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.]

Comments

[Charles E. Hardwidge]

I like Scott's royalty and advance scheme. It seperates the risk of lending money to finance a game from the revenues, and should focus peoples minds on debt being the most expensive form of money instead of being sucked in by the siren call of instant credit.

[markus friedl]

"The Holy Grail for any independent studio is to create and maintain ownership of an original brand, or IP."

the examples given (Valve, id, Lionhead) really made me think... I think the power of this is a little underestimated by most dev studios...
there are problems though...
- how often does a dev studio get the chance to work on a truly original title/IP? (e.g. publishers giving the original offer based on a concept *they* have; studios doing only conversions for a big publishing house... it'
s other dev studios/branches of the same publishing house doing the original work)...

- creating and maintaining ownership of an original IP involves creating public awareness of that brand and making sure the gamers "connect" the brand to the dev studio (and not the publisher name... who, however, typically does all the marketing)

[steve]

The problem with using Valve, id, and Lionhead as examples is that they're all funded by very rich owners (Gabe Newell, all the id guys, Peter Molyneux). They can self-fund because they have a lot of money in the bank (id initially wasn't rich, but earned their millions back when games were a lot cheaper to make. What was the budget for DOOM? Anyone know?).

Unless a developer has a rich owner, or a sugar daddy outside the game biz ponying up the cash, they're entirely dependent on the publishers and therefore at a disadvantage in negotiations. Without self-funding, doing your own IP probably isn't a possibility, at least out of the gate.

If you're BioWare, you've earned the ability to have publishers care that your epic world is worth funding, and they'll partner with you because they know they'll still make money even if they don't own the IP.

[Sean]

This is really no different than the recording industry where artists are sucked in to deals which require them to repay the record company for all COGs before they see any royalties. Not to say the current practice is fair, just (I guess) pointing out the obvious. Just another legalized form of indentured servitude.

Speaking of which, any idea on how much "predatory" deal making goes on where a studio gets a del for N games over X years only to find out they'll never break even let alone make any profit from their work?

[Dan MacDonald]

I think the system Scott proposes makes a lot of sense, and it fits naturally with the indie mindset. While I agree with the above poster when it comes to independent studios creating games that compete in the retail market, I disagree in the general sense.

Every Indie weather they are a one person team or even a lone wolf developer, can create and own their own IP. There are plenty of opportunities to publish your game outside of Activision, EA, Vivindi etc. Especially if they are not targeting the core market.

The number of downloadable games publishers is growing with leaps and bounds, MSN, Yahoo, RealArcade, Shockwave, Reflexive, BigFishGames, Pogo.com ... and many more. There are plenty of options to small indies who are starting out and trying to make a name for themselves.

Self publishing while not as easy as it was in the past, is still a viable option.

The biggest problem I see with online distributors of downloadable games today, is that they are rapidly becoming like their broken retail counterparts. Advances on royalties for development teams with game in development, increasingly lower royalty rates. Entry level developers can expect about 20-25% for games that they have developed out of pocket.

About the only publisher that I can think of that breaks this mold is GarageGames who offers an industry leading 65% royalty.

[Scott Miller]

-- "Without self-funding, doing your own IP probably isn't a possibility, at least out of the gate."

Steve, definitely not right out of the gate. Nowadays, making an original IP must be earned by a studio, either by having a stunning track record, or building a financial war chest. And even the studios who can do an original IP, mostly aren't. Like Id, who's remaking DOOM. Valve, doing a Half-Life sequel. Epic, doing another Unreal game (Unreal Warfare, I think).

In our case, internally we're working on a new episode of Duke, but we're funding an external, entirely original project. Lionhead is leading the charge with The Movies internally, and BC and Fable with their satellite studios. Is Sid Meier working on an original project? Warren Spector? Will Wright? Phil Steinmeyer? Craig Hubbard? Chris Taylor? Alex Garden? CliffyB? Many of these well known designers are not. We live in a very different industry than we had 6-7 years ago. This will be a topic I fully explore in a coming essay.

