Where does my money go?

Where does the money go when we buy videogames?

It's a question we don't often ask ourselves. When big-budget, blockbuster games are released on any given Friday, we fork out our cash like we put out the rubbish. Whether it's Halo, FIFA, Call of Duty or World of Warcraft, the path our 40 quid takes from wallet to record-breaking sales headlines is a mystery. What percentage goes to the shop selling you the game? How much does the publisher get? How much does the game creator end up with?

There are no simple answers. Different publishers arrange different deals with different shops for different games. Some, such as Grand Theft Auto IV, are made in-house by publisher-owned studios. Others, such as the Slightly Mad Studios-created Shift 2: Unleashed, are developed by independents. And some, like Rare's Kinect Sports, are produced by console manufacturers. But Eurogamer has compiled a rough guide based on information provided by various publishers and developers that can be applied to the sale of most boxed console games in the UK.

If you bought a game in the run-up to Christmas and it cost £39.99 to buy, approximately £7 (17.5 per cent) went on VAT (that figure increased to 20 per cent as of 4th January), while £10.50 (27 per cent) went to the shop and £12 (30 per cent) to the publisher.

The rest goes on what's called cost of goods: the nuts and bolts of videogame publishing. 65 pence (two per cent) goes on distribution, £1.75 (four to five per cent) on marketing, and an £8 (20 per cent) licence fee goes to the platform holder (Microsoft, Nintendo or Sony). All these costs are paid for by the game's publisher. If a third-party is behind the game, approximately £3 goes to the developer, or 25 per cent of the publisher's revenue after deductibles, although developers are often paid in a series of advances as they meet milestones.

The waters are muddied by the various complex deals signed between publishers and developers. If a game is sold digitally, perhaps on Xbox Live, PSN or Steam, there is no need for it to be pressed onto a disc or sit in a warehouse waiting for that magical ship date when it's sent across the world in cargo planes and trucks to the shops that sell it.

If a game is created in-house, the publisher need not pay a developer at all - but bonuses can apply. This is the case for Activision's Call of Duty series, which is produced by internal studios Infinity Ward, Treyarch and more recently Sledgehammer Games, and Electronic Arts' FIFA 11, made by the EA Canada team in Vancouver.

Bonuses often relate to sales and an average review score. This, explains Philip Oliver of YooStar 2 creator Blitz, is why Metacritic has become so important to publishers and developers.

"They will work out the budget for the next Call of Duty, $35 million, and they'll go to the project director and say, 'You better bring it in for less, and I'm going to bonus you on how much less, versus the Metacritic quality,'" Oliver says. "Metacritic is used as benchmarks for quality. It takes the guesswork out of answering the question, 'Did you do a good game or not?' They can use it to say, 'We'll go on that score. If you get above 85 per cent, we'll pay you a bonus of X.'

"We've had several development contracts like that. Yes it does get used."

For independent developers, securing a good deal with a publisher ensures their continued existence. It is essential to their survival.

"We have a great relationship with THQ," Oliver explains. "It's mutually respectful. There are other people at companies, and maybe even THQ for all I know, that almost want to get it as cheap as I absolutely possibly can, and the minute you sign the deal, I'm going to squeeze you on getting more than I paid for. That's their job.

"In fact, a producer did say that recently to us, that that is his sole job, to get the money he's spending down and to get the content he's buying up.

"That doesn't help for a long-term relationship. Long-term relationships respect the other parties need to make a profit."