The Business of Gaming – Money Never Dies.

With the whole Double Fine thing this week, I thought – with many of the comments doing the rounds on the internet – that I should take a moment to talk about how games are funded.

Like it or not, games cost money to make. Tim Schafer himself admitted even a relatively modest X-Box Live Arcade game can cost a couple million dollars or more to make. The average console game you can add a zero to that number, and for some projects you can add two zeros (as a rumoured Square-Enix title is expected to cost!). Games are not cheap to make. Certainly a hell of a lot more from when I was knocking out some basic examples on my Amstrad back in the eighties, when you could have paid me in crisps and fizzy drinks.

The costs cover the obvious to the not so obvious. We all know that the design and development teams need to be paid a competitive wage – this isn’t charity, they may love their jobs but the reality is this; if it wasn’t paying enough, they likely would move to a company that did. Harsh, perhaps, but a definite price to be paid. I’m not saying that no-one would do it out of sheer love, because you hear examples of the late nights, the pressures, the swearing and cussing and the oft-heard tales of relationships being torn asunder, both professionally and privately at home. People clearly love their jobs. But it still has to pay the bills. Love can’t pay the rent, after all.

There are lots of not so obvious costs involved too – for example, licencing. You may or may not be surprised to know that consoles are not open playgrounds; they are commercial products and the likes of Microsoft, Sony and Nintendo won’t let anything near their hardware until they’ve paid an “entrance fee”. This can also cover the cost of development kits and technical advice for getting the most out of the hardware, but it is a price that must be paid – and even X-Box Live Arcade and PSN games will do the same. It’s termed “licencing”, although as I said, it’s really more of an entrance fee than actual licencing.

Also, advertising budgets must be taken into consideration. Interviews are sometimes even paid for out of the budget – travel costs are a big part of that, as much as the advent of the internet and telephone make things easier, many still prefer that personal touch. And that’s no bad thing. Then you have packaging. And ongoing tech support. Games often need patches, so you need to retain a number of people to support the product post-release. And so on. And so on.

Who funds these projects then? Well, traditionally, there have been three avenues available.

The Publisher route is so often the most obvious route as publishers will seek to make their money back through the product itself – often asking for a share of the profits and some other basic rights, such as merchandising. This allows them the option to make their money back on their investment. You’d think this was a winning solution, but it isn’t. Publishers are governed by the trends of the times, and by the release schedules available to them. It is rare to see a new IP pushed out at, say, Christmas – where people will want the latest sequel, something they know, something they know their kids/partners/parents/friends/worst enemies (delete where applicable) will enjoy. New IPs tend to be released in quieter moments, when there isn’t so much else on offer. Why is this so bad? Because publishers will want to force a project out on their timescale, rather than the ones the developers run by, and if there is a mismatch – then you have serious problems.

Private financiers provide a more independent and open approach, but this is fraught with peril too. Like anyone else playing this field, they want to see a return on their investment – and this is often mired in legal wranglings. Private financiers are more forgiving on time scales, but less forgiving when they suddenly decide a project isn’t going to make a return – it is rare for anyone to give a big lump sum to a developer, so the money tends to come in as a stream of revenue for them to continue work. Private financiers can obviously decide to cut that stream at any time, for any reason – they may not have faith in the project anymore, or their own business and/or personal fortune may not be doing so well. And of course, should things go wrong, this avenue can turn into a decidedly ugly legal war, and to many, that’s a scary prospect.

The third usual avenue is perhaps the most obvious – the banks. In much the same way you or I could go and get a loan, so too can developers – albeit, admittedly, on a slightly larger scale. Banks are businesses however, and with this route comes one thing that funding in the other two ways often doesn’t come with; interest. Yup, loans do have to be paid back, and with extra added interest on top. Keeping on top of these arrangements can be especially difficult in the gaming world, where time and money are so interlinked, but it’s another typical avenue to explore.

So games are not cheap, often come with hidden costs, and whoever finances the project will expect something in return for their money – be it a return on their investment, certain rights and arrangements or just cold hard interest.

When you consider that a game today is roughly the same price it was ten years ago, heck, twenty years ago even – you realise something important. The actual value of money has gone down in this time, so really, as much as many lament the cost of games – in reality, they’re cheaper now than they’ve been in a long time. And it is this fundamental issue that causes real problems in the industry – games are, as much as it may shock you to hear this – quite possibly a bit too cheap.

