Ten Independent Development Myths Debunked

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Ten Independent Development Myths Debunked
By Tim Morten
Gamasutra
September 18 , 2000
URL: http://www.gamasutra.com/features/20000918/morton_01.htm

Just think of it: your own game company. You'll have total creative freedom; you won't have to deal with any interference from 'the suits'; you'll get to keep all the profits from your work… It seems like another game start-up is announced every week. The lure is obvious, but a harsh reality awaits those who decide to take on the challenge starting their own development studio.

Two years ago, a group of ten of us decided to leave Activision together. The atmosphere was ripe for spin-offs: at LucasArts, Jedi Knight team members were leaving to form Nihilistic; at Blizzard, Starcraft team members were leaving to form Fugitive. Right in our own backyard, some good friends were spinning off to form Pandemic Studios.

Our team had worked together on the MechWarrior series, and we hoped to leverage that track record to secure an external deal. There were various motives behind our decision to leave, but foremost in everyone's mind was a yearning for creative freedom, and a desire for greater financial reward.

We knew of a company down in Mesquite, Texas, that seemed to have it all figured out. While we had been struggling to make good games in a corporate environment, they were making exactly the games they wanted, on their own terms. While we were getting project bonuses in the thousands, they were receiving hundreds of thousands, even millions, of dollars in royalties. External development seemed like a clear path to freedom and riches.

Myth #1: It's Easy To Get A Publishing Deal

We set out to find ourselves a publishing deal. Our first stop was across the hall, to talk to the studio head at Activision. He was open to the idea of doing an external deal with us, but encouraged us to talk to other publishers to gain some perspective. Filled with visions of our own self-worth, we headed to E3 to find the best deal we could.

Many publishers wouldn't even meet with us. A team with no prepared product pitch, and no technology to demonstrate? The receptionist at EA's booth completely turned us away. Eidos' representative was 'all booked up.' Those publishers that would talk to us indicated that a much longer conversation would be necessary before discussing deal terms.

Many publishers wouldn't even meet with us. A team with no prepared product pitch, and no technology to demonstrate?

We subsequently learned that it could take three to nine months to get from an initial conversation to a deal. Most discussions simply don't pan out at all. Countless pitch documents need to be created. Meeting after meeting after meeting takes place. Demos get hurriedly pulled together. Budgets are done and redone. If things progress far enough, lawyers get involved. If a dead-end is reached, the whole process must be restarted with another publisher.

Ultimately, we did our first deal with Activision. Having spent a number of years there, Activision was a known entity for us, and the terms were competitive. Starting from scratch with another publisher would undoubtedly have taken longer, and as it was, the deal took three months to close.

Myth #2: It's Easy to Set Up A Company

On top of the complexity of negotiating a publishing deal, there is a tremendous amount of work that goes into setting up a company. We weren't completely unprepared for this, but we still underestimated how long it would take, and how much it would cost. A corporate structure has to be selected and filed with the state. Office space has to be found, leased, and built-out. A myriad of insurance, tax forms, trademark applications, and employment documents have to be submitted. Payroll and benefits must be arranged. Loads of equipment needs to be purchased and installed.

It's easy to take this entire infrastructure for granted when working inside a big company, but it's no small trick to set it up yourself. Particularly when the first project milestone is due at the same time. A publisher isn't going to pay you just to set up a company - they are paying for results. This administrative overhead never completely goes away either: there will always be bills to mail, computers to fix, taxes to file, and books to balance.

Myth #3: You Can Keep Your Intellectual Property

We assumed that if we started our own company, we would automatically own all of our creative ideas and technology. Unfortunately, most publishers force new teams to relinquish their intellectual property rights. As a new developer, if the publisher says 'take it or leave it', you may be forced to give up intellectual property ownership in order to secure the deal.

This means that you will have to start from scratch if you work with another publisher. The time that it takes to build new ideas and technology will translate directly into additional cost, making other publishers think twice about signing you. While you're busy starting over, the previous publisher will be free to exploit your work, perhaps even releasing sequels and add-ons without your involvement.

Myth #4: Your Burn-Rate Will Be Covered

Publishers defer as much money as possible to the end of the schedule. This gives them more leverage on the big milestones like beta and code release, and saves money if they decide to cancel before completion. Given the slim profit margin that is typical of a first-time deal, this can force a developer to work at or below subsistence cash flow. The deficit is only recovered at the end of the project, hopefully with some amount of profit.

Should the project run late or get cancelled, the publisher has little or no obligation to provide for outstanding costs. The developer stands to lose any money that was floated. It seems foolish to agree to such an arrangement, but as with intellectual property rights, developers are often forced to sign imperfect deals in the interest of getting established.

Myth #5: It's No Big Deal To Be Late

Software development is notoriously difficult to schedule. I have never worked on a project that wasn't at least a month late. As an external developer, failure to deliver work on a pre-agreed date constitutes breach of the publishing agreement. Regardless of whether you've missed an interim milestone, or missed the final release date, the publisher is legally empowered to pursue a remedy.

There is always some amount of latitude before slippage is an issue, but you can bet that there will be no payment during that period. It's not uncommon for an external developer to miss payroll while a schedule is being caught up. If the slip is unrecoverable, that money may be lost altogether.

