7 October, 2010
As Psychoavatar is winding up, I’m back into “business” mode. I have a good amount of experience in running Near Death Studios, so I know to avoid pitfalls like taking on too much overhead too early. I’ve also started considering business opportunities and haven’t put marketing ideas off until the last minute.
In my daily reading, I’ve been seeing more articles about independent game development, particularly about business. I figured I might discuss a few of those since I’m in a business-minded mood.
First up is an interesting article in Develop magazine by Sophie Houlden entitled You Can Do It (pages 18-19). (Tip of the hat to the Rampant Coyote for the link.) In the article, she argues that you can get started making indie games with low cost. She wrote a companion blog entry where she definitely sold herself short, however. I think there is a lot of knowledge required, and I don’t game development is something where you can sit down with a list of things to learn and then crank out a game afterwards. Perhaps I’m a holdout romantic, but I still believe there’s a bit of art (and not just the visual kind) to game development. But, this quibble shouldn’t distract from the fact that you can get into game development for very low cost if you really want.
Another article requires a bit more delving but also provides insight into the next step: making a living from your game. Arcen Games, makers of the critically-acclaimed game AI War has had some financial troubles lately, as is all too common with indie developers. The online version of PCGamer has an article with an email from the company founder Chris Park detailing some of the financial realities behind the company. Hard data is always hard to come by since people tend to keep financial info secret, so this is fascinating for that reason. But, I think it also demonstrates some of the troubles you can have as an indie developer when considering the business side of things.
From a the very simplest point of view, your business is defined by two values: your income you receive and the expenses you pay. In this simplest version, you win the game if income is greater than expenses. In order to make a (bigger) profit, you either need to increase revenue or reduce expenses. For an indie game developer, income can be a bit hard to predict so your best bet is to make sure your expenses are as low as possible; this includes the strategy of keeping overhead expenses as low as possible, as I mentioned above.
Things get murkier when you try to expand from this. In his email Chris Park starts discussing the cost of the time he put into developing the game. In reality, that doesn’t matter and has little impact on the state of the business as it is now. In accounting terms, that’s a “sunk cost”: whatever higher-paid alternative he could have engaged in would likely not have produced greater value for the company directly. Since the company didn’t pay him, it doesn’t count as an expense, and it has no impact on the day-to-day running of the business.
The other issue to note is the Child’s Play donation. The cold, hard fact is that while a donation to that charity is very noble, from a business point of view it is an expense. In the interest of continuing your business, you have to look at how making such a donation helps your company. Usually, the goal is to get increased sales from such a promise that results in greater income for the company as well as a generous donation to the charity. But, a lot of people see this type of thinking as distasteful, but ignoring it can lead to having severe financial difficulties as demonstrated in this case.
Finally, it’s important to look at income as well. Every expense should be seen as a way to maintain (or increase) the revenue for the company in order to keep it running and allow the business to accomplish its goals. Note that not every business has to grow as big as EA, but I think most people want to keep a roof over their head and food on the table and keep the lights on so that they can at least maintain their games. So, it’s time to take a hard look at what generates income for the company. The obvious answers are launching new games and providing expansions. If I were in that position, I would look at ways to generate income in the short term for the company. In the longer term, figure out how to pace development to keep money coming in. Look at how much income an expansion to AI War can bring in and how long that income lasts. If it’s feasible to release expansions that frequently, focus on doing so. But, also plan to develop other games for when people tire of AI War. It’s a lot of work, but it’s what you have to do if you want to run your own company.
Not to pick on Mr. Park or his company, this is just an easily available example. I wish him and his company every success, and hopefully the company can use this opportunity to evaluate how the company will survive in the longer term. I certainly do appreciate the courage it takes to expose your financials to a high profile website like that.
What insights do you get from that article? How can indies run their businesses better? Or, are they doomed to always struggle, even with a rather successful game like AI War has been?