13

The Game Business

Like all business, the game industry thrives upon sales and marketing. As a beginning game producer, you may define your personal success as finishing a project or creating a new or innovative feature that has never been explored before, but the majority of game developers and publishers use sales to determine success. Making a marketable game on time and budget will ensure financial and commercial success.

The business plan for your company and your first game should be built around the concept of “sales numbers”—in other words, you must sell a lot of games. This figure is not the same thing as how much money you will make. That number will be calculated after you have paid for the cost of development and marketing. Usually, the demand of the consumer is the factor that determines your place in the market (how much your game sells for). If your game has to be sold for a dollar as a download to get your sales numbers up, then that will be your eventual position. Generating huge numbers (in sales and revenue) will give you the stats and leverage you will need when you pitch your next title to a bigger publisher.

There is an axiom in the movie industry—coined by famous film teacher Dov S-S Simens in his book Reel to Deal (Grand Central Publishing, 2003)—that says if you want to make a $20 million movie, first you have to make a $2 million movie. But to make a $2million movie, you should probably have produced a $200,000 movie. See a pattern here? The same is true for the game industry. Scale low, then slowly work your way up the development food chain to get your game studio on the right track without overtaxing your resources.

Your first step in getting that initial game out the door is to get your business plan, mission statement, and risk analysis in place.

13.1Business Plan

There are several different types of business plans—most focus on either how your overall company will function or how an individual project will be managed. Because you will have created your concept package that already includes financial information regarding the game (primarily the budget and schedule), you now need a business plan that specifies how you will make your game studio successful. The best way to do this is to define your goals.

Once you have listed the goals of your company—these probably include getting your first game produced, getting an office, and so on—explain how you will get there. Just remember the audience for your business plan! If this is something you are going to take to banks for loan purposes, there are specific things to include in the plan for that—specifically, financial information. Another reason for defining your business plan’s audience centers around the idea of secrecy; as you won’t be able to get NDAs from casual readers, make sure that your business plan does not have any information in it that needs to remain confidential—especially if you are going to make your business plan public on your Web site.

In a nutshell, a business plan is about defining your goals, how you are going to implement them, and crafting your plan around the intended audience. To this end, you can also create several different versions of your business plan, focusing on what you want the public to know and what you want investors/partners to be aware of. Once you have created your business plan, you can then move on to your company’s mission statement and your game’s risk analysis.

13.2Mission Statement and Risk Analysis

When you are putting together the information that you need to get your company up and running—whether it’s for incorporating or simply filing a DBA form (Doing Business As—This is the legal document you file that states you are creating a new company, but are not ready to incorporate yet.)—one of the most basic things you need is a “mission statement”. This document lays out the basic intentions of your company and your philosophy for business. Most often, there are also clauses within the mission statement that focus on uniting the vision of everyone working with you and address concerns that any business partners may have when doing business with the company.

If you are careful and concise with constructing your mission statement, it will be an important document when soliciting investments, small business loans, and making deals with publishers. It can also serve as a kind of compass within your workplace when resolving differences between employees, hiring new people to join the team, and making decisions regarding the company. The mission statement, along with the risk analysis, will be in the package you take with you when pitching your game to various publishers and distributors.

A “risk analysis” is a report that takes into consideration the various factors involved with creating a game. These factors are broken down into a most likely situation (also called a “proposed scenario”), a worst-case scenario, and a best-case scenario. These three different outlooks illustrate how the title will fare if it sells at expectation, fails to sell enough units to meet that expectation, or sells higher than expected. In addition to these three different outlooks, a risk analysis also includes information regarding the investment: there will be a number that reflects how many copies of the game must be sold to make back the money put into the game, and what price the game will have to sell at as well.

When you are putting together the numbers for the different scenarios, you will want to decide how big a margin of difference to allow for. Game developers can estimate anywhere between 25 to 50 percent differences between the worst- and best-case scenarios. Usually, it’s safer to go with the higher percentage—it’s better to prepare for the worst than to be sideswiped by it.

Once all of this has been computed and the spreadsheet is formulated, you will have an extremely clear-cut image of what you must do in order for the game to become a successful title. Of course, you must realize that things change during production and your estimates may go up or down. Realizing this early, and modifying your risk analysis at that point, will go a long way to help with getting your final price and units that must be sold computed for the marketing team.

