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Wednesday, October 28, 2009

Muddying who gets what piece of the pie

So, my previous post, "Cost of games, slice of the pie, and business opportunities", has caused a bit of stir -- most of which, despite my urgings, haven't made it into the comments of that post.

To summarize that last post, I wrote brief thoughts about what percentage of a given game's sales go to which groups. For discussion purposes, I used numbers from Dave Thomas ("The Crispy Gamer") / Jesse Divnich (EEDAR), which suggest the following breakout from a title's sale:
  • $12 (20%) goes to "Retail"
  • $5 (8%) goes to "Marketing"
  • $10 (17%) goes to "Cost of Goods"
  • $33 (55%) goes to the "Publisher"
These numbers and that post are helpful as groundwork for some follow-on posts I want to do. These work as placeholder numbers (and maybe they're totally fine), but they don't feel like they address some very diverse business scenarios.

The "bit of a stir" I reference above is from the mix of comments I received, largely on the extreme ends:
  1. "Spot on -- nice job!" (or, conversely "Too accurate, please do not share")
  2. "Not even close to accurate"
I wonder how closely these numbers match what people actively experienced in the industry have seen throughout their career. I say "actively", because I think folks need to have a historical sense to dissect these figures, and they need to be in the industry now -- because it's changed in the last 2-3 years.

As I said before, I'm personally not crazy about the numbers as actionable, mainly because I'm concerned they're too averaged to be individually applicable, and/or are not representative enough -- and I'm looking to refine them.

Obviously, there are several levers /complicating factors that start significantly shifting percentages, and therefore opportunities.

For example:
  • How do these numbers compare across console versus PC titles?
  • Do the percentages stay intact between a $60 MSP 360 or PS3 title, compared to a $50 Wii title?
  • Where do the first-parties (Microsoft, Sony, Nintendo) get their piece of the pie -- from the "Publisher" slice? Is it spread throughout?
  • What happens to the percentages in a $30 "budget" title?
  • Where are the cost savings and additional expenses in a digital distribution only model (Publishers, for example, are (arguably) largely in the risk management / brokering business, so how do the financial risk model change when that entity isn't involved)?
  • What about royalty models?
  • Are first- or third-party marketing development / discretionary funds "on top of" the "Marketing" budget?
  • How do the numbers change (or do they) based on geography, or cross-geography development and publishing?
I'm very interested in identifying financial risk and revenue opportunity by further refining these numbers.

Feel free to respond directly to me, or as a comment to this or the initial blog post.


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Tuesday, October 13, 2009

Cost of games, slice of the pie, and business opportunities

This is more of a biz dev(ish) post, because I want to talk through the cost of games, and use this post as a possible launching point for some other biz dev topics.

Since I think some of the industry numbers I have may not shareable, I'm going to use some public numbers, like those from Dave Thomas ("The Crispy Gamer").

Dave digs into the $60 game -- a price point I've railed against repeatedly in this blog. It's kind of an arbitrary price point, I would argue it should go down to $50 (for consumer and economics reasons), and the PC gaming side seems to "get" this, with the same newly released games routinely being available on console costing $10-20 less on the PC side.

Anyway, for purposes of discussion, I'm going to use Dave's numbers for who gets what pieces of the retail pie. Assuming a sixty-dollar game, Dave (citing Jesse Divnich over at Electronic Entertainment Design and Research) argues $12 goes to "Retail", $5 goes to "Marketing", $10 to "Cost of Goods", and $33 goes to the "Publisher", looking something like this (using my own charts and graphs):

And it probably helps to understand three quick things:
  1. Each of these areas would have a breakout underneath them (e.g., "Retailer" has facilities overhead, employee salary / benefits, etc.) that defines their monetary success criteria.
  2. What these categories include.
  3. How this percentage breakout varies on a case-by-case basis (which is partially why the numbers bother me).
Assuming the first item is pretty self-explanatory, here's a brief description of each of the categories, and representative costs associated with them (some from Thomas, and some from me):
  • Retailer: The (usually brick-and-mortar) establishment from which you buy your game -- so think of it as the money Best Buy gets when you by a $60 game.
  • Marketing: Discounts, game returns, and retail cross-marketing (Toys "R" Us gift cards and exclusive action figures, etc.).
  • Cost of Goods: Cost of getting the goods sold, which includes making the game disc, shipping the games to the store, translation, and anything else directly related to production, and distribution of the game package.
  • Publisher: According to Thomas, "It is generally accepted that most publishers receive $30 to $35 per game sold before they run into overhead, development and marketing costs."
Now, this varies widely, and the devil is in the details.

