Platform Holders

"Platform holders" are companies that manufacture the hardware (and in some cases, the software) that game software runs on. As with publishers, a wide variety of companies comprise game platform holders: cell phone providers, personal digital assistant (PDA) and other handheld device manufacturers, PC makers (both the boxes and the chips inside them), videogame console manufacturers, development software/ tools providers such as Microsoft and Silicon Graphics, and Web-based development and delivery services such as WildTangent. Such companies share the characteristic of owning, controlling, or influencing the software that appears on their platform, whether by providing application programming interfaces (APIs) to help developers access the features of their hardware, or by outright permission-based control of anything that involves the platform. Frequently, platform holders also create software for their own hardware; in this section, we review the platform holder's role exclusive of publishing functions.

Platform holders derive their revenue from any of the following sources:

• Sales of the hardware itself

• Sales of (or licensing fees from) any peripherals compatible with the hardware

• Sales of their own games compatible with the hardware ("first-party games")

• Licensing fees from compatible games made by other companies ("third-party games")

• Licensing of development tools or APIs necessary to create games for the hardware

• Manufacturing proprietary delivery media for the hardware (such as game cartridges)

Consoles and PCs differ fundamentally in that console makers strictly regulate access to their platform via various licensing permissions, while PC makers provide their APIs for free to any interested developer. For this reason, we categorize the PC platform as "open" and consoles as "closed." Handhelds such as PDAs and to a certain extent cell phones follow the "open" PC model, while proprietary handhelds such as Nintendo's Game Boy Advance are just as "closed" as Nintendo's Gamecube.

PCs as a Platform

The "PC platform" is in fact a conglomeration of intersecting partnerships among CPU manufacturers, development software/tools providers, graphics chip manufacturers, and box assemblers. Look in the manual for your new PC and you might see:

• Intel Pentium primary processor (CPU)

• NVIDIA GeForce graphics processor

• Microsoft Direct X application software layer

• Assembled and sold by Dell

Each of these categories provides support to game developers, mostly for free, with the intent of making money from compatible software or hardware sales.

As the most visible example of successful "ingredient marketing," Intel has spent years courting game developers in order to maintain its image as provider of the fastest CPUs available. It provides sample boards and technical assistance to game developers, and will even work closely with leading game developers on R&D for its future generations of chips. The objective, of course, is for gamers to specify "Intel Inside" when they purchase their next gaming PC.

Graphics chip companies such as NVIDIA and ATI have built a healthy complementary market to CPUs by creating graphics chips customized for multimedia and, of course, games. In addition to the developer benefits already listed, graphics chip companies will secure cutting-edge games under development on an exclusive basis, paying the developer to incorporate the technological bells and whistles that set their chip aside from the rest. Graphics chipmakers also create APIs that allow developers to take advantage of their chip's unique features. Once "hardcore" gamers realize that their longed-after new releases look best when run on a particular graphics chip, they gladly upgrade.

Two well-known technology companies have made names for themselves in the development software/tools space. Microsoft, with its Direct X API, has succeeded over the years in stabilizing the technological risk of game development on PCs, much as it has standardized its operating system for the user. Silicon Graphics has created a less widespread, but popular among game developers, API called OpenGL. Both companies give their APIs away to qualified engineers for free, encouraging information sharing among their developer communities and placing as few limits as possible on use. The advantage for developers is learning a software platform that is invisibly compatible with the multiple hardware combinations available in the market.

PC "box-makers" such as Dell, Gateway, and Compaq play a less active part in promoting game development on their PCs, since the tough work is done by their "ingredient" companies. However, to the extent they target gamers as potential customers, they might secure an exclusive set of games to pre-load on the PC before it's sold to consumers.

One important factor in PC publishing for developers and publishers is the lack of royalty paid to the hardware company for the privilege of platform compatibility. The beneficial effects are lower cost-of-goods and higher profit margins for publishers, and easier access to both development and self-publishing for developers. However, since nearly any competent and inspired PC development group can complete and ship a PC game at relatively low cost, many groups do so. The resulting competition among thousands of titles for shelf space at retail has created a cutthroat sales culture for PC games, where retailers return units unsold after eight weeks to publishers, and only the top 30 games sell more than 300,000 units.

