GAME PUBLISHINGSession 7

David Mullich

Survey of the Video Game Industry

The Los Angeles Film School

Economic Terms

Cost: The value of money used to produce something

Revenue: The income a company receives from its business activities

Profit: When revenues exceed costs

Man-hour

Man-hour: The amount of work an average worker can perform in one-hour

Researching and writing a college paper might require a student to do 4 man-hours of work

Preparing a family banquet from scratch might require 10 man-hours

Goods and Services

Good: A product or material that is sold to satisfy the wants and needs of a customer

Service: An intangible item that satisfies a customer’s wants and needs

Market: A system where parties engage in the exchange of goods and services

Value: The worth of a good or service as determined by the market

Video Game: Product or Service?

Capital(ism)

Capitalism is a system of creating a profit by producing a good or service

Financial Capital is “money lying around”

Personal Capital

Your weekly salaryTaxesExpenses

○ ○ ○ ○

What’s left is Discretionary Income

Discretionary Income (DI)

Revenue – Overhead = DI…or Gross Income – taxes – necessities = DI

What do businesses do with their discretionary income?

Financial Capital

Capitalists want to put their money to use to make more money This is called “Re-Investing”

Any use of such money involves RISK

Risk

“Nothing ventured, nothing gained.”Lottery players > Very great risk of money, no

risk of timeStock buyers > Moderate risk of money, small

risk of timeEntrepreneurs > Great risk of money and time

Corollary to the Golden Rule:

Golden Rule of Risk

Whoever risks the most gets the greatest reward. Which of these two risks the most at the

Springfield nuclear power plant?

Labor vs. Owners

Employees (laborer):No risk of income (as long as company stays in

business)No share in profits (unless negotiated or offered)

Owners (capitalists):No guarantee of income unless company makes

a profitLion’s share of profits (less what they’ve

promised to investors)

Risk = Stress

Most released games don’t make a profit

Game projects are frequently cancelled

Employees are frequently laid off

Why don’t most games make a profit?

Sturgeon’s Law

90% of everything is crap

Pareto Principle (80/20 Rule)

For many events, roughly 80% of the effects come from 20% of the causes

80% of your sales come from 20% of your clients

Only about 10-20% of video games break even

THE PUBLISHER

Publisher

A video game publisher is a company that publishes video games that it has either developed internally or has had developed by a video game developer

Game Developer (Studio)

Stakeholders Studio Head Technical Director Lead Programmer Art Director Design Director Business Development Manager (Sales)

Game Publisher

Stakeholders Product Development Legal Finance Marketing Sales Customer Service

Publisher Functions

Finance Production Marketing

Market Research Advertising Packaging

Manufacturing Distribution Support

Technical Community Management

Most of All – Publishers are the Bank

Have the most money at riskCost of developmentCost of marketing Cost of inventory

Types of Risk

Things that can go wrong all along the chain:Technological riskSchedule riskMarket riskInventory riskDistribution riskLiability risk

Result is always the same: MONEY LOST

The Blockbuster Trap

Companies try to replicate success

Source: Anita Elberse, “The Creative Industries: Managing Products and Product Portfolios,” HBS No. 409-077 (Boston: Harvard Business School Publishing, 9002), p. 11

because demand is uncertain, they imitate “winners”

competitors do the same, so investment

goes up

greater reliance on winners

greater desire to avoid risk and copy

past successes

Portfolio Management

Diversify by genre Diversify by platform Diversify by budget Hope that your hits cover

your losses

The Greenlight Process

Greenlighting is getting everyone on your team to agree “let’s do it!”

Development Contracts

Work-for-HireFlat feeNo retained rights to developer

Publishing License AgreementAdvance against royaltiesDeveloper may retain certain rights

Royalty

Percentage of every sale Up-front money is an “advance” on future

royalties Advance must be “earned out” before true

royalties are paid

Stupid Developer Trick

“I’ll cover all my costs with the advance and wait for profits when the royalties come.”

MOST GAMES NEVER EARN OUT (make a profit).

Advances

Never paid in one lump sumToo riskyBad for cash flow

Paid out over a series of “milestones”

Milestones

Typically paid against “deliverables”Signed ContractDocuments (GDD, TDD, Schedule)First Playable (Will it work? Will it be fun?)Alpha (feature complete)Beta (asset complete)Gold Master (publisher approved to sell)Source Code & Assets

Milestones

Production milestones (such as Alpha and Beta) are typically defined by:Features: Degree of completenessAssets: Percent finalBugs: Number and severity allowable

Risk vs. Reward

Video Game Developers vs Publishers: Who Wins? (12:33)

BUSINESS MODELS

1950s-60s – Priceless

Early 1970s - Rent

Early video game machines were placed along side pinball machines, pool tables, foosball and air hockey

Late 1970s - Buy

Early 2000s - Rent

You “bought” early mobile games, but you didn’t really own them

Free To Play

Sell premium features via subscription Sell items or services individually Sell eyeballs (advertising) Blend two or three

Conversion Rate

Percentage of players who spend money on your game.(for example:)SubscriptionsPremium featuresDigital goods

Online Business Models

The Times – They Are A Changin’

Game Theory with Scott Steinberg - Episode 1: Reinventing the Video Game Industry (10:00)

MARKETING

We’re Sudden Millionaires

Our rich Uncle Carlos left us $2M (USD)! We can save it

Risk? Reward?

We can invest it Risk? Reward?

We can start a business Risk? Reward?