13.3Crossover Appeal

Perhaps one of the greatest advantages to making a cinematic game is the potential for crossing over into the many other areas of the entertainment industry. Creating a strong story and characters in your game, as well as producing your game using sound cinematography, will make a product that shows potential for films, books, television, and so on. A great example is the whole circus surrounding Bungie Studio’s Halo 3 (well, the whole Halo series actually). Characters like the Master Chief are not just “thought up”. They are crafted. Carefully. As I am writing this chapter, in addition to the Halo games, there are several novels on the shelves, tons of Halo toys and merchandise floating around, and a movie in development.

Getting the appeal of the game to a point where these other projects are possible is as simple (or hard) as creating a strong, cinematic game. When you have the fan base to support branching out into other mediums, you can then decide whether it is financially viable to attempt selling your intellectual property (IP) to those other avenues of sales. Again, make sure to use an attorney when making these deals; as it requires others to license your IP to make toys, books, and other merchandise, you need a lawyer to design and review those contracts.

13.4Success with Marketing

If you are fortunate enough to make a sale to a publisher, you will get to know their marketing department really well. In many ways, they function as a kind of accountant in the publishing world—they are concerned with getting sales up and maximizing the potential for sales through sound marketing techniques. If you are publishing your own game and using alternative distribution channels, you function (for the most part) as your own marketing department, so it’s important that you understand at least basic marketing strategies.

Creating a successful marketing campaign starts as soon as you begin production. If you have created your risk analysis, you should have an idea of the price point you will place on the game. Thus, you can look at other games hitting the market at the same time as yours and determine whether you are creating a competitive title. Coming into the game market at the right time with the right price can make or break your game. If there’s a lot of competition scheduled to be released at the same time as your game, it’s probably in your best interest to move your date.

The second marketing concern to address is getting word of your product out on the street: generating press. There are several different avenues of approach you can take—and you should take them all—including interviews and articles in trade magazines, reviews, and the use of screenshots. As soon as you are able to do so, you should start getting screenshots of your game together. You can send these out almost immediately to the various online gaming sites like GamingTrend and Gamasutra as previews for your new title and start generating word-of-mouth advertising.

Once you are well into the production cycle, and completion of the game is imminent, you can then try to set up interviews with trade magazines like Game Developer and fan-based mags such as Game Informer. This process will increase awareness of your game and prime the market for your game’s entry. Then, just before the game’s release, send out copies of the game to magazines and sites to review. This step provides a last-minute boost (along with any ads you place for your game) to your marketing campaign.

Other major marketing tools at your disposal include the use of your demo, creating a strategy guide (it doesn’t have to be a formal, published one—make a nice walkthrough with tips and cheats and put it on your site as a download), and doing presentations. Putting together a program that includes an overview of the game, visuals (concept art, demo, and so on), and other game assets is a great idea for generating foot traffic at conferences and for speaking at conventions.

Once the playable demo is up and running, getting it out there at the conferences (along with you as the spokesman), on your site, and bundled with other games being released is a great way to put your product in the hands of gamers. The higher the visibility your title has in the public’s eye, the higher your sales will be—and you will need the revenue to help offset the money you have already spent on development and production. Of course, there are other ways to help lower your bottom line as well, as explained in the following section.

13.5Incentives and Fundraising

In the film industry, states are constantly competing for business dollars—luring film production companies to shoot their movies within their borders. To do this, they usually offer an “ incentive package” to film producers. These incentives can include getting a discount on taxes for labor or goods, rebates on total production costs, and discounted or free permits for shooting on location. These incentives can add up to millions of dollars in savings for a film production. Some larger cities even have additional incentives that are offered for setting up shop within their city limits.

Recently, states have taken an interest in providing incentives for game productions as well. The state of Texas has now included incentives for game companies—much like the ones they offer for film productions—to move to Texas to produce their games. Austin is one of the biggest game cities in the country! Other cities and states are have similar programs in progress. If you’re in the position to set up shop anywhere in the country—or at least to move to an area offering incentives—this is a great way to lower your overall costs on production. However, if money is a huge issue—or if you are not in the position to move—and you are truly going the guerilla production route, being creative with the use of fundraisers may be the ticket to get your initial revenue.

