to test the game, promote it, duplicated the disks, packaged it, and paid for it to get onto the shelves. Not all of this money is up front - deals between software houses, developers and distributors vary. But everyone has to get their cut eventually and the software house will justifiably be trying to get as large a cut as possible - as will everyone else in the chain. That's business.

This is how it works. Josephine Punter purchases Page Seven Fellas Strip Poker Extravaganza from Hunksoft at £24.95. This is where her money goes:
Page Seven Fellas Strip Poker Extravaganza costs £24.95. The diagram shows the amount apportioned to each of the three main groups of people who get software to you, the buyer.

The average software house will break up their £11.23 as follows: Film licences cost a bomb. A top selling 16 bit title (Falcon, Carrier Command, Gunship) can hit between 50,000 and 100,000 units across Europe. Add the noughts to £1.68 to work out for yourself. Bear in mind though, that most companies are working on a break even figure to calculate their £1.68 per unit. Once break even point has been hit and the software house starts to get repeat sales on a product then this figure is likely to increase significantly.
But that is a top selling title. Most games are not like this. A medium Amiga title might hit only 25,000 units across Europe. A low seller less than 10,000. On the surface it still looks like a lot of dosh on the bank - but this is not necessarily so. An average software house will aim at publishing several titles in a year and has to budget for misses as well as hits. Of course they will all claim to be software Scott, Aitken and Watermen - but they have all had failures, even the best of them. Some will bomb, or perform way below expectation, that's the hard fact of the matter.
Software houses therefore have to budget for a portfolio of launches. So just because Page Seven Fellas Strip Poker Extravaganza has been at the top of the Amiga charts for the last six months, it doesn't necessarily mean that Hunsoft's boss is taking delivery of a new Testarossa. She may still be writing off the loss on Fiona Wright's Lingerie Construction Kit. But it's not just bombed out games that can do serious GBH to the bottom line. Mr Pirate will take his cut, as will Mr Dodgy-No-Pay, Ms Software-No-Deliver-Game, Mr Taxman, Mr Accountant, Mr Solicitor and stacks of others. Software houses are generally young; inexperienced 'start-up' companies (launched on a shoe string and struggling to fund their growth from their meagre profits) and every shark in the pond is out to bite a chunk of cash out of their earnings.
The larger software houses are less likely to get ripped off by middle men, or anybody else for that matter, but they too have financial headaches. Apart from running bigger offices with more staff they also have compete in the increasingly expensive scramble for coin-op licences if they want to stay in the big league with the Oceans, US Golds, and Activisions of this world. The coin-op manufacturers won't settle a cut off the sales. They insist on money up front - and their fee can be as much as a million pounds for the rights to a first class licence. This is one hell of a gamble for a company to take. They are basing their decision on the current popularity of the coin-op in the arcades. Once the licence is signed, sealed and delivered it may be another twelve moths before the game reaches the shelf of Boots Computer Entertainment.

If a week is a long time in politics - then a year has to be an infinitely longer time in software, particularly when you are waiting to see what pay back you will get on your million pound risk. This is a shit or bust deal. The game has to clean up on all formats - sweeping all before it, reaching and hanging on to the number one slot in the software sales charts at a good time of the year. To be in the big money you have to have big hits - and the truth of the matter is that there aren't many of these each year.
Cutting out the middleman seems on the face of it like an obvious thing for a games company to do but on closer examination it is not nearly as simple as it appears. Warehousing and distributing anything to its potential purchaser is a highly complex and costly business.
The software houses do not have the specialist skills or resources to provide guarantees of availability to all of their customers. The distributors have survived because they do. The retailer wants the latest games the minute they roll off the production line. If Pattenden's Software Emporium hasn't got Page Seven Fellas Strip Poker Extravaganza on the shelf when Josephine Punter comes through the door with her twenty five quid in her purse then he is going to lose a sale and Josephine is going to get her not-so-cheap thrills elsewhere.

Main picture from 'Wall Street', copyright 20th Century Fox. The software added to this picture has been chosen entirely at random, and CU would like to make clear that its presence in no way constitutes judgement on either the quality of the products or the integrity of those people associated with them. The distributor is grossing about a fiver on every copy of Page Seven Fellas Strip Poker Extravaganza sold - but this is not clear profit. Freight, staff, and telephone bills are the main business overheads that the distributor has to find before he is into profit. One distributor told us: "margins are tight. It is an ever more competitive business with few people making more 20% and a lot of people making a good deal less - say only 10%. The distributor is therefore making about £1,60 per copy - roughly the same as the software houses.

