Ubisoft: Gross margins are 55% on full price retail software, 70% on digital

Thanks to Saty for noticing.

EA had previously said in one of their calls that they got around 60% on full price retail games. Mind that retailer margin negotiations vary between publishers, so some small discrepancies are to be expected on that front. Digital is generally static.

Note that 20% of the profit also disappears between the retail's cut and final retail gross margin. This is the licensing fee + manufacturing cost generally.

As a side note, EA also noted that games sold through their own digital store are 95% (think Origin or uPlay for Ubisoft). The reason it's not 100% is they have to handle credit card fees. Anything on Steam/PSN/XBL is going to be 70% though.

Saty said:
In yesterday's call, Ubi commented on the margins:
http://edge.media-server.com/m/p/i75gcv6w

at the 26:53 mark.

Basically it's:

Retail $100: 25% cut for retailer, 75% net revenue for Ubi which becomes -> 55% gross margin
DD $100: 30% cut for the store, 70% net revenue for Ubi which becomes -> 70% gross margin
 

uncleniccius

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It is amazing that they are still charging the ridiculous prices in Europe for digital in this case (on psn /XBL).

Why don't they want to push us towards digital?
 

Zombie James

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If the industry is serious about digital taking over, it can't have the same pricing as physical retail disks. It makes no sense.
 

Quonny

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That percentage difference between digital and retail is smaller than I imagined.
 

uncleniccius

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I imagine they have an agreement with retailers to charge MSRP on the digital storefronts.
What is the benefit to them though?

At times retail games have been £40 in stores and £60 on psn.. I don't understand why they'd make an agreement like this with the stores.

I can understand not wanting to undercut (especially for the console manufacturers) as stores sell the console.. But it is still crazy.
 

Thraktor

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It is amazing that they are still charging the ridiculous prices in Europe for digital in this case (on psn /XBL).

Why don't they want to push us towards digital?
They do, but they don't want to lose shelf space in Gamestop et al. Cutting digital prices may bring them in a little bit more profit by pushing some gamers over to digital, but it would probably lose a lot more when Gamestop shoves it in a corner at the back of the store rather than giving it a big front-of-store PoS display. Digital may be gaining traction, but most people still buy physical, so Gamestop/Game/etc. still have a lot of sway.
 

Aztechnology

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If the industry is serious about digital taking over, it can't have the same pricing as physical retail disks. It makes no sense.
Physical disks are cheaper generally due to retailers reducing their cut to pass on savings to savy customers (Gamersclub, Prime). That's the best part.
 
If the industry is serious about digital taking over, it can't have the same pricing as physical retail disks. It makes no sense.
Consider the retailer relations perspective.

A retailer isn't going to want to carry a game disc that costs more than the digital version, at least for a new game.

However, 70-80% of a AAA console game's sales are still at retail, so they can't just ignore physical retailers.

The PC market has much more flexible pricing, but that's because it's been almost entirely driven out of retail.

What is the benefit to them though?

At times retail games have been £40 in stores and £60 on psn.. I don't understand why they'd make an agreement like this with the stores.

I can understand not wanting to undercut (especially for the console manufacturers) as stores sell the console.. But it is still crazy.
I imagine they will end up renegotiating at some point to make it more like the US where they're equal, but my suspicion is that Europe's more variable pricing and store-based price cutting is causing this.

I'm glad this thread will put a rest to people telling publishers getting only 20 to 30 percent gross margins
This isn't ridiculous once we get down to games selling at $20, but generally publishers are aiming for a lot of full priced sales (55-60% is a lot of money!) and then the later sales are more focused on upselling DLC or getting a bit of catalog earnings.
 

Matt

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It is amazing that they are still charging the ridiculous prices in Europe for digital in this case (on psn /XBL).

Why don't they want to push us towards digital?
Retail is still much larger then digital sales, and they don't want to piss off retailers.
 

Mass_Pincup

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What is the benefit to them though?

At times retail games have been £40 in stores and £60 on psn.. I don't understand why they'd make an agreement like this with the stores.

I can understand not wanting to undercut (especially for the console manufacturers) as stores sell the console.. But it is still crazy.
Because the stores want to have an entice for customers to buy their games there. If it's cheaper digital they may not be to eager to display games as much as they do now and since retail is still a big part of publisher's revenue they don't really want that to happen.
 
