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Level 7
David Mullich
Survey of the Videogame Industry
The Los Angeles Film School
Economic Terms
 Cost: The value of
money used to
produce something
 Revenue: The
income a company
receives from its
busi...
Man-hour
 Man-hour: The amount of
work an average worker
can perform in one-hour
 Researching and writing
a college pape...
Goods and Services
 Good: A product or material that
is sold to satisfy the wants and
needs of a customer
 Service: An i...
Video Game: Product or Service?
Capital(ism)
 Capitalism is a
system of creating a
profit by producing a
good or service
 Financial Capital is
“money ly...
Personal Capital
 Your weekly salary
 Taxes
 Expenses
○
○
○
○
 What’s left is Discretionary Income
Discretionary Income (DI)
 Revenue – Overhead = DI
 …or Gross Income – taxes – necessities = DI
 What do businesses do ...
Financial Capital
 Capitalists want to put their money to use
to make more money
 This is called “Re-Investing”
 Any us...
Risk
 “Nothing ventured, nothing gained.”
 Lottery players > Very great risk of money, no
risk of time
 Stock buyers > ...
Golden Rule of Risk
 Whoever risks the most gets the greatest reward.
 Which of these two risks the most at the
Springfi...
Labor vs. Owners
 Employees (laborer):
 No risk of income (as long as company stays
in business)
 No share in profits (...
Risk = Stress
 Most released games
don’t make a profit
 Game projects are
frequently cancelled
 Employees are
frequentl...
Why don’t most games make a profit?
Sturgeon’s Law
90% of everything is crap
Pareto Principle (80/20 Rule)
 For many events, roughly
80% of the effects come
from 20% of the causes
 80% of your sale...
Publisher
A video game publisher is
a company that publishes
video games that it has
either developed
internally or has ha...
Game Developer (Studio)
Stakeholders
 Studio Head
 Project Lead
 Design Director
 Technical Director
 Art Director
 ...
Game Publisher
Stakeholders
 Product Development
 Legal
 Finance
 Marketing
 Sales
 Customer Service
Electronic Arts
G4 Icons Episode #45: Electronic Arts
(21:32)
Publisher Functions
 Production
 Marketing
 Market Research
 Advertising
 Packaging
 Manufacturing
 Distribution
 ...
Most of All – Publishers are the Bank
 Have the most money at risk
 Cost of development
 Cost of marketing
 Cost of in...
Types of Risk
 Things that can go wrong all along the chain:
 Technological risk
 Schedule risk
 Market risk
 Invento...
Portfolio Management
 Diversify by genre
 Diversify by platform
 Diversify by budget
 Hope that your hits cover
your l...
The Blockbuster Trap
Companies try to
replicate success
Source: Anita Elberse, “The Creative Industries: Managing Products...
So Why Do So Many AAA Games
Suck?
Source:
http://www.gamasutra.com/view/news/231661/When_big_games_launch_badly
_Breaking_...
Avoiding “Technical Debt”
Source:
http://www.gamasutra.com/view/news/231661/When_big_games_launch_badly
_Breaking_the_vici...
The Greenlight Process
Greenlighting is getting
everyone on your team
to agree “let’s do it!”
Development Contracts
 Work-for-Hire
 Flat fee
 No retained rights to developer
 Publishing License Agreement
 Advanc...
Royalty
 Percentage of every sale
 Up-front money is an “advance” on future
royalties
 Advance must be “earned out” bef...
Stupid Developer Trick
 “I’ll cover all my costs with the advance and
wait for profits when the royalties come.”
 MOST G...
Advances
 Never paid in one lump sum
 Too risky
 Bad for cash flow
 Paid out over a series of “milestones”
Milestones
 Typically paid against “deliverables”
 Signed Contract
 Documents (GDD, TDD, Schedule)
 First Playable (Wi...
Milestones
 Production milestones (such as Alpha and
Beta) are typically defined by:
 Features: Degree of completeness
...
Risk vs. Reward
Video Game Developers vs Publishers: Who
Wins? (12:33)
1950s-60s – Priceless
Early 1970s - Rent
Early video game machines were placed
along side pinball machines, pool tables,
foosball and air hockey
Late 1970s - Buy
Early 2000s - Rent
You “bought” early mobile games, but you
didn’t really own them
Free To Play
 Sell premium features or additional levels
 Sell items or services individually
 Sell eyeballs (advertisi...
Conversion Rate
 Percentage of players who spend money
on your game.
(for example:)
 Subscriptions
 Premium features
 ...
Online Business Models
The Times – They Are A
Changin’
Game Theory with Scott Steinberg -
Episode 1: Reinventing the Video Game
Industry (10:00)
We’re Sudden Millionaires
Our rich Uncle Carlos left us $2M (USD)!
