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How much does Nintendo make off a third party game?

Almost as much as the third party itself, it seems!

 

The headline of a May 20 article in business magazine President asks "Why does Nintendo have one-fiftieth the employees of Sony but makes three times as much money?"

As an answer, the magazine provides a couple of often cited explanations. First off, different from its competitors, Nintendo's business model is to make money off hardware from the start. Additionally, Nintendo is Japan's number one software maker, which leads to high profits.

The article also makes note of Nintendo's ability, as a hardware maker, to rake in profits from third parties. As evidence, it provides a few interesting stats which I thought I'd pass along here.

Nintendo made 11.5 billion yen in royalties for the year ending March 2008. But the real money came in fees for production (the magazine presumes that this includes distribution as well), which resulted in total revenues of 170 billion yen. The magazine states that this figure can be worked out to be 1,700 yen per DS game and 1,000 yen per Wii game.

Comparing the Wii production costs to PS2, an industry insider explained to the magazine that material charges for PS2 games are about 300 yen. Even if you add in the 10s of yen for packaging, you still get Nintendo making over 50% in profit for the production side of its business.

The article (an online version is viewable here) has a chart showing that Nintendo takes 1/4 of the sales price of third party Wii games. For a game priced at 5,800 yen, the retailer takes 1,914 yen (33%), with wholesalers taking 12%, or 696 yen. Nintendo takes 400 yen (7%) for royalties and 1,000 yen (17%) for production charges. This leaves the software maker with just 31%, or 1,790 yen.

The magazine says that these figures are estimates from its editorial staff based off interviews with related parties.

I was a bit suspicious about the software maker making less than the retailer, but the retailer may actually not be making so much in general. When I buy a game at major electronics retailer Bic Camera, for instance, the game is usually about 500 yen or 600 yen lower than its MSRP. In addition, the shop gives 10% back in points, so in terms of actual cash intake, based off the President figures, Bic isn't even making 1,000 yen per game.

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