The Game Industry
Greg Costikyan
CEO, Manifesto Games
10/21/08
Me
• 30+ years in the
game industry(ies)
• 30+ commercially
published titles
• Adventure Gaming
Hall of Fame, 5
Origins Awards,
Maverick Award
• Manifesto Games
• Play This Thing!
Huge Growth
But the Business Model is Broken
“Moore’s Wall” and the Decline of
the 3rd Party Developer
• Spiralling hardware capabilities
= competitive pressure to take
advantage of them
= spiralling budgets
• What Raph Koster calls “Moore’s Wall”
• $15m now minimum buy-in for AAA title
– 15 years ago: $200,000
Moore’s Wall (con’t)
• Art assets the main cost driver
• A Doom level took one man-day to
build; a Doom III level takes 2+ man
weeks.
• You have no choice: audience
expectations, marketing demands
• Narrowness of retail channel: <200
SKUs, 2 week on-sale window
Basic Problem
• Sales increase linearly
• Development costs increase
exponentially
• Console model is broken
Average game loses more and more
money
$1,000,000
$500,000
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
Profit/Loss
1985 1990 1995 2000 2003
Conventional Business Model
x15% = $3.75
to developer
$8 retail
cut
$7 platform
royalty
$25 to publisher
$40 retail price
Why Developers are Screwed
• $3.75/game dev needs ~4m unit sales
to recoup advance (very rare)
• Publisher breaks even at ~800k unit
sales (assuming another $5m on
marketing)
• Once upon a time, a hit game made the
dev lot of money.
– Vanishingly small chance today
Result: The End of the Independent
Developer
• Staying independent = unprofitable
treadmill
– Have to land next development deal or die
– No upside
• Selling out only logical path
– Assured access to dev funding
– Only way for founders to cash out
Market Implications
• Field more and more hit-driven
– Few hits have to carry 90+% of games that
lose money
– At any time, 80+% of sales generated by
top 10 games
Implications for Publishers
• Consolidation
• “All Games Should Be Like Sports
Games”
• Licensed crap + franchise extentions
• Everything has to be AAA
• Gameplay innovation is too risky!
Innovation is Driven by Discovering
New Genres
c. 2000BC: Track game with blocking
(Royal Game of Ur > Backgammon)
c. 800AD: Game of Replacement Capture
(Shaturanga > Chess, Shogi)
c. 1200AD: Game of Leaping Capture
(Alquerque > Checkers)
1756: Thematic track game (A Journey
Through Europe > Candyland)
New Game Styles (con’t)
• c. 1850: Trivia Game (Grandmama’s Game
of Useful Knowledge > Trivial Pursuit)
• 1856: Word Interpolation Game (Komikal
Konversation Kards > Mad Libs)
• c. 1890: Fishing Game (Fish Pond >
Operation)
• 1910: Military Miniatures (Little Wars >
Warhammer)
• 1953: Board Wargame (Tactics)
New Game Styles (70s)
• 1972: Adventure Game (Colossal
Cave)
• 1973: RPG (Dungeons & Dragons)
• 1974: Vehicle Sim (Atari Tank)
• 1977: LARP (Dragohir)
• 1978: MUD
• 1979: Flight Sim (Sub-Logic Flight
Simulator)
New Game Styles (80s)
•
•
•
•
1981: Platformer (Donkey Kong)
1981: Computer RPG (Ultima 1)
1984: Graphic Adventure (King’s Quest)
1985: Dynamic Puzzle (Tetris)
New Game Styles (90s)
• 1991: First MMOG (AOL Neverwinter
Nights)
• 1992: RTS (Dune II)
• 1993: FPS (Doom)
• 1994 TCG (Magic: The Gathering)
• 1996: Rhythm Game (Parappa the
Rapper)
New Game Styles (00s)
• 2001: Collectible Miniatures Game
(Hero Clix)
• 2003: Big Urban Games (BUG >
ConQwest)
• 2004: Alternative Reality Game (The
Beast)
....NONE OUT OF OUR INDUSTRY
SINCE 1996
Scratchware Manifesto
“An industry that was once the most
innovative and exciting artistic field on
the planet has become a morass of
drudgery and imitation.”
--Scratchware Manifesto, 2000
GDC Rant
“You can go work for the machine, work
mandatory eighty hour weeks in a
massive sweatshop publisher-owned
studio with hundreds of other drones,
laboring to build the new, compelling
photorealistic driving game-- with the
same basic gameplay as Pole Position
-- Or you can defy the machine.”
-- Game Developers Rant, GDC, 2005
So Find Another Way
• “The Internet Changes Everything”
• Major impact on industries from music
to telephony
• We sell bits. Why put them in a box
when the net is designed to transmit
bits?
