The Gamemasters

The Gamemasters
Death to the Games Industry, Part II

Greg Costikyan | 6 Sep 2005 08:00
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Death to the Games Industry, Part II is continued from Part I, in last week's issue of The Escapist.

How Do We Get There?
I first started talking about the problems in the gaming industry in a soapbox piece in Game Developer magazine back in 1999, but at the time, I had no clear idea how to address the problem. Today, however, I think a confluence of technological, cultural, and business trends make the outline of a solution visible. But to make it happen, we have to do three things:

  1. We have to attack the business model.
  2. We have to attack the distribution model.
  3. And we have to change the audience aesthetic.

Attacking the Business Model
Let's look at the conventional industry's value chain the way business types do. It looks like this:

When an independent developer is involved (and of course a lot of games are developed at publisher-owned studios), the developer does one thing: the actual work of creating a game. The publisher takes on three roles: It provides development funding; it does the marketing; and it distributes the physical product to the retailer. The retailer also does one basic thing: It sells games to consumers.

One thing developers can try to do - and should do, if they can - is to take over that first additional piece of the value chain. They should try to fund their own development.

If you can fund your own development, you get some big advantages. First, you can negotiate a higher royalty rate with the publisher, because they have less capital at risk. Second, you are not utterly at the publisher's mercy during the development process; if the publisher-side producer wants you to do something really stupid (and horror stories abound), you can tell him to screw off. And third, you can retain ownership of your own IP, so if you build a successful franchise, you (rather than the publisher) reaps the benefit.

Where to get the money? That's a good question, because it isn't easy. But of course, getting a publisher to greenlight something isn't easy, either. One possible answer is "from VCs." That's the route Mythic took with Dark Age of Camelot; they sold equity to get capital. But this route isn't easy, because venture capitalists typically shy away from product businesses - they're in the business of investing in risky ventures, but the fact that 90+% of all games lose money makes game developers a particularly risky business. It's not impossible, though; there's a lot of venture money nosing around the game industry at the moment.

Another route is to look for project finance. This is something that's very common in the film industry: Investors put up money in exchange for a share of the product's revenues. This has its good side and its bad; you're mortgaging future revenues for money to bring the product to market - but you also aren't selling equity, so you retain control of the company. Because it's such a common model in the film industry, the sorts of people who provide this kind of money - typically rich people, but sometimes funds devoted to film industry investments - are comfortable with the idea. Finding and networking your way to them is a challenge, of course, but it's feasible; this is the route IR Gurus took with Heroes of the Pacific.

Funding your own development doesn't completely solve the problem, however. For one thing, many publishers won't look at a deal if they don't wind up with the IP. For another, they may not devote the same marketing resources and attention to your game, because they don't have dollars at risk from the inception; Heroes of the Pacific was dropped in mid-development by one publisher because of this - the publisher was short on money, and wanted to spend it marketing its own games.

And you're still marketing, distributing, and selling your product through the same channel - the same hit-driven, glitz-obsessed, narrow channel, with all the problems that entails. You don't need a publisher's greenlight, but you still need a publishing deal - and you're still facing a two-week sales window and a glitz-obsessed market.

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