AboutAndrew Crome Expertise I have played games since the early nineties. I can answer questions on the SNES, the Sega Saturn, N64, Dreamcast, Gamecube, Xbox, 360, and DS. I can tell you what games are worth getting, and which aren`t, as well as the history of these systems. While I`m no expert on other systems I`m more than happy to find out things you would like to know about them.
Question I am looking into going into this business and this question is really bothering me--
Why do video game providers chose to sell consoles at break even or even at a loss when it comes to prices, profiting instead from royalties charged to game publishers? Is there any difference between the video industry and PC industry
Answer Hi Michael,
I'm no business man, but I imagine it comes down to simple profitability issues. Say an Xbox 360 costs $250 to make, and is sold at a profit making price - say $300. The manufacturer thus makes a profit of $50 for each console.
However, when you consider that less people will buy at $300 then at $250 (witness the rather muted PS3 launch), then while the manufacturer may be making $50 for each console, it is selling less consoles. When it sells less consoles it sells less games. Less games = less royalties = less interest from publishers = bad press = even fewer games. It becomes a vicious cycle.
Now, if the manufacturer sells at break-even price, while they may not be making a profit on the console, they are getting more units into homes. More units = more royalties from games, more interest from developers, and better press. This obviously leads to more games being g developed and more positive buzz, which should translate to more console sales. You've also got to remember that the console itself is a "one time only" investment. Games, however, represent a steady revenue stream that can last for around three to eight years - even after a console is essentially outmoded (see the PS2's current games sales, for example).