• But so far the impact on the game
industry is marginal.
1993
“All told, 15m shareware copies of Doom
were downloaded across the world...
Doom was a watershed event...
Because it changed the way
videogames circulate and reproduce.”
-- JC Herz, Joystick Nation
Doom was an Aberration
• It didn’t change the way games are
distributed, because
– CD-ROMs came along, apps bloated by
an order of magnitude
– Internet users were stuck with dialup
– Hours-long downloads for apps of any
size.
– The shareware model ruled for about 6
minutes.
Web 1.0 (circa 2000)
• Free Internet play bolted on to RTS and
FPS games
• MMOs adopt hybrid model (retail
distribution of apps, but play solely
online, with subscription)
• Ad-supported play of classic card &
board games attract tens of millions of
monthly uniques (unprofitably)
Web 2.0 (today)
• We’re back in 1993, in terms of app
size/bandwidth ratio
• A success like id’s is again feasible
• The market is about to be disrupted
• Cui bono?
– Consumers: greater choice, lower costs
– (Some) creators: instant fame, but hard to
make a buck
Casual Game Market
• $0 to $700m (US domestic only)
between 2000 and 2007
• 60 min demo, $20 purchase price
• Portal distribution
• $250-500k budgets
• Middle-aged women
Match 3 Games
Hidden Object Games
Mystery Case Files
Time Management Games
Diner Dash
Casual Game Economics 2003
2008
80%
$4
60% to portal =
$12 $16
$8 to developer
$20 retail price
$250k budget = ~32k unit sales for breakeven
$500k
125k
Not a Panacea
• But a sign post showing the potential.
• It’s possible to create whole new game
markets on the Net.
• But as usual, the game industry has
learned the wrong lessons:
Casual Games: Lesson 1
Everyone, even a demographic like
middle-aged women who historically are
NOT major purchasers of games
Middle-aged women will buy games on
the Internet if they’re designed to
appeal to them.
cater to their interests
Casual Games: Lesson 2
at the right level of difficulty
Online, games need to be dirt simple to
appeal to the casual game market
intended audience
Casual Games: Lesson 3
A $20 price point with a 60 minute limited
demo is a great way to monetize online
lousy
gameplay
...only 1.2% of downloaders convert
to purchase...
Casual Games: Lesson 5
are one way
You need deals with portals to achieve a
large enough audience to generate
enough sales for profitability
transactions
Casual Games: Lesson 6
The success of Xbox Live Arcade shows
that casual games work on consoles
too! hardcore
What, you call Geometry Wars a
Casual game? Crap. It’s a shmup,
A genre for geeks if ever there was one.
“Free” MMOs
• The logic of the conventional MMO
market:
– 8-figure budgets
– Monthly subscriptions
– Multi-year development times
– Enormous technical complexity
“Free” MMOs
• The logic of light-weight MMOs:
– 6 or 7 figure budgets (initially)
– Free to play, upsell with status items
(clothing, leaderboards, furniture, etc.)
– Far shorter development times
– Modest technical complexity
– 10-20% of your audience will pay
Runescape
Runescape
• Browser-playable, traditional fantasy
MMO
• 9m active players
– Of which 1m pay $5/month for premium
services
– Plus advertising revenue
• Player acquisition largely by word of
mouth
Club Penguin
Club Penguin
• Flash minigames aimed at kids held
together with a virtual world metaphor
• Free to play
– $6/month premium membership for status
items
Club Penguin (con’t)
• Key distribution arrangement with
Miniclips
– #1 free game site on the Internet, >40m
monthly uniques
– Receives 50% of lifetime revenue from
users who join CP via Miniclips
• Sold to Disney for $350m
– Screw console gaming
Webkinz
Webkinz
• Plush toys with codes that allow you to
“adopt” the critter as a Tamagotchi-like
pet in an online virtual world
• Clearly inspired by Neopets
• Free to play online
• $45m in retail sales (06)
Social Networking Games
• Games built on APIs provided by social
networks
– Facebook, MySpace today
– OpenSocial tomorrow
• The average Facebook game has
>2.5m installed users
– Multiplayer ones see 11% of them active
each day
Mobsters
Social Networking Games
• Social networks designed for virality
– Minimal marketing/distribution costs
• Turn-based, web pages
– Straightforward (and cheap) web
development
• “Free,” Micropayments + “Cost per
action” advertising
• Zynga rumored to make $1m+ per day
($36m in venture capital)
Social Networking Games
• Many seeing tens of millions of daily
page views
• Already seeing VC interest:
– Conduit Labs ($5.5m Series A)
– Zynga ($36m in two rounds, latest against
a $100m+ valuation)
Micropayments
• Common in “free” MMOs, of course
• A way to monetize gameplay short of
the $20 purchase
• High proportion of casual gameplayers
run up against the 60 minute limit
Double Trump
Micropayments
• DoubleTrump
– 60 minutes free, pay 1 cent/minute
thereafter
– After 2000 minutes, you own the game
outright
– Playonarcade.com as tech demo
Wild Tangent
Micropayments
• Wild Tangent
– “Token” model – 1 token allows unlimited
play until you quit from the application
– 25 cents/token
– Or watch ads to get tokens
– Advertisers can “sponsor” play of games
– Credit toward purchase
Micropayments
• These are models built for casual
games
– But expect to see “free” web games start
to use micropayments
– E.g., first 12 levels free, another 12 for $3
– Some of this already on Kongregate &
Miniclips
Ad-Supported Web Games
• Contract development for sites like
Nickelodeon, Adult Swim
– Not just crap any more – some of the Adult
Swim stuff is actually good
• Rev share with portals like Miniclips,
Addictinggames.com, Kongregate.com
– Kongregate VC-funded startup to
encourage this
Kongregate
Ad-supported Web Games
• Problem is that per-user revenues are
small
– Hit games can get millions of plays
– But figure a few cents per play
– Possible to support a small team, but not
a path to riches
– Does micropayment upsell change the
picture?