-- "About the only publisher that I can think of that breaks this mold is GarageGames who offers an industry leading 65% royalty."

Just curious, has GG produced any significant successes, yet?

[Charles E. Hardwidge]

I think it boils down to having vision and the character to make the hard choices to make it happen. I don't think money, the market, or the wider industry is the brake.

"Just curious, has GG produced any significant successes, yet?"

'Marble Madness' was the largest selling game in its genre in the year it was released. I saw this coming a year before it happened. The timing felt right for a game like this. I told you so, George (not your George).

[Dan MacDonald]

It depends on what you mean by significant Scott, Culturally? Financially? Historically? ;)

Right now the biggest game in the garage right now is ThinkTanks, this is largely because of its multiplayer game which has surprising longevity and a growing community, despite not really having anything in the way of community support.

The game itself almost supports 3 full time game developers.

So nothing like the old DOOM and Raptor days of significance :)

But I think something GarageGames does is significant, in an age where many indie games suffer from the same lack of originality that the retail industry suffers from (abstract puzzle games anyone?) GarageGames promotes innovation and titles that are closer to the retail market then what many of the other distribution channels are.

They've only been selling games for a year and they are still learning and growing. Something they do have that the other channels don't is a great relationship with the indie development community, and leveraging that with their royalty rate gives them good chances in the long run.

[Jamie Fristrom]

Should publisher administration costs be factored into COG? Is there a valid way to estimate that? From what I hear, on Spidey 2, the administration cost (which I think includes testing, but does not include marketing, etc) is almost on par with development itself.

[Scott Miller]

-- "Should publisher administration costs be factored into COG?"

Jamie, I'd say no. First, trying to add this into the COGs bucket would allow publishers to get away with Hollywood-style accounting, which is to say that anything goes!

Second, the vast majority of dev studios still get a significantly lower cut than the publisher, so the publisher should handle their own admin costs out of their larger profits.

Finally, I'm hard pressed to believe that admin costs (including Q&A), which are spread between all the publisher's games, are anywhere close to being as costly as the actual development of the game.

Dan, do you think that the "GG system" will ever produce a retail hit, or is it mostly a way for smaller, less experienced groups to gain experience, which individuals will use to join established studios? My guess is that the latter will happen 95% of the time, and that we won't see another Id, Epic or Apogee bootstrap themselves to the big leagues. It's just too costly and competitive compared to how it was in the early 90's.

[Dan MacDonald]

GarageGames is an interesting case; they have a HUGE developer community, mostly centered around the Torque Engine, but a lot of developers just the same. The potential for collaboration and developing titles that are competitive with retail titles certainly is there.

Check out Cyberfuge: Second Battalion for an example of a really impressive looking game made with the Torque engine.

I'm not sure I'm in a position to say what GarageGames is capable of producing or not. But honestly, given their current positioning I don't think retail distribution is a big item for them. Their publishing contracts deal with exclusive and non exclusive online rights. While some of their games have seen retail publishing through value publishers, I really don't see that as their focus.

ThinkTanks was made by Ex-Dynamix employees, all with plenty of experience. However most of the games currently available on GarageGames were made by first time indie studios. Some of those studios were composed of individuals with previous retail industry experience, some were not. Having retail industry experience gives a leg up in the indie market, but it certainly isn’t an guarantee that a team will be able to produce a highly successful indie game right out of the gates.

The new studios that produced some of the games for GarageGames are now working on their 2nd generation titles. The team that made Orbz is now working on GravRalley. With each iteration the games seem to be getting more refined, and ironically closer and closer to the core industry in terms of market demographic.

In fact, if I had to guess, I think GG wants to compete with the retail industry but using ESD methods. Will they be able to? They’ve shown they have staying power, and with development teams that are getting more experienced all the time, I think they have a chance.

[Charles E. Hardwidge]

"My guess is that the latter will happen 95% of the time, and that we won't see another Id, Epic or Apogee bootstrap themselves to the big leagues. It's just too costly and competitive compared to how it was in the early 90's."

