Apart from salaries the other major investment is licensing and technology costs. Unless you're already tooled for a certain tech there are development tools and whatever else you need to buy, training, etc. Licensing comes in wanting to use certain imagery, sayings, music, themes, game elements, etc.

Also, a year's worth (or whatever your development time is) of electricity bills add up to this already huge pile of things that need to be covered financially. Salaries are absolutely the most expensive position on the list, but in the end all the little expenses sum up to a reasonably hefty sum.

@Domx
Then no game is trully free, unless you develop it in thin air... And even then there is the usage of oxygen! And I wanted to make a game for nought

Just kidding. Still, looking through this thread, I never actually realised how much it costs to make a game. Thanks for the eye-opener guys. Even if everything seems so complicated, I guess that once you get used to it, it is hardly an issue to be afraid of -- just another risk of the trade.

I think I may understand the confusion here....

"The company heads decide to make <this game>, and gather up a team of their workers. Why doesn't it go under as a company project, something that they do on their work time, and not getting paid additionally for it, follow me?"

They do.

But they still have to think about the cost of the game -- because after all the "money" that they spend on the game is money they can't spend somewhere else. So the reason for decided a budget for the game -- even though the developers are on staff -- is so that you can decide which of several ideas to develop.

If you need 10 people at 10k a month for a month, then the cost of the game is 100k.

So the next question you ask is -- will the game MAKE more than 100k. If the answer is no, then you don't do it. You go find another one to do that WILL make more than 100k. Or you work out a way to make it cheaper.

The point here is to ensure that the company makes money deliberately rather than just developing things for the hell of it and making money accidentally if at all.

If we can make games for the iphone for free....

You can't, there is always a cost. If you work on a game for free and it takes 100 hours, that is 100 hours that you could have spent working at McDonalds or even somewhere that pays much better. That means you had the opportunity to earn 100 hours x whatever hourly rate. This money that you didn't earn is referred to as the opportunity cost. By working on the game you gave up that opportunity and that is the cost of making the game.