Monday, April 07, 2008
Why Game Developers Are Screwed
Hey, I've got a really awesome deal I'd like to offer to anybody who'll take it: If you will give me $20, I will happily pay you $12 in return.
Sound like a great deal? No? It occurred to me this weekend that it's the kind of deal most independent video game developers keep making with publishers, again and again.
Part of this was brought about by a post Scorpia made this weekend about a number of studios closing up shop. I've begun taking a little bit more of an interest in investing lately, and I realized that based on very fundamental criteria, I'd never invest in a traditional independent game development studio. Because - the way royalties and advances are being handled nowadays, from the development studio's perspective at least - they are spending more to make a game than it has a reasonable chance of breaking even on. So they may spend $8 million on a game that will likely only make them $5 million.
But that's all to recoup the publisher's advance - which the publisher treats as "funding" the game with a zillion strings attached all the way up until the point where the game begins to sell. At that point it reverts to its legal status as an "advance towards royalties" at the developers pathetic royalty rate.
Meanwhile, that $5 million really becomes $0, because it's an advance on royalties and - as it turns out - was the developer's money the whole time. And the publisher - who is raking in much more money on the game, is making a modest profit. Except in the rare instances where the game far outperforms expectations, in which case the publisher makes enough money to cover a ton of losses (which they also take, admittedly - particularly when they cancel contracts), and the developer actually sees back-end royalties for a change.
Is that good business? I admit, I've not an experienced business-person or anything, but that sounds to me like a stupid proposition. Maybe that's just the nature of hit-driven businesses. But aside from practically winning the lottery with a game that greatly outperforms the publisher's expectations, the best a studio can hope for is to pad their advance (since that's really their only source of revenue) long enough to make a small, self-funded ("indie") game, or to stick around long enough to get bought out by a publisher. Or to make tiny games in such quantities that a developer literally has dozens of "clients" (publishers) pipelining money in.
Being a true "indie" may be a really tough row to hoe. But the alternative sure doesn't seem to be a winning proposition in the long run. Though I do wonder how long it'll take before making games for portals (who are slowly evolving into the new "publishers" of the online age) falls into the same trap.
(Vaguely) related weeping, wailing, and gnashing of teeth:
* Dependent, Independent, and Indie
* Explaining Indie Games, Illustrated!
* The Casual Game Industry Sucks, Too
* I'm A Gamer?
Update: Discussion rages on the forum!
Labels: Biz, Indie Evangelism
- posted by The Rampant Coyote @ 5:00 AM (Permalink)
Comments:
Links to this post:
<< Home
If game developers are screwed because of the situation they describe, it's their own fault.
As much as I respect the artist's vision and all of that, if developers are making games worth $5 million on the open market that cost $8 million to make, they are going to fold, one way or another. I'm not an experienced business person either, but that's pretty clear cut: overpaying for something you want to sell on a consistent basis is not sustainable.
Developers need to learn to make profitable games. It's as simple as that. What I've learned about independent games from reading this site tells that it's possible, because people still make great games in their spare time.
As much as I respect the artist's vision and all of that, if developers are making games worth $5 million on the open market that cost $8 million to make, they are going to fold, one way or another. I'm not an experienced business person either, but that's pretty clear cut: overpaying for something you want to sell on a consistent basis is not sustainable.
Developers need to learn to make profitable games. It's as simple as that. What I've learned about independent games from reading this site tells that it's possible, because people still make great games in their spare time.
The developers are spending $8 million for a $6 million dollar game because the PUBLISHER is spending $10 million for a $30 million game. Well, they are spending $2 million, plus (hopefully) recouping the $8 million they "loaned" the developer to make it. Same game, different profit margins.
But the publishers are the ones calling the shots, here.
It really comes down to the development studio becoming nothing more but a hired hand. Once upon a time, the promise of back-end royalties was a real and achievable goal. While it still happens, it's a rare enough occurrence now that it's not even part of most business plans.
But the publishers are the ones calling the shots, here.
It really comes down to the development studio becoming nothing more but a hired hand. Once upon a time, the promise of back-end royalties was a real and achievable goal. While it still happens, it's a rare enough occurrence now that it's not even part of most business plans.