I think this is a common myth in the games industry. A great game, like a great movie, can cut through to the big time. Where the big boys win isn't innovation it's in giving games that slick polish small and modestly funded studios find difficult to match.

"Check out Cyberfuge: Second Battalion for an example of a really impressive looking game made with the Torque engine."

Cookie-cutter.

That's what annoys me about so many mods. Instead of exploring new ground they almost always follow the lead set by a major franchise. What's lacking, like most public forums, is true leadership within the market. People are so used to consuming they've forgotten how to produce.

"In fact, if I had to guess, I think GG wants to compete with the retail industry but using ESD methods. Will they be able to? They’ve shown they have staying power, and with development teams that are getting more experienced all the time, I think they have a chance."

Aren't they just providing an alternative until thy have enough critical mass to compete with the established players or be in a strong position for when the ESD market becomes equivalent?

If I can draw a more positive point of view, I think the slow gaining of experience and finance by working within available means pays off dividends in the long run, as I both Scott and Dan implied.

[ADoomedMarine]

"Cookie-cutter.

That's what annoys me about so many mods. Instead of exploring new ground they almost always follow the lead set by a major franchise. What's lacking, like most public forums, is true leadership within the market. People are so used to consuming they've forgotten how to produce."

I think most people would rather produce something that is instantly accepted within the public rather then stepping in a different direction and creating a totally new unique experience.

It's a shame but for example in the Max Payne mod community you see alot of Matrix and other film based mods, purely for the fact that the Matrix name is recognised and any unique mods don't get the publicity that a Matrix (or other popular film name) mod will produce. I guess you can relate this to almost any mod community as well.

[Greg]

The problem with this idea, Scott, is that, if adopted, we're into music industry land. Publishers will simply figure out how to charge anything and everything, including their own overhead, to "costs," with the results that developers will never see royalties even for highly successful products, because accounting flimflams will ensure that the "cost" is always higher than the "revenues."

It =might= be workable if you can absolutely nail down, to the last iota, what's an acceptable chargeback, and what isn't--but I'm not sure that works, either. In the movie industry, you never sign a contract that gives you a "percentage of the net" because "there is no net." The hugest blockbuster film will make a "loss," according to the studio, for accounting purposes to those who supposedly get a percentage of the net.

A percentage of wholesale revenues at least has the advantage that the accounting is cleaner and easier to figure out.

[Charles E. Hardwidge]

"I think most people would rather produce something that is instantly accepted within the public rather then stepping in a different direction and creating a totally new unique experience."

True. I think we can agree there's plenty of reasons why people might go for the obvious. Lack of imagination, market acceptance, and finance being a few reasons. (Just to make it clear, I'm not lashing into people here.)

"It's a shame but for example in the Max Payne mod community you see alot of Matrix and other film based mods, purely for the fact that the Matrix name is recognised and any unique mods don't get the publicity that a Matrix (or other popular film name) mod will produce."

I noticed.

I don't think money's to blame here. Both 3D Realms and Remedy made more than enough to devote resources to setting a lead for the mod community. Given Scott's earlier comments on "positioning" this strikes me as being a little amiss.

"A percentage of wholesale revenues at least has the advantage that the accounting is cleaner and easier to figure out."

Yup. (Factory gate price at the very least.) Also, clearly seperating development financing from distribution and marketing is IP collatoral might be more honestly valued and the real value of publishers laid bare.

[Dan MacDonald]

“Cookie Cutter”

When I say “a really nice looking game”, I mean it in the literal sense. A game with good concept art, good production values, ready to compete with retail games. I am not making any claims about gameplay or design.

Production values are one of the largest barriers for indie developers who aspire to create “Hit Retail” games. Retail games spend untold millions on production and this single aspect is most often cited as the reason why indie developers cannot compete against their retail counterparts.

I cited “Cyberfuge: Second Battalion” as an example of a game produced by an indie studio that has managed to achieve retail level production values. Not industry leading, but then again neither were the graphics in Tony Hawk or GTA3. I would say that Cyberfuge holds its own against the previously mentioned examples. From what I understand about the Cyberfuge development team from reading the GarageGames forums, it seems the majority (all?) of the development team is composed of part time game developers.

