Game Matters

The God Concept

During lunch two weeks ago with a couple of local developers from GraphSim, we started talking about the greatness of older games -- inevitable with 30-something gamers! -- and the mid-1980's game Rogue came up as an example as one of the greatest PC games from a pure gameplay standpoint. Anyone who's played this game will have a tough time arguing against the pure addictiveness of this colorful little ASCII-graphics game, originally released by long gone Epyx (best know for another of my all-time favorites, Jumpman, plus several Olympic sports games). I have a special fondness for this game as it inspired my first real success, Kingdom of Kroz, the game that officially launched Apogee from a profitable hobby into a full-time business in 1990.

While Kingdom of Kroz and its six follow-up episodes owe a lot to Rogue's design, there's one thing important thing I didn't copy: You can finish Kroz based entirely on skill.

With Rogue, you couldn't do this. You might be the best Rogue player on the planet, and yet getting through all 26 of the game's dungeon levels was still a matter of luck, with a fail-to-success ratio something around 20-to-1. Rogue created a random set of levels each time you played that simply had too many booby traps and out-of-whack difficult situations. The designer must have thought that failure was part of the fun, and retrying over and over again made that rare success so much more sweet.

So, while I loved the Rogue's gameplay, I hated the luck-based nature of it. Finishing a game was a fluke, even for exceptional skilled players. Thus, it was this game in the mid-80's that taught me a valuable principle in game design, one that I call The God Concept.

In short, the God Concept means that a god-like player should be able to play through and finish any game, on the first try, without dying.

With Rogue, a god-like player, with unmatched ability in all the skills required to play the game, could not guarantee victory when he or she played. The game simply had too many random and unfair elements outside the player's control. All games should give the player a fair chance to win, based on the player's ability.

In my Kroz games I used the God Concept as a design principle, and made sure that a skilled player always had the means and knowledge to finish the game even though much of Kroz was randomized. The key is that Kroz was never so random as to be unfair and unfinishable.

Another important aspect of the God Concept is that, in theory, a careful player, well skilled within the genre, should be able to finish a game on the first time without dying. This may be hard, but it shouldn't be impossible. The idea is that the player should never be forced to die in order to learn something important about the game, such a how to solve a puzzle or avoid the trap that just killed him. A cautious, careful, skilled player should always be able to avoid death. Death should never be a requirement in learning how to get past a hazard, or learning how to solve a puzzle.

Though this seems like a rather obvious design principle, not all designers believe in the God Concept. In Noah Falstein's "Better by Design" column in the June 2003 issue of Game Developer magazine, a case is made by designer long-time designer Mark Cerny (Marble Madness, Spyro the Dragon, many more) that the player should be killed randomly every once in a while, let's say by breaking open a rare, unmarked crate full of explosives. The idea is that the player should be kept on their toes and not automatically thinks that breaking open crates is always a safe, robotic, and kinda monotonous thing to do. While I agree with the goal of this idea, I cannot agree that randomly killing the player is a fair solution. Ever.

I don't see the God Concept being violated too much nowadays, but the story used to be different. Especially with adventure games, where surprise deaths were common, and only after dying would the player know that a particular path or action was instant death.

I'm sure there must be current games that violate this concept, perhaps others can point them out...

Starry-eyed delusions

The Spike TV VGA show raises a small issue that will most likely forever be true of our industry: We have no stars.

Let me say upfront that I'm okay with this, but based on discussions with other developers, there are those who believe our industry will one day, maybe soon, have A-list stars that will be treated much like Hollywood's finest. But I just don't think so.

Back to the Spike TV VGA (Video Game Awards) show. Thankfully, I made the right call and didn't waste time watching this travesty. I've talked to dozens of developers who stated with arresting vigor that it was a horribly misguided representation of our industry and should be tucked away in a dark place, alongside nuclear waste, never to be seen again. A telling signal sent by this show was its lack of game designers, except the few who picked up their award, yet weren't allowed to speak. Instead, the show turned to Hollywood and the porn biz for star power, with the likes of David Spade and Jenna Jameson pushing developers out of the limelight. This snubbing of our industry's "celebrities" pissed-off a good many people in our industry and sparked much discussion. "Where are our stars," went the cry.

