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#1 Atari5200 OFFLINE  

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Posted Tue Mar 4, 2008 3:59 PM

Does anybody know how the software sales are figured? or round about know? I always thought it was based on how many were sold to the retailers?

I ask because of the article on Gamespot regarding Resident Evil Umbrella Chronicals or whatever for the Wii and the way I read it, they are excited that 1 million copies SHIPPED, isn't a million copies pretty much the norm for shipping to retailers now a days for something that has been in stores this long? Have the software figures always been calculated by what shipped? Or is it tallied some way by retailer sales figures?

#2 DragonmasterDan OFFLINE  

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Posted Tue Mar 4, 2008 4:47 PM

Does anybody know how the software sales are figured? or round about know? I always thought it was based on how many were sold to the retailers?

I ask because of the article on Gamespot regarding Resident Evil Umbrella Chronicals or whatever for the Wii and the way I read it, they are excited that 1 million copies SHIPPED, isn't a million copies pretty much the norm for shipping to retailers now a days for something that has been in stores this long? Have the software figures always been calculated by what shipped? Or is it tallied some way by retailer sales figures?


No, a million is actually quite a lot even today. Especially for a game like Umbrella Chronicles which is a lightgun game and not a super major release. I think you have to look at the expectations of the individual title.

Added in edit: Also sales can be estimated to the public via sales tracking services. For the US NPD is the largest such service serving the video game industry, while they have their flaws and critics their numbers are seen as being reasonably close to actual sell through numbers. In Japan those sales are tracked by Famitsu magazine. In Europe it varies from country to country and as a result European sales are a bit trickier to track. So shipped numbers aren't always the way software figures are determined. There are ways to gauge sell through within a reasonable amount.

Edited by DragonmasterDan, Tue Mar 4, 2008 4:49 PM.


#3 DracIsBack OFFLINE  

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Posted Thu Mar 6, 2008 6:17 AM

Does anybody know how the software sales are figured? or round about know? I always thought it was based on how many were sold to the retailers?


Depends on how the company wants to spin it. :-)

In most cases, software companies buy data from a tracking firm like NPD or GFK which tracks the number of units sold through the end customers on a weekly basis as well as the average selling price of the units.

This data is a pretty good indicator of how consumers have actually responded, though not perfect. Not all stores report sellthrough (smaller stores as well as some chains) which makes it difficult to get a completely accurate picture ... though it does give a good barameter.

Shipped is mostly a PR thing. In the retail world, if something doesn't sell, it usually comes back and the retailer puts something else on its limited shelf space. People can announce shipping a million units all they want, but if only 100,000 have sold through to customers in about 8 weeks, you'll likely see a bunch of returns back to the manufacturer.

The game industry more brutal than other software because the development costs are typically higher and the window they have to sell at a higher price is typically pretty small.

But to a company that wants to grow about their success, they'll announce that they've shipped a million copies. Later they'll neglect to mention that 800,000 came back ...

#4 Atari5200 OFFLINE  

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Posted Thu Mar 6, 2008 7:55 AM

that's what I thought. with my job I deal with shipping numbers/sales figures all the time. I also found the sales over the Christmas holiday with the video game market rather fascinating to follow. Not one time do I recall the number being the "shipped" number. Because you are right, anybody can ship 1,000,000 units, but the actual number sold may only be around 250,000.

I just wasn't sure and wanted to make sure I had correct info. This is the first time that I can recall in this generation were a games success was measured by how many shipped vs sold.

#5 DragonmasterDan OFFLINE  

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Posted Thu Mar 6, 2008 11:03 AM

Shipped is mostly a PR thing. In the retail world, if something doesn't sell, it usually comes back and the retailer puts something else on its limited shelf space. People can announce shipping a million units all they want, but if only 100,000 have sold through to customers in about 8 weeks, you'll likely see a bunch of returns back to the manufacturer.

The game industry more brutal than other software because the development costs are typically higher and the window they have to sell at a higher price is typically pretty small.

