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Opinion: What Microsoft Needs To Change To Satisfy Indies
Opinion: What Microsoft Needs To Change To Satisfy Indies Exclusive
July 30, 2008 | By Ron Carmel

July 30, 2008 | By Ron Carmel
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More: Console/PC, Exclusive



[In this constructive editorial, Ron Carmel of 2D Boy (currently making World of Goo, in development for PC and WiiWare/Wii) takes a look at the developer's perspective on Xbox Live Arcade and Xbox Live Community Games, and calls out for Microsoft to improve on what he sees as unfavorable terms.]

I want to love you, Microsoft!

I really do, and I want to raise a family of little indie games with you, but every time things are starting to feel good between us, you go and do something to spoil it.

Microsoft has so far made three moves that are unfriendly towards independent game developers:

1. Xbox Live Arcade royalties cut by about half
2. De-listing of games from XBLA
3. Xbox Live Community Games terms established

The first two have already been discussed to death and I feel it's too late to do anything about them. I would, however, like to discuss the third item in the hope that good people at Microsoft will take note and reconsider their approach to Community Games before it officially launches this coming holiday season. So if you know someone who is involved with the Community Games initiative, kindly send them a link to this page.

When I first saw the announcement I got pretty excited. On the surface, everything looked good - huge audience, 70 percent royalty rate, and only a peer-review process standing between a game and its audience. Fantastic, I thought! This is certainly Good for Games!

Good For Games

The video game medium has been in a bit of a rut for about a decade. Many truly great games have come out in the last 10 years, but the market is dominated by big-budget photorealistic sequels and movie tie-ins produced by large public companies. Many of these games are the equivalent of second rate airport novels, straight-to-DVD movies, formulaic TV, and synthetic tween pop.

I'm not saying anything new here, and it's clear why this trend exists. Brand recognition reduces risk and creates more sales, sales create profit, and public companies are single-mindedly focused on profit. It is the explicit responsibility of the board of directors and top executives to create these profits for their shareholders.

Design, creativity, innovation, and expression are always secondary considerations in this environment. John Riccitiello recently said: "I don't think the investors give a shit about our quality. They care about our earnings per share."

I find his bluntness refreshing.

One characteristic of independent games is that design often trumps financial considerations. This means that compared to public companies, independent developers tend to:

1. Get a lower return on investment
2. Produce more creative games

Anything that makes it easier for independent developers to earn a living by making games will drive more developers to go indie. As indie developers grow in numbers we will be seeing more creativity and more new kinds of games and the medium will evolve and change and be vital.

A diverse and ever-changing landscape of games is not just more fun and interesting - I think it's essential for long-term health of the game industry.

Problems With Xbox Live Community Games

So what about XBLCG is bad for games? First, it puts a very low cap on the amount developers can charge for their games, but more importantly, Microsoft's promotion gimmick is a wolf in sheep's clothing.

Price Cap

Say I make a game that I'd like to sell for $15. That prices me out of XBLCG, and would force me to go through XBLA with its significantly lower royalty rate and difficult certification process. Why handicap developers instead of letting the free market determine how much they can charge for their games? For an individual developer, this might limit how much time and money can be invested in a game.

On a larger scale, I believe this will promote the making of quick and cheap games, and will tend to drive quality-focused developers away from XBLCG. A price cap is fine if you feel you need one, but cap it at a more reasonable amount like $20 - generally the high end for Xbox Live Arcade.

Promotion

This one is a much larger problem. Microsoft reserves the right to promote your game with or without your consent and take an extra 10 percent to 30 percent for this "service," dropping the royalty rate to as low as 40 percent for the duration of the promotion.

Microsoft's announcement tries to present this promotion as a great opportunity for developers, and in some cases it might be, but it could actually end up hurting the developer financially.

According to a fellow indie who has a game out on XBLA, sales during the period when the game was promoted by Microsoft were about double than what they were the week following the promotion. Keep in mind that the fall in sales is only partly due to the end of the promotion. It also followed the natural decline that happens with any game over time.