Where are they indeed.

While we have a dozen or two well known developers, the usual suspects we always hear about, none of them have true star power. And this will remain true even as our industry continues to grow.

Here's the crux of the problem: Stars get their star power, reaching true celebrity status, by getting face time in front of a large audience. Actors get this via the movie or TV screen. Musicians get this at concerts or on TV (MTV, etc.). Sports stars get this on TV and at stadiums where they play. It's only through this extended exposure that we bestow a person with star power, at which point a large segment of the population can recognize them.

Game devs will never get this sort of face time, as they, like movie directors, don't appear on the screen. Sure, a handful of movie directors are really well known and have some star power, but truly the number is few. Who can name more than six to eight living movie directors? And who can name more than one or two from the TV industry? And remember, both of these entertainment branches dwarf the game industry.

And then we have the book industry, which absolutely crushes the annual revenues of the movie, TV and music industries. Yet, due to limited exposure in front of the population, very few true stars exist (Stephen King, J.K. Rowling, Tom Clancy, and Jackie Collins and a few handful more), and most you wouldn't recognize even if you bumped into them on the street. And think about this: The book industry has been around longer than any of the other big entertainment branches, yet they do not have a big-time nationally televised awards show? Yet they would if they had star power like the movie, TV or music industries.

My entire point is that people do not become celebrities without being seen. And it saddens me to think that every time we try to force an awards show upon the mass public that we'll need to hijack Hollywood's B-list to provide a ratings crutch.

Like most authors and directors, game designers will remain mostly anonymous, able to walk into game stores without mobbing, and unable to convince a restaurant host to get a table bypassing the three-week long reservation list. If a paparazzo ever snaps a picture of a game developer, you can bet the house that the developer was merely an unwitting bystander in the background gawking at Julia Roberts walking out of Gucci on Beverly Blvd.

Now then, there's one last counter-argument I want to head off at the pass. Many counter my view by suggesting that game characters will become our industry's stars. But has this happened in any other industry with fictional character? Not really. And it won't happen within our industry. You can't gossip about fictional characters, invite them on Leno, feature them in People magazine, grill them on Larry King Live, or have water cooler talk about their sordid break-up with another famous character. Video game charactrers will not become our industry's stars.

The only way for the game industry to have celebrities is to include actors in our games, and that's a convincing reason to hope we NEVER have them!

Non-venture funding

Just got off the phone with an investment group representative who's looking for companies in the "video game space" to buy, or whom might desire copious funding for a piece of the company. As in ten's of millions. I kindly told her that we're in great shape and that we have no interest in this sort of offer. Normally I quickly end calls like this, but I decided to make the lady an offer to see if she'd bite, so I offered to take down her contact information and post it in a private forum where hundreds of developer-only members worldwide would see it, and possibly a few might take an interest in contacting her. I honestly thought she'd accept this offer, but she quickly countered with disapproval, stating, "My firm invests in stable, proven, established companies, not start-ups or non-hit makers."

Well okay. Have a nice day.

Today's lesson: When it comes to venture funding, the have's don't need it, and the have-not's can't get it.

There are exceptions, though, because just a few days ago Turbine Entertainment, makers of Asheron’s Call, secured $18 million from two venture investment firms. Turbine, a company with a decent track record, undoubtedly got their investment due to the clout of their current two projects, a The Lord of the Rings MMOG, and a Dungeons & Dragons online game. It's hard to doubt that at least one of these projects won't pay off.

But for most independent developers, venture capital is an enormous long shot. The state lottery is a more reliable source of funding.

Santa Claws

Been out of town twice in the last week, so about the best I can do is toss together a few quick thoughts on the relentless efforts publishers make to release games in the weeks before Christmas.

Gonna cut right to the point here, the industry is worse off because of Xmas. And I point the blaming finger right at publishers. And while it's true that the industry gets half its annual sales during the holiday period, generally considered mid-Oct. through mid-Jan., all is not as it seems. Jolly St. Nick has ripped the goodness out of many potentially great games. I have two points:

[1] While it's unassailable that the industry moves shelf-loads of games during the Xmas season, it's both a self-fulfilling and a misleading statistic because the industry releases over half of their games in the few months leading up to Xmas. This reminds me of the stat about car wrecks I once read, explaining that most wrecks occur within five miles of the driver's home. Does this then mean that it's somehow more dangerous to drive locally than further away, such as on a long trip? Of course not! It only shows that people spend more time driving close to their homes than far away.