For example, in an interview with Wired Magazine, Epic Games' Mark Rein talked about Gears of War ostensibly being cheap to make:
"We spent less than $10 million to make Gears of War. Somewhere between nine and ten million dollars. People are always saying that making next-generation games is really expensive, and we’re saying, you should license our technology."
The interesting part of this is I would argue, in this context, Epic wasn't using licensed tech. Since they're the makers of the Unreal Engine, this was basically the equivalent of using internal tech, and reduced the cost to Gears significantly, because it they didn't have to bear the license fee that an external studio would have to bear. So maybe their cost of goods was down (or at least in line with) that 17%. (Now, the "unfunded" R&D expense that went into adding features to UE for Gears would be another interesting piece of the puzzle.)

But what about marketing? I think Mark is just talking cost of development --not Microsoft's hefty marketing part of the pie.

Remember those excellent "Mad World" and "Rendezvous" prime time NFL Football commercials? Those weren't cheap in licensed content, production, or placement, I'm sure easily blowing an 8% marketing budget, and/or eating heavily into publisher Microsoft's 55%. Add to that limited editions (expensive and small-run metal cases, art books, music CDs, etc.) and promotional deals like the radio controlled Centaur Tank that shipped with special editions of the game at Best Buy, or Fallout 3's lunch box / bobblehead / making of DVD / art book, and you can see costs for each of the categories eaten away at pretty quickly.

(Quick caveat is that I own the special / limited editions of a bunch of games, including those listed above, because I'm a passionate gamer, I like to vote for good games with my consumer dollars, and as an industry guy, the "making of" DVDs alone are worth the price of admission.)

As another example, MMOs don't fit into the breakout above nicely at all (I get very frustrated with people trying to shoehorn older industry models onto newer business that frankly isn't that new).

Look at a game like Warhammer Online: Age of Reckoning. Where does the ongoing server cost, or the forum / community infrastructure and personnel overhead that is part of these games get wrapped into the above model? (Often times, "Community Management" comes out of marketing dollars, and are not well accounted for between developers and publishers.)

Exceptions aside, the numbers above give us an interesting launching point to explore return on investment (ROI) for game titles.

So, assuming the base numbers are OK (!?), and a game with a $10M overall budget, you would hit a break-even point for the publisher at an MSP of $60 ($33 publisher portion) after selling 303,030 units (303,030.3, to be exact):

But "break-even" isn't enough -- because there's no profit. If your publisher's profit target is, say, $5M, you're $5M "in the hole" when you "break even" -- and you need to move an additional ~150,ooo units (~454.5K total) to hit that profit target (and, probably, to realize developer royalties):

So, looking at a game like the recent Halo 3: ODST (and totally making up numbers), let's pretend the budget was a "mid-range" $25M -- Microsoft would need to move 757.5K units -- just to break even at the same $5M profit target. Of course, ODST moved 2.5M units in the first two weeks, so even without know their profit targets, it feels like "they did OK":

Now, I acknowledge these numbers are a little problematic, in that they're theoretical, and there's a bit of an apples-to-hand-grenades comparison of the $60 MSP price point of a title, and the $33 publisher portion of the pie placeholder I'm using.

But that's intentional, as I'm setting this up for some follow-on posts.

More later. Comment below.


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Monday, October 12, 2009

Upcoming games (through the end of the year)

OK, I meant to follow up fairly quickly from my basically Q3 list of upcoming games, and got distracted -- Largely because I've been playing several of those games, and some from the new list: Games from Q4 (I need sexier names for my lists).