Let’s Make (and Sell) a Game!

What are we going to make?Vision DocFeasibility Study

Who’s going to buy it?Business Case

Marketing

Demand for the ProductOptimal MarketValue PropositionCreate AwarenessCommunication Channels

Market

“Those whose money you want.”Who’s buying?What are they buying?How competitive is the market?Are there voids to fill?How do we create demand for our product?

Marketing seeks to answer these questions through the Business case.

Marketing Terms

• Installed base: a measure of the number of units of a particular type of system

• Market share: the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity

• Metrics: the continuous iterative exploration of past business performance

Types of Research

Concept tests Competitive research Gameplay/usability research Advertising research Demographic research

Research

Inherently flawedSample sizeThe Observer EffectAsking the wrong questionsMisinterpreting the results

Better thanAnecdotesPolling your friendsCalling your daughter during a meeting

Demography

“The statistical study of human populations”

How would we describe this room?100% Californian100% nerd100% ages 17-34

Demographics

Different ways of describing groupsAgeGenderGeographic distribution

○ States or Regions○ Urban / Suburban / Rural

IncomeEthnicityFamily size

○ Single/Married○ # of kids

Chicken / Egg Question:

Does the game determine the market?

or Does the market determine the game?

Considerations

How does the market impact game design?What genres are appropriate?What platforms are appropriate?How difficult is the game?How steep is the learning curve?How long does it take to play?Is it single-player or social?What licenses work?

Why to Buy?

The marketer’s (and the designer’s) job is to answer that question.

Answer must be more specific than “it’s cool!” or “it’s fun!”

We Buy to Fill Needs

Cheetos hunger Mountain Dew thirst Zoo York hoodies clothing Gasoline transportation Anything cool self esteem

Psychologist Abraham Maslow proposed that we unconsciously prioritize our needs:

Maslow’s Hierarchy of Needs

Know Your Market

Mass Core Niche

Mass Market

Very large and diverse

Core (or “Hardcore”) Market

Smaller and more homogeneous

Niche

Small but very loyal

Marketing Channels

Magazine/Web Advertisements Billboards Tradeshows Radio/Television Commercials

PR ≠ Advertising

Public Relations is publicity that you don’t pay for. Sending out press releases Doing interviews and press tours Being reviewed Writing blogs Appearing on podcasts

There’s no such thing as bad PR Screw-ups double the press Piracy is a nice issue Linux port? Do it!

Create Assets

Make a deviantArt account for your concept art

Post gameplay videos on YouTube Publish and spread screenshots

Everything A Game Trailer Should Do Have sound Be shorter than two minutes Have a minimum of text Leave viewers with an understanding of

how your game plays Show what makes your game special

RETAIL

Distributor

An organization or set of organizations (go-between) involved in the process of making a product or service available for use or consumption by a consumer or business user.

Retailer

Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser.

Retailers

Major, Game Retailer GameStop/EB Games

Minor, Game Retailer Pink Godzilla (Gorilla), Hyper Game, Hastings

Major, Tech Retailer Best Buy, Fry’s Electronics

Major, Mass Retail Wal-Mart, Target, Kmart, CostCo, Amazon

Retailer Issues

Displays Pre-orders Trade-ins Ratings/Appropriateness Cross-Regional sales

Displays

Buying Visibility “Street Date” “Stock Date”

SKU

A SKU is a stock-keeping unit, a number code that represents a unique identifier for each distinct product and service that can be purchased.

Pre-Orders

Consumer: Guarantees prompt delivery Manufacturer: Allows them to gauge demand Retailers: Assured of minimum sales Marketing: Used to generate buzz

A pre-order is an order placed for an item which has not yet been released.

Trade-Ins

Decreases unit sales for publishers (and developers)

Significant profit for retailer

POST RELEASE

Downloadable Content (DLC)

Additional content released through the internet

“Live Team”:ProducersDevelopmentQACommunity Managers

Revenue is NOT split with retailers

DLC by Genre

Fighting: Extra characters, costumes Shooting: Maps, multiplayer modes,

unbalanced new weapons Sports: Release annual full-priced title

instead Action-Adventure: New areas, sidequests,

non-standard weapon type RPG: Items, weapons, armor, quests

DLC by Genre

Strategy: New scenarios, maps, units Racing: Cars, tracks, combat mode Party: Minigames Music: Songs, famous musician avatars Exercise: Routines, yoga poses, mode

where the game just complements your body

Community Managers

MMOs and other Online games Roles:

Beat CopCruise Director

Beat Cop

Griefing Abuse Fraud Farming Exploits

Cruise Director

Information help Problem solving Event planning and

management Content creation

GM Tool

Master control panel for any accountCreate/delete items/moneyChange character attributeCustomer service functions

World controlRare spawnsWorld events

Community Management

Extra Credits: Community Management (5:17)

INDIE DEVELOPMENT

Indie Development

Extra Credits, Season 6, Episode 21 - So You Want to be an Indie (6:29)

Indie Project Funding Options

Publishers Day Job Credit Cards Friends & Family Patronage Festivals & Contest Prizes Crowdfunding Government Programs

Indie Company Funding Options

Friends, Families & Fools Incubators/Accelerators Angel Investors Seed & Early Stage Venture Capitalists

Crowdfunding

Extra Credits, Season 4, Episode 10 – Crowdfunding (7:29)

Electronic Arts

G4 Icons Episode #45: Electronic Arts (21:32)