I'd like to see the industry wake up and look at what the movie industry has done. The movie industry has two big release periods: the end-of-year holiday period, AND the summer season. Somehow, the game industry has gotten into its head that the summer months are dead, and that gamers don't buy games during this time. I guess every gamer suddenly wants to hone their skills at tennis, skateboarding, mountain biking or league sports. But heaven knows we gamers can't waste a precious minute indoors when we could be outside in the beating heat and showing off our six-packs* at the local wave pool.

There's an even bigger crime for which we must prosecute publishers...

[2] Publisher's will kick an unfinished game out-the-door just to be on shelves during Xmas. I've heard this complaint over and over from studios who knew their games weren't quite ready for primetime, but were forced to release the game a month or three too soon. Publishers can of course say that studios will always believe their games need more work, but publishers need to figure out that it's in their best long-term interest to better judge whether a game will benefit substantially from extra polish. Publishers seem inadequate in this regard as the proof is on the shelves, with too many games needing patch work, and too many games released in a condition that could have been dramatically improved with a little more time and tweaking. Why spend two years making an okay game, when an extra two months can often double its sales?!

Perhaps it's not yet clear to most publishers that one of the most important ingredients to any game's success is its level of polish. Blizzard provides one of the best examples of putting polish on the pedestal it deserves. Blizzard's games are near perfect in this department, and even though they still require patches -- maybe unavoidable given the variety and instability of the PC industry itself -- their level of spit and shine is unmatched, and I'm positive this contributes mightily to their reputation and success.

The final nail in the coffin is the clear evidence that great games released outside the Xmas rush have succeed wildly. A good game will sell regardless of when it's released. In fact, I prefer that 3D Realms' games avoid the Xmas onslaught. Our own Duke Nukem 3D came out in May, sold brilliantly through summer, and on through Xmas of of 1996. The first Max Payne came out August 1st, 2001, and sold very well through the rest of the year.

By ignoring the false lure of Xmas you can insure that your game is properly polished -- a more important factor to a game's success than hitting Xmas -- and you will get more press coverage, as outside of E3 and Xmas, the press is hurting for good releases and stories to write about. Avoiding all of the Xmas competition seems like a smart move to me. Does anyone really believe that gamers only want games during Xmas?

_____

* Of Mountain Dew, of course.

Book 'em, Dano

My goal of posting at least one entry per week is proving tough this week, so here's one that doesn't take much effort on my part, spurred by an email from Geoff, posted here with his permission...

Hi Scott,

I'm fairly new to the industry and am loving it so far. I've become fond of the business side (producer/project management) of things as well as the design. (I am a level designer). Your Game Matters site has peaked my interest a lot more recently.

I was wondering if you had any books you could recommend on game matters or in here that deal with that part of the business. Any other industry related books that you think are worth reading as well would be great. I plan on building a good library.

Thanks a lot,

Geoff Gordon
Threewave Software

Perhaps, counter-intuitively, learning is a double-edged sword. Learning about a subject often closes a person's mind to newer ideas that don't confirm what was already learned. We naturally build up a "confirmation bias," as it's known, as we grow in knowledge over a topic, leading us to reject new information that disagrees with what we already know to be true. Often, then, we establish a rock solid belief that can lead to a closed mind.

Three different studies that I cannot point to right now due laziness, have confirmed this about our species. Fresh minds are open minds. This is perhaps why most science breakthroughs come from young thinkers, such as Einstein. An open mind is freer to accept unconventional or new ideas.

