Where the Money Goes

Thanks to Pag on Games, I found this interesting wiki article called Where the Money Goes.

The article summarizes where the money comes from and goes to for a successful next-gen game. The assumptions are that the game will cost $20 million to develop, and if so, selling only 100,000 units will result in losing over $20 million. On the other hand, if you sell 2 million copies, you can stand to make a lot of money.

The interesting part: “carefully controlling the factors that affect profits can have a big effect on the profitability of a game.” The Dream Scenario demonstrates that adjusting certain costs can result in significant profit potential. While it is a dream scenario, the point is that a lot of money can be thrown away if care isn’t taken.

But what does it mean for an indie developer selling games online? What can an indie do with this information to improve the chances of being successful?

There is no such thing as Markdown Reserve or Wholesale Price, or at least they should be quite negligible. There are other costs, of course, but there is no need to worry about manufacturing the right number of units or liquidating unsold copies, and negotiating royalty rates for consoles isn’t likely to be a possibility for those developers that have a deal with console manufacturers in the first place. Perhaps the cost for using game portals could be substituted for the cost of having a publisher.

Obviously marketing can get quite a bit more focus, and it should. Without retail deals, customers need to find out about your game before they can even think to buy it. If your game was available at the store, you might benefit from impulse purchases, as well as the advertising for just having a box with the game’s name on it on a shelf. Since an indie will most likely sell everything online, there needs to be a way to get in front of more eyeballs.

We can drop the development costs from millions to possibly hundreds or thousands. My own expenses probably won’t exceed a few thousand needed to outsource art and sound to actual artists and composers.

100,000 copies sold would no longer be a catastrophe with those kinds of numbers. In fact, one hundred wouldn’t be too bad either. Also, lifetime sales can actually mean a lifetime as opposed to the months before a game hits the bargain bin and disappears. When talking about copies sold, we’d need to limit the scope to a specific time range, such as a month or a year. Otherwise, it can be difficult to keep things in perspective.

100 units sold over the course of a month would be great for many indies. Over the course of a year, not so much. We’ll use the term catastrophe if those sales were made over the course of an actual lifetime, but even then that game could bring in potential customers for the developer’s next project, which we can hope will take into account the lessons learned from the previous project.

When you think about the numbers in this way, what’s the risk for an indie? I suppose the biggest risk is the time investment. If an indie spends three months on a game that doesn’t sell well, it isn’t as bad as the developer who spent two years. If lost time in development is such a big risk, then I suppose the next biggest focus for an indie are development practices.

Since time is money, we can still ask the money where it is going when talking about what a developer does. How focused is the project? Does the developer spend every waking hour working towards completion of the project, or does he/she manage to work a couple of hours every other month? Is there an opportunity cost for not working on the project, delaying its release and potential sales revenue? Are there development practices that might make the developer more effective? Spending 40 hours making a significant component of a game is fine, but if you can do so in five hours, you can finish the game faster.

Marketing can get the resulting game in front of more potential customers, but an indie may want to invest in learning how to do things more efficiently. The more important the skill, the better the benefit you would receive for improving it.

3 comments to Where the Money Goes

  • The “dream scenario” for indies would be something like striking special deals with portals and affliates, getting special distribution deals (XBox Live, Steam, retail, etc.) or working with a well known developer that can promote your game (Popcap.) This can even extend to licensing and merchandising (see Alien Hominid.)

    The revenue difference between a failed indie game and a succesful indie game will be proportionally much larger than the difference between a failed and hit console game, but the console game will have a much higher lose. Chances are a failed indie game was made with very low risk in the first place.

    I think its hard to call time a risk if indie development is a part time thing. Usually then its a hobby that you would be doing anyway. Does freetime actually equal money? You could spend your freetime relaxing instead of stressing about your game, but if you’re really focused on indie game development a lot of that “relax” time will be spent feeling guilty about not working on your game :).

    Spending money on the other hand is a risk unless you are wealthy. Spending a few hundred dollars isn’t too bad, but if you have a day job spending 1000s of dollars means you could be putting weeks, if not months, of pay into your game. Even this might not be considered a risk if you’re using your day job to fund development and see game development as an expensive hobby.

    As an indie developer I think some of the biggest risks are “what game could I be making instead of what I’m working on that is better” and various psychological and ego related damage when people tell you the game sucks, or just ignore it.

  • Impossible: There is definitely an opportunity cost of “working on the wrong game”. If Game A would be more successful than Game B, whatever your definition of success, but you’re working on Game B, then you will want to be working on Game A. The problem is, you don’t know which one is A or which is B.

    And of course if you think that people won’t like your game, you’ll think “Why continue working on it?” Those kinds of thoughts are definitely damaging, especially if they manage to get you to stop. A finished game is always more successful than an unfinished one, but the temptation to start over with a “better” game or to stop entirely is dangerous.

  • Yes. You might want to finish an ok game that’s almost done because the cost to improve that game might be less than the cost of making an entirely new game (I’m currently in this situation with Boxen.)

    There’s also the weird issue of avoiding the game you REALLY want to make because its either too costly, or you’re afraid your great idea will fail. I think I’ll blog on that sometime soon.