The Brief: The
Gaming Renaissance Movement
games differently – from production, to financing and distribution.
have noted that the gaming industry seems to be recession-proof. Monthly sales
figures continue to show growth in the market. Even though NPD’s figures for
March are off 17% from the same period last year, NPD themselves noted that
Easter generally provides a spike in sales, which fell in April this year and
March last year. If you look at overall Q1 08 figures there was 0% change from
Q1 09, while software was down just slightly at 2% for the quarter, hardware
and accessories were up 1% and 3% respectively.
even though the industry seems to be maintaining its position at retail,
established publishers and studios are crumbling under the weight of swollen
overhead and development costs. Development costs for current generation
consoles have ballooned to $15-$25 million for two platform SKUs and $25-$30
million for all SKUs. That is twice as much as the last generation of consoles,
with much of the cost increases attributable to the graphics complexity of
companies are faced with mounting market pressure the short-term strategy is to
announce layoffs, which is precisely what many game companies have done. EA
estimates they will save $120 million with their layoffs. From July 2008 until
now there have been over 60 companies that have publicly announced layoffs,
with the majority of these layoffs coming just in the past four months.
have tallied up these figures and a staggering 8450 game industry professionals
have been laid off since July. Of these, roughly 6300 or 75% are from North
America, with the remainder coming from the UK
and Asia. Game Developer
Research’s latest Game Developer
Census 2008 Report published November 2008 estimated the North American
gaming workforce to be 53,900. That puts the current game industry layoffs in
the North American at 12% of the total workforce.
top of the layoffs at least 13 studios including Microsoft’s ACES Studio and
Ensemble Studio have announced they were closing. A handful of others are on
life support, operating with a skeletal workforce and actively looking for
buyers. Yesterday’s news that 3D Realms closed its doors make it just another
is a silver lining here. These layoffs have provided a shift in the industry.
Most notably it has motivated change. People are looking “outside the box”,
contemplating new business models, production models, and distribution models.
real story here is there are 6300 industry professionals in North
America alone looking for something new. Many people
are looking at the current market dynamics and starting their own small
development studios. With this desire to branch out on their own, they
are part of what I am calling the Gaming Renaissance Movement.
these new studios lack in financing and slick marketing, they are making up for
in creativity, vision and sheer grit. Many of these startups are self-funded by
groups combining their severance packages. However they get going, these
talented individuals are making up a next wave of independent studios and are
the future of renaissance gaming.
talent is there. Companies like Oceanhouse
Media, already a successful new iPhone game studio
was started by Michel Kripalani, previously of
Autodesk and Presto Studios. Earlier in 2008 the creative directors from
Naughty Dog started Big Red Button
Entertainment to make console games.
is also Appy Entertainment,
started by a group of executives from High Moon Studios who are building games
and software toys for the iPhone and iPod Touch. Appy’s CEO Chris
Ulm says, “Despite the economic meltdown, this is an
incredibly exciting time to be creating new projects. It’s the Wild West right
now – no one can say with certainty exactly what will catch on with this
rapidly growing market. Apple’s App Store is a total game changer that demands
fast development times, frequent updates and extremely focused experiences that
tie into an understandable brand identity.”
really had to radically rethink every aspect of development,” Ulm
continues. “We can’t afford to be just game developers – as a micro-publisher,
we have to be constantly thinking about marketing, sales, public relations and
- God help us - even merchandising! The best and worst thing about this new
model is the freedom to do projects that would never be considered in larger
organizations. The flip side is the marketplace is highly volatile and
extremely crowded (there are now over 40,000 apps on Apples App store). But the
install base is growing very fast: well over 30 million today and almost
certainly double that by the end of 2009, so if you can stand the chaos, it’s a once-in-a-lifetime opportunity.”
these new companies have some hurdles. Mostly they are entering the market at a
financially volatile time. Some would say it is during these downturns when new
opportunities emerge. There are certainly several components that are playing a
until a few years ago middleware was still viewed as taking the easy way out.
