Study: Average dev costs as high as $28m

Discussion in 'Console Industry' started by JPT, Jan 12, 2010.

  1. obonicus

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    I think someone did, but I don't know if it's valid. GT5 DLC stories are a mess, is the model finalized and made public?
     
  2. Silent_Buddha

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    Aye, that's something Demirug has also been mentioning in the PC forum. Things like Microtransactions and DLC will be a key going forward for companies to break even and hopefully make a profit on games.

    So the upfront costs will remain the same, but to get basically the same amount of content (or more) than in previous years, the consumer will have to spend more. By making it a consumer choice, it negates the bad publicity of actually just raising prices across the board, even though that is in essence what will happen.

    Regards,
    SB
     
  3. MfA

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    I think that if the ratios become too big a lot of people will just start delaying their game purchases ... the players will see the cheap version of the game as a castrated version of the game. Which for the single player game is probably is probably an accurate view of how it usually happens.

    DLCs as a second buyer tax I expect on just about every game in the future.
     
  4. Silent_Buddha

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    Oh, one other thing I forgot to mention that I think is a great idea going forward and hope to see more of.

    The situation where New purchases will receive free substantial content (DAO as an example with The Stone Prisoner) to encourage people to buy new rather than used thus increasing revenue stream without increasing prices. Used buyers having to spend money on the DLC.

    That has the dual purpose of increasingly new purchases while the dev/publisher will still get some money from purchasers of the used version.

    Or to put it in less flattering terms. New buyers get an uncastrated version, while used buyers get a castrated version with an option to pay money to get the missing content.

    Regards,
    SB
     
  5. Platon

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    Would selling the single player and mutliplayer separately work? The single player I would imagine for the majority of games is the most expensive part to develop and would therefore cost if not the full $60 quite close to it. If you want the mutliplayer buy and download it online but cheaper than the single player and if you want only the multiplayer you can get that as well...
     
  6. Silent_Buddha

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    It makes more financial sense to require the entire game rather than selling the multiplayer component at a large discount.

    The biggest savings will come purely from the packaging. When you launch a title you have to try to guess how much of it will sell.

    If you guess too high then you overproduce, and you can lose massive amounts of money even if you sell a high number of units.

    If you guess to low and underproduce, you lose out on sales. Assuming you guessed at least high enough that you can recoup your costs then you at least break even make a profit, but you end up losing out on the potential big payday.

    For example, potential blockbuster is about to be released. How many do you produce?

    Lets say you estimate you can sell 5 million units. Now look at worst case scenarios.

    Case 1, you overestimated demand and only 2 million sell. You've likely just taking a HUGE loss and you'll be lucky to recoup costs by selling the remaining 3 million at a discount.

    Case 2, you underestimated hugely and probably could have sold 10 million. You probably made a quite nice profit, but missed out on a huge payday. In the time it takes you dupicate new discs you may end up losing some sales as potential buyers move on to the next big thing and come back to your title when it's in the discount bin for half the new price, or worse yet, buy it used 2 weeks after launched instead of new. So you end up eventually selling 6-7 million in the new buy frenzy + launch window when you could have sold much much more, due to people deciding to buy used rather than wait for new stock or just decided to get the next new big title and buy yours when it's in the discount bin after.

    Now imagine if you also had to try to estimate sales of a Single player version and a Multiplayer version. You still have to produce X amount of physical copies. Only now, not only do you have to guess how many total copies will sell, you have to guess the ratio they will sell in. Get it wrong and you could have a disaster on your hand with no way to recoup your investment.

    Regards,
    SB
     
    #86 Silent_Buddha, Jan 27, 2010
    Last edited by a moderator: Jan 27, 2010
  7. assen

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    Also, the platform holder would charge you twice, once for each component. You're better off shipping one DVD, then differentiating via DLC.
     
  8. MfA

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    Ugh nevermind, completely missed the point ....
     
  9. Cheezdoodles

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    In the end, making video games is just like making movies.