To review from last time, I list the games I'm excited about as an armchair analyst, industry professional (?), and gamer -- particularly with an affinity for co-op games (so, L4D2, New Super Mario Bros., and Borderlands rise to the top.

Here are the games:

Dreamkiller (360, PC) -- There need to be more, frenetic, memorable PC first-person shooters, a la Painkiller (not related to this title, other than it looks like it's unofficially "inspired-by"). So, this title has my interest because of that, and because I've been carefully watching ASPYR and it its evolving business model over the years. I hope the game does well on PC, and while I hope for the same on 360, I expect it to falter as it goes up against top-notch FPS offerings like Modern Warfare 2, ODST, and even L4D2 -- but especially against Serious Sam HD on XBLA, which will provide that same super-frenetic action, with über polish and a fractional price point.

South Park Let's Go Tower Defense Play! (XBLA) -- A South Park tower defense game? Brilliant!

Lucidity (XBLA) -- LucasArts brings a new platformer to the XBLA platform? Brilliant!

Magna Carta 2 (360) -- I'm always on the lookout for a gorgeous, accessible JRPG. Magna Carta 2, the sequel to the 2002 PC title, may just foot the bill.

A Boy and His Blob (Wii) -- I'm a big fan of the original, and the absolutely beautiful nature of this new one has me really excite. I own a Wii, but play very few games for myself, but Q42009 will likely change that.

Brütal Legend (360, PS3) -- It's Tim [bleeping] Schafer, ladies and gents! And while this game was on my "must get, but maybe not right away" list, the demo changed that for me. If it's representative, this game is the perfect mix of Shafer humor and gameplay, Jack Black is used appropriately (not overwhelmingly), and the game seems to be scratching every itch for me. I'm excited. Wicked excited.

Fallout 3: Game of the Year Edition (360, PC, PS3) -- This single-player, first-person RPG is one of my all-time favorites, and now you can get the GOTY edition, which comes with the original game, and all five DLC expansion packs (The Pitt, Operation: Anchorage, Broken Steel, Point Lookout and Mothership Zeta). And you'll probably be able to find it for cheaper than full price or with purchase incentives. If you haven't bought this game before, you should. Both of you.

Marvel Super Hero Squad (Wii, PS2, NDS, PSP) -- I am such a fan of Marvel's cutified franchise, and while I worry about the possible rushed quality of this licensed brawler title, I'm likely to pick it up regardless for its scratching my multiplayer-plus-fanboy itch.

FIFA Soccer 2010 (360, PC, PS3, Wii, PS2, PSP, NDS) -- I'm not a big soccer fan, but I'm savvy enough to know this sport is the big dog 'round the world, and one of the biggest movers for EA (and therefore, biggest moments for sports-minded gamers). So it gets listed.

Uncharted 2: Among Thieves (PS3) -- This Sony exclusive is arguably the big-dog for October, and probably the first of the genuine heavy hitters for the holiday. Taking a Tomb Raider formula that actually works, injecting top visuals and gameplay mechanics, story, and the introduction of multiplayer, this week's midnight launch will likely have people stacked up like cordwood throughout the nation.

Ratchet & Clank Future: A Crack in Time (PS3) -- You gotta respect the R&C, and this additional PS3-exclusive is (I think) going to make those console faithful happy with an updated take on the franchise.

Demon's Souls (PS3) -- YAPE (Yet Another PS3 Exclusive), this game is already garnering rave reviews, with people trumpeting the game's difficulty, but difficulty that makes you a far better gamer (akin to Ninja Gaiden, but with seemingly less profanity; slightly less). And the game looks slick.

DJ Hero (360, PS3, Wii) -- While it doesn't exactly float my boat, there are going to be a number of DJ-type games hitting shelves as the next wave of music-related games, so I'm curious to watch the trend. And peripherals make people lots of money. And it does look kind of nifty.

Borderlands (360, PC, PS3) -- (This one actually moved to Q4 after I did the original post) Teased for so long, with a relatively recent shiny new coat of paint, I have worked hard not to lose interest in this one. Gearbox has earned their place in the industry, so I'll likely pick up this game just to vote with my dollars as to how to do it right, and I'm guessing the game will live up to the studio that made it. This may be overselling it, but think "4-player co-op Fallout 3."

