In physical copies, part of the income goes to manufacturing, transportation, distribution, and marketing.
According to Toto, this difference explains why major companies have a financial incentive to prioritize digital sales.
An analysis explains why digital games generate higher revenues than physical copies for companies
In physical copies, part of the income goes to manufacturing, transportation, distribution, and marketing.
According to Toto, this difference explains why major companies have a financial incentive to prioritize digital sales.
Digital games continue to gain ground over physical editions and a new analysis suggests that this model can significantly increase the profits of companies. The study explains how distribution costs change and what impact that has on the revenues of the leading companies in the sector.
The report, prepared by analyst Dr. Serkan Toto, CEO of KantanGames Inc., comes just days after PlayStation announced that it will stop producing new physical discs starting in January 2028.
According to Dr. Serkan Toto's analysis, a physical copy of a video game incurs about 35% of revenues in production, distribution, and marketing.
In the case of external studios, that percentage rises to nearly 50%, as they also have to bear the costs of licenses to publish on platforms like PlayStation, Xbox, and Nintendo.
In contrast, in digital game sales, external studios only face the percentage corresponding to the digital store, which is equivalent to 30% of the sale price. The platform-owning studios retain the entire income.
The report uses a video game priced at US$70 as a reference.
An external studio retains about US$49 for each digital sale.
The platform-owning studios like PlayStation, Xbox, and Nintendo keep the full US$70 for each digital copy.
The analyst believes that eliminating the physical format could increase publishers' profits by up to 54%, although he clarifies that this is an estimate based on multiple variables.
He also notes that the calculation does not take into account taxes, market differences, specific country costs, or private commercial agreements between platforms and publishers.
The report states that platform-owning companies gain greater benefits when users purchase digital games, as they reduce costs associated with the production and distribution of discs.
This discussion gained momentum after PlayStation announced it would stop manufacturing new physical discs starting in January 2028, a move that sparked speculation about a similar path for Xbox.
The analysis also mentions that the rising costs of video game development and platforms are part of the current industry landscape.
Additionally, it notes that some titles have already begun to raise their prices to US$80, so the profit margin from digital sales could widen if that trend continues.