So, why is Kickstarter becoming a staging ground for smaller studios?

Well, for one, the money that is raised is a lump sum that can be managed – if you know how much you have to play with, you can calculate things over the course of six months to a year. It also allows us, the consumers, to pay what we think a game is worth – regardless of the extras, it allows people to pay what they want to pay. Some will pay $15, others have pledged tens of thousands of dollars. This gives us, the consumers, a major role in the development – we’re the people funding it, like a private financier except there are tens of thousands of people who are putting money towards it.

This also brings with it an extra important kicker for the traditional routes – publishers are so often guided by trends and the seasons, where they try to keep bankable franchises for big moments and release smaller ones in quieter moments to let them cut their teeth and see if they can become future hits. This has meant that we, the gamers, have seen the wide range of genres out there slowly but surely narrow down, because Call of Duty and Gears of War have proven their worth – and so many will follow what has already worked. By striking out and asking fans and potential customers to fund it, you end up tailoring to that audience – who are screaming for a point and click adventure game, or a new JRPG, or a new 2D Metroidvania-style game. You are not governed by the trends – you are governed by your target audience. And that is quite revolutionary in its concept.

That said, we must remember that this also brings with it great perils.

The first things that cross my mind is – what if it all goes wrong? What if more money is needed? What if people demand their money back? These are legal issues that must be ironed out before we become too reliant on crowd-sourcing potential investment money. Projects do run over time. They do sometimes run out of money. Sometimes, people will question if their investment is worth it. These are normal issues often dealt with quietly by legal teams well versed in the quirks of the law, but here, you are dealing with normal people who want to fund a game. If the fickle winds of change blow too far the wrong way, then what happens? It’s not just a problem – when you are asking the fans to fund your game, it is potentially a career-ending cock-up if things go wrong. I don’t like this thought of doom and gloom, but someone needs to ask it. We can’t all live in a lovely world of unicorns and rainbows, where money falls from trees.

The second is perhaps the most pertinent – okay, so your crowd-sourcing results in 40,000 pledges. That’s great! 40,000 sales already made which have made the game possible. And then, comes the next issue – making money.

For all the bravado and love that happens, at the end of the day, money needs to be made. Which you’d think would be very easy when you have crowd-sourced your funding, but a big part of me is uneasy. Fans may indeed have largely funded the project, but there is a reason publishers are governed by the trends of the time. What if that is the scope of your audience? You work, you get paid, but you make nothing – or perhaps, not enough to justify the effort.

And then there are those dastardly sharks, the publishers. You can be rest assured that very few out there will be thrilled at the idea of crowd-sourcing funding, and when a developer needs a hand, there may be very few out there willing to give them one. They have their own ways of making money and games, and change is a difficult, scary process – you can be assured that someone from Activision will say something snarky about this at some point in the next few weeks. Bobby Kotick didn’t accidentally turn Activision into one of the worlds biggest and most profitable publishing houses – and you can guarantee he may not like the idea of relinquishing control of the finances.

But this is stuff to worry about at a later date, because the plus points are still fantastic. Gamers funding games. It’s a great idea.

But money is a complicated, murky beast and I suspect, there are many more pros and cons lurking in the wings to feast on the unwary. Double Fine are experienced and no doubt will turn out a fantastic end product (in a double-standard to this post, I have actually pledged a chunk of money to it!), but if this is the future for certain genres, then we need to see the results and mistakes being made to pave the way for future projects. Sure, the mistakes will be costly. And damaging. But that’s the joy of popularising a new movement in how games can be funded. You have to show how it is done – or not, as the case may be.

But never be under the illusion that money doesn’t matter. It does. That’s why adventure games died off in the first place – the market became insignificantly small in the wake of big sci-fi first-person shooters. Because there was more money being made in the latter than the former.

This is a business at the end of the day. All businesses need to make some money. Deluding yourself otherwise, especially if you are pledging a large sum of money to a game project in this manner, may be the downfall of the whole thing.

Let’s hope not.

You can skip to the end and leave a response. Pinging is currently not allowed.

Leave a Reply

Powered by WordPress