    How many movies are profitable? Not many, i dont know the exact %, but its ridiculously low.

    However, on the flip side, the most popular movies are extremely profitable.

    In the end, its a very volatile business that relies on blockbusters to generate profits, and there can only be X amount of blockbusters.

    Not that this is necessary a bad thing, its just that the gaming industry haven't matured properly yet. What this industry needs is simply more big studios and publishers who can diversify their risk away by creating more games etc.

    You cannot remove the volatility of the gaming industry without this, raising prices will only raise volatility, only diversification can partially remove the risks.
     
  10. Platon

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    Actually that was more what I was thinking. Ship the single on a DVD and the mutli as download only, but sure there are many hurdles that need to be adressed fro making anything like this feasible...
     
  11. Silent_Buddha

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    It's hard to do that when big studios and publishers have consistently gone out of business. Interplay was one of the biggest players. Made quite a LOT of critically acclaimed games (more so than even EA at the time they went under). Founded one of the best RPG publishing houses ever in the history of computer games. And went belly up. And that's only one of the many publishing houses that have pulled out entirely. Virgin is another one I can think of. Microprose, Origin, etc... And many others have merged (Square and Enix in the console only space) or been absorbed by others.

    We have less than half the publishing houses that were around in the late 90's. And some of the ones that remain are just a shadow of what they were in the late 90's.

    Most of the big publishers now aren't exactly on solid financial footing either. With many having to desperately hope their established big hit franchises continue to bring in large sales. And sometimes that still not being enough to post a profit.

    When music, film, and books ran into that problem, they raised the prices. Cost of movies, up. Cost of music, up. Cost of books, up. Cost of games, down. The major contributor to this trend is that unlike games, there isn't much in the way of packaging that could be cut from their products. You don't have elaborate boxes, 100-300 page instruction manuals, maps, etc. that could be cut to reduce price for movies, music, or books.

    I have a feeling that all 4 of those entertainment industries is going to see further consolidation as weak studios/publishers are absorbed by the few studios/publishers still managing to make a somewhat consistent profit.

    New devs will continue to enter the space as they hope to be the next best thing, but I find it doubtful you'll find any new AAA publishers entering the arena in any of the entertainment industries. The market is far more volatile and risky than it was say 20 years ago. And the cost of entry is far higher, especially when you consider the chances of making your investment back.

    Regards,
    SB
     
    #91 Silent_Buddha, Jan 28, 2010
    Last edited by a moderator: Jan 28, 2010
  12. Shifty Geezer

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    Books have already gone that way to the extreme. Most publishers are owned by one of the behemoth companies like Random House. That's also the case with movies is it not? Wikipedia lists the Big Six with the few spot players. Is there more than a half-dozen music publishers at the core of the music industry? Digital content has opened up the msuic space, such that anyone can host and sell their own content, but they'll make it big without financial support unless they're damned lucky. Similarly with gaming DLC, indies can make a title with little backing, but it's decidedly hit-and-miss. Without the financial security of a big publisher who'll pay your wages whether you product sells or not, it's a significant gamble to spend time creating a game.

    The market is bigger, the costs are bigger, the risks and bigger and the potential rewards are bigger. It's a huge poker-game where the ante excludes all but the wealthiest of players.
     
  13. Silent_Buddha

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    Aye, online distribution is an opportunity to self market. But as you said, you aren't going to see AAA efforts out of that because noone in their right mind is going to get a loan from a bank to fund a 5-20 (or more) million dollar game developement with no possible return on investment for up to 4-5 (or more) years. And not only that, with less than a 50% chance to recoup your initial investment. And additionally trying to find a way to market it to enough people that you have at least a fighting chance to get enough sales...

    That said, there is an opportunity for such (albeit small) in just developing countries, where wages are low, Taxes are low or nonexistant, cost of living is low, wage laws are nonexistant, etc. Thus the cost of developement will also be lower. Of course the problem is. It's a global economy now, and talented programmers are going to want to try to get hired at a compay with higher wage potential.