If the royalty rate drops from 70 percent to 40 percent for the promotional period, the promotion would barely affect the developer's bottom line, only stuffing Microsoft's pockets. Worse, if sales do not nearly double, developers actually lose money due to the promotion. Nickel and diming developers will not help XBLCG get the best games and is in my opinion a myopic strategy.

Fixing The Promotion Royalties

So what's the alternative? Let's assume that Microsoft will promote five XBLCG games at any given time, probably ones with the highest demo-to-purchase conversion rate. (I chose five based on the number of XBLA titles simultaneously promoted on Xbox.com.)

A quick calculation based on rough XBLA sales estimates shows that the top five XBLA games account for about 40 percent of the total revenues in a given period. Taking an additional 10 to 30 percent (let's call it 20 percent) from this 40 percent is the equivalent of taking 8 percent across the board. So just lower your royalty rate to 62 percent and drop the sneaky stuff, Microsoft.

It would be a little lower than WiiWare's and PSN's royalty rates, but a more attractive proposition overall, considering that you have the best development tools - and developers won't have to go through a strict approval process or develop on custom hardware (expensive in terms of both time and money). Additionally, developers would actually be grateful when you promote their games.

If you feel you must keep this extra deduction on promoted games, there are still things you can do to make it more palatable. First, there's a huge difference between a 10 percent and 30 percent deduction. Get rid of the sliding scale or set predictable parameters for how the actual deduction rate is determined. Otherwise, developers can only assume that the deduction will always be 30 percent.

Second, allow developers to opt out of this promotion. If you think you're offering a fair deal, something that would actually benefit developers, let them participate of their own free will.

Microsoft's Deeper Problem

I can't help but feel that Microsoft sees small developers more as laborers than long-term partners who are also entitled to turn a profit.

I'd like to illustrate this by walking through how Microsoft calculates royalties for XBLA and XBLCG. First, Microsoft Points are converted into US dollars, and then (if necessary) to the currency in which the developer is paid.

Because of the weak dollar, prices for Microsoft Points are higher outside the US. In Europe, for example, players pay about 50 percent more for a Point than in the US, but this extra revenue never reaches the developer because Microsoft converts all Points directly to dollars. For sales in Europe, a developer might think he is getting a 70 percent royalty rate, but in reality he gets a mere 47 percent of the sale price while Microsoft profiteers off the exchange rate.

I very much doubt that this practice would remain in place if the dollar ever overtakes the Euro. In contrast to Microsoft's underhanded tactics, WiiWare royalties for sales in Europe are paid out in Euros, so if players pay more, the developer gets more as well.

It gets worse. The XBLA distribution agreement allows Microsoft to change the rate at which they convert Points to dollars independently of how much players pay for Points. Initially, these conversion rates lined up, but currently the Points-to-dollars conversion rate is about 3 percent lower than the Dollars-to-Points conversion rate. This means that Microsoft has already sliced 3 percent off the royalty rate for every single XBLA developer.

What good is setting a royalty rate in a contract if Microsoft retains the right to lower it as it sees fit?

Conclusion

The bottom line is that under the current terms I won't consider developing a game for XBLA or XBLCG, and I'm encouraging developers who have other options to stay away from those services as well. There is strength in numbers, and if we sell our games exclusively through the channels that offer the best terms - WiiWare, PSN, Steam, and Greenhouse - we will make those channels more successful and promote higher royalty rates industry-wide.

But even ignoring the bigger picture, I'd rather be working with companies like Nintendo, which not only offer terms that are financially better than Microsoft's but also deal with developers fairly and honestly.

Microsoft has an opportunity to do something Truly Great for Games here and I hold hope that it will. I'd be the first to jump on my soapbox and advocate its services if it does. Good for Games means more developers, better games, more game players, and in the long run more money for everyone - including Microsoft.


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