Cyberfuge is certainly not the next generation in FPS innovation, however it shows that the Torque Engine and GarageGames have the potential to produce a hit retail game, given some time and experience, as the largest barrier to hit retail status (production values) has been show to be achievable by a part time indie team.

[Scott Miller]

-- "A great game, like a great movie, can cut through to the big time. Where the big boys win isn't innovation it's in giving games that slick polish small and modestly funded studios find difficult to match."

Charles, I'm not suggesting that the "big boys" have a lock on innovation. But, I do think that polish is a key ingredient to success. The primary reason I doubt that indie efforts will be successful is that it takes a lot of management and money to make a hit game -- unless you find a rare niche area to exploit. As far as I know, there have not been any hits coming from the indie community that compare, sales-wise, with typical retail hits (250,000+ on a PC).

-- "Production values are one of the largest barriers for indie developers who aspire to create 'Hit Retail' games."

Dan, this plummets the stake into the heart of my concern: that indies do not have the money to raise production to the level normally seen by retail successes. However, the screenshots for Cyberfuge look impressive, and can pass for a highly produced retail release, so perhaps it can be done.

-- "It =might= be workable if you can absolutely nail down, to the last iota, what's an acceptable chargeback, and what isn't..."

Greg, as you say, careful control will be needed over what's included in the COGs bucket. A good, experienced attorney is a must.

For *any system* to work without corruption, including the current system(s), the developer *must* have audit rights. It's not a matter of trust, it's just smart business because anyone can make "mistakes" -- trust but verify. Luckily for devs, marketing costs are fairly easy to track and verify.

BTW, 3D Realms has done audits before on our publishers, and in one audit we discovered $2 million in unpaid royalties, and also recovered $900,000 is late payment interest because the royalties had been unpaid for several years and we had a compounded interest penalty. But, it's tough for any but the top developers to get strong penalty language like this into their agreements.

There's another way the dev studios can protect themselves, which I'll expand upon in a future article about contractual deal points and tactics, but the short of it is to request hard dollar figures rather than percentages of wholesale. For example, in our agreements, we'll get $18 per unit sold, rather than 50% of wholesale. When you do it this way, COGs becomes irrelevant.

[Anonymous Coward]

I've been very intrigued by the idea of starting up an independant, making reasonably well selling games, and establishing an IP, and then turning around and "handing" it to a company that has contacts with a publisher.

I know that this sounds like a tough move to pull off, but in my case, I may very well be in a position where I own a) An independant software company and b) A company which produces games for publishers. So this opportunity may arise.

I have not seen any examples of this sort of handoff occuring. Have you?

[Scott Macmillan]

Scott, what kind of incentive would a publisher have to move towards this model?

[Scott Miller]

-- "Scott, what kind of incentive would a publisher have to move towards this model?"

None, as they have it too good right now. But something needs to change to give more independents a chance to escape from the endless rut of needing milestone checks to stay alive. First, developers need to be aware of this problem, and stunningly, most are not.

Next, the studios with financial leverage and/or proven track-records need to push for fairer contracts. But wouldn't you know, the strong studios, the ones getting in the 50% of wholesale ballpark for royalties, are the ones least needing to change the system, because at that kid of royalty rate, they're already getting an exceptional deal.

Honestly, I do not have an answer, But knowledge of the problem is the first hurdle.

-- "I've been very intrigued by the idea of starting up an independant, making reasonably well selling games, and establishing an IP, and then turning around and 'handing' it to a company that has contacts with a publisher."

Haven't heard of this happening.

[Charles E. Hardwidge]

"Production values are one of the largest barriers for indie developers who aspire to create “Hit Retail” games. Retail games spend untold millions on production and this single aspect is most often cited as the reason why indie developers cannot compete against their retail counterparts."

You're absolutely correct. Along with marketing power it forms a barrier that looks impossible to climb. You certainly can't compete on the same terms.