Consoles as a Platform

In direct contrast to the open and loosely affiliated PC game development scenario, development for game consoles such as Sony's PlayStation 2, Nintendo's Gamecube, and Microsoft's Xbox is tightly controlled at all levels by the respective companies. To create and sell games on these platforms, a developer/publisher requires the following licenses and permissions:

• License to use development software and hardware. Only provided after the console platform holder's favorable evaluation of the applicant's potential for bringing quality games to market. For developers, a publisher's recommendation carries great weight in obtaining development systems.

• License to conduct general marketing and sales activities. Again, granted only if the platform holder believes the company has the structure and resources to succeed. Smaller publishers without a direct sales force or consistent product flow struggle to establish credibility on a console platform, sometimes signing its products over to a licensed publisher for distribution.

• License to use the platform holder's trademarks and logos in-game, on packaging, and in advertising. Platform holders provide templates for all logo and trademark use, and review all materials for correct use before the product can be assembled.

• Permission to create a game. Granted after platform holder review of the game concept early in the development process. Instances in which platform holders reject a concept, although rare, cause great vexation, as usually the publisher has already sunk funding into the project.

• License to release the game to the channel. After extensive testing by developer, publisher, and platform holder. Platform holder certification is a tense part of the process, as the game can be rejected any number of times for bug fixes or standards violations.

According to industry logic, the company that creates the console, engineers the APIs that developers use to build games for the hardware, and incurs the cost for marketing and selling the hardware to consumers is entitled to royalties from game sales—generally around $7/unit—to cover those costs. At launch, the retail price of the console rarely covers its actual component cost, and that cost doesn't include R&D amortization. Many millions of units later, after multiple reengineering efforts to reduce actual cost of goods, successful console platforms can generate vast software-side profits while the platform holder breaks even on the hardware. Over a successful console's lifespan of five to seven years, the platform holder recoups the current console's R&D costs over the first few years, and invests in R&D for the next-generation console during the last few years. An imbalance of software revenues against hardware costs has driven more than one console platform holder out of the hardware business entirely.

Delivery Media Manufacturers

An often-overlooked cog in the publishing machine is the actual game manufacturing and assembly company. With the exception of Nintendo's Game Boy Advance, today's platforms are disk-based; this welcome change reduced cost of goods for publishers and cut manufacturing time dramatically, enabling (almost) just-in-time inventory management. Manufacturers obtain a license from console platform holders to work with the proprietary disk medium and/or other anti-piracy technology on the disk, and generally pay a nominal per-unit royalty for that technology to the platform holder.

Historically, console platform holders have always controlled manufacturing directly, with Sony and Nintendo continuing this model. Publishers submit their orders directly to the platform holder, or simultaneously to the platform holder and the manufacturer. The publisher pays both manufacturing cost and royalty directly to the platform holder, sometimes on a cash-in-advance basis. During busy seasons when manufacturing capacity is strained, the platform holder has final say over which products receive priority. However, in general the manufacturer adheres to a certain turnaround time as part of its terms of service. All the same, for an AAA title release date when every day in the schedule counts, even one day over "the standard turn-around time" can cause headaches and urgent telephone calls up and down the publishing chain.

With its Dreamcast, Sega was the first to offer complete publisher control of the manufacturing process. Based on publisher feedback, Microsoft has continued this trend with its Xbox. In this scenario, once the platform holder releases tested game code to the manufacturer, the publisher is free to negotiate turnaround times and pricing based on the strength of its relationship with the manufacturer. In practice, the cost of goods does not vary widely, but the licensing of three or four manufacturing companies ensures that the terms remain competitive.

To save additional time or cost, publishers often receive their goods from the licensed manufacturer as unpackaged disks on spindles, and ship them to a separate facility to assemble. Since such "pack-out houses" are not licensed or controlled by the console platform holder, the publisher is free to pursue the most advantageous partnership based on cost, turnaround time, proximity to the publisher's distribution center, or expertise with different kinds of packaging. Such processes must be managed carefully to prevent Murphy's law from afflicting the extra shipping and handling steps.