Fundraisers can be as simple as making T-shirts and selling them or as complicated as setting up a mixer at a popular bar (with donated food and drinks). There are literally hundreds of ways to raise money for a project, and many great books have been written on the subject. Getting a couple of good fundraising projects rolling can get you the startup money you may need to incorporate, buy the software you need, and pay for a good Web site. You probably will not be able to completely fund your project using fundraisers (unless you are on a very low budget), but many people in the film industry have used this tool to get an independent project up and running.

13.6Publishing 101

Getting a publisher on-board to purchase your game and distribute it is the ultimate goal when producing a game, so this tends to be the number one concern with new, independent game studios. The best way to get a publisher is pretty obvious: create an awesome game. Knowing how to pitch your game and how to set up formal meetings are also important, but in the end, it’s all about the game. Creating a cinematic game with awesome game play should be your number one goal from the onset.

Once your awesome game is up and running, the next step is to use those soft skills and go on a mad pitching spree. Hopefully, after you have made the circuit through the major publishers in the game industry, you will have gotten your feet in the doors of a lot of important people and given them your presentation. This process should at least put you in consideration for publishing—or at least given you lots of experience pitching at this point.

If you do get a publisher on board and you sell your game, congratulations! You will be well paid for a job well done. However, if you do not manage to secure a publisher, don’t despair! There are several different ways you can self-publish your game without going bankrupt in the process: You can use pure distributors to get your game on shelves or you can go to a digital download or online distributor to sell your game.

As far as distributors go, there are companies that have made deals with multiple retail chains and have the ability to get your game on the shelves of a lot of stores. Sometimes certain stores have their own submission process to put your product on shelves directly through them as well. Although using a distributor saves you the legwork involved with making deals with all the various stores that will carry your product, a distributor will take a certain percentage of your sales, so consider that before making any final decisions. Also, any distributor or retail chain will want the finished product in hand—this means that you have to find a duplicator to make copies of your game and then print all the materials that go with it (box, instruction manual, cover art, and so on). This can be a pretty big expense—and one you need to allow for from the onset of development if you are going to go this route. Once you have secured deals with retailers and/or distributors (or you have decided to bypass this process), you can then look into the expanding world of digital distribution.

There are many Web sites that specialize in selling game downloads directly to consumers—turn to these places if you don’t want to be encumbered with the expense of duplicating your game and printing materials. They usually charge a fee for hosting your game and then (sometimes) get a small percentage of the download price. By going the digital route, you save on your overhead and therefore are able to have a lower price point for your product, which makes your game more competitive in the market. You can also consider selling your game directly from your site; if you’ve spent the money on a great Web site, you can host the download there and charge folks using a method like PayPal (it’s easy and quick to set up an account with them). Going this way means that all the sales go directly into your pocket! The downside, though, is that you are responsible for driving gamers to your site, whereas a bigger site like Steam or Xbox Live Arcade already has a lot of hits and visitors.

Whichever method you take (or if you take both), just remember that there are also foreign markets. With a little research, or the use of a good game attorney, you should be able to identify distributors within other countries that can market and sell your game—if your game is localized enough for sales there. Getting into certain territories may mean going back and opening your closing kit to do a localization. This can be expensive, so make sure that you are going to make money before you do this. There are quite a few places that you can sell an English version of your game without having to go that route.

Another good thing to keep in mind is that most major game developers/publishers consider a game to be successful at around 350,000 copies sold. As you will work at a lower budget than most of them, you will not have to achieve such a sales number to regard your game as a success; but if you do hit this sales number, this is a great selling point to make sure to mention when you are pitching your next game.

Life as an independent developer and publisher is tough, but rewarding. As an independent producer, gamers look to you for new and innovative approaches to gaming, as well as inspiration for their own ideas. Get out there and meet others in your position and learn what they are doing—if the independent community can’t help each other, who can?

Interview: Patrick Hamilton, President of Wardog Studios

Patrick Hamilton has been in the computer field for close to fifteen years with emphasis in information technology and security. He has an MS in Network Security and a BS: Information Technology with a minor in Computer Science. He served in the U.S. Navy as an Aegis Fire-Control and was part of the precommissioning crew of the USS Milius (DDG-69). He believes that a niche market exists for sophisticated games, which can support additional media and business capabilities, as well as to finally release his long awaited mech system into the gaming community.

