As a companion to our talk on Day 3 of the conference, we thought we’d put together this summary of some of the most common questions to prepare you for the actual session.
1. How do you survive in a hit driven business?
We wish there were a magic bullet, but to survive in this or any other hit driven business, you are eventually going to need to deliver a hit. In that regard, the games business is much like the movie business or the music business. Make a movie or song that people want to see and hear, and you get to make another one. Make one or two that no one ever heard of, and you’re back in your garage doing it for fun. Anyone who looks to the casual space as a refuge from the “core space” is going to quickly learn that while the dollars may be on a smaller scale, the dynamics are much the same. Deliver a hit—keep playing. Deliver a series of duds—look for a new line of work.
Now, what constitutes a hit is relative to your situation, but we think that to be widely considered a hit, a game would have to debut in the top 10 on at least three of the major portals. Much like a movie, early performance is going to tell you a lot. Whereas a movie has its all-important opening weekend (whereby lifetime revenue can be reasonably estimated), the casual space seems to have an opening month as your game percolates into all of the distribution portals. If your opening month is solid, and you see yourself in the top 10 of all the portals you’ve contacted, congratulations. You’ve got a hit. If it doesn’t make a single one of those lists, you can expect to make back very little of the money you have invested. In general, the higher up those top 10 charts your game climbs or debuts, the longer that game will generate revenue (and theoretically profits) for you and your company. Sadly, the gap between a hit and a non-hit isn’t just a little. Whereas we generally expect our hit games to produce well over $1 million US in “spendable” (that is, our take after the portals keep theirs), we generally expect our “miss” games to do maybe 20% of that. If a game misses the top 10 lists altogether, you’ll be lucky to break $100,000 in total revenue. So, unless you have an alternative revenue stream, to survive as a developer you must eventually make a hit.
2. Does spending more on a game necessarily mean that it will sell more?
The obvious answer to this question would be a resounding, “of course not.” But as the space matures, there is a certain feature set and quality level that are required to generate that elusive hit that we are all searching for. The challenge for us as developers is to put sufficient quality, polish and newness into our games without going so far overboard that it is impossible to make a profit. Do you need to include every last feature you put on paper during your original concept meetings? No. But be sure you include the important ones! Therein lies the challenge—so choose wisely.
3. How do you manage costs on a regular basis?
Through the grapevine (Jessica Tams), we at Reflexive have heard that we have a reputation for delivering expensive games, and this is true. Until a recent game featuring a ravenous, incredibly loquacious caterpillar surpassed us, we believe we held the dubious honor of having the most expensive games produced in our space. From 2004’s Wik & The Fable of Souls ($350K) and 2005’s Mosaic: Tomb of Mystery (more K), we learned a lot about a lot of things, but one of the most significant things was the importance of systematic and consistent self-analysis. Yes, we knew exactly what we were doing and how much money we were spending each step of the way on those projects. That didn’t help their sales, (on the downloadable PC side anyway) but the problem wasn’t that we woke up one day and said, “Expletive! The games cost how much?”
Except for Sales and Marketing, we believe that every dollar we spend is for the purpose of advancing our projects, and we account for all costs that way. In other words, every non-sales and marketing dollar we spend winds up in the cost bucket. We use Quickbooks to track the costs as they mount. Each month we update the cost of all products in development and ask ourselves the following questions:
1) Is this where we thought we’d be after spending this much?
2) How much is left to go (and thus to spend) ?
3) Can we get it back?
If that’s enough for you, skip to # 4. But if you like details, read on, you brave soul with more than trace quantities of deoxy-accounto-ribose in your system.
We allocate costs to projects in progress by tracking costs in the following categories: Direct Labor, Direct Materials and Overhead, and Indirect Labor. These concepts will be familiar to you if you have studied cost accounting. Essentially, if you worked on the project your salary, benefits and anything you buy—especially for the project—are all charged to the game you’re working on. We allocate overhead and depreciation of fixed assets to projects in progress using a ratio derived from Direct Labor hours. For example, if 1,000 hours of Direct Labor are used by a project, and there were 3,000 total Direct labor hours worked in that period, then 1,000/3,000 or 1/3 of all overhead cost for that period will be allocated to that project. What do we classify as overhead? Generally, overhead is any cost that is not directly related to a particular project (such as rent, utilities, etc.). Ok, wake up now. Back to more interesting topics.
4. What is Sunk Cost, and does it apply to me?
Sunk Cost is the idea that once a dollar is spent, it’s gone and shouldn’t be considered when deciding whether or not to spend future dollars. A good example is as follows: Let’s say you’ve spent $100K on a game, and that’s what you thought it would take to do the whole thing. But now, your engineering team says you need another $50K to finish it to a point that you won’t be embarrassed to put your company’s name on it. Well, the $100K you’ve already spent is gone, or “sunk.” The only relevant number you now need to consider is the remaining $50K—and how that $50K compares to revenue you expect to generate. In other words, after sinking another $50K into this game, how much money can you expect the game to generate? What if it’s not the full $150 you will have spent by then? What if you think the game will generate only $60K total net revenue? The inclination may be to cancel it now, but, in actuality, the theory says different. Unless you think that the $50K can be better spent elsewhere (perhaps on a new idea that will cost only $50K and produce $200k, for instance), then the theory would say that adding that extra $50K in cost would be worthwhile. The math works like this: (-100 – 50 + 60) = - 90. Now, negative 90 is no great number, but it’s better than negative 100 that you’d get if you quit the project now.
5. What are other ways to make money?
Well, here’s what we’ve done. We place them in order of ease of adoption.
- Allow other portals to sell your game.
If you are still of the mindset that you made this game, and you need to sell it from your own site and your own site only so that you can keep 100% of the revenue generated, we respectfully disagree with your mindset. We believe that in the vast majority of cases you will make more money faster by opening your game to the established network of game portals. We learned this the hard way. - Turn your website into a portal to sell other developers’ games.
If you have any traffic to your site at all, and you’re only selling games that you’ve developed, you’re simply missing out. Join an affiliate plan immediately (we have one in mind) and start making money on games that other people have developed. In many cases, you’ll find that these affiliate programs will pay you comparable rates to what you’ll be earning on your own games that you worked so hard on. - Take advantage of alternate methods of revenue generation.
Allow your games to be sold using subscription models. In some cases, Reflexive receives higher royalties for our participation in portal subscription programs than through direct sales. Participate in pre-roll ad programs as well. - Consider going retail.
Talk with one of the retail distributors that you see here at the show. Find out if your game is a good fit for the retail shelves.
Does one of your games fit on the XBLA or a cell phone?