Tekken 6 (360, PS3) -- I've got a hankering for a new fighting game, and I like the marketing win of one of PlayStation's most venerable exclusive fighting franchises now bing on the 360 (starting with 5). That and I want to be able to pit a panda against a kangaroo. Over and over again.

Fairytale Fights (360, PS3) -- Twisted fairy tale trope at its best (and most violent). Think cutesy plus Kill Bill plus online multiplayer. Let's see if lands as expected.

Dragon Age Origins (360, PC, PS3) -- I think this Bioware RPG is going to be Oblivion / Fallout 3 awesome. Yes. That awesome.

Call of Duty: Modern Warfare 2 (360, PC, PS3) -- I actually expect this game to be the big mover for the holiday season. It addresses all of the right markets -- it's not console exclusive, so it sells more individual units; it's an FPS, so it hits that crowd; It's not as hardcore as a simulation, but hardcore enough to get both casual and hardcore FPS fans on board; it's not niche-genre ("modern war" is much broader than "zombie"); etc. Members of my CoD clan are actually planning to take the day off to play this game. Seriously. (There will also be derivations of this game on Wii, PSP, and NDS, but they are differently titled, obviously have very different game mechanics.)

New Super Mario Bros. (Wii) -- It's Mario. On the Wii. With co-op (and adversarial, it looks like), a la classic Super Mario Bros. My hope is to be playing this all holiday long with my sweetie, which may cost me Xbox and NDS time (and will be well worth it).

Phantasy Star (NDS) -- This game (which would make my list just because of my love of the franchise) is allegedly an action RPG amalgam of the best of Phantasy Star Online and Phantasy Star Universe. Sign me up!

Left 4 Dead 2 (360, PC) -- I should not be this addicted to the first game. It's short, it's too niche, etc. Instead, I'm like a social crackhead at a snow party. Every Tuesday night (every), I and 3 other guys get online and play and replay the same campaigns, go after insane achievements, and pull other peopleion for the online modes. And just a year after that game, the sequel is shipping, which makes me all sorts of happy. All sorts.

Assassin's Creed II (360, PC, PS3) -- This sequel to a great stealth title from two years ago looks to up the ante on quality, gameplay diversity, and historical tie-in significance.

Ok, that's what I have. Dates my change, I feel like I've missed some titles, etc.

But it's still more than I can play without being professionally paid to do so.

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Friday, October 09, 2009

Get your act together

OK, this needs to be a bit ranty / rambly.

I was at a great game industry networking gig last night. It was a big turnout, representing a bunch of companies, disciplines, and skill levels. And it's nice to hang out with good folks and enjoy their company.

A bunch of folks there last night are between gigs. The current economy is getting everyone -- That's not the issue.

So, now the Ranty McRanty part.

I've griped before about how the game industry doesn't network to help big things happen for each other like I've seen in other vertical (specifically, technical) markets.

But when you're looking for a job, you need to be even more on your A-game.

Most of these people in transition didn't have business cards. Or resumes (I don't mean "with them", I mean "at all").


Seriously, am I missing something? If you're trying to connect with someone to get a job, don't you want them to have your contact information? An easy way to see your portfolio? Maybe having a way for them to know who you are and how to get a hold of you might, I dunno, be helpful?


Always have business cards with you. Always.

For me, I have three -- whatever card from my current employer, my acting card, and a generic, title-less card for my next potential gig (like below).

And I have my resume on my phone (so I can Email it instantly, with a queued up Email template along the lines of "It was nice to meet you tonight! Here's a copy of the generalized version of my resume for your reference."). And it's available from my Website.

I'm not saying this is the way to do all of this, but I am saying it's a way. And it's far better than tripping all over yourself and shooting yourself in the professional foot.

Now, there were some people who were prepared last night. One guy even had hard copies of his resume with him (which was kind of cute).

OK, enough of the rant. Go get business cards.

(Hey, does the logo on my generic card look to much like a tramp stamp?)