Newman: Is it still possible to make an “independent” game?

Hamilton: Yes it is, even for an MMOG. The Internet provides the means for individuals, teams, and companies to have global reach without the worry or hassle of retail distribution. Although digital distribution has not been as accepting as to retail distribution in the past, this is no longer the case. I believe that both forms of distribution are about even and digital will shortly overcome retail.

Producing an MMOG may seem impossible, in that large teams or large budgets are required. The budgeting of new MMOGs seems to keep going up in the millions each year—even as expensive as a full-feature film. I will state this: this is not the case, nor has it ever been. Small teams with small budgets can produce successful MMOGs without the need for going to publishers. Producing online games in the multimillion-dollars range is not the right direction. Looking at the computer and IT fields, technology is supposed to make things be better, go faster, and cost less. In the MMOG sector, this does not seem to be the case, so research is needed to figure out what is going wrong and how to exploit it. This is where smaller teams have an advantage to create new paradigms in how such games are created and released.

The MMOG market is a young sector and has plenty of room of growth. There are three strong advantages of MMOGs and those are as follows. MMOGs are living games, with a much longer shelf life than that of conventional games. Thus it is possible to build the core system first and then expand over time, implementing phases (called a Phased Approach) for the release of the full game. Lower-resolution graphics are needed due to performance issues (though this will change as technology improves), allowing teams to create games without the worry of using the latest and greatest graphics possible. And by having a global reach, there is bound to be a viable market for a particular title.

Newman: Recently, EA acquired BioWare/Pandemic. The more smaller studios that are snatched up by big publishers, the harder it seems for an independent studio to succeed. What’s the key to getting an indie studio up and rolling?

Hamilton: I would say that the key to getting a studio up and rolling is to first and foremost draft and complete the business plan, not the game design document. Games require money to create to generate revenue. A game must be sellable and the definition of “success” to a developer, team, or studio is needed. Success can be selling just a total of 50,000 copies over a period of one year, or maybe 500,000 units. The business plan will determine that. Additionally, the business plan will help in figuring out the right market and audience to target and identify competitors, and will help secure funding from potential investors. Even if a team is to develop a game for nonprofit use, a business plan is still needed to help show the expenses and how they would be covered.

The second key is what is going to be the innovation, that uniqueness that the game will have compared to others? This innovation or hook does not need to be in the technical programming side of things: it can be of game mechanics, level of sophistication, cinematic, or blending in other forms of media or technology. Small studios tend to have the freedom to be creative and innovative, while large studios and big publishers become more conservative. The big companies rarely want to take on more risk than is needed when millions of dollars are at stake.

When pitching to investors, again, the game needs to be sellable. What features or concepts does it have that will make an investor want to sign a check right away? The best angle that I have observed has been to add in business capabilities and refer to our project as a form of business entertainment system, rather than a game. Trying to get investors for a game is hard, because the word “game” implies a high-risk venture with which many other game projects are competing. When talking with potential investors, I did not receive much of a good reaction when talking about a new game; however, when talking about a massive virtual interactive service that blends in other forms of media and business capabilities, such as in-world Web browsing and product placement, the interest has been much favorable.

Newman: With game development teams getting larger and more expensive to maintain, it seems that a new development model is needed. Is it more cost-effective to maintain a “permanent” team at the studio, or to turn to contractors for the bulk of the work?

Hamilton: I would say that using both is the way to go. Have a core team to work on the critical systems and the creativity of the game, while contractors perform the bulk or take care of the mundane side of things. Typically, outsourcing to other specialized companies is a cost savings. However, take the time to conduct due diligence when dealing with other companies. See what they can do: provide some sample work for them to do and see what the results are.

Newman: There’s been a lot of talk about game projects essentially being treated and managed like a film project—meaning that a team is assembled for a specific game, the game is created, then the team is disbanded. Is this a good development model?

Hamilton: The ideal method is to start with a small team—if possible, with third-party companies or contractors to help keep the cost down. As more funding is secured with later rounds or approaching launch, slowly grow the team, but not much—only what is needed. When the game has been launched, then grow the team to match the revenue earned. This is to help provide additional content to grow the game, as well as to begin work on another project if so desired. Avoid developing a game with a large team, launching the game, and then laying off employees. That may be typical in the game industry, but not with MMOGs; that is a sign of mismanagement and of conventional thinking. MMOGs are not the same as conventional computer games and require their own form of development model. Unlike conventional computer games, MMOGs are living games, able to be added onto, changed, and upgraded.