When it becomes apparent that a project is going to miss its date by a period of months, the publisher will either choose to cancel the project, or will aggressively renegotiate the terms of the deal. In the former case, the developer is suddenly left high and dry with no source of income. In the latter case, the developer stands to lose a significant portion of their royalty.

Myth #6: You'll Have Creative Freedom

When a publisher is footing the bill, you can bet they are going to reserve the right to make all final creative decisions. As an external developer, you don't get payment for your milestone payment unless the publisher is happy. The publisher's studio management and marketing department are still your bosses, even though you're working for your own company.

In our case, we were forced to go through massive directional changes mid-project, due to a shift in our publisher's product strategy. Whole sections of the game were thrown out, predicating months of reprogramming and new asset creation. When the only alternative is project cancellation, it doesn't matter what was in the original product spec: if you fail to be responsive, all of your work to that point will have been for naught.

Myth #7: Projects Rarely Get Cancelled

So much time and effort goes into starting a project, it seems inconceivable that a publisher would decide not to see it through to completion. In fact, publishers reserve the right to cancel a project at any time, for any reason. Sometimes cancellation occurs because a project is late or mediocre, bringing its profitability in to question. In other cases, finances, politics, or market conditions spell the death of a project. Some publishers are rumored to approve more projects than they plan to finish, just so they can choose from among their favorites.

Whole sections of the game were thrown out, predicating months of reprogramming and new asset creation.

After two years of work, and only a few months away from project completion, our publisher called an ominous meeting. The project we were working on was a sequel, and it seems that the preceding game had undersold expectations. Although we were on schedule, and preliminary feedback on our game was positive, the marketing department felt that completing the game was not worthwhile. Effective immediately, our project was cancelled.

Myth #8: Most Games Earn Royalties

Even if we had been allowed to finish, we would have had to sell multiple hundreds of thousands of copies in order to see anything on the back-end. A typical PC project that costs one and a half million dollars to make, and half a million dollars to market, has to sell in excess of three hundred thousand units before it generates royalty. Surprisingly few games attain such success.

There are additional costs beyond development and marketing that further reduce the chances of royalty. For instance, publishers typically deduct the money paid to retailer to secure shelf-space. Publishers also hold back a percentage to cover returns and price reductions. This money may or may not find its way to the developer's pocket later on.

If your game is one of the select few to sell enough units, there can still be problems in bookkeeping. Payments might get inadvertently allocated to other projects, fail to get recorded, or be deferred due to extended credit terms. These errors are difficult to detect, and can reduce or altogether eliminate developer royalty.

Myth #9: Your Publishing Contract Is Worth The Paper It's Printed On

Ultimately, the publisher has boundless financial resources compared to the developer. If it ever came down to a fight, odds are that the developer will be on the losing end, regardless of the strength of their legal argument. While the publisher has a staff of lawyers on hand, the developer is paying by the hour, out of their own pocket. As soon as the publisher cuts off funding, the developer has limited means to continue the fight.

If a publisher violates a contract, the developer can do little more than ask fervently for the situation to be rectified. Late payments, missed payments, and unfulfilled contractual obligations are hard to challenge when there is no money in the bank. Occasionally a developer will use personal finances to go after their publisher, but this is unusual, and can make the developer a pariah with other publishers. More often, when things go nuclear between a publisher and a developer, the developer is forced to fold or capitulate.

Myth #10: After The First Project, You Can Relax

So you finally make it through the minefield of external project development and get something on the shelves. Perhaps the project was released before you felt it was ready, in order to meet the deadline. If so, your new company is at risk of getting a bad reputation on its first game. Perhaps you originally signed a multi-project deal. If so, you are probably locked in to terms that are no better than for your first project. Perhaps you already signed away your intellectual property rights, and have nothing to leverage for your next deal.

Whatever the case, now that your first project finished, you have zero cash flow. You need to sign another deal before the money runs out, or you won't be able to pay your people. Some of your staff will probably leave anyway, because they've got better offers, because they're burnt out, or because they're sick of working together. You yourself will probably be ready for a long vacation. No matter: it's time to put on a smile, write a new project pitch, and start negotiating your second project, post haste.

It's a Harsh Business

I've dwelled at length on the negative aspects of being an independent developer, but what about that team in Texas that seemed to have it all worked out? Indeed there is more than one success story among independent developers, and there are some spectacular ones at that. Names like id Software continue to be inspirations to us all. If you are lucky enough to create a successful project, you'll have the leverage you need to do things on your own terms. Freedom and financial reward can actually be achieved. Just don't assume that starting your own company is the only step to get there.

An on-going dream of success, and a natural desire to finish what we started, kept my team from dissolving after our project was cancelled. Activision graciously gave us the right to use our technology, as a gesture for having done the best we could in a bad situation, and we recently signed a deal with a new publisher (this one took nine months to close). We're still not writing our own ticket, but maybe, just maybe, this will be the game that lets us do that in the future.

There's a lot of glamour surrounding the idea of starting a game company. Tales of huge royalties and liberating creative environments are luring more and more people to start their own studio. The reality is that game development is an extremely harsh business -- anyone tempted to start a new game company should think long and hard before they take the plunge.