Oct 17, 2005
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Happily all digital now days and love it. Would much rather Sony/MS get that retailer cut than Amazon, Walmart, GameStop, or Best Buy.
 

leeh

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Retail is still much larger then digital sales, and they don't want to piss off retailers.
Which is a silly approach, take your margin loss, undercut physical prices RRP. If they piss of retailers, so what, if your consumer wants your product, they'll buy it and that sale would just be granted digitally if wasn't offered in any other retail outlets.
 

Servbot24

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Really seems like they would want to make digital games 5 or 10 bucks cheaper than retail. Remove used game incentive, set the digital standard, drive more sales, and make around the same profit margin as retail.

I guess digital must be doing well enough that they don't even need to do that.
 

Alvarez

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Ahem.

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Physical media is for adults who are bad at interior design and for children who naturally want to hoard their toys.
 

Quonny

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Retail prices are lower than digital, that will widen the gap.
The store eats that price cut, not the publisher. The retail store will always swallow the sale, at least that's how I've always understood retail. Hence all these 20% off preorders and such, they're still lower than the 25% they make and get people shopping in their store.

Edit: the more I think about it the more wrong I may be. I bet its flexible.
 
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Which is a silly approach, take your margin loss, undercut physical prices RRP. If they piss of retailers, so what, if your consumer wants your product, they'll buy it and that sale would just be granted digitally if wasn't offered in any other retail outlets.
I think you are greatly underestimating the power of traditional retailers. A large number of game sales are still driven by impulse purchases inside a Walmart, target etc. In store marketing materials, endcap space, and what not are very important.
 

Kathian

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Digital prices outside of deals are dreadful. I now shop around a lot more as steam just doesn't offer the best price.
 

Pranay_

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This isn't ridiculous once we get down to games selling at $20, but generally publishers are aiming for a lot of full priced sales (55-60% is a lot of money!) and then the later sales are more focused on upselling DLC or getting a bit of catalog earnings.
I remember the points you made in another thread and I agree as well. I was talking in regards to full price where retail sales were down played. :)
 
That percentage difference between digital and retail is smaller than I imagined.
Yeah, at full price it's actually pretty comparable, so people who sell a lot up front don't tend to mind as much.

If you don't or want to charge a lower price that starts deteriorating fast though, which is why you don't see anything but $60 retail games and most smaller titles are digital only.

I remember the points you made in another thread and I agree as well. I was talking in regards to full price where retail sales were down played. :)
Yes, that argument generally makes no sense. No one would even bother selling at retail in that case since leeh's scenario of forcing everyone to digital would just be so much more attractive even if you lost a bunch of customers.
 

Durante

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What's interesting is that it's 55% at full price.

That obviously means that the publisher share will be continuously smaller (below 55%) the more the price is lowered.

Unlike digital, where it's always 70% (or probably closer to 100% for e.g. Uplay sales for Ubisoft).

Edit: damn just a bit too slow.
 

benny_a

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That number (and the one by the EA number) is very close to what Pachter told me when I asked him a few years ago.

Of course that was called bullshit back then.
 
Oct 17, 2005
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What's interesting is that it's 55% at full price.

That obviously means that the publisher share will be continuously smaller (below 55%) the more the price is lowered.

Unlike digital, where it's always 70%.
Wouldn't the margin remain the same, even if the total revenue per transaction changed?

And wouldn't digital still have to pay licencins on consoles, meaning that it would be below 70%?
 

HowlTowers

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Digital will come in time but a lot of people with data caps or slow bandwidth won't be able to play such digital games. Cheaper digital makes sense but they don't want to exclude everyone who isn't capable of getting their games. Once network companies provide a cheaper and reliable internet structure to the majority of people, I'm sure the developer push towards digital will come. I'm all for digital but a large game takes up about 1/6th of my cap for the month.

I'm sure the console companies also encourage developers to have retail copies as well because if developers decide to accept losses, that might actually stop some people from going out and purchasing a new console.
 

darkinstinct

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That percentage difference between digital and retail is smaller than I imagined.
Wouldn't the margin remain the same, even if the total revenue per transaction changed?

And wouldn't digital still have to pay licencins on consoles, meaning that it would be below 70%?
Maybe they do it like movies, 50+ % of first month revenue goes to the distributor, 50- % after the first month.
 
Oct 17, 2005
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Digital will come in time but a lot of people with data caps or slow bandwidth won't be able to play such digital games. Cheaper digital makes sense but they don't want to exclude everyone who isn't capable of getting their games. Once network companies provide a cheaper and reliable internet structure to the majority of people, I'm sure the developer push towards digital will come. I'm all for digital but a large game takes up about 1/6th of my cap for the month.