A person can overcome this hardening of the mind by thoughtfully practicing objectivity, by reevaluating beliefs in the face of compelling evidence, and by maintaining an open mind throughout life. And so with this speck of feeble psychobabble out of the way, I submit my first of many book recommendation lists, this one with a business and marketing focus:

Positioning, by Jack Trout and Al Ries (1982)
This is the bedrock, the place to start. Ground zero. Game designers who are interested in successful game concepts and design must read this book. The authors take the simple concept of the unique selling point (USP) and expand it into positioning, the most important facet of marketing, above advertising, PR, and research. "Positioning" is a phrase they coined for a series of articles first appearing in Ad Age magazine in the early 70's. Their concept is based on how the consumer mind naturally thinks and perceives the world, rather than trying to force our minds' to change with new beliefs. I like to think of positioning as applied psychology or the science of consumer behavior. The basic premise is that in today's advertisement deluged society (a recent study by the 3M company showed that we are slammed by 3000 advertisements per day) it's feeble to sell products to consumers. Instead, we must create products that people want to buy -- a subtle, but pivotal difference. Positioning shows us how to do this.

The same authors team up for several other highly recommended books, such as Bottom-up Marketing, Marketing Warfare, and The 22 Immutable Laws of Marketing.

Focus, by Al Ries (1997)
The first book written by Ries after splitting from Trout, and another foundational book for any developer starting or running a game studio. Use this as a business bible. How is it that companies that didn't exist when the mighty worldwide powerhouse IBM introduced their PC, such as Dell, now completely dominate the PC market, while IBM is no where to be seen? Did IBM just concede this multi-billion dollar market without a fight? Or is there another force at work? And, similarly, how do new developers stand a chance making it in this hyper-competitive industry? Read this book, apply its teachings, and your chances of success skyrocket.

Soon after GT Interactive Software (GTIS) became 3D Realm's publisher in 1997, they began an expansion spree that I knew was leading them over the cliff. Crazily, GTIS even bought an established Internet entertainment portal. I couldn't resist sending Ron Chaimowitz, CEO of GTIS, a new copy of this book along with a fresh highlighter. I bet, looking back, he wished he would have followed this book's guidance.

Buzz, by Marian Salzman, Ira Matathia, & Ann O'Reilly (2003) and
The Anatomy of Buzz, Emanuel Rosen (2000)
Two books, both great, and each covers the topic from a different angle. Buzz is the next new wave in marketing, and the purposeful harnessing of buzz can lift a product from obscurity to sensational success. For game designers, it's a mistake not to understand how to make your game buzz-worthy, which can be done from within the game's design to the game's advertising. Most game designers have little to do with their project's marketing and advertising, but building something buzz-worthy into the design itself is still within their grasp, and can make a giant impact on sales. Buzz is the fancy term for word-of-mouth advertising, and for entertainment focused businesses, like restaurants, movies, and video games, buzz means everything. Especially with how gamers talk to each online. It's up to developers to make sure gamers are saying something positive, otherwise, your game is sunk, regardless of the quality and quantity of traditional advertising.

Big Brands Big Trouble, by Jack Trout (2002)
Here's one of Jack Trout's better solo efforts, after splitting from his partner, Al Ries. This book is jammed with great advice that's useful to game developers, and especially publishers who are managing multiple brands, like Take-Two and EA, both of which could definitely learn from this book -- especially EA, whose brands have been horribly mishandled. This book is also available on tape, which I listened to recently as a refresher. The tape covers all the material in the book, and for those who like to listen to books-on-tape in their cars or wherever, I recommend it.

Patton on Leadership, Alan Axelrod & George, III Steinbrenner (2001)
Patton is one of my heroes. He's easily one of the great field commanders in the history of warfare, and his innate leadership skills are unmatched. This book has 183 leadership lessons, each with its own one- to three-page easily chewed chapter. One of the book's best parts is the author's dissection of the Patton's famous speech, given to new troops under his command (portrayed fairly accurately in the opening of the movie with him standing in front of the American flag). Every line of that speech shows a level of brilliance that cannot be appreciated until you've read this author's explanation. I've read a dozen plus books on leadership, and this is the Tiger Woods of the group.