"Charles, I'm not suggesting that the "big boys" have a lock on innovation. But, I do think that polish is a key ingredient to success. The primary reason I doubt that indie efforts will be successful is that it takes a lot of management and money to make a hit game -- unless you find a rare niche area to exploit. As far as I know, there have not been any hits coming from the indie community that compare, sales-wise, with typical retail hits (250,000+ on a PC)."

OK, that clears a few wrinkles, though I'll put forward "Operation Flashpoint" as an arguable case.

The similarities with other "big media" are scary. One silver lining in this cloud is the current troubles of indie developers is nothing new. Lessons can be learned from history and other areas of life. At the end of the day I think it's more a matter of good management than raw resources. I also think it's a confidence issue. Nobody believes it can be done until the day it's done, then suddenly everyone's behind it.

[Thomas Warfield]

"do you think that the "GG system" will ever produce a retail hit"

A question that must be asked is why a successful indie would *want* a retail hit in the first place. Selling successfully over the internet is so much more rewarding in so many ways, and the developer has so much more control over his own destiny than he does with a publisher. And, except in a few rare cases, how much money do developers who create retail hits actually make, when all is said and done? Beyond a salary, do they really participate in the success?

"As far as I know, there have not been any hits coming from the indie community that compare, sales-wise, with typical retail hits (250,000+ on a PC)."

You might be surprised, Scott.

[Charles E. Hardwidge]

"Honestly, I do not have an answer, But knowledge of the problem is the first hurdle."

Didn't see that one coming. To be honest, I'm as lost as you. There's so many possible ways around the blockage and it's not done it's not done. All I can say is I think I've got my own formula for getting around this one and it might not work for others. A good game, marketing, and tapping into unfulfilled demand will hopefully generate enough momentum to get noticed. We'll see.

[Charles E. Hardwidge]

"Haven't heard of this happening."

Bug-Byte did this sort of thing in the 80's, back when most British developers were publishers as well, if I remember correctly.

shanika is not happy because this is the most carzy thing aevr—

[Fyunch Click]

I just wanted to thank you for your insights into the business side of making games. I hope to be able to use some of these insights in the future.

[brian s.]

Scott, isn't that what Seamus Blackley tried to facilitate with his Capital Entertainment Group, which was recently disbanded, because no one was willing to finance it?

[Goran G.]

I've a question. I am under the perception that all you really need to create a game that has good visual polish is not large production values - just good artists. I mean, if you put someone who knows what they're doing to task, then it becomes a lot easier to get nice graphics like in that Cyberfuge game you got there. Right?

[Charles E. Hardwidge]

" I mean, if you put someone who knows what they're doing to task, then it becomes a lot easier to get nice graphics like in that Cyberfuge game you got there. Right?"

Good direction, with a capital D, is more important than a super duper texture artist. For example, I'd rather have a tuned level than any amount of polished artwork. Not even the big boys can tune a level to save their lives while a good texture artist is a paycheck away.

[Scott Miller]

-- "Scott, isn't that what Seamus Blackley tried to facilitate with his Capital Entertainment Group, which was recently disbanded, because no one was willing to finance it?"

I don't know for certain what CEG was about. I think they wanted to fund games themselves, and then find publishers for their games. They were, in effect, middlemen, but I think they saw themselves better able than publishers to recognize and fund projects with hit potential, and also mother these projects with design guidance.

Right from the start I predicted this venture wouldn't succeed because I didn't think the right people were in place (Blackley designed Trespasser, for gawd's sake), nor did I think they would attract any significant developers, because the top developers can get great deals from publishers without middlemen getting in the way. And without great developers, it's hard to attract venture capital.

That said, I hoped they'd succeed, because their heart was in the right place and the industry can always use more ways for developers to stay employed.

[Chris Subagio]

Barrier to entry for indies? Marketing. Primarily.

Just like in pretty much all the other creative industries, the retail winners are simply the ones pushing the hardest. Quality rarely gets a serious look in. Take the Matrix game as an example.

