Unrealistic Expectations

Everyone has expectations, and some of us are more realistic than others. I’m not going to get to date Cameron Diaz, I’m not going to win the lottery and despite all protestations, I’m actually quite lucid. Which might be why 38 Studios expecting Kingdoms of Amalur to sell 3 million units makes absolutely no sense…

I’ve said previously that I struggle to understand the games industry.

Don’t misunderstand, I understand it – for all its foibles and flaws, it’s probably one of the few industries you don’t need a degree to actually follow. But there are times when it appears common sense, logic and reason have vacated the industry for a choice holiday somewhere on the moon. Bad decisions, dumb PR Fails and, it would now appear, the amount of games needed to sell.

Last night it came to the attention of various experts that 38 Studios was shut down. They of the critically acclaimed Kingdoms of Amalur: Reckoning, we have been gripped the last week as talk of lack of funds and general dodgy political dealings have been rocking this development house. Of course, the basic reason why it was closed down is simple – as said, it ran out of money. The actual reason for the closure is that simple.

The reasons leading UP to that inevitable conclusion, however, aren’t quite as straight forward. Or sensible.

Kingdoms of Amalur: Reckoning was, by any measure, a commercial success in terms of sell-through. 1.33 million sales in the past few months is absolutely stunning for a brand new IP hitting the market in a slump and a recession. A lot of games would give their right arm to get that kind of volume – it’s up there with the likes of Portal 2 and Skyrim, booth established names in the market. On the surface, it’s a triumph. The sales figures alone should have seen it not only survive but flourish. So why, with that many sales, has the studio lost so much money?

Well, it would appear they weren’t honest with their budgets.

The problem with a long-term project is the tendency to fudge the numbers slightly in your favour. After a while, numbers are just that – numbers, figures on a piece of paper or in a spreadsheet, manipulated by dark forces in an office somewhere. You start to believe your own skewed numbers. You start to convince yourself that it’s perfectly reasonable.

However, expecting three million units to sell in a three month period is, frankly, so lunatic I’d highly recommend some people get sectioned for pushing it.

What seems to have happened is rather than being honest with themselves, and conceding that the budget for their game was way over the odds and making sensible decisions to rein it back in a little, they simply adjusted the amount of predicted sales to compensate. This is what Sony did in the early days of the PS3. Rather than swallow their pride and accept they had gone dramatically over budget, they simply changed some numbers and the end result was an unrealistic and, frankly, ludicrous starting price point that ensured it was never going to attain the same volume of sales as the PS2 did.

In an era where games cost tens of millions of dollars, and hitting a million sales is considered a successful release, anyone who then expects to sell three million units is just mad. But what gets me is the claim that three million would have them break even. Break even? 3 million sales? Just how much did you SPEND on this?!

Let’s say that 38 Studios would get about 20% of the £39.99 price. That’s roughly £8 a copy. 1.33 million sales equates to £10,640,000. That’s ten million, six hundred and forty thousand pounds.

That’s about what they made. Three million sales at £8 a sale is £24 million. This was their expectation.

And this is probably what they budgeted for.

Business – in whatever walk you choose – doesn’t work on unrealistic expectations. Even the best laid plans can come undone, the most bankable success stories can go south at a moments notice. New IP can be notoriously hard to shift, in a market where familiarity is often king and RPGs themselves are generally overlooked unless you have the words “Final”, “Fantasy” or “Skyrim” in the title, you can’t delude yourself into thinking you will sell more than the more recent successful games on the market. The mistake that 38 Studios made, fairly obviously, is that they believed their own hubris – they decided they knew better than anyone else, and fiddled a few numbers here and there so the sales volume, and income from those sales, could be made to justify their own exorbitant expenditure.

This isn’t always criminal, but it is certainly a sign of some moral escapism. The victims? The people who dedicated their lives for many years to a project they believed in, where someone – or a small group of people – made it all look much, much rosier than it was.

If lessons can be learned from this, is that budget controls are important. In the run up to E3 and the start of a new generation lauded for the end of the year, budgets are going to go up further. If you can’t make the numbers add up, you are going to lose – which will be an increasingly hard ask, and more may be tempted like 38 Studios just to bend the truth of their financials a little. But as 38 Studios proved, the proof of the pudding is in the eating, and whilst they have had a critically acclaimed game that enjoyed comparatively good commercial success – they simply couldn’t get the sums right.

Success isn’t based on sales numbers or critical acclaim. It’s based on money. It is time that some people realised those numbers they are pushing around should have dollar signs in front of them. It is real money. And if you don’t have it, you can’t survive.

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