The Power of Logical Thinking, by Marilyn Vos Savant (1996)
Nothing to do with the game industry, but useful nonetheless for exposing flaws in our thinking and reasoning skills. Easily one of my most recommended books, especially to those trying to be more objective about the world and information flow around them. Written by one of the planet's certifiably smartest people, IQ rated at 228 (super genius level), this book is an eye-opener to the ways we're constantly misled into beliefs that seem intuitively correct on the surface. Advertisers and politicians take advantage of us everyday by spinning the truth, deceptions and misleading statistics. The more interesting parts of this book reveal how most people can be easily fooled into beliefs that seem correct, but are factually wrong. (For example, the better game wins the category.) One of the best parts of the books is when the author presents a series of puzzles that have counter-intuitive answers that are often hard to believe even when fully explained. Here's my favorite:

The Monty Hall 3-door puzzle: In the popular 60's - 70's game show, Let's Make A Deal, host Monty Hall would give the final contestant a chance to pick one of three showcase doors. He tells the contestant that behind one door is the big prize (maybe a car), behind another door is a runner-up prize (maybe a TV set), and behind the final door is a booby prize (often a farm animal, like a donkey). So, the contestant picks a door, let's say door #1. Monty doesn't open that door right away -- instead he builds excitement by first opening one of the two un-picked doors. (It's important to know that Monty knows what's behind each of the three doors. And he'll never open the door with the big prize during this stage.) Let's say Monty opens the door with the runner-up prize, revealing a TV set. That leaves two unopened doors, one with the big prize and one with the booby prize.

Now comes the fun part: Monty turns to the contestant, and says, "Well, there are two doors left, and so far so good -- you know the car is either behind the door you picked, or the door you didn't pick. Tell ya what...do you still feel like you made the right choice? If not, I'll give you a chance to switch your pick to the other unopened showcase door. Whachya wanna do?"

So, if you're that contestant, do you stick with the door you originally picked, or do you switch? (At some point I'll post the answer in the comments section.)

Okay, where are the game design books, I hear you screaming!? The truth is, I've read most of them (over 20) and there are only a few I'd recommend. I'll include them on my next book recommendation list.

The end of games?

I saw on Greg Costikyan's blog, his Nov. 18th entry, that there's been some recent discussion about whether certain games, especially MMOGs (massively multiplayer online games), are, in fact, "games." The key issue is whether a game without an ending is really a game, or something else. According to Greg's blog, Raph Koster, who lead the Star Wars Galaxy project, has labeled his product a "persistent world," saying that it's not really a game as we know it.

Eric Zimmerman, co-author of the otherwise excellent new book, Rules of Play, writes that a game must have a "quantifiable conclusion," otherwise it's something else, but not a true game.

Lisbeth Klastrup, Assistant Professor at DIAC at the IT University at Copenhagen, writes in her blog on Nov. 20th: "I believe some virtual worlds have so many game elements that they could be considered as marginal forms of games (such as EQ and the other RPG worlds). However, I do prefer the term gameworld instead of game, to me there is a difference: EQ is both a world and a game at the same time, not either-or. I know a lot of games project a world, but they are not primarily gameworlds. I wish we could reserve the term 'gameworld' for those virtual worlds which are dominated by gaming activities."

Okay, since I've got this little blog thing, I get to toss in my two tokens.

Scott's Screamingly Obvious Point #1: I find it ludicrous that we cannot call EQ, SWG, UO, and all other MMOGs "games." The opposing idea is that something without a win condition doesn't qualify as a true game. But, in this day and age, a win condition is NOT a required goal. Games are also designed around short-term goals, such as getting a better weapon, acquiring new skills, reaching new areas of the gameworld, and so on. These many short-term goals are really mini-games that do have a "quantifiable conclusion." The be-all, end-all quantifiable conclusion is simple not a requirement.

Scott's Screamingly Obvious Point #2: Asteroids. Space Invaders. Pac Man. Defender. Robotron. Five of the biggest arcade games ever. Oops! Can't call them "games" -- they don't have an ending.

Um, they ARE games. Anyone who thinks otherwise needs a good spanking.

Scott's Screamingly Obvious Point #3: If it walks like a duck, and quacks like a duck... This is the point that Greg made in his blog. Let's not get hung up on silly technicalities. If gamers of the world all say, "Hey, are ya gonna buy that new 'online game', EverQuest 2?", then the game industry as a whole, including academics, should step in line with the lingo.