Indie 'development' survives in those other industries by having a market massive enough to let the true indies duke it out in the lower echelons. The winners get picked up by the big boys and paraded around as a 'find'. The biggest problem in gaming in this respect is that there practically is no low end market. The sky high price of games at retail means that the consumer budgets a very low number of purchases, and is far less willing to shell out that kind of cash on perceived risks.

But Indies generally have other problems before you even get there. I'm not a big fan of over management, but undermanagement is horrific. Teams with no clear goals or commitments are entirely too common.

On the other topic, production values are definitely not an easy thing to accomplish, but when you have companies like EA boasting that they are aware they loose 30% of production efficiency through their management overheads, you have to think that there's a better way. I'm convinced you can happily get something looking marvelous with a resonably modest team.

I like the people at GG for their intent, but I don't hold out too much hope. Sticking a terrain engine in there I think was a big mistake. It's the foundation for exactly the kind of game I recon a small inexperienced dev team are likely to get completely wrong. Big roaming empty nothingnesses.

Back to indies, I'm hoping the indie side of the games industry gets a well deserved rennaisance some time soon. I'd like nothing more than to take a bunch of mates out for 2 years and move to some nice small European country (Croatia appeals) to produce a cracking game on a shoestring budget.

[M Long]

We're our own worst enemies when it comes to dev contracts. Publishers are making a fortune and most developers never see a dime in royalties - for every reason Scott cites.

Mark Long, Zombie

[Scott Miller]

Hey Mark, thanks for the comment, including the one you sent via email. It is a bit crazy for me to say this stuff publicly because there's a chance of backlash, but someone needs to poke their head out of the hole and take a few shots if anything is going to change.

This is the post that has generated the most private emails because developers do not want to comment in public and risk being seen as upsetting the cart and losing potential contracts. And several devs said that they never thought about advances in this way, thus not realizing the truth that it's them, in the end, that really does foot the bill for the cost of development, even when they do not own the IP.

The problem is that there's still too many studios verses available contracts, and so it's a publisher's market and they have all the leverage currently. But as more and more studios die (and I hear of about one studio every week going under it seems) the power will shift more toward the middle, which is when a change in the system has a chance of taking hold.

This isn't the best news for those who lose jobs, of course, but it will help the overall health of the industry.

[Dan MacDonald]

It’s interesting for me to observe what I see as two distinct types of indes. I come from the very indie-in-a-garage indie background. You do what you can with what you have Typically indies from this group focus on ESD methods, developing and selling downloadable games since they really can’t compete in the core market given the resources at their disposal. On the other side of the coin, are indie studios that have either grown from the “small” indie category, or formed themselves after quitting (forced or otherwise) the game industry and starting their own studio. These are “retail” indies, like ID or 3D Realms, or even some of the smaller ones like Monolith.

I’m quite familiar with the perspective and approaches that the small indie developers take, but I find it fascinating to read Scott’s perspective as an Indie who competes in the retail game market as opposed to the downloadable games market. Indeed I think there is a lot to be learned from one another.

Not to belabor the obvious, but the fact that many retail developers do not feel they can express their opinions publicly just drives home the fact that developers are not in control. The question is why? It wasn’t always this way, games used to be something that nobody but geeks cared about. Certainly there weren’t any publishers falling over themselves to fund the development of Ultima II after RG’s Ultima I ziplock baggy release.

I think retail Developers lost control when they lost their customers. There are plenty of customers for games; however they are not customers of the developer. They are customers of the publisher. They may be fans of the developer, but they are still the publisher’s customer. The publisher controls all access to those customers; they control the distribution channel entirely. Sadly, in order for most developers to gain access to those channels (customers) they must sacrifice everything of value that they have created to the publishers.

It really stinks.