But yeah - bottom line - it's "How things are done" these days, but clearly not a smart business to be in. Maybe publishers regularly offer more flexible options to developers - for less advance for greater royalty percentages or something like that, and development houses just can't afford to take them up on that. I don't know.
I've been in the print publishing business for years (textbooks) and I can tell you that this is the same thing across the board. Anything that gets sold retail, you're screwed as an independent.
It's the same for print as it is for music so of course it's the same for video games. The bottom line is, the average Joe would never believe how corrupt the whole distribution system is. Big publishers in all media control distribution just like gangs control crack. I mean for reals. They're thugs. They'll straight up shake you down for money like you're in a mafia movie.
The only answer is go open. If you're really dedicated to creating content this is your out. The publishing biz is not about content, it's about mone-ay.
It's the same for print as it is for music so of course it's the same for video games. The bottom line is, the average Joe would never believe how corrupt the whole distribution system is. Big publishers in all media control distribution just like gangs control crack. I mean for reals. They're thugs. They'll straight up shake you down for money like you're in a mafia movie.
The only answer is go open. If you're really dedicated to creating content this is your out. The publishing biz is not about content, it's about mone-ay.
That's exactly the way independent film distribution works, except usually distributors won't finance the film, so the producer only gets what's left after the distributor takes their share (and lies about what that share was), the investors take theirs, and the actors, writer, director take their points. It's usually not enough to live on.
# posted by 
: April 08, 2008 7:15 AM
: April 08, 2008 7:15 AM
I'm not exactly some expert insider myself, but I keep an eye on the industry and the situation indeed seems exactly the same as the music business.
The problem seems twofold. The old model is so ingrained that nobody seems to think about it. The classic publisher model definitely gives the publishers a huge advantage in decision making and getting first cut of profits, etc. The counterpoint that the indie developers wouldn't be able to make these $5 million games without them is the other fallacy, though. If you're not going for some kind of huge publisher deal, there's no need to produce a huge flashy high end game like that. Produce smaller, lower cost games that will earn a profit if they're just mildly popular.
I once read on a blog a very good comparison referring to the music business. They described the situation that if the great big distributions systems go away, you may not see these giant runaway hit games / music anymore, but it will give rise to a "middle class" of content producers. They will remove the tiny group of ultra-rich "star" musicians and developers but give the consumer more variety and still earn the artist / developer a decent modest wage.
The problem seems twofold. The old model is so ingrained that nobody seems to think about it. The classic publisher model definitely gives the publishers a huge advantage in decision making and getting first cut of profits, etc. The counterpoint that the indie developers wouldn't be able to make these $5 million games without them is the other fallacy, though. If you're not going for some kind of huge publisher deal, there's no need to produce a huge flashy high end game like that. Produce smaller, lower cost games that will earn a profit if they're just mildly popular.
I once read on a blog a very good comparison referring to the music business. They described the situation that if the great big distributions systems go away, you may not see these giant runaway hit games / music anymore, but it will give rise to a "middle class" of content producers. They will remove the tiny group of ultra-rich "star" musicians and developers but give the consumer more variety and still earn the artist / developer a decent modest wage.
# posted by : April 08, 2008 8:53 AM
: April 08, 2008 8:53 AM
I wish I could say it is comforting to see that games are in such good company with music, film, and textbooks - but it's kinda disheartening. In fact, it even sounds like the games biz isn't quite as "ripe" in their corruption as some other media industries.
The speculation about the decline of the big publishers yielding a larger "middle class" of content creators / artists is really, really interesting. It would make sense. Although what I expect / kinda hope for is that the "new" middlemen that replace the big studios (or that the big studios / publishers evolve into) will be leaner, meaner, take a smaller percentage, and perform more of a marketing and promotion role for the art / product. And that the power will shift from the middlemen to the artists.
We'll have to see. With average game budgets rising into the eight figure range, I don't see a clear solution for mainstream games.