But to a company that wants to grow about their success, they'll announce that they've shipped a million copies. Later they'll neglect to mention that 800,000 came back ...


It's very very very very uncommon for more than 15-20% of the run of a game to be returned by retail. Basically a game has to be a cataclysmic flop (based on the expectation of the game) for it to be anything higher than 33%.

#6 BydoEmpire OFFLINE  

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Posted Thu Mar 6, 2008 1:30 PM

This is the first time that I can recall in this generation were a games success was measured by how many shipped vs sold.

This has been happening for YEARS. Press releases from various publishers have been crowing about "X Million Shipped" for a long time. Usually a company won't press & ship a huge number of units if they don't honestly think they can sell them - it's a lot of wasted money. Therefore, while it's certainly not as important as Units Sold, it's still not a *completely* worthless indicator. Just mostly useless. :)

But to a company that wants to grow about their success, they'll announce that they've shipped a million copies. Later they'll neglect to mention that 800,000 came back ...

...and then they have to eat the money for the 800k units they couldn't sell. Whether or not the PR effect would be worth it is obviously debatable.

Edited by BydoEmpire, Thu Mar 6, 2008 1:30 PM.


#7 spacecadet OFFLINE  

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Posted Thu Mar 6, 2008 3:59 PM

that's what I thought. with my job I deal with shipping numbers/sales figures all the time. I also found the sales over the Christmas holiday with the video game market rather fascinating to follow. Not one time do I recall the number being the "shipped" number. Because you are right, anybody can ship 1,000,000 units, but the actual number sold may only be around 250,000.


This is not exactly true.

A manufacturer (of anything) can't ship more than the number of orders they have. Video games don't suddenly just show up on your local Gamestop's doorstep. They have to order them. In a big chain's case, the company probably places one big order and then allocates them... but that's one reason why they do preorders, so they know how many to order in advance. (I've heard that for smaller games, they will order the exact number of preorders they have and no more... so you literally can't get a copy without preordering.)

An order from a retailer is when the manufacturer actually gets paid. (Well, net 30 or whatever the actual terms are, but that's when they count it as a sale, ie. "we have produced one copy of this game and been paid for it.") So "shipped" has *always* equated to "sold" in accounting terms. And there's nothing wrong with putting that in a press release, depending on who the press release is intended for. Investors are going to care more about the number of copies of a game that have been shipped than the number of copies sold to consumers, because unless there's some major calamity and the sales estimates are just wildly off, the company has already made its money from those shipped games. The only way that sales to consumers would matter more to an investor is if an ET situation happens and the manufacturer is forced to take back a whole bunch of returned games from retailers. But that almost never happens, especially not these days when preorders are relied upon so heavily to gauge demand.

But there are press releases clearly aimed at consumers and in those cases, it's kind of a white lie to use the "shipped" numbers. Consumers care about what other consumers are buying from retailers, not what retailers are buying from manufacturers. So yeah, that kind of PR really should count cash register sales. The problem is those numbers trail the market by up to 6 weeks. So if a manufacturer wants to get out a release by Christmas about December's sales, they really have no choice but to count "shipped" numbers in their press releases.

Edited by spacecadet, Thu Mar 6, 2008 3:59 PM.


#8 DragonmasterDan OFFLINE  

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Posted Thu Mar 6, 2008 7:18 PM

An order from a retailer is when the manufacturer actually gets paid. (Well, net 30 or whatever the actual terms are, but that's when they count it as a sale, ie. "we have produced one copy of this game and been paid for it.") So "shipped" has *always* equated to "sold" in accounting terms.


A lot of larger retailers will place orders and then if the product doesn't sell after said amount of time at a high enough rate threaten to send it back or request a drop in the invoice price for the product. As an easy example that I can recall of the top of my head is an incident involving the Dreamcast some years ago, and it is what lead to K-Mart being sued by Sega. K-Mart ordered product, was asked to pay for it after a certain amount of time and K-mart (claiming the product hadn't sold well) demanded a discount on what was owed. For larger retailers this is a fairly standard practice to try to squeeze manufacturers or distributors.

