Marketing of Video Games - The Video Game Industry: Formation, Present State, and Future - page 49

because this fee is paid at the time of manufacturing, as opposed to paid
upon actual sales of the product—and, importantly, are payable for games
that are not sold to consumers. So, if a game publisher orders one million
copies of its game but half of them do not sell, the publishers have already
paid the full console manufacturer fee on one million copies of the game
and have to absorb that cost. On the other hand, they generally support
the development of games by independent developers. This fi nancial sup-
port may take the form of a royalty on games developed and published—
perhaps as a draw during the development process.
Fees are thus an inventory item in the balance sheet; royalties are accrued
in cost of goods sold (COGS) in the income statement. As an example, from
Electronic Art's 2011 Notes to Financial Statements:
Inventorie s consist of materials ( including manufacturing royalties
paid to console manufacturers ), labor and freight-in and are stated
at the lower of cost (fi rst-in, fi rst-out method) or market value. (64;
emphasis added)
As an illustration, inventories were $77 million in 2011 on assets of $4,928
million; $100 million in 2010 on assets of $4,646 million. “ Royalty-based
obligations with content licensors and distributor ai liates are either paid in
advance and capitalized as prepaid royalties or are accrued as incurred and
subsequently paid. These royalty based obligations are generally expensed
to cost of goods sold at the greater of the contracted rate for contracts with
guaranteed minimums or an ef ective royalty rate based on the total pro-
jected net revenue” (64; emphasis added). Again as an illustration, COGS
in 2011 were $2,090 million on sales of $3,589 million; $1,866 million on
sales of $3,654 million in 2010 . 11
GAMERS' PARTICIPATION IN DEVELOPMENT
Previously we stated that gamers are made part of the development of
games only in the later stage, in the form of play-testing. This development
is not necessarily the case, as there are ways of bringing the gamer into the
process in an early phase—even in the prototype phase. Gamers are some-
times made part of the development process through online communities.
Hardcore 12 gamers that invest much time and ef ort into one specifi c game,
or series of games, are most times invited to comment and discuss these
future productions or changes to existing games as they are key consum-
ers and have great experience from playing the game for a long time. Most
game developers, and publishers also for that matter, have a forum for their
customers to post technical issues and content issues of games. This estab-
lishment means that these forums contain a large number of players (most
times) who invest time and energy on one specifi c game. This condition