Finally, one last opinion that I'll toss in purely as a bonus: Who cares!!! Seriously, it's not like we need to work out the definition of the word "game" to make 'em! And frankly, I prefer to think of what we do as making "entertainment." Not that it matters, though. But there's a reason our company was renamed from Apogee Software in 1994 to 3D Realms Entertainment, because we saw the bigger picture. We saw that we could -- hopefully! -- make games that would have life in other entertainment industries, such as the movie industry, in comics, novels, or as toys. When you think in terms of making entertainment, it gets you thinking about including hooks that might interest the other media branches. And maybe best of all, you don't need to worry if your game has an ending.

And with that, this post comes to a quantifiable conclusion.

Royal tease

A while back I was asked to give a deposition in an industry case that was going to trial. The defendant's attorney wanted to send over a crew to video tape my opinion on "average royalties" for independent game developers. I asked him if the developers themselves funded the project, or if they'd received publisher advances. He answered that the devs themselves "covered the expense." I countered that he didn't answer my question; I already assumed the developer covered the expense to develop the game, as that's how the vast majority of contracts are written. He caught on quickly, "Ah, I see what you mean." He then properly answered my question, revealing that the developers did not get an advance from the publisher, but that they paid for the development out of their own pocket. "In this case," I said, "it's not unreasonable for them to get a 30- to 50-percent ballpark royalty percentage. Of wholesale, of course." His reply was typical of what I've heard from other devs in the industry: "Wow, that high!"

I quickly added, "Or even higher."

This little story leads into my four-point topic on royalties, and how dev studios have bought into a royalty game that has publishers giggling with glee during this and every jolly holiday shopping season.

[1] Independent developers, especially new studios, generally do not know what level of royalties they should be shooting for. Back in the early 90's, when Apogee (pre-3D Realms) began working with publishers, we, too, didn't have a clue what sort of royalty was fair. We were lucky at the time to work with a smaller publisher who didn't have much clout and desperately needed product, and through hard ball negotiations we secured a nice-for-back-then royalty of 25% of wholesale minus COGs (see note below about royalty calculations). And this was on top of getting an advance big enough to cover the funding of the game. But things were easier back then, because there were many more publishers, all ravenous for games to fill their needs. Bidding wars between publishers was common practice. For example, the bidding for Duke Nukem 3D in 1994 included FormGen (the eventual winner), GT Interactive, and Activision. Even though we were fairly unknown back then, the CEO's of all three companies (Jim Perkins of FormGen, Ron Chaimowitz of GT, and Bobby Kotick of Activision) flew to Dallas to woo us. It's fun being in demand. (Sierra, too, sent some big-wigs over with a full company buy-out offer, but their piteous $2 million offer found them quickly ushered toward the exit door.)

[Sidebar: In late 1996, GT Interactive bought FormGen for $17 million in stock in order to get the publishing rights to Duke Nukem 3D after it had been released and proven a hit. Only two years earlier FormGen paid $250,000 in advances to original get the game, beating GT Interactive in the game's bidding war by $30,000. Being cheap can sometimes backfire.]

Nowadays, publishers run the show for the most part, with developers verging on commodity status. This means bidding wars are rare, dev studios have no leverage, and except for the most proven independent studios, they're just happy to find a deal...any deal.

Maybe only one or two dozen top-tier studios can get a 50% royalty or higher. To get this high they must either own their own proven IP, and/or be able to self-fund the development cost of their project. The highest royalty 3D Realms has executed is 70%, for a project in which we owned the license, and self-funded. That's the highest I've heard of in the industry. (If anyone knows of one that's higher, I'd love to hear the details.)

The way the industry works now, unless a studio can self-fund, it's near impossible to maintain ownership of an original IP. Publishers practically demand IP ownership in case it turns into a hit. This was not the rule in the 90's, except for when things started to change in the very late part of that decade. Remedy and 3D Realms recently demonstrated the value of owning an IP when we sold the Max Payne IP to Take-Two for over $40 million in early 2002, this after making just the first game.

The Holy Grail for any independent studio is to create and maintain ownership of an original brand, or IP. This gives a studio both leverage and financial strength to remain independent, and pursue future original projects of their liking. If you think about many of the strongest independent studios, they're often ones that own their own IP: Id (Wolf, DOOM, Quake), Epic (Unreal), Valve (Half-Life), Lionhead (Black & White, and Fable, BC and The Movies in production). Bioware is now working their own IP, as are a few other studios who are trying to establish their own IP to gain secure financial independence (not having to rely on publisher funding).

