Comments on the Game Industry Economics

For those of you following news in the game industry over the last several months, you’ve witnessed rounds of layoffs and closures and a variety of restructuring announcements really across the board. This is in line with the economic realities of the world right now of course (and underlying realities of the way that 20+ million-dollar projects are funded), but people often ask me questions about this general topic.

Despite the incredible numbers we’ve seen posted in terms of game software and hardware sales in the last few years, being in this business is far from a sure thing. Game development is a very risky business. Lots of guessing goes into product development both in terms of marketing and technology development despite how smart everyone claims to be.

Game studios are software development shops hired by “publishers” to create game products. When you have teams comprised of dozens of highly skilled practitioners who are paid an average of 40 - 100k per year, and the typical game project lasts over 24 months, simple addition shows the financial realities facing studios in product development. Add on top of that the cost of employer subsidized health insurance, other benefits, along with facilities and operational expenses (plus legal) and suddenly the game creation process cost reaches some fairly high figures. And that is just for the game studio! The publisher is its own beast and then the actual delivery route to the customer has its own set of expenses.

A couple of interesting risks:

Rapidly changing marketplace (consumer interest and competition) may hurt sales required to return investment to the publisher(s) who theoretically are paying the bills for everybody involved.

Technology problems for creating innovative products can prevent publicized release dates. This can be incredibly damaging for everybody involved.
Original IP is as can be imagined, a challenge to sell and may be met with poor reception.

Strategies publishers employ regularly now:

Focus on building brands and sequels in essentially franchising a product line over time.

Use and leverage existing game engines for almost everything.

Plan using the same content and technology for multiple platform release such that you maximize the potential sales you have.

Even with these strategies, publishers still only find that a fraction of these large projects bring a return substantial enough to offset development, marketing and distribution costs. It is hit and misses. Largely, the hits have helped offset the misses for those who are the leaders out there today.

Opportunities for those entering the industry have not dried up even in light of these realities. From Gamasutra.com’s job board, one can find MANY job postings. Those with an entrepreneurial spirit are also embraced by the game industry – independent development and innovation are keys to success. Flashpoint students are working on these kinds of independent projects and finely tuning themselves in terms of developing solid pitches to the whole range of opportunities out there in the industry right now. Interactive media is also another route for Flashpoint Academy game developers. Some students will build careers in developing game content for other sectors (education, heath care, broadcast, film, and so on).

Over the years, the game industry has been a roller coaster ride. Now is no different. Hang on!