Newman: What impact does the choice of game engine have on a game budget?

Hamilton: The game engine has one of the most significant impacts for the budget and generally requires an upfront cost. Also, the game engine will provide additional capabilities and limitations that may have not been considered for designing a game. For example, Game Engine X cannot support aircraft speeds past 250 mph when using 1:1 scale. So either some creativity will be needed, such as changing the scale, writing up some fictional reasons as to why, or using descriptive words instead of numbers.

I believe that there are three choices:

1. Build the engine.

2. Take an open source engine or platform and build upon it.

3. License one.

Each choice has its pros and cons. Of the three, I recommend licensing one, even if on a budget that requires creativity. The reason for this is that building an engine or platform from scratch or from an existing one is a challenging endeavor that will take one to three (or more) years to complete. During that time, the engine may become severely out-of-date before it is completed. I recommend taking this approach only if the team has the expertise to design, document, and develop a complex system. Licensing an engine or platform is the better choice, in my opinion, as another company is dedicated to only building that engine or platform.

If I may add to this, something that I have noticed with teams and companies is going for the best and most expensive engine or platform to use, which will then solve the majority of problems and the game will sell big. This is also assuming that multimillion-dollar funding (even at $2 million) is going to be easy to obtain. I consider this a mind trap, as every engine has its problems and quirks. Additionally, securing the funding to purchase such engines is rare, and best to start with an affordable one and get the project rolling.

Newman: Today, most games are financed by a publisher, which means that most independent studios work with an extremely constricted budget. How difficult is it for a studio to finance a game, much like a film, by going through a bank?

Hamilton: It is difficult, no doubt about it, but securing funding is should be thought of in terms of, “Not if, but when.” Stay positive and keep going. If funding has not been secured by a certain period, then reassess why this has happened, make the needed changes, and keep going. Also, acquiring funding takes time and action; it will not happen without effort being made. From what I have experienced, it is best to find a private investor (angel investor) to gain the seed money to grow the game from a “tech demo” into a workable game, though not a full-blown environment. Funding by banks is unlikely to happen, in that banks generally only put in money at a dollar per dollar match. Thus if a studio needs $500,000, the bank will provide $250,000 only if the studio can supply the other $250,000. Venture capitalists generally are interested in projects above $5 million and want to see mainly two items: the experience of the management and the potential of the revenue generated from the idea.

Newman: Is the use of completion bonds getting widespread attention at this point in the game industry? What about the use of “gap financiers”?

Hamilton: I can’t really say for the computer game industry, with the use of bonds and gap financiers as whole, but in terms of indie studios, there is not much widespread use. The difficulties with a small game studio are about the same for a small film studio— either a lack of cash available (or funding acquired) and the amount of experience. I believe that over time, the ability to obtain the financing or bonds to ensure the completion of a game project by a small studio will become easier, as the gaming industry is a growing entertainment market. We’re still in the early stages of the ability to blend games with films.

Newman: Austin, Texas, has done a great job with implementing local incentives for game productions to get up and running there. Right now, they are offering a grant equal to 5 percent of in-state spending, including wages paid to Texas residents and certain sales tax exemptions for game productions. Will we see more “film incentive”-type programs in the future? Is this enough of an impact upon a game’s budget to warrant relocating a studio?

Hamilton: I think it is a given that films and games will become more integrated with each other, even to the point that the interactive system (the game) affects how the film turns out. The computer gaming industry is growing and has exceeded the filming industry (box office, excluding DVD sales) and so it seems to make sense. Also, Web distribution allows for films to be provided to the public; the difficulty for such films is to market to an audience. A gaming community will help provide this targeted audience for Web-distributed films—especially if the film is short and related to the game.

For the incentive for relocating to Austin.I think that does have a strong consideration. It is strong enough for me to reconsider and investigate that possibility.

Newman: In your experience, what have been some of the best marketing strategies involved with selling a game? How about the worst?