    Of course, the flipside to that is those are also the places where piracy is rampant. If you KNOW your product is going to be pirated in your own home country, why even bother making it? Much better to just pirate it from one of the economic powers.

    Regards,
    SB
     
    #93 Silent_Buddha, Jan 29, 2010
    Last edited by a moderator: Jan 29, 2010
  14. Cheezdoodles

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    Doesn't change the fact that only way to reduce volatility is to diversify away risk ;)

    Only way to achieve this without investing large amounts outside of the industry would be to have bigger publishers\studios so that they aren't as dependent on one particular game becoming a huge sucess. Basically any games whos sales are likely to be negatively correlated are great investments, the lower correlation between the two, the more risk you can shred.
     
    #94 Cheezdoodles, Jan 30, 2010
    Last edited by a moderator: Jan 30, 2010
  15. Laa-Yosh

    Laa-Yosh I can has custom title?
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    We already have big studios mostly, almost all the small independent ones are either sold to the big houses, or gone. For example Red 5 (ex-Blizzard team) has just closed its doors this week, too.

    Valve, Bungie and a few are who's left; even Bioware, Blizzard and id Software have all abandoned the independent approach. The consolidation of the industry is practically complete, maybe we'll also see a few more big studios merge, but IMHO that's unlikely.
     
  16. Hazuki Ryu

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    I was reading this thread and I was thinking there must be something wrong here, I mean companies like EA, Microsoft, Sony etc losing money and continue to do the same what are they game lovers? doing it for the fun?

    And why in the world are costs so high nowdays? Big companies are very inneficient? Something doesn't seem right and way too much money is spent on advertizing imo, maybe big companies ruined the fun for everyone else with huge budgets and marketing? Seems to me that good marketing is a lot more important nowdays tha the quality of the game when it comes to making proffit.
     
  17. Nesh

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    Long-term plans, a means to promote other product and services, and used to keep the corporate name in the public strong.

    it is not a matter of inefficiency. It is the fact that companies are falling in the trap created by the same growth and industry evolution THEY caused to get more money from

    The gaming industry was simpler and smaller back in the older days and simpler concepts were less costly to promote and advertise. The money spent to promote something to a market of more than a 150 million potential consumers is apparently astronomical compared to a market of some millions decades ago. And because games and consoles advanced as entertainment mediums, are filled up with tons of advanced features and competition is more fierce than ever, if one company decides to spend some huge cash to ensure the product will sell, the other company will too.

    Well regarding the huge costs of games today you know the reasons I presume.
     
  18. Hazuki Ryu

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    So you'd think that's what making it so hard for the small guys to compete? Big companies with other agendas spend huge ammounts of money maybe not expecting to make a proffit out of that product but from something else?

    Kind of ironic, I guess this can't continue heading in this direction indefinetly, very few people will be willing/able to pay 100 plus euros for a game with the world economy as it is most console games cost 70 euros where I leave at the time of release wich is already much more than I'm willing to pay for 99% of them, it doesn't seem sustainable as it is.

    Regarding the costs of today's games there's also one thing that puzzles me, forgive my ignorace but I am under the impression that development tools are more effecient today than they for example on the last generation of consoles aren't they? Speeding up development time and reducing costs would seem logical, are games really that more complex now days that even with better development tools the costs are higher? It surely wouldn't seem that way at least to a consumer such as myself.
     
  19. Nesh

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    Well how can a small company compete Sony or MS or some other big company that have more liquidity? Their investments cant compete and therefore their projects. Unless they find some way to differentiate successfully theirselves like Nintendo. Competing like for like doesnt seem like a good plan, does it? ;)

    Assets get more expensive and there is always a cost associated with them that is unrelated with tool efficiency, and although today's tools can produce last generations games easier and cheaper, the standards of today's games increase.
    Its a continuous struggle to reach a goal that gets higher and higher.
     
  20. ban25

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    It's a shame, there were some good people there.
     
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