Making games differently -- from production, to financing and distribution.
So even though the industry seems to be maintaining its position at
retail, established publishers and studios are crumbling under the
weight of swollen overhead and development costs. Development costs for
current generation consoles have ballooned to $15-$25 million for two
platform SKUs and $25-$30 million for all SKUs. That is twice as much
as the last generation of consoles, with much of the cost increases
attributable to the graphics complexity of consoles themselves.
By Wanda Meloni, industry analyst and producer of "The Brief"
Many have noted that the gaming industry seems to be recession-proof.
Monthly sales figures continue to show growth in the market. Even
though NPD’s figures for March are off 17 percent from the same period
last year, NPD themselves noted that Easter generally provides a spike
in sales, which fell in April this year and March last year. If you
look at overall Q1 08 figures there was 0 percent change from Q1 09,
while software was down just slightly at 2 percent for the quarter,
hardware and accessories were up 1 percent and 3 percent, respectively
companies are faced with mounting market pressure the short-term
strategy is to announce layoffs, which is precisely what many game
companies have done. EA estimates they will save $120 million with
their layoffs. From July 2008 until now there have been over 60
companies that have publicly announced layoffs, with the majority of
these layoffs coming just in the past four months.
tallied up these figures and a staggering 8450 game industry
professionals have been laid off since July. Of these, roughly 6300 or
75% are from North America, with the remainder coming from the UK and
Asia. Game Developer Research’s latest Game Developer Census 2008
published November 2008 estimated the North American gaming workforce
to be 53,900. That puts the current game industry layoffs in the North
American at 12% of the total workforce.
On top of the layoffs
at least 13 studios including Microsoft’s ACES Studio and Ensemble
Studio have announced they were closing. A handful of others are on
life support, operating with a skeletal workforce and actively looking
for buyers. Yesterday’s news that 3D Realms closed its doors make it
just another causality.
There is a silver lining here. These
layoffs have provided a shift in the industry. Most notably it has
motivated change. People are looking “outside the box”, contemplating
new business models, production models, and distribution models.
real story here is there are 6300 industry professionals in North
America alone looking for something new. Many people are looking at the
current market dynamics and starting their own small development
studios. With this desire to branch out on their own, they are part of
what I am calling the Gaming Renaissance Movement.
new studios lack in financing and slick marketing, they are making up
for in creativity, vision and sheer grit. Many of these startups are
self-funded by groups combining their severance packages. However they
get going, these talented individuals are making up a next wave of
independent studios and are the future of renaissance gaming.
The talent is there. Companies like Oceanhouse Media
, already a successful new iPhone game studio was started by Michel
Kripalani, previously of Autodesk and Presto Studios. Earlier in 2008
the creative directors from Naughty Dog started Big Red Button
Entertainment to make console games.
There is also Appy Entertainment
, started by a group of executives from High Moon Studios who are
building games and software toys for the iPhone and iPod Touch. Appy’s
CEO Chris Ulm says, “Despite the economic meltdown, this is an
incredibly exciting time to be creating new projects. It’s the Wild
West right now – no one can say with certainty exactly what will catch
on with this rapidly growing market. Apple’s App Store is a total game
changer that demands fast development times, frequent updates and
extremely focused experiences that tie into an understandable brand
“We’ve really had to radically rethink every aspect
of development,” Ulm continues. “We can’t afford to be just game
developers – as a micro-publisher, we have to be constantly thinking
about marketing, sales, public relations and - God help us - even
merchandising! The best and worst thing about this new model is the
freedom to do projects that would never be considered in larger
organizations. The flip side is the marketplace is highly volatile and
extremely crowded (there are now over 40,000 apps on Apples App store).