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Monday, October 05, 2009

Tokyo Game Show 2009

Crap in a kolache, I totally blew past The Tokyo Game Show, which is normally a pretty important gamer milestone (largely consumer, though there are a couple of biz-dev-ish days that precede the bulk of the show).

I blame it on GDC Austin, and a wealth of games coming out as the holiday season groans to life (Halo ODST, Bowser's Inside Story, Scribblenauts, Marvel Ultimate Alliance 2, Batman: Arkham Asylum, and L4D DLC) -- all of which I'm playing in rotation.

But for what it's worth, despite fewer games and lower attendance at this year's show, here are a handful of things from the event that floated my boat:
  • Natal buy-in -- Nay say as you will about motion controllers (I won't), but the train has left the station, and Microsoft for one is truly making it core to their business (I don't yet feel quite the same about Sony's offering, which doesn't even have a name yet). To add weight to the tech, at TGS Microsoft paraded 7 big-gun Japanese developers who are supposedly bought into Natal. This included Capcom's head of R&D Keiji Inafune (Dead Rising); Namco Bandai's GM Yozo Sakagami; Tecmo's Keisuke Kikuchi (Rygar); Kojima Productions's Kenichiro Imaizumi (Metal Gear Solid 4); Sega's Toshihiro Nagoshi (Monkey Ball); FromSoftware's Masanori Takeuchi (Ninja Blade); and Konami's Naoki Maeda.

  • Epic Games expands to Japan -- Sure, it's largely a support organization, but there's now way it's going to stay that way. And with top game dev talent in-country (and with recent, hefty, in-country game dev layoffs), the makers of the Unreal Engine are well positioned to make use of ground forces to directly address local game tastes, and conceivably work more closely with Japanese-HQed Sony and Nintendo.

  • Nintendo Wii price drop -- I'm not sure what I found more interesting -- Nintendo's price drop of the Wii to $199, or their brilliant timing of making the announcement during Sony's TGS press conference (which felt a bit lackluster anyway, and really lost live-blogging steam once their competitor's price drop was announced).

  • Square-Enix and billing innovation -- This was interesting, and got poo-pooed by a lot of gamers. Since I'm a financial services tech guy who moved into the game industry, and spent years in my previous life trying to push gaming payment solutions (I was told, "there's no money in that"; so I left), it's good to see a high-profile company raise awareness of the infrastructure innovations that must happen for games to evolve -- it's not just about hardware and game design innovation.

  • Universal video capture for 360 games? -- This one slipped a bit under the radar, but, allegedly, a gamer made a sideways comment about not building vid capture functionality into their game -- "... why work on something that the platform holder is already developing".

    Video capture, by itself, doesn't really float my boat (what is with me and boats, lately?) -- but theater capture (a la Halo 3) does. Why? Because this kind of capture captures (erm) the game data -- not just a video feed of the game being played. This lets you do all sorts of wicked cool things like play the scene over and over from multiple angles, from multiple cameras, speeding up and slowing down motion, etc., with a negligible memory footprint (especially when compared to raw video).

    Make that available in the Xbox XDKs for developers, and not only do you have cool functionality for gamers, but really useful stuff for game devs as they debug, test, and iterate on polishing their titles for gamers. This is tech on which to keep an eye.

  • Games -- Hey, I'm a gamer, so even if things weren't new, per se, I get stoked for new content for titles I like. For me, this included Snoopy Flying Ace (Snoopy versus the Red Baron on XBLA); Ni no Kuni (NDS RPG from Level-5 Studio (freaking) Ghibli); Dead Rising 2 (zombie games are not "old and busted"); Crackdown 2 (sequel to one of the most underrated games evahr); Alan Wake (I will not lose faith in this game); New Super Mario Bros. (co-op Wii franchise goodness); L4D2 (what is with this franchise? There are so many things that should make this not work, and I. Can't. Get. Enough.); and Dante's Inferno (a classic-made game; I hope it's success signals a Watership Down RTS).
Sorry for you letting you down on the real-time updates, Gaming Faithful. Still friends?

Anyway, get more retcon coverage from people here, here, and obviously here.

(And apologies to any folks in the kolache industry.)

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