The speculation about the decline of the big publishers yielding a larger "middle class" of content creators / artists is really, really interesting. It would make sense. Although what I expect / kinda hope for is that the "new" middlemen that replace the big studios (or that the big studios / publishers evolve into) will be leaner, meaner, take a smaller percentage, and perform more of a marketing and promotion role for the art / product. And that the power will shift from the middlemen to the artists.
We'll have to see. With average game budgets rising into the eight figure range, I don't see a clear solution for mainstream games.
Somewhat of a timely and related interview on Gamespy with Stardock's Brad Wardell: http://pc.gamespy.com/pc/gas-powered-games-project/864995p1.html?RSSwhen2008-04-07_144300&RSSid=864995
# posted by : April 08, 2008 11:20 AM
: April 08, 2008 11:20 AM
Yeah, a very good quote from that interview:
"the current PC game model doesn't work very well. It consumes game studios and leaves publishers with dead IPs and gamers without continuing advances in their favorite games. Look at all those great PC strategy games from years ago -- Star Control, X-Com, Master of Magic, Falcon, Total Annihilation. The studios die and their IP ends up in the hands of a publisher that has little interest in continuing them.
The question then, is how do we change things? Stardock's model is to turn PC games into assets for the developers through a combination of innovative publishing agreements and digital distribution. That means the people who actually create awesome games will benefit from their success for the long-term and hence have an incentive to keep working on them."
That solves one part of the equation. Distribution. Then marketing and funding need to be solved. Maybe Stardock / Impulse does marketing too; or maybe developers hire third-party companies to market for them; or developers bring that role in-house; or maybe publishers continue in that role.
And funding? I imagine publishers will continue doing that. Or maybe game companies get more creative with funding. If it gets to the point where game makers can actually *afford* to make competitive games in the mainstream market with a decent profit margin, I'm sure funding opportunities will become readily available.
I'd be far more likely to invest in a company that has a history of making $8 million per $6 million game, rather than the other way around...
"the current PC game model doesn't work very well. It consumes game studios and leaves publishers with dead IPs and gamers without continuing advances in their favorite games. Look at all those great PC strategy games from years ago -- Star Control, X-Com, Master of Magic, Falcon, Total Annihilation. The studios die and their IP ends up in the hands of a publisher that has little interest in continuing them.
The question then, is how do we change things? Stardock's model is to turn PC games into assets for the developers through a combination of innovative publishing agreements and digital distribution. That means the people who actually create awesome games will benefit from their success for the long-term and hence have an incentive to keep working on them."
That solves one part of the equation. Distribution. Then marketing and funding need to be solved. Maybe Stardock / Impulse does marketing too; or maybe developers hire third-party companies to market for them; or developers bring that role in-house; or maybe publishers continue in that role.
And funding? I imagine publishers will continue doing that. Or maybe game companies get more creative with funding. If it gets to the point where game makers can actually *afford* to make competitive games in the mainstream market with a decent profit margin, I'm sure funding opportunities will become readily available.
I'd be far more likely to invest in a company that has a history of making $8 million per $6 million game, rather than the other way around...
Great link from another post that linked to this one:
Why Music Artists are Screwed, too.
Little bit different scale, here... I have to say that the recording artists are possibly more screwed than the game developers. But otherwise, it's the same kind of story. And with the monopolies on distribution that HAVE existed, it would have been very difficult to escape that until just a few years ago.
Let's here it for new opportunities.
Why Music Artists are Screwed, too.
Little bit different scale, here... I have to say that the recording artists are possibly more screwed than the game developers. But otherwise, it's the same kind of story. And with the monopolies on distribution that HAVE existed, it would have been very difficult to escape that until just a few years ago.
Let's here it for new opportunities.
yeah, so many good series have died to this system, but what's really sad is that they usually die to a crappy game at the end, so NO ONE wants to get it on them. the holder of the X-com IP is distrbuting TFTD on steam but not announcing the publisher. starcontrol had star control 3. total anhilation was dropped in favor of supreme commander. but the saddest part is that this seems to ruin their basic principles to studios forever. X-com was a terrific game that could be fun even if repackaged in a sprital successor.