But the install base is growing very fast: well over 30 million today
and almost certainly double that by the end of 2009, so if you can
stand the chaos, it’s a once-in-a-lifetime opportunity.”
these new companies have some hurdles. Mostly they are entering the
market at a financially volatile time. Some would say it is during
these downturns when new opportunities emerge. There are certainly
several components that are playing a deeper role.
until a few years ago middleware was still viewed as taking the easy
way out. Today, middleware usage is becoming an accepted practice for
many development teams. It was the launch of this last generation of
consoles that really made middleware a more accepted part of the
Back in 2002 I estimated only 8% of all
games were using middleware and projected middleware use would be at
65% by 2007. In a recent Engine Survey
done by Mark DeLoura, 55% of survey respondents stated they are
currently using some form of middleware. I was a little aggressive in
the adoption rate of middleware. It obviously has taken longer to get
middleware integrated into production pipelines. But there are so many
more middleware tools available now than were even imaginable back in
2002. There are now categories of middleware - the engines: game, MMO,
mobile; the A.I.; the physics, the audio.
Emergent Game Technologies
is one company that stands out for its developer support. The company
has established a “Game Technology Initiative” to enable more
independent developers’ access to their tools. Kick Start was launched
in November to directly support these early stage developers. Geoffrey
Selzer, Emergent’s CEO notes, “The game industry is in a crisis. It is
too hard to make games and too hard to maintain an IP franchise. The
liquidity of game development is stifling growth.” Emergent estimates
developers and publishers spend $400 to $500 million annually on
redundant core technology development. I actually think the figure is
higher than that.
Selzer explains, “There is a new face
emerging for AAA game development. The next generation of gaming is
inspiring new types of content. The medium of gaming is changing with
more storytelling and game playing being introduced through episodic
Emergent launched LightSpeed at GDC last month
in an effort to address some of these key issues. Scott Johnson, the
company’s president continues, “Rapid iteration and prototyping are key
ingredients. LightSpeed changes the way developers will present to
publishers. Gamebryo was created for an engineering–driven development.
Now with LightSpeed we are working to address the requirements of
artists and creative teams.”
agrees the financing model is broken, with traditional funding routes
for startups all but gone given the economic crisis. The National
Venture Capital Association came out with the 1st quarter 2009 figures
- for Media & Entertainment VC investment was down 45% from the
previous quarter, with only $217 million invested. Not only are VC’s
investing significantly less, they are investing in much smaller
amounts. And the number of first-time deals plummeted from 324 in Q1
2008 to 132 for the same period this year. Investment numbers haven’t
been this low since Q1 1998 – that is 11 years!
With VC funding
not a viable alternative at the moment for many startups, the only
alternative is to get creative. As previously mentioned, many of these
renaissance companies are being funded from severance packages. If you
look around there are additional options out there.
emerging for game funding has been used in the film industry for years
using completion bonds. In the film industry an insurance bond is
issued to cover the cost of production should something happen and the
film is not produced, giving the lender a guarantee of payment.
the film industry films are produced and upon completion the project is
closed and production teams disperse to find new projects to work on.
This of course has not lent itself to the games industry because
production teams can not disband as easily. But what if there was a way
to use the completion bond concept of the film industry on a game
project basis, whereby a publisher could make an investment in a game
from a developer that is backed by a guaranteed insurance policy.
This is precisely the approach Seahorn Capital Group
is working on. Seahorn is an executive production and management
consulting firm working with a number of development teams using this
approach. The first publicly announced partnership is with Big Red
Marc Jackson, Founder and Managing
Director of Seahorn Capital Group explains, “Completion-guaranteed
deals have been used successfully on a small scale in games, and we are
starting to see greater interest from both the development and
publishing communities. The movie, TV and construction industries have
been using such guaranteed structures for decades. They realize the
risk management benefits and access to alternative sources of finance
far outweigh the incremental cost of such arrangements. Our industry
stands to benefit enormously from adoption of proven project finance
techniques, especially independent game makers and producers who can
now offer end-to-end solutions and mitigate risk for publishing
There is also industry veteran Dave Perry, who will be showing his website www.gameinvestors.com
at E3 this year. “I had so many people contact me looking for money I
decided to create an open-forum website to try to solve this problem
for the industry”, says Perry.
