Unit 13- Understanding the Games Industry-Financial Issues
In this report I will be writing about the financial issues that affect the games industry and why games can sell well or badly.
The costs involved in creating games:
There are several costs that go into creating video games. These include: staff wages, the development of hardware and software, rent and bills, marketing and advertising and finally legal issues such as copyright and PEGI ratings. Other costs could involve, creating peripheral equipment and supporting multiple languages, regions and platforms.
Examples of successful and unsuccessful games: The Witcher 3: Wild Hunt was an incredibly successful game, having sold around 10 million copies since its release. In the first six weeks of its release, the company make a profit of $62.5 million. It was successful due to its captivating story, incredibly well-detailed graphics, finely tuned(albeit somewhat clumsy) combat system and lovable characters. Another reason was that people felt they got their money's worth when purchasing the game and its subsequent expansions. It also helped that CDPR had a very good marketing strategy, as well as the game winning over 200 awards before its release. This in turn generated large amounts of hype, thus increasing overall sales.
Grim Fandango was a critical success when first released in 1998, receiving positive reviews and awards. It also initially sold well during late 1998. However, the release of other titles, chiefly Half-Life, Metal Gear Solid and The Legend of Zelda: Ocarina of Time, forced Grim Fandango out of the spotlight. It also did not help that the point-click adventure games were not popular at the time. It is believed that the game has sold between 100,00 and 500,000 copies, although it did eventually make a profit.
How a game can be funded:
There are a few different ways that a game can be funded, in the following ways.
The first is for a developer to fund the game entirely by his/herself. The advantages of self funding are: financial independence, which allows the developers to choose where their money is spent, and creative independence: which means that developers can choose the artistic direction in which they want their game to go, without interference from a publisher. The chief disadvantage is that the budget is usually quite small, resulting in the games sometimes being fairly limited when it comes to graphics, gameplay and level design. However, many independent developers pool together resources, which negate these effects somewhat. Another disadvantage is that it is quite easy for developers to go over-budget, due to unforeseen complications, such as licensing fees, marketing/publishing and the game being held back. This leads on to the second way of financing games; bank loans.
The second form of funding is by way of loans. The main advantage is that it can be a huge boost to a fledgling developers finances and allow them to complete the game properly, sometimes with increased game mechanics due to more money. However, the one really big disadvantage is that banks are hesitant to loan money to people who are financially unstable. Game developers have some incredibly inconsistent cash flows that often scare banks away, as they require money to be paid back when they want it, not in a couple of years when the game is released and the cash is (hopefully) rolling in.
The third way of funding is to get potential investors and publication companies involved in the process. The main advantage is, of course, the increased money flowing into the game. Also these people are usually more lenient when it comes to paying back the money. Independent investors and publishers often invest money in return for shares or a percentage of the overall profit. The disadvantages are that it can be hard for new developers to gain the confidence of investors and publishers and when they do, it is often the case that the developer does not actually see any profit being made until well after the release of the game. This is due to the fact that investors and publishers almost always end up paying for many of the developers costs and take their cut when the game is released, until they break even and start making a profit. Then the developers start seeing some hard cash. Also, publishers often have a say in how the game is made.
The fourth and final way is via crowdfunding. This is a relatively new way to fund games and involves people willingly donating any sum of money to the developers, whether these are completely new developers or existing and solid companies in need of some extra cash. The advantages are that huge amounts of money can be raised, sometimes exceeding the original amount asked for. In turn this allows developers to increase the overall content of the game, from gameplay and graphics to level design and better sound. However, the bad side is that a lot of games take years to create and failed projects can do irreparable damage to your reputation, a reputation that may have taken a long time to build up. It is also necessary to gain interest in your game, something that can take a lot of man-hours to do.
Issues facing small and indie studios:
The main problem for small studios is that it is incredibly difficult for unknown studios to gain the amount of funding necessary, and even more difficult to gain the attention of publishers willing to take the risk and publish potential failures. With regard to the banks, they look at your cash flows and see how much your overall property is worth if it becomes collateral. This can instantly ruin many developers chances of gaining a loan, due to the unstable financial side of fledgling developers. Also, the cash is going to becoming in fastest within the months after the games release, thus meaning that it could take years before any money is seen, which can put off many investors, publishers and banks.
Conclusion:
Overall, I have talked about the financial aspects and issues that all game developers (big or small) face at some point in their lives, from wages, bills, software and hardware development, to marketing, advertising, copyright and licensing costs.
To conclude, I have learnt that if you want to become a game developer, only do so if you have a stable cash flow coming into the studio, otherwise you may be out of the game.
References:
http://www.gamespot.com/articles/witcher-3-ships-almost-10-million-copies-report/1100-6435592/
http://www.gamerevolution.com/news/the-witcher-3-has-won-more-game-of-the-year-awards-than-any-other-game-36313
http://www.escapistmagazine.com/articles/view/video-games/issues/issue_139/2994-Walk-Don-t-Run
https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-crowdfunding
The costs involved in creating games:
There are several costs that go into creating video games. These include: staff wages, the development of hardware and software, rent and bills, marketing and advertising and finally legal issues such as copyright and PEGI ratings. Other costs could involve, creating peripheral equipment and supporting multiple languages, regions and platforms.
