Category Archives: Game Production
A Dirty Little Secret Of The Game Industry: Royalties
Many game studios develop games for publishers through an early stage development agreement: the studio pitches a publisher on a game that it wants to make and if the publisher greenlights the deal, the publisher funds the game’s development by paying advances to the studio in addition to paying royalties from sales of the game. Now, when negotiating the terms of such an agreement, a studio might be tempted to think, ““We’ll cover all our costs with the advance and then wait for profits when the royalties come rolling in.” Well, here’s a dirty little secret of the game industry: most developers never receive a dime in royalties.
Consider a AAA console game that players buy at a retail store for $60. Let’s say that the studio negotiated a 20% royalty. That royalty is computed after a number of expenses are deducted from that sale.
- Around $12 going to retail store (GameStop, Walmart, Best Buy, etc.)
- Around $12 going to the console manufacturer (Sony, Microsoft, etc.)
- If the publishers used another distributor for selling the game, a cut for that distributor.
- 5% or whatever was the cost of goods were for manufacturing the box, manual, disk, etc.
- Freight and insurance for shipping the product to stores.
So, when all is said and done, the studio is not receiving 20% royalties on $60, but maybe on $30 or less. So, in this example, the studio is receiving only about $6 on that $60 game.
But wait! Usually the publisher paid the studio advances against royalties to fund that game’s development, often millions of dollars in advances. So, the studio doesn’t receive royalties until the publisher recoups the advances from the royalties.
So let’s say a game cost $10 million to develop. The the game must sell enough for the game to earn $10,000,001 in royalties (not sales) before the developer receives their first $1 in royalties.
The reality is that most games never sell enough for a studio to see any royalties. They earn money through the advances to cover their development costs, but rarely do they generate any profits for the studio that made it.
So, what’s studio to do? One thing is to try to negotiate sufficient advances so that the studio can survive long enough to gain another development contract just to stay in business. Or it can try to negotiate an escalating royalty based on sales so that the better a game sells, the higher the royalty the studio receives.
Another approach is to try to develop as much of the project as it can on its own dime; the more complete a game is when a studio approaches a publisher, the better the terms it can negotiate. Of course, the ideal situation is for the studio to publish the game itself.
These High School Kids Could Tell You Why Your Mobile Game Isn’t Getting Any Downloads
Last Saturday I was a volunteer judge of student presentations at a business academic event for the Granada Hills Charter High School DECA team. DECA, if you don’t know, an international association of high school and college students and teachers of marketing, management and entrepreneurship in business, finance, hospitality, and marketing sales and service. As an alumni of the high school, I was asked to help the student team practice for a state-wide competition they are attending next month.
For this practice event, students would have to quickly prepare presentations to solve business problems such as creating a social media program to poll hotel guests about how best to spend a facilities investment fund, coordinating grocery store departments to promote National Family Meal month, and improving customer relations on a food delivery website. The students would then present their plans to us judges, who would role-play as their bosses. The winner in my group was a bright young lady named Fatima who presented a plan for training hotel lobby personnel on new registration policies for assigning guests to two hotel rooms above a noisy atrium.
So, what does all this have to do with video games?
Well, recently I was contacted by an indie developer who complained that he was only getting five downloads a day on his new Android game. He wanted me to take a look at his game to see what he was doing wrong.
I told him that I was not going to bother to look at his game. Nor was I even going to ask him about what makes his game special; that is, what its unique features are. I am going to assume that his game was engaging (even though he admitted that “it is not the best game in the world.”)
No, I wanted to know about something most indie game developers don’t even think about until after they launch but that these DECA team members would have thought about from the first day of development: What have you done to market your game? I’m talking about branding, social media, promotions, advertising, and customer relations.
Two hundred and fifty Android games are launched every day. It is an extremely competitive market, so if your game isn’t getting any downloads, my question back to you is, “What effort have you made to make your game stand out from all that competition?”
Or, more specifically:
- What did you do to build a customer following before launch?
- Did you create a website with a game trailer, screenshots, mailing list, and press kit?
- Were you active on social media, especially Facebook and Twitter? And if so, did you interact with your followers rather than simply post stuff?
- How did you promote your game to the mobile game press so that they will cover it?
- What advertising have you done?
- What steps have you taken using keywords and other factors to improve your game’s search engine ranking?
These are all things you should have thought about long before you released it, if your hope was to get a lot of downloads. It’s very, very rare to launch a game without any marketing effort and have it go viral on its own merits.
The high school kids in the DECA competition had only ten minutes to come up with their plans. But you probably spent zero time thinking about marketing. All you wanted to do was to make a game. But if you want to actually sell that game, you should allocate about twenty-five percent of your time on marketing it — starting months before the launch date.
So, what are you doing wrong? Well, my guess is that you are doing nothing. That’s what’s wrong.
But you know what? That’s okay, since he said it his first game. That’s because his first game probably sucks (as I said, I wasn’t going to even look at it). He’ll probably need to create quite a few games before he make one that doesn’t suck. Rather than worrying about downloads right now, he should worry about whether his game is engaging. He should have lots of people play each of his games and give him feedback on it.
I know, providing feedback on his game what he originally asked me to do, but since he asked about downloads, I decided to focus on marketing. Besides, I was so impressed with the students at the DECA event, my bar has been set a little too high to evaluate a sucky first game right now.
David Mullich 