The goal of the site is to get
projects in front of the publishers and investors, so all developers
get a fair chance. Perry continues, “We will be inviting publishers,
global distributors and hundreds of media and entertainment investors
to look at the opportunities the developers present. If they can’t get
funding in that environment, then it’s time to go back to the drawing
Perry adds that a developer needs to consider a few things when starting out:
They need to understand the pressure the publishers are under and pitch
accordingly. It doesn’t mean they can’t be creative; they just need to
be sensible. Publishers are trying to protect themselves from risk.
There are many ways to reduce risk, but probably the number one way is
to find great team members that share a vision, and show “something”
working, as the investors call it “put some skin in the game”.
Publishers are investors too. They look at the risk and invest money
into projects they believe in. So just how far can you get in an idea,
to show the risk is under control? That’s one reason why you see so
many iPhone / Facebook / Flash games, as it’s a great way to test ideas
at a very low cost.
(3) Opportunities are key. In reality you might
have walked past a guy this week that would have funded your new
company, but you’d never know. Our business misses out on countless
opportunities simply due to the talent having a small set of contacts
to raise money with. Just image you know 5 people and all 5 say no. Is
it over? Should it be?
Gameinvestor website to be demoed at E3
equally important step is fostering strategic partnerships.
Partnerships can provide viable growth options particularly during an
economic downturn. There are many opportunities out there for
developers who have products and looking for partners.
casual games there is one company in particular that has made
supporting third party developers part of it’s own growth strategy -
Big Fish Games . Big Fish has close to
600 independent developers from all over the world creating games for
its portal. As a result Big Fish is able to highlight a new game
everyday. As the largest distributor of casual games Big Fish openly
solicits games from independent developers, providing revenue sharing
on game sales, marketing support and free localization.
"At Big Fish
Games our developers are like customers, each of whom has distinct
needs and success criteria. As such, we adapt the structure of our
partnerships with developers around the world in a variety of ways,”
explains Nate Webb, Director of Developer Relations at Big Fish Games.
“We work as advisors, starting basic guidance and gameplay feedback to
help developers tailor their games for maximum conversion from trail to
sale. To further enhance sales we offer developers free localization
services to ensure that their IP is distributed broadly across the
world through Big Fish Games' branded portals.” Webb continues, “Big
Fish Games started as a small independent developer so we understand
and are sensitive to the challenges developers face when bringing their
IP to market. From contract to launch to support to royalty our
approach is frictionless. At Big Fish Games we allow developers to
focus on what they do best, create great games. By partnering with us
we give them access to the widest audience for casual interactive
OnLive is another
company worth watching as they expand their support to include smaller
developers. "OnLive is working with developers of all sizes because we
fundamentally believe that great games come in many forms”, says John
Spinale, VP of Games and Media at OnLive “At GDC 2009, we announced
partnerships with major publishers like EA, Ubisoft, and Take Two. At
the same time, we announced that we're working with smaller developers,
like 2D Boy, the guys who created the 'indie' hit, “World of Goo."
further explains, “Because the OnLive platform is so easy to develop
for, we think that a lot of smaller developers will embrace us. And,
because we offer a wholly online platform, we think the smaller
independents—who have more flexibility to be creative—will do a lot of
experimenting with new types of gameplay and new models for delivering
games. That's something I'm very excited about, personally. Basically,
OnLive offers developers an incredibly powerful, very flexible platform
that allows them to do what they do best - be creative and focus on
making great games, big or small."
In the mobile space there is Gamepot USA
who, last month, quietly announced they opened a US office. With head
offices in Japan and revenues of $38 million, Gamepot USA is looking to
expand its global partnerships with online game companies and
Be sure that this gaming renaissance movement is
going to greatly impact the types of games that are made and the way
they are made. It will be important to foster that growth, and look for
creative alternatives. Yes, there will be hurdles but the swell is
there already. People are resilient and they will continue to innovate
in new and different ways.