Usually an order from a retailer results in the promise of payment for a set amount of money, but that does change from time to time in incidents where large amounts of excess inventory is left over. This was actually a problem for the original fat model of the PSP hardware some time ago with a lot of retailers threatening to stop ordering product. Sony responded by crediting retailers based on the amount of inventory still in circulation and shortly thereafter announcing a price drop.

#9 DracIsBack OFFLINE  

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Posted Sat Mar 8, 2008 7:42 AM

It's very very very very uncommon for more than 15-20% of the run of a game to be returned by retail. Basically a game has to be a cataclysmic flop (based on the expectation of the game) for it to be anything higher than 33%.


A big flop or poorly forecasted by a software vendor and sold into a retailer with a buyer not worth their salt. Stuffing the channel doesn't occur as much today as is it did a few years ago, but it can and does happen. What will happen first will probably be the threat of "you better lower the price or its all coming back" from the retailer. Then it might be pared down in spots with small returns. They'll obviously also stop replentishment.

But the 800K was used for an exagerated effect to emphasize that I don't buy into shipped the same way as I do units sold. :P They might ship a million, but if it looks like the run rates aren't anything close to what the retailer expected (ie. a sequel with disappointing sales that doesn't come close to the original) within about 8 weeks, the inventory pare downs, the forced price reductions and then ultimately the returns happen.

While the PR value to consumers has its plusses ("I'm buying a game that's popular") announcing the shipments is more often done to hype the investors in the software company, which is why they focus on shipped and neglect sellthrough and average selling price.

1,000,000 units sold through to customers @ a disti price of - say $54 ($69 retail) is $54 million dollars. If they fool investors into thinking that they've actually sold through that actual amount at the initial SRP, it's worth it for them. Most investors, if they're paying attention, will see through it but not all will.

800,000 units sold through to customers (200,000 returned) @ an average disti price of - say $22 (after many price reductions that ultimately end with the game at $19.99 on clearance) isn't quite as impressive @ 17.6 million.

Edited by DracIsBack, Sat Mar 8, 2008 7:54 AM.


#10 DracIsBack OFFLINE  

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Posted Sat Mar 8, 2008 8:08 AM

An order from a retailer is when the manufacturer actually gets paid. (Well, net 30 or whatever the actual terms are, but that's when they count it as a sale, ie. "we have produced one copy of this game and been paid for it.") So "shipped" has *always* equated to "sold" in accounting terms.


Depends on how they account but ultimately, you need to consider provisioning in there. 1 million units shipped at - say - $75 a unit initially is not necessarily the revenue that the game will actually bring in.

because unless there's some major calamity and the sales estimates are just wildly off, the company has already made its money from those shipped games.


I hear what you're saying, but it's unfortunately not quite that simple. Let's do a fake example of Guitar Hero 4. Let's assume that when forecasting, both the retailers and the software vendor forecast a substantial 30% increase over the previous initial buy. There's logic - the last games sold well, increasing sequentially version-over-version. They had a lot of stock issues and there's method to their madness.

As a result, the retailers place an order of 1 million units of Guitar Hero 4 at launch. Lets say the game sells for $99 a unit and the software vendor sells it to the distributors for $75. They tell the investors: we've shipped $75 million worth of guitar hero 4 product ... a million units!!! YAY FOR US!!! Heck, they might even bolster it up by quoting the SRP instead of the price they actually get ... almost $100,000,000! I think Microsoft did that with Halo, IIRC.

What happens if, say - Guitar Hero 4 comes out and doesn't sell well as expexted? Lets say it gets awful reviews and that the run rate isn't close to what GH1-3 moved. Suppose they ordered a million units and only 100,000 have sold, leaving 900,000 onhand with the trajectory of units selling through dropping like a rock every week instead of remaining high like Guitar Hero 3 had.