Today, middleware usage is becoming an accepted practice for many development
teams. It was the launch of this last generation of consoles that really made
middleware a more accepted part of the production pipeline.
in 2002 I estimated only 8% of all games were using middleware and projected
middleware use would be at 65% by 2007. In a recent Engine
Survey done by Mark DeLoura, 55% of survey
respondents stated they are currently using some form of middleware. I was a
little aggressive in the adoption rate of middleware. It obviously has taken
longer to get middleware integrated into production pipelines. But there are so
many more middleware tools available now than were even imaginable back in
2002. There are now categories of middleware - the engines: game, MMO, mobile;
the A.I.; the physics, the audio.
Emergent Game Technologies is one company
that stands out for its developer support. The company has established a “Game
Technology Initiative” to enable more independent developers’ access to their
tools. Kick Start was launched in November to directly support these early
stage developers. Geoffrey Selzer, Emergent’s
CEO notes, “The game industry is in a crisis. It is too hard to make games and
too hard to maintain an IP franchise. The liquidity of game development is
stifling growth.” Emergent estimates developers and publishers spend $400 to
$500 million annually on redundant core technology development. I actually
think the figure is higher than that.
explains, “There is a new face emerging for AAA game development. The next
generation of gaming is inspiring new types of content. The medium of gaming is
changing with more storytelling and game playing being introduced through
episodic games, MMOGs.”
launched LightSpeed at GDC last month in an effort to address some of these key
issues. Scott Johnson, the company’s president
continues, “Rapid iteration and prototyping are key ingredients. LightSpeed
changes the way developers will present to publishers. Gamebryo was created for
an engineering–driven development. Now with LightSpeed we are working to
address the requirements of artists and creative teams.”
agrees the financing model is broken, with traditional funding routes for
startups all but gone given the economic crisis. The National Venture Capital
Association came out with the 1st quarter 2009 figures - for Media
& Entertainment VC investment was down 45% from the previous quarter, with
only $217 million invested. Not only are VC’s investing significantly less,
they are investing in much smaller amounts. And the number of first-time deals
plummeted from 324 in Q1 2008 to 132 for the same period this year. Investment
numbers haven’t been this low since Q1 1998 – that is 11 years!
VC funding not a viable alternative at the moment for many startups, the only
alternative is to get creative. As previously mentioned, many of these
renaissance companies are being funded from severance packages. If you look
around there are additional options out there.
model emerging for game funding has been used in the film industry for years
using completion bonds. In the film industry an insurance bond is issued to
cover the cost of production should something happen and the film is not
produced, giving the lender a guarantee of payment.
the film industry films are produced and upon completion the project is closed
and production teams disperse to find new projects to work on. This of course
has not lent itself to the games industry because production teams can not
disband as easily. But what if there was a way to use the completion bond
concept of the film industry on a game project basis, whereby a publisher could
make an investment in a game from a developer that is backed by a guaranteed
is precisely the approach Seahorn
Capital Group is working on. Seahorn is an executive production and
management consulting firm working with a number of development teams using
this approach. The first publicly announced partnership is with Big Red Button
Jackson, Founder and Managing Director of Seahorn Capital
Group explains, “Completion-guaranteed deals have been used successfully on a
small scale in games, and we are starting to see greater interest from both the
development and publishing communities. The movie, TV and construction
industries have been using such guaranteed structures for decades. They realize
the risk management benefits and access to alternative sources of finance far
outweigh the incremental cost of such arrangements. Our industry stands to
benefit enormously from adoption of proven project finance techniques,
especially independent game makers and producers who can now offer end-to-end
solutions and mitigate risk for publishing partners."
is also industry veteran Dave Perry, who will be showing his website www.gameinvestors.com at E3 this year.
