Understanding the games industry LO2: Understanding financial issues and current market trends affecting the games industry Financial Issues

10 Minute Task Split into groups of 3-4 and list all the ways you think the games industry can make money from? Releasing a console, game or peripheral. DLC Subscriptions Merchandise Sales

Games Industry Financial Issues Introduction The UK games industry was worth nearly £4.2bn in consumer spend in 2015, up 7.4% from £3.94bn in 2014 The UK was estimated to be the 6th largest video game market in 2015 in terms of consumer revenues, after China (ranked 1st for the 1st time), USA, Japan, South Korea and Germany. The UK is forecast to retain its 6th place up to at least 2018. The industry’s biggest consumer market revenue streams in 2015 were Digital Console and PC (£1,224m, +13.2%), Boxed Software (£904m, -3%), Consoles hardware (£689m, -28% after the initial sales peak for next-gen consoles) and Mobile gaming (£664m, +21.2%). Reference: http://ukie.org.uk/research

Costs However, regardless of how successful the game industry is not all games make their money back and all face financial issues. Sensible budget management is vital for creating a successful game. There are many costs to consider when budgeting a game. Factoring these expenses during pre-production helps a developer to minimise the risks and prevent their game from going over budget.

Basic Cost breakdown There are more costs involved in making games than you may think. At a basic level for a small company these will include: Staff including programmers, artists, QA need paying Development Hardware and software Location\Building\Office costs e.g rent and bills Marketing and advertising Clearances, such as copyright issues and age ratings(PEGI) Others could include: Creating Hardware peripherals (Rock Band, Guitar Hero, etc) Supporting Multiple Languages, Regions, Platforms Complexity, Uniqueness and Novel technical/artistic elements IP Licensing costs See more about PEGI ratings costs: http://www.gamasutra.com/view/news/253603/How_paying_for_content_ratings_is_hurting_devs_who_release_in_Europe.php IP = Intellectual Property = game franchises or just individual games

So how do games get Funded? The way the developer’s game is funded could also be a factor in how they spend their budget. For example, with a set amount from a bank loan, investor, publisher a developer would be more willing to stick to a rigid budget. However, with crowdfunding sites – such as IndieGoGo and Kickstarter – becoming more mainstream, it gives the developer another option. A successfully-crowdfunded game could match the needed budget or, ideally, exceed it and give the developer room to improve their game in ways they would not have been able to originally. Crowdfunding doesn’t always work with many titles not reaching their funding goal. The developer could pursue another means of funding however. More options for funding an indie game: http://www.gamasutra.com/blogs/ZacharyStrebeck/20150821/250809/How_do_I_get_funding_for_my_indie_game_company.php http://thenextweb.com/insider/2012/03/03/how-to-fund-your-next-game-hint-its-probably-not-kickstarter/

Kickstarter 10 Minute Task What is the best funded game on Kickstarter? Find at least one other example of a crowd funded game. How much funding did it get?

Issues affect Independent and small companies Trying to get funding for smaller developers can be very difficult and finding a publisher that will fund your game can be even harder for an unknown developer. Banks first look at your monthly and annual cash flow patterns prior to asking about business and personal assets that could potentially become collateral. This alone automatically ruins a majority of game developers’ chances to get bank loans: we have lopsided and insanely unstable cash flows. Even if you have a built-up back catalogue with good distribution and it’s yielding some decent royalties, your cash flows are going to be strongest right after you release a game. The bigger the game, the more time it takes to get released which means months or even years before any cash is seen. Further reading: http://cogsagency.com/2016/05/the-challenges-facing-game-developers-in-2016/

So your games released and costs £40 So your games released and costs £40. The developer receives all of this right? NOPE Source: http://www.theaveragegamer.com/2011/01/11/eurogamers-cost-breakdown-of-a-game/

So what the does the developer get? This can vary and depends on the deal struck with the publisher. Developers are usually paid when they reach milestones a set amount of money. This could include Internal, Alpha, Beta and Gold milestones. Anything else is dependent on the publisher making a profit first.

Retail vs Online business models A retail model requires extra money spent on manufacturing hardcopies of the game and shipping it to retailers. Boxed Software is currently worth £904m in the UK. The online model saves money on manufacturing and Digital Console and PC is currently worth £1,224m in the UK. Digital sales used to be much lower than retail sales Why do you think gamers are starting to prefer Digital games over boxed copies? Further reading on physical games decline: http://www.gamesindustry.biz/articles/2016-11-21-whats-going-wrong-at-games-retail

Finally… While unrealistic sales expectations and higher production costs can cripple an unprepared developer, sensible planning in pre-production should help to avoid these particular financial issues. Different business models and funding methods can assist a developer in making their game a success, as they provide different options on how to market and sell their game to the public. Ultimately you need a sensible and realistic budget that you then work within. Allowing for extra costs and issues that may arise during production.

Task title: Understanding the games industry – Financial Issues Use the research you did on top and poor selling games. Explain financial issues affecting the issues and why games can sell well or badly. Part of Understanding financial issues and current market trends assignment. First of three parts Financial Issues, Market trends and Industry trends. Structure of the task: Introduction (What is this report about) Costs involved in creating a game (Include examples of games that were and were not a financial success. Why were they a success or unsuccessful?) How a game could be funded (Self funded, bank loan, investor, crowd funding). Advantages & Disadvantages. Issues facing small and indie studios Wrap up and conclusion (Summary of what you have talked about. Anything you have learnt that you would do if creating your own game) You should do your own research and Include references. Useful links: http://www.gamesindustry.biz/articles/2014-08-06-shovel-knight-devs-break-down-costs-sales