“The price Sega sell to the supermarkets at is the same, whatever the supermarkets then choose to retail at. ”

Sorry, but that’s just not the case, as anyone who’s dealt with retail chains will tell you.

What actually happens is that they reduce the price, sometimes come back to the publisher demanding a retrospective price reduction on that stock (they phrase it nicely ie ‘could you help us out with this?’). If you don’t reduce your price, you’re unlikely to be stocked again.

Even if they don’t demand a reduction on this particular stock, the consumer expectation becomes that games are much cheaper, and so the accepted price point lowers dramatically.

Next time around, the stores will demand their ‘usual margin’ (which is generally twice what US retailers would get), ie you have to reduce your selling price in order to allow them to make the same margin they always want.

Specialists also do this (demanding retrospective price protection and sale or return), along with their heavy demands for in-store/catalogue marketing. At least they don’t generally loss lead on brand new titles though.

So while, in the short term, this is good for consumers, it drives down the margins for publishers and developers, and has now done so to the point where development of retail console games is becoming unviable. Like your piracy argument, the long term effect of this revenue reduction is not a good thing for consumers who like games. Witness the struggles of so many good developers and publishers alongside Game’s recent record profits.

The good news is, when you do the maths, it all works again once you eliminate retail from the equation and go direct to consumer electronically.

If you do a breakdown of a (profitable) £40 game at retail, it works like this (figures are obviously rough, vary a fair bit and, due to it being before 9am may well have all manner of errors in them):

VAT – approx £6
Retailer selling price (after VAT) – £34
Retailer profit (40% margin) – £13.60
Distribution and warehousing – £3
Publisher selling price (to distribution) – £17.40
Publisher cost of goods (Xbox, Sony) – £7.40
Publisher net revenues – £10
Marketing contribution – £1.50
Publisher net revenues after marketing – £8.50
Developer (let’s say 20% royalty, which is high these days) – £1.70
So, the payment to the game developer (assuming it recoups its advance royalty, which they generally don’t of course) is £1.70 per unit. That’s 4.25% of the price to the consumer.

Strip out ALL of those layers in the middle (except VAT), use an iPhone type model where the content creator gets 70% of revenues:
Consumer pays: £5
VAT: £0.74
Net receipts: £4.26
Slice to developer (70%) – £2.98
Let’s then have the developer spend £1.28 of that in marketing, not that different to the marketing spend per unit of the boxed product – and we’re not having to spend a load on in-store marketing!
Developer gets – £1.70 per unit.

So, we’re looking at a similar marketing spend, same revenue per unit to the developer, and a sales price 8 times lower than the boxed product. At this price, and with an online model, games will have a much longer tail than boxed product, and can seek out more niche audiences than is feasible when you’re competing for shelf space. The games themselves can be smaller and cheaper to develop.

That, I think, is very good for consumers, who might just tolerate not being able to sell second hand when games are costing them eight times less money.

More variety, cheaper prices, and the convenience of online delivery. Such an exciting time to be in this industry!

Made the same point, Supermarkets but the game at the same price as others, If they sell it at a loss, so why should Sega care. People that should be worried are GAME etc.

As for the independant developers, I think digital will come to save them. The same way that people have to buy foreign films that arent part of the “hollywood make-up” online, people will buy the niche or indie games via digital distribution.

Anyway, as a consumer, Im not moaning, and what with the way the economy is going, I think these supermarkets will continue to make progress.

1. Pretty much all non-specialist B&M retailers don’t stock a wide range of games. Chances are, if it’s not been in the top twenty in the past few months, you’re not going to find it on the shelf in Asda. If we do get a scenario where Supermarkets continue to increase their share of the video games market, then it could have a negative impact on smaller publishers or smaller games.

2. Even when they do have loss leaders (with exception of the recent Morrisons deal) they are rarely the very cheapest place to get games from. More often than not, an online retailer will have a better price at release, if you are willing to look. Obviously, this has no bearing on impulse purchasing, but it’s worth bearing in mind.

3. (Some) People like buying used games and trading games in. As far as I am aware, non of the major retailers have branched into dealing with used games, but it wouldn’t surprise me if that did happen at some point in the future.