I'm sure the console companies also encourage developers to have retail copies as well because if developers decide to accept losses, that might actually stop some people from going out and purchasing a new console.

In theory, could digital stores pay ISP's to have the games not count against your cap?
 

Durante

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Wouldn't the margin remain the same, even if the total revenue per transaction changed?
I cannot imagine that being the case. The effort (as in transportation, shelf space, and actually selling the thing) for the retailer is the same whether a game is $60 or $5.

And wouldn't digital still have to pay licencins on consoles, meaning that it would be below 70%?
I have no idea how console licensing works, but as far as I know for most PC DD stores it's a flat percentage.
 
Wouldn't the margin remain the same, even if the total revenue per transaction changed?

And wouldn't digital still have to pay licencins on consoles, meaning that it would be below 70%?
The licensing fee on games tends to stay static regardless of what you're charging unless you've made special negotiations with the vendor. Inherently shipping and manufacturing are the same regardless.

As for digital, the 30% digital distribution fee on consoles *is* the licensing fee. It costs them very little to actually send you the data, so they just take a 30% fee for the right to release the game through their platform.
 

Owensboro

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I imagine they have an agreement with retailers to charge MSRP on the digital storefronts.
Also, people have been trained to spend $60 on games forever. As much as we want games to cost less, no company in it's right mind would start charging less for something it's audience is already trained to pay a certain price for.

Ahem.

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Physical media is for adults who are bad at interior design and for children who naturally want to hoard their toys.
No, you're right, ignore that whole reselling / good asset management thing.
 
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The licensing fee on games tends to stay static regardless of what you're charging unless you've made special negotiations with the vendor.

As for digital, the 30% digital distribution fee on consoles *is* the licensing fee.

I think I am doing a poor job explaining my confusion as there are two different concepts I am confused about.

Publishers have to pay royalties/licensing fees to Sony , MS, or Nintendo. Are you saying that the 30% retailer cut that they take on their digital stores also includes the royalty/license fee?
 

leeh

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I think you are greatly underestimating the power of traditional retailers. A large number of game sales are still driven by impulse purchases inside a Walmart, target etc. In store marketing materials, endcap space, and what not are very important.
Good point.
 

Hard

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Ahem.

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Physical media is for adults who are bad at interior design and for children who naturally want to hoard their toys.
I'm sorry for wanting to maintain ownership of products that I buy.

When did we get to the point of defending shitty publisher practices? Convenience is the only plus side I see to buying digitally. Retail is better is almost every way.
 
Oct 17, 2005
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I'm sorry for wanting to maintain ownership of products that I buy.

When did we get to the point of defending shitty publisher practices? Convenience is the only plus side I see to buying digitally. Retail is better is almost every way.

Ignore Tabris JR over there and enjoy your games the way that you want to. I love being all digital but can totally understand why other people prefer physical media.
 

benedictm

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I don't know war's going on with game pricing in the UK.

For console hames physical copies are always, without fail cheaper than the digital download. What's got weird is the second hand market. That used to be the cheapest option, now second hand game prices are the same as when you get deals on amazon. How can that make sense? A new game - in a deal admittedly - for less than a second hand copy.
 
I think I am doing a poor job explaining my confusion as there are two different concepts I am confused about.

Publishers have to pay royalties/licensing fees to Sony , MS, or Nintendo. Are you saying that the 30% retailer cut that they take on their digital stores also includes the royalty/license fee?
Yes, effectively it's a combined "retailer cut" and licensing fee.

The platform vendors like this because it works out in their favor financially as well. For a $60 game, they get 30% of the money instead of 15-20% of the money (the ~$12 they charge you per retail disc, which includes the manufacturing cost and their licensing fee), so it's in their favor to make releasing a game digitally more attractive that releasing it at retail.

Similarly, for indie games and downloadable only titles, they won't get *any* of that business if they set up bad economics for the developers.
 
Oct 17, 2005
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Yes, effectively it's a combined "retailer cut" and licensing fee.

The platform vendors like this because it works out in their favor financially as well. For a $60 game, they get 30% of the money instead of 15-20% of the money (the ~$12 they charge you per retail disc, which includes the manufacturing cost and their licensing fee), so it's in their favor to make releasing a game digitally more attractive that releasing it at digital.

Similarly, for indie games and downloadable only titles, they won't get *any* of that business if they set up bad economics for the developers.

Thank you for explaining that to me. Now I get it. :)