Small Indies, like me, who try to make their ways selling downloadable games, are facing a similar problem. Big online channels like Real Arcade, Shockwave, Yahoo, MSN, Pogo.com etc have popped up and are rapidly capturing customers. They have the resources to shout louder then any of the individual developers selling their games on their own company site. It’s becoming harder and harder to build a truly independent business online. Existing players like Dexterity, PrettyGoodSolitare, Spiderweb Software, and Retro64 have built up fairly substantial customer lists. They are in complete control of the businesses, they know their customers and they know how to capitalize on what their customers want and can sell directly to them. Profit margins are huge and these indies can afford to sell a lot less then their retail counterparts and still make good/great money. (This is part of the reasons the big ESD channels have started to show up in force.) As an Indie this is where you want to be, you don’t want to have to give up part of who you are or what you have done in order to reach customers. Customers are the cornerstone of any business, the minute you give them up and let someone else have them, you loose control.

So how do retail developers get their customers back? That’s a very good question.

How do the Indies in the ESD market keep the big channels from gobbling up all the customers and putting them in the same situation that the retail industry is? That’s another good question.

I’ve met a number of producers and individuals from the online channels and their all great guys. I genuinely like them, but I think they spell doom for the startup indie who wants to be truly independent. Already they are starting to offer developer’s advances do develop games for them in exchange for exclusivity. Currently the contracts they offer developers are quite reasonably. But will they continue to be that way when the distribution channels like Real Arcade and Shockwave get bigger and competition for customers gets less and less?

Will I end up eating these words because in the end I need to sell my game to them in order to reach customers and make any money at all? Only time will tell?

[Jason McIntosh]

Dan wrote:
"I’ve met a number of producers and individuals from the online channels and their all great guys. I genuinely like them, but I think they spell doom for the startup indie who wants to be truly independent. Already they are starting to offer developer’s advances do develop games for them in exchange for exclusivity."

The biggest difference between retail publishers and online publishers is that there's NO alternate way to reach customers at retail without going through the retailer. Online, you can still reach customers even if there are "big" guys selling. There is no MDF or limited shelf space. This is one reason I do not think there will ever be the same degree of strangle-hold for online retail that exists at brick and mortar retail.

It certainly demands more from a developer in certain ways (ie, self marketing), but there are creative ways to overcome any challenge.

It boils down to a choice--and developers pay a price that's more than monetary when they let the publisher undermine the connection between customers and the developer. Creating a brand is a long term need that developers undervalue IMHO. Do you buy "Take Two" games or do you buy "Remedy" games? Does Joe Average know the difference? Even if he doesn't care, the developer SHOULD.

tentons at earthlink.net

[Dan MacDonald]

Jason, you bring up some good points. At this year’s IGC (Indie Games Con) a number of the producers from the various channels held a discussion panel. One of the things they pushed was the fact that there is indeed a “shelf space concept” in ESD.

Gabe Zickerman (of Trymedia) said that "there are two types of marketing, advertising and viral". As Indies we all have access to viral marketing, but there is only so much room on the front page of yahoo, or msn, or any of the other the big portals. Viral marketing is still effective, but it takes much longer. Also, the argument could be made that the market is still growing rapidly at this point. So there is opportunity for indies to grab pieces of the market for themselves. However when the market matures gradually the big players will push out the smaller ones in their efforts to grow and it will become much more difficult to attract customers away from the big channels.

I definitely agree with the comment about publishers undermining the connection between customers and the developer.

For related reading.

Here’s a link to a summary of the Online Games Panel from IGC.

I felt strongly enough about this topic that I wrote a two part article series for DIYGames. You can find Part 1: Taking Back the Customers here.

[AdamW]

One more old thread resurrection, but I find it amazing that no-one mentioned Counterstrike in this entire thread. That's the Big Indie Exception of recent years, to me. Sure, it wasn't really an independently-sold game (it *did* have an independent retail release, which I believe sold remarkably well, though I dunno if it hit the 250k measure Scott cited, but that wasn't really the point) and it wasn't developed from scratch, but it's one of the biggest games of the last few years (no qualifiers needed for that statement at all) and it was basically a 1980s-style development, knocked up in a basement by part-time developers for zero monies. And even though it was free and built from an existing engine, it's still absolutely remarkable, because there's literally thousands of free mods built from existing engines that haven't had anywhere near the same level of success.