The other main group to get a cut out of Josephine Punter's £24.95 are the shops. Our research suggests that they get £8.75 for every game sold. On the face of it this seems like a lot - considering that they did not develop the game or take the main publishing risk involved in producing the game. Despite this few of the other people in the trade were critical of the retailers. One software house told us: "without the independent software shops there would be no 16 bit software industry… they need to get what they charge to make a reasonable profit and to provide the service that they do - specialist knowledge of the products, an opportunity for the customer to see the software up and running and to talk to someone who knows something about it… by and large the independents are also better dealing with problems than the chain stores". By contrast nobody has a good word to say for the chain stores and it is widely believed that their cut is an easy touch. As one source claimed: "basically they only cater for gift purchase and impulse buying".

Dick's the name, Virgin Mastertronics the game, plus Virgin Airlines, Virgin Records... and don't make it your brown eyes green, Dicky? Only 10% of software sales in the UK are accounted for by chain stores such as Boots and W.H. Smith. Despite this surprisingly low proportion of total sales they have a considerable influence over the market - and the fear is constantly there that the "big boys" are going to pull out of stocking computer games. Boots and Smiths were reluctant to comment on their pricing policies but their thinking goes like this. Large High Street stores in prime locations are expensive to build and maintain. The floor area must generate a set amount of revenue per square metre in order to pay for itself and contribute to profit. The financial performance of the computer department in your local Boots or Smiths will be assessed in this way.
Retailers are therefore keener than anyone to see that prices remain high.

But doesn't all this miss the simple argument that if you sell something less you are going to sell more of it? One man who thinks it does is Llamasoft boss Jeff Minter who has consistently maintained that games are too expensive - particularly 16 bit games, and claims that distributors won't take his games because of his insistence on a lower retail price. Writing in a recent issue of ST Action he states "the distributors won't buy them as they're too cheap". Some of the coin-op converters like Ocean, US Gold and the recently converted Domark also seem to favour a slightly lower price on 16-bit - £19.99 - as opposed to £24.99. But their games tend to be simple arcade conversions - involving little creative input, or the conversion of a licence of some kind such as a board game or a film involving no risk. The creators of 16 bit original games - such as the designers of Falcon or Carrier Command are much more firmer in the value they provide at twenty five quid. Speaking for Spectrum Holobyte, Tom Watson told us "three man years went into development of Falcon across the various configurations of the game that we publish, the manual and packaging are consistent with what our research tells us that our customers expect in a game of this type, the consumer therefore has a simple choice - yes he can have a cheaper product, but not one of this quality, it simply isn't economically feasible".

A necessary expense in any business. So just what do the people clocking up all these "man years" get out of their games in hard cash. Are they the ones ripping off Josephine Punter? Mev Dinc programmed the Spectrum version of Last Ninja II and has recently been working on a game called Hammerfist for the Amiga, Konix and ST. He told CU: "we formed the society to protect programmers from being exploited by unscrupulous publishers. In most cases the programmer gets a smaller cut than anyone. A top notch game can take up to a year to programme. It can involve several programmers working on various aspects of the game and on different versions. It is our view that the money a programmer earns for his game is well deserved - and hard earned in most cases".

The programmers of Page Seven Fellas Strip Poker Extravaganza will be lucky to receive more than £1.20 per copy sold. A top selling game that converts across a variety of systems and becomes a classic - i.e. a game that you will feel compelled to have when you get a new computer - an Elite say, or a Falcon - can net a programmer vast amounts of money as he will still be receiving royalties long after he has completed work on it. But once again this is the exception, rather than the rule, and few programmers are in the expensive foreign sports car club with the owners of the software houses. The hassle factor for programmers is also enormous. Disputes between programmers and publishers over royalties are common place. The programmer may also have to kiss goodbye to a large chunk of his earnings to his agent. Computer games are no different to the record or book publishing business in that there is always a Mr 10% (Or 15% even) to be cut in for negotiating on his behalf.

Two footballs, two Halloween masks - hey presto! Keep your PR down, one Madballs pic! So is £24.95 too much for a game? The answer in most cases has to be yes. When you look at the business it is difficult to seen any one area making disproportionately large amounts out of the game. They are all putting something into the business and contributing to the availability of a range of games for Josephine Punter to choose from. The trouble is many of those game are rubbish. Not only are they not worth £24.95, they are probably not even worth less than half of this. Twenty five pounds is far too much for a piece of simple arcade entertainment which will at best provide the player with a few hours of enjoyment. Games that do justify their price tag - Populous, Carrier Command, Falcon or Gunship, sadly , do not make up the bulk of games on the shelf. These good games are dragged down by too many games which keep the general standard low. But there is only one person to blame for this - you. If you go on buying rubbish, don't complain when you discover that a twenty five pound game is obsolete after a few hours, or is full of bugs, or has a nonsensical manual then it is going to keep on happening. Yes £24.95 is too much for a pile of crap. Any amount of money is too much for any pile of crap.

CU Amiga October 1989, pp.96-97, 101-102