All great questions and quite astute. I'll write a bit on these topics from my experience in the business over the last 20 years as it pertains to the North American market (Europe is a different animal entirely... multiple different animals actually).
Why are games not advertised as much?
I'd argue that in terms of actual budgets spent, they're actually marketed more than they were in the 90s or the first decade of this century, however as a percetage, perhaps it's a different mix of media buying versus other activities. The issue is compounded by the fact that, in many cases, the audience is more fragmented, our media mix in turn is also more fragmented.
Smaller TV campaigns will run just on just select cable channels and if it's an M rated title, in the US it can only run spots later at night and only on programs with the majority of the ratings coming from age 17+ viewers. Additionally, while TV is still probably the best way to reach a mass audience, it has shown to be increasingly less effective and unfortunately, to have a reasonably successful TV campaign, you've got to have a certain critical mass for budget just in that media.
In terms of online, there's more sites than ever to support and reach an audience. In addition to traditional specialist media (IGN, Gamespot, etc.) there's youtube programming, facebook buys and many other avenues that are competing for our online budgets.
Back in the day, you'd see some print ads in Nintendo Power, Next Generation (ahem), EGM, Game Informer (post Funcoland purchase) and your average game buyer would have the perception that a game is "supported". Those vehicles save one pretty much no longer exist.
Now, also back in the day, you wouldn't see community events happen around the world like our Street Fighter 25th Anniversary tournaments. You wouldn't pay for community managers to engage with you as we do here (or have a site like Capcom-Unity.com). You wouldn't see presence at consumer tradeshows (the PAXes didn't exist and the Comic-cons weren't destinations for gamers). Channel marketing (things you see in the store) has far more vehicles than it used to... or really rather things that just used to happen (like store window placement and end cap placement), publishers now pay for out of product marketing budgets. There's also pre-order incentives that eat into product development or marketing budgets (or sometimes both) that weren't there much more than a decade ago.
In short, there's just a variety of other activities that are all part of a campaign(or part of ongoing general marketing/communications initiatives) that didn't exist a decade or 15 years ago.
Why no advertisement in movie theatres?
It happens still on bigger titles, even for us. Cinema spots are extremely expensive to place and to produce. In my experience, compliance of operators running the spots (say for example, it's supposed to be the last spot before the feature runs in a lights-down scenario and it runs earlier or in low volume or not at all) has been spotty. In short, unless you're Black Ops or Halo 4, often that budget is spent more effectively on other vehicles.
With the loss of nintendo power and playstation magazine is it a big loss in advertisement or did you not plan to use that form of media much?
Print in general has been a decreasing part of our media mix for the better part of a decade. That's part of the reason I left that side of the business in mid-2000. The writing was already on the wall.
Was there any game that could of done better in sales if you advertised more?
Here's the way this works... the more you spend, all other things being equal, the more you sell. There are however, greatly diminishing returns, especially for certain types of games (more niche games). Beyond a certain point you aren't generating profitable sales. You're spending more per unit than you generate in margin, so you'd have been better off without that sale.
Additionally, when retail is only willing to take XYZ amount, regardless of what you spend, at a certain point, the demand you generate post launch becomes pointless if it's never going to get on the shelf because retailers are looking to clear remaining inventory to make space on the shelf for a new game. Which is why there's the need to build the launch demand to be as big as possible. Retailers place orders about six weeks ahead of launch, so if you haven't got the demand where it needs to be at that time (and there are a few things retailers look at to quantify this, chief among them is preorders), you've probably over-commited in marketing expense.
I will say, digital sales change this model... because we don't need to convince a gatekeeper to buy the goods at any time. They're just always on sale. So the model will change over time as "phygital sales" (day and date digital/retail) and digital-only sales become increasingly prevelent.
Publishers spend a certain percentage of forecasted gross sales as their budget... so how much marketing a game has is a function of how much revenue the title is expected to generate. So Black Ops has an enormous budget (enough to cover a sizable and lengthy TV campaign which is appropriate for something as broadly appealing as it is)... Ghost Trick has a more modest one. In those two cases, they may well have been the same percentage of gross sales on each title.