Examples of successful and unsuccessful games: The Witcher 3: Wild Hunt was an incredibly successful game, having sold around 10 million copies since its release. In the first six weeks of its release, the company make a profit of $62.5 million. It was successful due to its captivating story, incredibly well-detailed graphics, finely tuned(albeit somewhat clumsy) combat system and lovable characters. Another reason was that people felt they got their money's worth when purchasing the game and its subsequent expansions. It also helped that CDPR had a very good marketing strategy, as well as the game winning over 200 awards before its release. This in turn generated large amounts of hype, thus increasing overall sales.
Grim Fandango was a critical success when first released in 1998, receiving positive reviews and awards. It also initially sold well during late 1998. However, the release of other titles, chiefly Half-Life, Metal Gear Solid and The Legend of Zelda: Ocarina of Time, forced Grim Fandango out of the spotlight. It also did not help that the point-click adventure games were not popular at the time. It is believed that the game has sold between 100,00 and 500,000 copies, although it did eventually make a profit.
How a game can be funded:
There are a few different ways that a game can be funded, in the following ways.
The first is for a developer to fund the game entirely by his/herself. The advantages of self funding are: financial independence, which allows the developers to choose where their money is spent, and creative independence: which means that developers can choose the artistic direction in which they want their game to go, without interference from a publisher. The chief disadvantage is that the budget is usually quite small, resulting in the games sometimes being fairly limited when it comes to graphics, gameplay and level design. However, many independent developers pool together resources, which negate these effects somewhat. Another disadvantage is that it is quite easy for developers to go over-budget, due to unforeseen complications, such as licensing fees, marketing/publishing and the game being held back. This leads on to the second way of financing games; bank loans.
The second form of funding is by way of loans. The main advantage is that it can be a huge boost to a fledgling developers finances and allow them to complete the game properly, sometimes with increased game mechanics due to more money. However, the one really big disadvantage is that banks are hesitant to loan money to people who are financially unstable. Game developers have some incredibly inconsistent cash flows that often scare banks away, as they require money to be paid back when they want it, not in a couple of years when the game is released and the cash is (hopefully) rolling in.
The third way of funding is to get potential investors and publication companies involved in the process. The main advantage is, of course, the increased money flowing into the game. Also these people are usually more lenient when it comes to paying back the money. Independent investors and publishers often invest money in return for shares or a percentage of the overall profit. The disadvantages are that it can be hard for new developers to gain the confidence of investors and publishers and when they do, it is often the case that the developer does not actually see any profit being made until well after the release of the game. This is due to the fact that investors and publishers almost always end up paying for many of the developers costs and take their cut when the game is released, until they break even and start making a profit. Then the developers start seeing some hard cash. Also, publishers often have a say in how the game is made.
The fourth and final way is via crowdfunding. This is a relatively new way to fund games and involves people willingly donating any sum of money to the developers, whether these are completely new developers or existing and solid companies in need of some extra cash. The advantages are that huge amounts of money can be raised, sometimes exceeding the original amount asked for. In turn this allows developers to increase the overall content of the game, from gameplay and graphics to level design and better sound. However, the bad side is that a lot of games take years to create and failed projects can do irreparable damage to your reputation, a reputation that may have taken a long time to build up. It is also necessary to gain interest in your game, something that can take a lot of man-hours to do.
Issues facing small and indie studios:
The main problem for small studios is that it is incredibly difficult for unknown studios to gain the amount of funding necessary, and even more difficult to gain the attention of publishers willing to take the risk and publish potential failures. With regard to the banks, they look at your cash flows and see how much your overall property is worth if it becomes collateral. This can instantly ruin many developers chances of gaining a loan, due to the unstable financial side of fledgling developers. Also, the cash is going to becoming in fastest within the months after the games release, thus meaning that it could take years before any money is seen, which can put off many investors, publishers and banks.
Conclusion:
Overall, I have talked about the financial aspects and issues that all game developers (big or small) face at some point in their lives, from wages, bills, software and hardware development, to marketing, advertising, copyright and licensing costs.
To conclude, I have learnt that if you want to become a game developer, only do so if you have a stable cash flow coming into the studio, otherwise you may be out of the game.
References:
http://www.gamespot.com/articles/witcher-3-ships-almost-10-million-copies-report/1100-6435592/
http://www.gamerevolution.com/news/the-witcher-3-has-won-more-game-of-the-year-awards-than-any-other-game-36313
http://www.escapistmagazine.com/articles/view/video-games/issues/issue_139/2994-Walk-Don-t-Run
https://www.nibusinessinfo.co.uk/content/advantages-and-disadvantages-crowdfunding
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