FourFourOne The cash flow numbers you’ve been hearing about from gaming publishers are all over the place.
How much revenue did your games make last year?
How many sales did you have?
What about the digital sales?
All these questions can be answered in a spreadsheet, and if you’re lucky, you’ll get a pretty good answer for every one.
But for those who make a living off gaming, they often won’t get the answer that they’re looking for.
They’re hoping for some kind of financial indicator, which means they have to take into account a number of different factors.
One such factor is how much you spent on advertising.
“A good example of how this can affect cash flow is the industry standard ‘golden goose’ cash flow measure,” says David J. O’Sullivan, director of research at the consulting firm PwC.
“In the video games industry, that measure has been around for decades, but we’ve seen it become increasingly relevant over the last few years.”
The golden goose is a measure that compares the amount of money spent by publishers and developers on advertising against the amount spent on marketing and marketing infrastructure.
That way, publishers can track how well their games are doing and compare it with the same data points from other sources.
“When you look at the number of dollars spent on ad campaigns, that’s a measure of how much of the advertising dollars are being spent on the right thing,” says O’Sullivans, “which is really important.”
If publishers and studios have a strong ad campaign, they can earn money on their games.
But that’s not always the case.
In 2013, the Electronic Entertainment Expo (E3) gave an interesting insight into the way video game developers earn money.
Video game companies typically charge a fee for showing their games at E3.
This includes in-game advertising, social media ads, and even in-app purchases, which typically range from $5 to $20.
The E3 report found that while there’s no shortage of game developers who charge a hefty fee for E3-related advertising, it’s more likely for studios to earn more than they spend.
To be fair, the industry has tried to address this problem with new policies, such as the Digital Content Policy (DCP), which requires developers to put more effort into their games and ads than they previously did.
But it’s still unclear whether publishers and game developers are doing enough to make sure their games make money.
“The Golden Goose isn’t always what it seems,” says Jim Murray, director at the Center for Game Innovation, a non-profit research group.
“If a developer has a good ad campaign and makes money from it, that could be a good indication that they’ve got a good cash flow.”
Murray points out that the data doesn’t always tell the whole story.
“What’s more important is whether there’s an improvement in revenue,” he says.
Murray also cautions against the concept of a golden goose for all developers.
Many game companies aren’t spending enough on marketing to make their games worth paying for.
“It’s just a bit of a misnomer to say they’re not spending enough money on marketing,” he explains.
“A lot of the companies are doing a pretty poor job marketing, and a lot of that has to do with the fact that they don’t have enough people who are paying attention to marketing.
That’s one of the reasons the publishers don’t do it.
They don’t know how to sell to the people they’re marketing to.”
But what’s more significant is how the industry is spending its cash.
For example, some of the biggest publishers in the industry are also the most aggressive in advertising.
Activision Blizzard spent nearly $7.5 million on digital ad spending last year, according to the Digital Entertainment Group, which tracks spending on all forms of digital advertising.
EA spent more than $8 million on advertising last year and has the third-highest spend of any publisher in the U.S., behind Activision and Ubisoft.
This is especially true of EA’s top-selling games, including FIFA 17 and Battlefield Hardline.
EA also spent nearly as much on online advertising as any other publisher in 2013.
These kinds of high-profile brands have a way of putting pressure on the industry.
EA’s games have generated over 1.2 billion digital sales in the last two years, which are equivalent to nearly $5.5 billion in revenue.
It’s not uncommon for games to make over $100 million in digital sales, but EA’s success is due in large part to how well its games are performing.
And EA’s digital spending isn’t just about making the games popular; it’s also about making sure that those games are the top-performing games on their platforms.
That’s why EA is constantly updating its digital business.