“I had so many people contact me looking for money I decided to create an
open-forum website to try to solve this problem for the industry”, says Perry.
goal of the site is to get projects in front of the publishers and investors,
so all developers get a fair chance. Perry continues, “We will be
inviting publishers, global distributors and hundreds of media and
entertainment investors to look at the opportunities the developers
present. If they can’t get funding in that environment, then it’s time to
go back to the drawing board.”
adds that a developer needs to consider a few things when starting out:
(1) They need to understand the pressure
the publishers are under and pitch accordingly. It doesn’t mean they can’t
be creative; they just need to be sensible. Publishers are trying to
protect themselves from risk. There are many ways to reduce risk, but probably
the number one way is to find great team members that share a vision, and show
“something” working, as the investors call it “put some skin in the game”.
(2) Publishers are investors too. They
look at the risk and invest money into projects they believe in. So just how
far can you get in an idea, to show the risk is under control? That’s one
reason why you see so many iPhone / Facebook / Flash games, as it’s a great way
to test ideas at a very low cost.
(3) Opportunities are key.
In reality you might have walked past a guy this week that would have funded
your new company, but you’d never know. Our business misses out on
countless opportunities simply due to the talent having a small set of contacts
to raise money with. Just image you know 5 people and all 5 say no.
Is it over? Should it be?
equally important step is fostering strategic partnerships. Partnerships can
provide viable growth options particularly during an economic downturn. There
are many opportunities out there for developers who have products and looking
the casual games there is one company in particular that has made supporting
third party developers part of it’s own growth strategy - Big Fish Games. Big Fish has close to
600 independent developers from all over the world creating games for its
portal. As a result Big Fish is able to highlight a new game everyday. As the
largest distributor of casual games Big Fish openly solicits games from
independent developers, providing revenue sharing on game sales, marketing
support and free localization.
"At Big Fish Games our
developers are like customers, each of whom has distinct needs and success
criteria. As such, we adapt the structure of our partnerships with developers
around the world in a variety of ways,” explains Nate Webb,
Director of Developer Relations at Big Fish Games. “We work as
advisors, starting basic guidance and gameplay feedback to help
developers tailor their games for maximum conversion from trail to
sale. To further enhance sales we offer developers free localization
services to ensure that their IP is distributed broadly across the
world through Big Fish Games' branded portals.” Webb continues, “Big Fish
Games started as a small independent developer so we understand
and are sensitive to the challenges developers face when
bringing their IP to market. From contract to launch to
support to royalty our approach is frictionless. At Big Fish Games we
allow developers to focus on what they do best, create great games. By
partnering with us we give them access to the widest audience for casual
OnLive is another company worth watching as
they expand their support to include smaller developers. "OnLive is
working with developers of all sizes because we fundamentally believe that
great games come in many forms”, says John Spinale, VP of Games and Media at
OnLive “At GDC 2009, we announced partnerships with major publishers like EA,
Ubisoft, and Take Two. At the same time, we announced that we're working
with smaller developers, like 2D Boy, the guys who created the 'indie' hit,
“World of Goo."
further explains, “Because the OnLive platform is so easy to develop for, we
think that a lot of smaller developers will embrace us. And, because we
offer a wholly online platform, we think the smaller independents—who have more flexibility to be creative—will do a lot of
experimenting with new types of gameplay and new models for delivering games.
That's something I'm very excited about, personally. Basically, OnLive offers
developers an incredibly powerful, very flexible platform that allows them to
do what they do best - be creative and focus on making great games, big or
the mobile space there is Gamepot USA
who, last month, quietly announced they opened a US
office. With head offices in Japan
and revenues of $38 million, Gamepot USA
is looking to expand its global partnerships with online game companies and
sure that this gaming renaissance movement is going to greatly impact the types
of games that are made and the way they are made. It will be important to
foster that growth, and look for creative alternatives. Yes, there will be
hurdles but the swell is there already. People are resilient and they will
continue to innovate in new and different ways.