First thing they'll want to do is lower the price and they may also return a portion of the inventory to clear up some shelf space. Say they bring it down to $69 to move more units. They'd be selling it @ 6 bucks lower than what they've initially paid for it ($75) which almost no retailer will do.

Instead, they'll threaten a full return until the software vendor credits them back the difference in some way - either through a price differential credit or by sponsoring a promotional instant rebate/mailin rebate etc. Let's say the retailers push for a price cut to $69 from $99, which might lower the disti price from $75 to $52. The software manufacturer, in this circumstance would have to credit back the difference of $23 per unit on 900,000 units, resulting in a $20 million provision against what software vendor initially "sold in".

This helps move through a lot of the units, selling off another 500,000. Then the run rates drop again, so the retailer decides to give another quarter of effort before they replace the space GH4 is is in with something else. They lower the price to $39, or a disti of $29. The software vendor has to credit back 400,000 units $23 or, another 9.2 million dollars against revenue. This also works, selling all but 100,000 units. By then, the retailer needs the space for something else and sends the final allotment (10% back), wanting a refund of $29 on those units, or $2.9 million.


In the end, the vendor makes:
- $7.5 million (100,000 @ $75) initially at an SRP of $99
- $26 million (500,000 @ $52) in mid-life at an SRP of $69
- $8.7 million (400,000 @ 29) at end of life at an SRP of $39

- They've still brought in $42 million, but that's very different from $75 million they've hinted at by shipping a million units @ full price initially.

Edited by DracIsBack, Sat Mar 8, 2008 8:45 AM.


#11 Atari5200 OFFLINE  

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Posted Sat Mar 8, 2008 9:10 AM

that's what I thought. with my job I deal with shipping numbers/sales figures all the time. I also found the sales over the Christmas holiday with the video game market rather fascinating to follow. Not one time do I recall the number being the "shipped" number. Because you are right, anybody can ship 1,000,000 units, but the actual number sold may only be around 250,000.


This is not exactly true.

A manufacturer (of anything) can't ship more than the number of orders they have.

So "shipped" has *always* equated to "sold" in accounting terms.


boy you couldn't be more wrong and yes I know by experience because I am constantly working between retailers, distributors, and myself being manufacturing. We will forcast what we think will be a hot item and produce sometimes thousands of a particular item so we will SHIP in 10,000 pieces or more, then we sell 2,000 pieces within a year and then 8,000 we take a hit and try to sell at a closeout price, the item will remain on close out until all inventory is exhausted.

so don't give me the crap that manufacturers can't ship more than the number of orders they have, there are times we will release new product without giving any notice to the general market so we will bring in product and have no orders waiting. Your entire post is pretty much false.

#12 DracIsBack OFFLINE  

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Posted Sat Mar 8, 2008 9:43 AM

so don't give me the crap that manufacturers can't ship more than the number of orders they have, there are times we will release new product without giving any notice to the general market so we will bring in product and have no orders waiting. Your entire post is pretty much false.


You're both raising good points.

I think the issue here is that some companies have really tight forecasting and inventory management processes and others are still developing them. Guess it depends where you work.

#13 DragonmasterDan OFFLINE  

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Posted Sat Mar 8, 2008 9:18 PM

boy you couldn't be more wrong and yes I know by experience because I am constantly working between retailers, distributors, and myself being manufacturing. We will forcast what we think will be a hot item and produce sometimes thousands of a particular item so we will SHIP in 10,000 pieces or more, then we sell 2,000 pieces within a year and then 8,000 we take a hit and try to sell at a closeout price, the item will remain on close out until all inventory is exhausted.

so don't give me the crap that manufacturers can't ship more than the number of orders they have, there are times we will release new product without giving any notice to the general market so we will bring in product and have no orders waiting. Your entire post is pretty much false.


Correct, like I stated before shipped doesn't necessarily equate sold since just because an item has shipped doesn't guarantee that the item will be paid for at the invoice price if at all. So equating it to sold in accounting terms isn't always correct but like I said before, it's extremely uncommon for more than 10% of total inventory produced to be left unsold for an extended period of time.




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