If you watch almost any TV you’ve likely seen the ad blitz from Burger King promoting their three new videogames for the Xbox 360.
The deal is, you go to Burger King, buy an extra value meal, and then can purchase one of the three games for only $3.99. These are not exactly throwaway games either. They are toward the casual end of the spectrum in terms of depth, but they are professionally produced. Big Bumpin’ got the best review among the trio of games, but Sneak King didn’t do too bad. IGN didn’t give Pocketbike Racer much props, but the other two were ranked above many very expensively produced $60 titles.
While this is obviously not an apples-to-apples comparison (the IGN reviews acknowledge that they factored the price into their ratings) it’s still pretty impressive that “released on Nov. 19, more than 2 million BK® Xbox games have been sold in just four weeks, joining the ranks of other top-selling Xbox 360 titles such as ‘Call of Duty 3′ and ‘Saint’s Row,’ making it the best-selling collection of games published for the Xbox/Xbox 360 platforms this holiday season.”
To understand the implications we need to speculate about the economics involved. We pulled our numbers from Forbes’ deconstruction of the cost of an Xbox 360 game – Gears of War. The first question is how much is Burger King collecting for the games. The discs cost $3.99 each and require the purchase of an extra value meal (which if not a loss leader already likely has a pinched margin). Even if we generously claim that BK makes $1 of profit per extra value meal (which I doubt) that puts their revenue at $5 per game. (It’s true that Burger King could be getting additional profit as most likely at least some people are buying additional items off the menu, and some of these folks only came into the restaurant for the games.) According to Forbes $3 of that cost is eaten by manufacturing cost of the disc, case, and manual. This leaves $2 for everything else. My sense is that the Burger King ad spend for the games eclipses (or at the very least equals) the ad budgets for any of the major $60 videogames. According to Forbes that alone is $4 per game. Even if you add extra profit from additional purchases, the marketing likely eats it up.
Now this is not entirely surprising as Burger King isn’t looking to make money on the games. They’re looking to sell more hamburgers (or more likely, get more people into the restaurants). That said, the implications for Burger King are mostly cost (and hopefully benefit for them in terms of brand recognition/positioning/value). The games probably cost anywhere between $1-$2 million each to make. What’s most glaringly absent however from Burger King’s cost structure is the (Forbes estimated) $7 royalty fee per game sold. Is Microsoft making any money? Did they take a severely reduced royalty? Did Burger King advertise the games on MSN? Or did Microsoft feel like all the mentioning of the Xbox 360 in the BK ads during this critical holiday selling season was enough? I don’t know.
Here’s where it gets interesting. If Burger King decides that they’ve gotten a lot of value out of the promotion, they could decide to double down. What if they doubled the budget for game creation? Another $3-$5 million is only likely 2% of their advertising budget (based on rough estimates from various reports around the globe). What if Burger King decided to spend $10 million on one game instead of spread across three? I know product placement turns some people off, but I claim that if the game is really good it won’t matter how much product placement it contains. And when that happens, what happens to Microsoft’s royalty-based business model? At what point does Microsoft come to Burger King and ask for its $7? Burger King can make games for Wii or PS3 (or even the PC) if they don’t like Microsoft’s terms. Maybe Microsoft can try and monetize through MSN or even the Xox marketplace, but downloading the game would likely defeat the purpose of getting the customers into the stores. Maybe after the promotion is over Burger King will offer the games for download.
I’ll leave it at this: the cost of creating high quality consumer software (especially videogames) can be pretty high. But even as high as those costs can be, relative to the budgets of some of the largest brand advetisers, the costs are still manageable. The more that advertisers realize what an effective mechanism videogames and consumer sofrware in general are for getting out their message, even the few remaining categories of consumer software that consumers actually pay for themselves (like videogames) could be upended with advertisers setting the priorities, and end users paying next to nothing.