# posted by : April 08, 2008 5:15 PM
: April 08, 2008 5:15 PM
You'd also never invest in an indie because indies are privately held (yes, generalization). If an indie had capital, investment or otherwise, that would change the dynamics of the developer-publisher relationship enough to require a new analysis. They might end up not needing a publisher at all. Or even a distributor (see: Valve, 3drealms).
Making enough to self-fund a game is not the only measure of success. I count it a success to be able to make the game(s) you want to make. The reason a lot of self-funded indies self-fund is because it lets them do that. Sure, they have the possibility of taking more profit because they accept more risk, but that doesn't have to be the primary motivation.
The same is possible in a publisher-funded scenario, although it may not be easy (see: Double Fine). You do deals with publishers not only because you have to; but also because you want more capital to execute your vision properly, and you want to share risk. The fact that publishing deals are generally crappy obscures but doesn't invalidate this point.
Making enough to self-fund a game is not the only measure of success. I count it a success to be able to make the game(s) you want to make. The reason a lot of self-funded indies self-fund is because it lets them do that. Sure, they have the possibility of taking more profit because they accept more risk, but that doesn't have to be the primary motivation.
The same is possible in a publisher-funded scenario, although it may not be easy (see: Double Fine). You do deals with publishers not only because you have to; but also because you want more capital to execute your vision properly, and you want to share risk. The fact that publishing deals are generally crappy obscures but doesn't invalidate this point.
Paul:
I know of at least one indie game development company here which has relied upon outside investment for making their games. :) So it does happen. I was also thinking of SingleTrac's president and CEO going out to the VC community trying to get some capital so we wouldn't have to rely upon Sony.
But - that changes the dynamic completely, as you say. The publishers aren't investing in the developer when they make them create an $8 million game that will never yield any additional revenue to the developer. They are investing in a game that will pay off for them in the short term (in terms of direct sales) and long term (in terms of IP).
And I was mostly talking in theoretical terms. A traditional (meaning gun-for-hire) independent game studio is not a growth business.
Now I'm not saying a savvy developer couldn't take advantage of it. Contracts with a publisher can give a developer some short-term cash which can be used to help build up their development pipeline and expertise on someone else's dime. And it may be worthwhile to have, say, half the studio working on contract work to bring in the short-term capital to keep the lights on while half the studio is trying something different.
But as a long-term strategy, relying upon publisher contracts seems like a sucker's game.
I know of at least one indie game development company here which has relied upon outside investment for making their games. :) So it does happen. I was also thinking of SingleTrac's president and CEO going out to the VC community trying to get some capital so we wouldn't have to rely upon Sony.
But - that changes the dynamic completely, as you say. The publishers aren't investing in the developer when they make them create an $8 million game that will never yield any additional revenue to the developer. They are investing in a game that will pay off for them in the short term (in terms of direct sales) and long term (in terms of IP).
And I was mostly talking in theoretical terms. A traditional (meaning gun-for-hire) independent game studio is not a growth business.
Now I'm not saying a savvy developer couldn't take advantage of it. Contracts with a publisher can give a developer some short-term cash which can be used to help build up their development pipeline and expertise on someone else's dime. And it may be worthwhile to have, say, half the studio working on contract work to bring in the short-term capital to keep the lights on while half the studio is trying something different.
But as a long-term strategy, relying upon publisher contracts seems like a sucker's game.
Indeed I feel that digital distribution would help to remove this need for a publisher. Some music artists have come to realize this and its only a mater to time before more do so. The same is true with the game industry. Though thats not to say that Disc distribution doesn't have its upsides it does almost always require a publisher to do any kind of world wide release.
In the world of Music, movies, books and video games the publisher is almost always the one making most money. Its true they do take on a certain amount of risk but they almost always recoup what they spend before the maker sees a dime.
Post a Comment
In the world of Music, movies, books and video games the publisher is almost always the one making most money. Its true they do take on a certain amount of risk but they almost always recoup what they spend before the maker sees a dime.
# posted by : April 20, 2008 10:09 PM
: April 20, 2008 10:09 PMLinks to this post:
<< Home
