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March 31st, 2007, 20:19
Originally Posted by Kharn View Post
What does that have to do with anything? We're talking about a game being profitable from budget to 10 years later, which includes any and all costs and does not factor in your "write off". I'm sure that it'll seem even more profitable if you *do* do such a write off, but that's not what we're talking about here.
You have to factor it in though. A company can only determine a profit of a certain product if it sets a price for the product (the manufacturing cost). It's what goes into the inventory, too. A company (a publisher) that has a certain number of games (boxes) in stock needs to attribute a value to that stock. So if you have a full price game, then your accounting department calculates a value of -say- EUR 22.97 per boxed copy (a totally made up number, of course ). A lot of other costs like stock-keeping etc depend on this value. Now if you can not sell your product at that price anymore due to a lack of demand, then you do a write-off to lower the value of the product. If you were in the red up to the time of the write-off then you're basically cutting your losses and starting from scratch. The cut losses go into the statistics and the product continues to be sold on the basis of a price of -say- EUR 7.92. That's how you go from making a loss to making a "profit" (sort of) if you are the original investor who funded the project from start to finish.

The question in regards to Fallout is: How much -if any- money did Interplay lose initially and were they able to make up for those losses from the long term sales.

However, even if they did make a profit in the long run, it still doesn't validate the investment. As I said above… if you -as an investor- have the option to buy a 1 year bond at an 8% interest rate or a 5 year bond at 2% interest rate (assuming that the level of interest rates is pretty much guaranteed to remain stable during that period and the risk is the same for both papers), then taking the latter of these two options would be mighty stupid. Sure, you're making money and a profit but why settle for less than you have to?

If I were an investor then I'd want a timely return on my investment as well. If I'd cough up $5 million then it had better pay off well because even if I did nothing with that money but leave it in the bank, I'd still get $200,000 (assuming a 4% interest rate) just for the money sitting there, doing nothing. Every year. So after three years (usual development cycle for a game) I could have $5.6 million from just picking my nose all day . Does it seriously surprise anyone that investors don't just happily throw $5 million bucks at a project that might (or might not) be a long term seller? Remember. If you still had the $5 million, you'd be making $200,000 every year from doing nada. You need one hell of a long time seller to make a profit of at least $200K year after year if you can only sell the game at a budget price.
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