Unit 13 – Understanding the games industry

Unit 13 – Understanding the games industry - Financial Issues

This is a report about the financial issues around the games industry and what causes them. There are several reasons that cause a game to sell well or bad.

The Cost Involved in Creating a Game

There are several things that at costly in the development process, these things include staff, the development of software and hardware, the rent and bills, marketing and advertisement, legality.

In America in 2013 the cost of setting up and running an MMO games development studio for 12 months was roughly $618,000, excluding variable costs. The staff includes 2 programmers, 1 software engineer, 1 artist, 1 games designer, 1 PM/Team Lead, 1 QA tester, 1 systems admin. On average each person earns $73,000 per year, this approximately $584,000. The office space would be around $24,000 for 12 months. All of the equipment would cost $1,200 per person, so $9,600 for 8 people. Sometimes money ins't the only reason a game fails, Grim Fandango for example had several other factors some of these being the fact that the point and click genre just want popular at the time. Also other games like Half-Life came out at a similar time.

How Could a Game be Funded

The funding the developers get for their game comes in many different forms and can often decide how the developer will spend their budget. It used to be fairly limited when it came to getting a budget, your options normally being a bank loan, an investor, or a publisher. While these would help you stick to a set budget, they would be quite difficult to get, for example an investor would have to be quite sure that he was going to at least earn his money back and the bank would want collateral just in case the development didn't go well. It has recently become very popular to get funding though crowd funding sites such as Kickstarter and GoFundMe. It can also be quite hard to raise money this way since regular people have to bet on your game being good to decide to donate to you. Also it is quite regular to see the developer giving out rewards to people that donate a certain amount of money, these rewards can vary from IRL items, to access to the full game. The advantages of crowdfunding would be that genres that aren't often seen would get recognition and funding where in the past this wouldn't have been possible and example of this would be Exploding Kittens this is a card game that would have you trying not to draw cards instead of drawing them. Crowdfunding also allows indie developers to get more funding and following then they would normally get, this helps people get hyped for the game. This however can also be a downside as expectation may become too high, backers of the game may not get exactly what they were expecting, or may simply be disappointed by the end results. This happened with a game called Code Hero, a game that raised  $170,954 on Kickstarter, the backers were suddenly met with a comment from the developer Alex Peake saying he was quitting that was the last update in April of 2014.

Issues Affecting Small Companies

There are several reasons that a small company would have a lot more trouble then say a large company. One of these would be getting the funding to actually start the development of a game, there would be different reasons for this when compared to a larger games company. For example the bank would look at your current income, and since an indie developer plans on using their free time to make a game they probably don't have a full time job if they even have one in the first place. It is hard enough for a normal games designer to get one considering the state of their pay. There would be long periods of time where you are earning no money and then spikes every now and again. Another problem they would have is publishing, getting some one else to publish for you can be a good thing considering they would normally pay for the full development of the game, this covers all cost, however due to this they would take all the money the game earns until they break even and then the development studio would only get what was agreed upon in the deal, which usually isn't very much.

Conclusion

So we have learnt that it is important to not make your expectations too high and to set a budget as to not get off track. If you're under prepared, then you should take a step back and plan, to avoid too many financial issues. There are different ways of funding that are right for different businesses, these in turn would give different options to sell your game to the public. There are extra costs that you need to plan for in case any problem occurs during development. 

https://en.wikipedia.org/wiki/List_of_most_expensive_video_games_to_develop
https://www.quora.com/How-much-does-it-cost-to-develop-a-video-game
http://freshtechsolutions.co.uk/blog/advantages-disadvantages-crowdfunding/
http://kotaku.com/12-successful-kickstarters-that-never-delivered-1687019268
https://en.wikipedia.org/wiki/List_of_most_expensive_video_games_to_develop
http://www.gamesindustry.biz/articles/2014-08-06-shovel-knight-devs-break-down-costs-sales
http://ukie.org.uk/research