Developers and Publishers – a match made in hell?

Nick addresses the problem.

It is abundantly clear today that gaming is a bastion of big business, indeed it is often quoted that the games industry today is worth more than the movie industry. This is particularly true for the UK, where the games industry grosses more annually than cinema, video sales and rentals combined. In economics terms, it is easy to see why this should be the case (despite the fact that watching movies is still the more mainstream activity): games are unlikely to cost more than £3-4 million for a high-quality title (and often much less), and at £40 retail need to sell far fewer numbers than an equivalent movie release to break even. That is not to say, of course, that making it in the industry is easy. But the rewards are there for a successful product.

One distinction that must immediately be drawn is the one that exists between different sectors of the industry, and between publishers and developers particularly. A look at some recent game charts for North America, Europe and Japan shows that certain publishers dominate the top ten positions in these territories – companies like Electronic Arts, Nintendo, Activision or Namco appear several times across the three charts. Indeed, a comparison could be made between game publishers and movie studios or record labels. Each of these sectors control the publishing of their respective media, and more importantly, control the financing of new products. In effect, it is the game publishers, the movie studios and the record labels that dictate what gets made and what does not by selection of which projects receive finance.

There are, however, certain fundamental differences between the business models of the movie and music industries and the games industry. The principal difference is the interaction that publishers / movie studios / record labels have with their respective counterparts on the creative side of production. Movie studios, for example, very rarely work with a counterpart ‘movie-developer’ per se – more often certain individuals (directors) become attached to scripts and the required employees are hired as needed for each movie. It is rare, though not unheard of, for the entire cast and crew of a movie to work together on their subsequent projects. Equally, the music industry demonstrates similar features. Record labels develop relationships with a stable of artists, and while persistent contact does develop between figurehead artists and other musicians or producers, more often than not these background musicians will work with many different people over the course of their careers.

The games industry is, of course, different. Many of the massive publishers have in-house development teams, but in contrast to others the games industry still has a very important place for independent developer companies. Many serve as talent incubators, as well as repositories for some of the industry’s more original ideas. In this regard, increased corporate dominance has left their importance unchanged. What has altered, however, is the ease with which such companies could retain their independence. The key factor in this equation is simply the cost of game production. Producing a hit game is no easier or more difficult now than it ever was, creatively speaking, but it is vastly more expensive, with average production costs of somewhere in the region of £1.2 million.

This has meant that independent developers now have no option but to court the large publishers if they have no other revenue source. In the past the costs of development were more manageable, and determined developers working on their first titles could find more mundane sources of finance – usually bank loans.

The result of this is that the best new developers can hope for, if they have no previous titles under their belts, is to gain some kind of deal with a large publisher. This is an understandable desire from their point of view, but from a business perspective it does nothing more than keep them afloat during the development period, and deprive them of the revenues they deserve when the game hits the shelves. There are, of course, alternative ways of doing things. One such is the Lionhead satellite studios' model. Essentially, this involves one larger and more financially secure developer, namely Peter Molyneux’s Lionhead, acting as a technical and financial advisor for a number of smaller start-ups. The ‘service’ even extends to using Molyneux’s own reputation for publicity purposes for the satellite productions – it already seems inevitable that Big Blue Box’s Fable will be a massive success.

What is also clear, however, is that even large and successful developers crave the kind of financial stability that only access to publishing can provide them. Indeed, it is hard to think of a highly successful developer that has not succumbed to a buyout from a publisher – the list of recent acquisitions is extensive. Rare (MS), Blizzard (Vivendi), Bungie (MS), Westwood (EA), Shiny (Infogrames) and Verant (Sony) were all purchased despite achieving the kind of success that should have ensured their independence. If anything, this is evidence of the gulf in profitability that exists between publishers and developers. Publishers by definition will have many different games at different stages of the product cycle, and can thus count on the kind of constant revenue streams that developers can only dream of. Even the biggest developers are constantly losing money, hoping to make it up again when their next game hits the shelves. It is easy to see why the Stamper brothers could be tempted to sell a company as successful as Rare, leaving the $370 million aside for the moment. No more worrying about revenue streams – as part of the Microsoft family they could rely on profits from other sectors covering their costs. All they need worry about is making the games.

There is also a perception that increased corporate dominance has meant less innovation, and more reliance on licensed properties and sequels. In fact, licensed games were always part of the gaming landscape, and were almost always (rare exceptions noted) mediocre in quality – ET on the Atari 2600 is considered by many to be the worst game ever, for instance. And whilst massive publishers like EA are the source of many an inexplicable franchise (an entire sports range), their release catalogue is actually surprisingly diverse. They have released some of the year's most well received games, including Battlefield 1942 and Medal of Honour. It should also be remembered that publishers do not come any larger than Nintendo and Sega. If Pikmin and Super Monkey Ball are anything to go by, originality is certainly not a dying ideal.

What is more of a concern is the fact that the industry has yet to adjust to the changing conditions with regards to the recruitment of new talent. As stated, it is becoming more difficult for smaller developers to maintain their independence, and it is extremely difficult for any but the most talented of new developers to secure funding. This is simply a factor of current economic conditions, but the knock on effects are being felt by the larger developers, because they are finding it harder to find suitable new talent. Smaller developers play an extremely important role in the gaming food chain – whilst they rarely developed the big successes, they allow programmers and artists to cut their teeth. They incubate pools of new talent from which the larger developers and publishers recruit. With the situation for small developers so difficult, it is becoming increasingly difficult for newcomers to make their way into the industry. Larger developers demand experience that in the past would have been garnered from a start up. No longer. In a recent talk at Edinburgh University Dept. of Computer Science, Chris Van der Kuyl, CEO of Vis Entertainment, described the difficulty in recruitment his company faced. For a successful mid-sized developer like Vis, recruiting the next generation of programmers was the single biggest barrier to growth. They had several successful games under their belt, including a budding franchise. They had the funding in place. They had the offices and equipment they needed. They just did not have the staff.

This is, I think, the biggest problem caused by increased corporate dominance in the industry. Essentially, market conditions have forced small developers to merge, unite with publishers or simply disband. I am a realist, not an idealist, and I would have no particular problem with this in itself – after all, games have been improving in quality over the years, not lessening. The problem lies with the fact that there is no replacement training strategy in place for the development of new talent. In this matter western companies can take a lead from their Japanese counterparts – the fusion between developers and publishers is far more complete in the east than here, and the largest Japanese publishers and developers have always been the source of new talent. What is needed most is recognition amongst the paymasters of the industry – MS, Sony, Nintendo, EA etc, that although scouring the minnows for talented developers may improve their fortunes in the short term, it also serves to stifle the conditions that allowed them to grow in the first place. The fishing analogy is apt, actually – fisherman know to take only adults, leaving the young to develop. Let’s hope that Sony, Microsoft, et al see the truth of this.

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