Second-Tier Genres...
• Conventional retail channel not friendly
to games that have no chance of selling
1m units
• Yet there are genres that have
passionate fans but not enough
– Computer wargames
– Graphic adventures
– 4X
– Etc.
...Migrate Online
• Now sold primarily as online downloads
– Often with a retail SKU – but the bulk of
sales online
• Matrix Games
– Computer wargames
• Stardock
– 4X (Galactic Civilizations), RTS (Sins of a
Solar Empire, currently #4 on the NPD PC
Games best-sellers list)
Gary Grigsby’s World at War
Galactic Civilizations II
Secondary Genres (con’t)
• Can sell in excess of 100,000 units
– Galactic Civilizations
– Gary Grigsby’s World at War
• Retailer disintermediation
– Real (if modest) profitability
• Opportunity for aggregation
– Slitherine’s “Play History”
Serious Games
• Yes, there can be serious money here
• Forterra
– Spin-off from There.com
– Virtual worlds as training environments for
military, medical, transportation customers
– Second Life may get the press, but this is
where to look for actual success
Serious Games
• Peacemaker
– Began as a student project at Carnegie
Mellon
– Modest VC investment, grants from nonprofits
– Major press attention
– 100,000 copies distributed in Israel &
Palestine by the Peres Center for Peace
Peacemaker
Re-Mission
• Funded by Hope Lab, a medical nonprofit
• Rather high budget FPS (shoot the
cancer)
• Clinically shown that players are better
about taking their meds
Re-Mission
Serious Games
• Increasing amounts of money available
from government, non-profits
• Most developers in the space have no
clue
• Clear opportunity for those who focus
on it
• Mostly contract work – little to no
upside...
– But psychic rewards, surely
“Indie Games”
• Ill-defined, but usually means casual
game-like business model, but not
casual games
– Some indie developers have supported
themselves for years at a modest level
(ApeZone, Spiderweb, Chronic Logic)
Increasing Attention
• Both print and online media
increasingly willing to cover indie
games
• High-volume sites like Fileplanet
feature indie game demos
• Playfirst deal for Dave Gilbert graphic
adventures.
Emerging Distribution Channels
• Steam first really successful distribution
channels (can generate sales of tens of
thousands)
• Gleemax/WOTC
• Penny Arcade/Greenhouse
Indie Games (con’t)
• Still a small market by comparison to,
say, casual games
• But why should middle-aged women
have all the fun?
• Critical factor: establishing the “indie is
good” meme in the minds of gamers
• Relentless PR critical
– The lesson of Uplink
Indie Games (con’t)
• IGF
• Possibility of upsell to XBLA, Nintendo
Virtual Console, etc.
• “Blue ocean” – don’t try to compete with
big budget titles
• Bandwidth problem
• Some “casual” channels open (e.g.,
Oberon)
– But sucky margins
Braid
Defcon
The Shivah
Immortal Defense
Audiosurf
Ten Years from Now...
• The retail channel will be minor
• Console titles will be sold via download
– The hardware manufacturers will be the
key gatekeepers
• PC gaming, broadly defined, will see an
enormous resurgence, all online
• There will be vast diversity in
successful game styles
Ten Years from Now...
• There will still be multi-million unit hits...
• But a huge “midlist” of games that sell
far fewer numbers, profitably, will exist
• Application sale will be only one of
many successful business models
• Conventional wisdom will have
reversed – major publishers are
dinosaurs
The Independent Developer Shall
Rise Again
• The future’s so bright you gotta wear
shades
Link