Publishers need to commit to those spends often many months in advance of launch, before we fully know definitively how good or bad a game is or even before we know how effective our marketing is going to be (and certainly before retail has placed their orders). It's as much art as science in spending the right amount to maximize sales. Forecasting is one of my largest and most important responsibilities and I set all budgets as well.
So to get back to the question, it is rare when we have had significantly greater than expected sales and thus resulted in "under marketing" that would have indicated we'd underspent. On the contrary, there are a couple titles we have repeately strategically spent a higher amount of marketing than we usually would in the name of growing certain brands that we knew would be ongoing franchises.
With digital copy games is it harder to advertise?
There are different approaches and it depends a lot on what sort of digital product you're talking about. Mobile is different from browser-based is different from Steam/XBLA/PSN/eShop.
With a physical product, the objective is to build as much critical mass in advance of retail launch as possible, largely in an effort to overcome the friction inherent in the process as described above.
Among almost everything above, with digital consumers and digital-only product it's different. The mindset of the consumers of digital product, I've found, to be much less forward looking, which means, the need to announce something 12 months in advance (or more) is less impactful. A digital consumer very often wants to know about something when he can buy it, or perhaps just a couple months before (this could change in the future if there were better pre-order mechanisms on all digital platforms where you could capture users in advance of launch with your activities/media).
As it stands, the lack of friction in the system (few barriers or obstacles between the consumer and an actual purchase) means that it isn't necessarily all about the launch window (though for financial reasons, that still may be the focus from company to company or product to product).
The other things we've learned is that traditional media vehicles have tended to have poor returns for digital product outside of perhaps mobile product (mobile advertising for mobile product is effective). I could write a book on the things I've learned are effective for console/PC digital product but that's probably giving away a bit more secret sauce than I'd like.
1) Do you see a point where Capcom would rely soley on digital releases? I read an interview you had at last year's GDC with Gamasutra that you believe within five years over 50% of Capcom's revenues and operating profits will be through digital games. You also mentioned that retail will always have a place with Capcom, but do you foresee this attitude changing in the distant future?
Nope. Retail will always have a slice of our business in some form, even if what we're eventually selling are tokens that are redeemed digitally. Even for mobile, which people think of only as a digital mechanism, iTunes and Google play cards are sold at retail which are used to buy our content. Retail has a role in the ecosystem. It'll just be a much smaller role whan what it's been historically.
2) What happens to retail overstock product once it's shipped back to the warehouses? Do they send it back to Capcom? I've always wondered if there are boxes of unopened/unsold games sitting in a warehouse somewhere collecting dust.
It depends on the territory.
In Europe, distributors and retailers could, in extreme circumstances, return stock to us. In the Americas, we do not accept returns under any circumstances. Instead, we will "price protect" and use "co-op marketing" to eventually continue to step down the price of the goods that are on the shelf until they eventually sell through. Price protection and co-op are mechanisms for reimbursing the retailer/distributor for a portion of the price they paid, in effect allowing them to reduce the price to consumers and still make their 20%-25% margin (retail really has little risk). You'll eventually see price protection get down to $9.99 at retail... which means, in effect we've reduced the wholesale price of the goods to a point of $6-$7 so retail still makes their margin.
Now the bad news is, even absent the development or product development expense, our costs of goods to produce each unit is closer to double that bottom wholesale price. So the loss per unit, especially once you allocate already sunk marketing and PD expense can be many times that $6-$7 a unit factor in the worst scenario. This is another reason why forecasting and production management is so critical. A miscalculation could effectively errode any return you would have made on the product.
For the Japan market, everything is a firm sale. There's no returns AND no price protection. In that market, the retailer actually takes more of the risk.
Your last question is you probably have is:, ok, what if you have goods and materials leftover in your warehouse? What happens to those?
Eventually, if they can't be sold at any price, from a financial perspective, you may eventually have to write them off and scrap them to get the inventory off of your books. Once that's done, you can't sell the goods at any price and they have to be destroyed. Usually this is a very, very small number but in a catastrphic scenario (see Atari 2600 E.T.) it can be very significant.