Hamilton: The best for us would be partnering up with The Multiverse Network’s (http://www.multiverse.net) game portal system. We have been able to be part of the press releases of Multiverse, as well as attending game developer conventions. Multiverse provides a MMOG platform and also a portal. Although a portal with a listing of additional games might seem bring on more competition and detract potential users, I believe this to not be the case. Providing multiple games draws in more users, and those with great success will of course draw in more. Even though users may be playing another studio’s game, they may look over the list to find one that is more of what they want, or when they do get bored with a particular game, they may move on over to another one. By being a developer with Multiverse, we have gained some recognition and a following.

For the worst strategy, we haven’t made a bad move yet in my opinion. Although being listed on a public gaming Web site, MMORPG.com (http://www.mmorpg.com) was risky, given that our level of graphics in the presenting screenshots looked dated, the results turned out decent. Sure, there was some criticism given, but there are those gamers out there who are willing to look past the graphics to see how the game will play and its mechanics. I also took this risk to test the waters of the public, to be honest with the community, and to show that improvements are occurring. For example, here is the base-line level of graphics, and then some time later, here is another round of screenshots with graphical improvements.

Newman: Does the concept of “crossing over” into the film, book, and merchandise arenas come up when developing a new game concept? What kind of impact does it have concerning key development decisions?

Hamilton: “Crossing over” does have an influence in our designing, which I would assume would be true for others. For novels and films, there does need to be continuity with what is provided in films, novels, and the game. For example, some game systems have the ability for characters to clone after death, thus avoiding death; but how does such a concept get portrayed in novels or films? Often cloning is ignored, and deaths of characters occur; but yet characters can’t die permanently in the game?

The amount of impact in my opinion is strong, but in the game industry in general, it appears to not be a concern that the game system is done differently with films and novels, and by so doing, heated debates occur with the fan base of the IF! What is seen in a film or read in a book should be portrayed as close as possible within a game environment, and vice versa. Also the game environment of a MMO needs to change over time, hopefully in a dynamic way in which the actions of players have an impact. To maintain a static environment is much like having a theme park with rides that never changes. This doesn’t breathe in much new life into books or films; this would cause a loss of interest with the fan base. Much interest would be generated if a person knew that what he or she was doing would have an impact with the game world, which in turn could be portrayed in a future book or film (“Hey, that’s my character in the movie!”) would have a profound impact, I believe.

Merchandising is on the easier side for, say, clothes and figures. As MMOGs use 3D models, those models can be used for plastic models or figures. I would say the difficulty with that is finding a good partner to work with and handle the selling of the merchandise; the rest is easy after that.

Newman: How accessible are publishers? How can a developer maximize a pitch to them?

Hamilton: At first, when starting our project, I thought that the plan would be to create the documents, make a short presentation, and then pitch the concept to publishers. After talking to a few publishers’ representatives, I have found out that to win a deal with a publisher is tough for the following reasons: The team or company must have made about five to eight games, therefore providing experience; the game idea must have the potential to sell a million copies; you must be willing to sign away the rights of your team’s IP to the publisher (that is, you no longer own the game, the story, and so on)—over 80 percent of the game design will be changed by the publisher; you must be willing to accept a cut of 10 to 20 percent of net sales (minus cost overheads and other things), with the low teens expected for the first timers; and you must be willing to work on other projects by the publisher, as your project will be contracted out to other developer studios.

In all honesty, the best way to release a game is the self publishing route. This is possible and profitable today, as electronic distribution is gaining wide acceptance. The publishers’ only form of control is through retail distribution, and successful titles no longer require retail distribution. Self-publishing is tough, but possible, and viral marketing through the Internet is not as difficult as it would seem. Gamers are Internet-savvy and use the Internet extensively.

Newman: What advice would you give a new studio trying to compete with the “big boys”?

Hamilton: Find a niche market or make the game fit into a niche market. “Niche” is not a bad word; niche marketing is how small companies compete with big companies. Go for a smaller targeted audience, which should prove to be more loyal than the mass-targeted audience.

MMOs are still young and can be made by a few people or a small team with a creative budget. It is possible and has been done. The group I work with is an example of it. Do not let others tell you that only big teams and millions of dollars are needed to make MMOs. “Gone are the days of single programmers or small teams making games.” I have heard and read that line of text since I owned a Commodore home computer in the 1980 s, and yet games are being made by a single programmer or small teams to this day. A new MMO just needs one person, one idea to get it started. You’ve got to start somewhere—and never give up!