Then we have studios that do not have leverage, who often settle for percentages as low as 10- to 15-percent. This lower percentage not only means that these studios get less of the revenue pie, but it hurts them in another important way, because...

[2] Developers ALWAYS pay the development cost of their projects, regardless of who owns the IP!!!

Let this sink in for a moment.

You see, whether the game’s funding comes out of the dev studio’s own pocket, or the publisher advances the funding to the studio, either way the studio pays for the game’s development cost. A publisher's advance is a loan, and the loan gets paid back from the dev studio’s royalty stream.

Publishers argue that they’re still taking on loads of risk in case the game doesn’t sell well enough for them to recoup their advance. But, the truth is that publishers can break even on a game well before the dev studio has repaid the advance. The payback of any particular game’s advance by the developer is not a reliable measure of a game’s profitability.

And this plows head first into my third point...

[3] The way publishers recoup their advances is a long perpetuated industry scam. That’s because advances should not be repaid from the studio's royalty stream. This way of repaying advances severely punishes studios who are working for a lower royalty. Imagine a studio getting just a 1% royalty (unrealistic, but I'm making a point). Let’s say this studio got a $2.5 million advance to make a game. This game would need to sell a GTA-like 8.3 million copies before the studio saw a dime of royalties. (This assumes the publisher makes $30 per game, after COGs.) By the time this studio saw it’s first royalty check, the publisher has gotten gross revenues of $250 million, meaning they’re at least $220 million in the green!

Although this is an extreme case with an unrealistically low royalty percentage, there's an unfair lopsidedness that applies to royalties that are common in the industry, with studios not seeing a royalty check even though the publisher has made millions in pure profits.

The point I’m making is that there’s no connection between a publisher’s profit on a game and the current standard method currently used by publishers to recoup their advances. Publishers have gotten away with installing a recoupment system that on the surface makes sense, but doesn't make sense when you look closer.

This is why most independent studios live from game to game, and milestone paycheck to milestone paycheck. Rarely can a studio accumulate enough in the bank to break free from this deep rut.

If this system is a farce, is there one that makes sense?

[4] Yes.

A system that makes sense is one that combines the game’s development cost and the game’s marketing, inventory and distribution cost. Marketing, inventory, and distribution are costs handled by publishers, as these are a publisher’s primary functions. When these costs are all combined, then you have the true cost of developing and publishing a game. Whatever this cost is, it should be deducted from the top of all game earnings, and only then does anyone – publisher and developer alike – make any profit.

The bottom-line for those who understand the lingo: All reasonable costs should go into the COGs bucket. Once COGs is paid off, both sides start making money. This is fair because, although the publisher is risking their money and also paying for marketing, inventory and distribution, the developer is paying for the project's development cost and they're usually getting only a small piece of the royalty pie.

There are plenty of others in the industry that share this opinion. For another respected opinion I direct you to attorney Jim Charne, formally President of the Academy of Interactive Arts and Sciences, who recently wrote about this topic in his monthly IGDA column, Famous Last Words.

And there, folks, you have The Great Royalties Game. Play it at your own risk.

[Sidebar: Royalties -- How they're calculated in the PC industry: Generally, developers sign deals whereby royalties are based upon a game's wholesale price, which is the amount that the publisher gets from selling the game to retailers, renters and distributors. (Retailers mark the price up another 10 to 20 percent, which is the price the public pays.) But before publishers pay a royalty to developers, they first deduct "COGs" (Cost of Goods) which is the typically the cost of the game's retail packaging, such as the CD, the manual and the box itself, along with any goodies that might be included within, like the mouse pad that was included in the PC version of the original Max Payne. COGs usually ranges from $2.00 to $3.50. So, a typical deal might have the developer getting a 20% royalty, the game wholesales for $30, and COGs is $3 even. Under this scenario, the developer will get $5.40 per unit, BUT only after the publisher has recovered the entire cost of development from the studio's royalty stream, which will likely take several hundred thousand units. Note: For the console industry, COGs will also include the console manufacturer's (Sony, Microsoft, Nintendo) license fee, which can be as high as $9 to $10.]