Preface

Fran ois Dominic Laram e

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Welcome to Secrets of the Game Business, a book that unveils the inner workings of the flashy but very serious game development and publishing industry. If you are thinking about creating a new game development company, want your existing studio to prosper for a long time, or just want to understand how and why the business evolved to its current dynamics, you have come to the right place!

This book gathers the wisdom of dozens of industry insiders, publishing executives, veteran producers, owners of independent studios, writers, and academics. It is divided into four major topic areas:

• Section 1, Publishers And Developers: Section 1 examines the work of publishers and retailers, explains how games get from their developers to the players, and shows how the industry's economics influence the ways we work and live.

• Section 2, Game Development Startups: This section describes how to prepare for the creation of a new game development company and succeed in a difficult market.

• Section 3, Taking a Game to Market: Section 3 teaches developers how to approach publishers, maximize the odds of their games reaching store shelves, and negotiate contracts that protect their long-term interests.

• Section 4, Managing Game Development: This section contains advice on ways to make the long, arduous production process as smooth and pleasant as possible for everyone involved.

However, before we get to the heart of the matter, let's pause and take a look at the state of our industry as of late 2002.

An Entertainment Powerhouse?

Sales figures for the game industry as a whole are staggering, and getting more so every year—impressive, but misleading. True, game software sales have exceeded Hollywood's box office receipts in North America since the late 1990s. However, the fact that the price of a game is 5 to 10 times higher than that of a movie ticket accounts for much of this mind-boggling "profit"—and once the home video market is taken into consideration, game sales suddenly don't seem so impressive.

Still, it seems that demographic changes are transforming interactive entertainment into a mass-market experience. As game players (and developers) get older, we can expect new genres and game topics to emerge to satisfy the increased demand.

Sustained Growth

According to an Informa Media Group report quoted in [Reuters02], the videogame industry's global sales for 2002 are expected to exceed $31 billion, a 12% increase over the previous year. Almost 70% of this impressive number, or $22 billion, comes from sales of consoles and other hardware, while software accounts for the remaining $9 billion. Although this means that software sales are expected to remain similar to 2001's figure of $9.4 billion [Gamasutra02], we must keep in mind that 2001 broke all records, besting the industry's previous banner year (1999) by almost 35%.

An Excess of Product

Because of the very large number of games battling for a share of the players' attention, each title can only expect to receive a minute fraction of this lofty number. While Hollywood releases approximately 100 movies to theaters every year, some of them in very limited distribution, the game industry launches thousands of titles on multiple incompatible platforms. Consequently, a game that sells a few hundred thousand units is considered a moderate hit, while a movie that fails to draw at least 10 million viewers to theaters is perceived as a commercial failure. Sure, movie production budgets dwarf ours, and it takes many more $5 tickets to pay for a $100 million film than it takes $50 boxes to make a $3 million game profitable. However, in the end, while most movies end up being profitable (Hollywood accounting practices notwithstanding), the vast majority of games lose money for their developers, their publishers, or both.

Difficult Consolidation

Thus, while the industry as a whole keeps growing, many of the individual companies that make and sell games are struggling to survive. The stock market crash that followed the bursting of the dot-com bubble and the terrorist attacks of 2001 severely hurt many game publishers; for example, Interplay (de-listed by NASDAQ when its market capitalization fell below a minimum threshold), and especially the French companies that had pursued an aggressive policy of acquisition financed by stock swaps. Moreover, with high-profile games requiring development budgets that grow by leaps and bounds (to $3 million on average, more on some consoles), small and mid-sized publishers find it increasingly difficult to compete in the global marketplace. It is likely that fewer than 20 global companies will survive the next five years; the rest of the publishing landscape will be dotted with much smaller players concentrating on specific nations and territories.

Can Startups Still Thrive?

With fewer large publishers competing for their products, game developers will need to work harder to find a channel to market—and to approach alternate sources of funding for their projects. Taking a game to market, which wasn't easy in the past, will become more difficult in the future.

However, this business is still built on talent. We must remember that many of the most successful games in recent history—for example, Half-Life, Asheron's Call, and Age of Empires—were developed by startups or relatively young companies, not all of which were populated by industry veterans. Runaway hits can still, once in a while, be created by a small resourceful team working on a shoestring (Deer Hunter), or even by a single individual with very little help (e.g., Roller Coaster Tycoon and Tetris). Breaking into games can be difficult, especially if you dream of making a console blockbuster right out of college, but it is by no means impossible.