 We can save it
 Risk?
 Reward?
 We can invest it
...
Let’s Make (and Sell) a Game!
 What are we going to make?
 Concept Doc
 Feasibility Study
 Who’s going to buy it?
 Bu...
Marketing
 Demand for the Product
 Optimal Market
 Value Proposition
 Create Awareness
 Communication Channels
Market
 “Those whose money you want.”
 Who’s buying?
 What are they buying?
 How competitive is the market?
 Are ther...
Marketing Terms
• Installed base: a measure
of the number of units of a
particular type of system
• Market share: the
perc...
Types of Research
 Concept tests
 Competitive research
 Gameplay/usability research
 Advertising research
 Demographi...
Demography
“The statistical study of human populations”
 How would we describe this room?
 100% Californian
 100% nerd
...
Demographics
 Different ways of describing groups
 Age
 Gender
 Geographic distribution
○ States or Regions
○ Urban / ...
Research
 Inherently flawed
 Sample size
 The Observer Effect
 Asking the wrong questions
 Misinterpreting the result...
Chicken / Egg Question:
 Does the game determine the market?
or
 Does the market determine the game?
Considerations
 How does the market impact game design?
 What genres are appropriate?
 What platforms are appropriate?
...
Why to Buy?
 The marketer’s (and the designer’s) job is
to answer that question.
 Answer must be more specific than “it’...
We Buy to Fill Needs
 Cheetos  hunger
 Mountain Dew  thirst
 Zoo York hoodies  clothing
 Gasoline  transportation
...
Maslow’s Hierarchy of Needs
Know Your Market
 Mass
 Core
 Niche
Mass Market
 Very large and diverse
Core (or “Hardcore”) Market
 Smaller and more homogeneous
Niche
 Small but very loyal
Marketing Channels
 Magazine/Web Advertisements
 Billboards
 Tradeshows
 Radio/Television Commercials
PR ≠ Advertising
Public Relations is publicity that you don’t pay
for.
 Sending out press releases
 Doing interviews and...
There’s no such thing as bad PR
 Screw-ups double the press
 Piracy is a nice issue
 Linux port? Do it!
Create Assets
 Make a deviantArt account for your
concept art
 Post gameplay videos on YouTube
 Publish and spread scre...
Everything A Game Trailer Should Do
 Have sound
 Be shorter than two minutes
 Have a minimum of text
 Leave viewers wi...
Distributor
An organization or set of organizations (go-between) involved in
the process of making a product or service av...
Retailer
Retail consists of the sale of physical goods or merchandise from
a fixed location, such as a department store, b...
Retailers
 Major, Game Retailer
 GameStop/EB Games
 Minor, Game Retailer
 Pink Godzilla (Gorilla), Hyper Game, Hasting...
Retailer Issues
 Displays
 Pre-orders
 Trade-ins
 Ratings/Appropriateness
 Cross-Regional sales
Displays
 Buying Visibility
 “Street Date”
 “Stock Date”
SKU
A SKU is a stock-keeping unit, a number
code that represents a unique identifier for
each distinct product and service...
Pre-Orders
 Consumer: Guarantees prompt delivery
 Manufacturer: Allows them to gauge demand
 Retailers: Assured of mini...
Trade-Ins
 Decreases unit sales for publishers (and
developers)
 Significant profit for retailer
Downloadable Content (DLC)
 Additional content released through the
internet
 “Live Team”:
 Producers
 Development
 Q...
DLC by Genre
 Fighting: Extra characters, costumes
 Shooting: Maps, multiplayer modes,
unbalanced new weapons
 Sports: ...
DLC by Genre
 Strategy: New scenarios, maps, units
 Racing: Cars, tracks, combat mode
 Party: Minigames
 Music: Songs,...
Community Managers
 MMOs and other Online games
 Roles:
 Beat Cop
 Cruise Director
Beat Cop
 Griefing
 Abuse
 Fraud
 Farming
 Exploits
Cruise Director
 Information help
 Problem solving
 Event planning and
management
 Content creation
GM Tool
 Master control panel for any account
 Create/delete items/money
 Change character attribute
 Customer service...
Community Management
Extra Credits: Community Management
(5:17)
Indie Development
Extra Credits, Season 6, Episode 21 -
So You Want to be an Indie (6:29)
Indie Project Funding Options
 Publishers
 Day Job
 Credit Cards
 Friends, Family & Fools
 Festivals & Contest Prizes...
Crowdfunding
Extra Credits, Season 4, Episode 10 – Crowdfunding (7:29)
Monetizing Indie Games
 Portals – Share of ad revenue
 Kongregate.com
 Newgrounds.com
 Miniclip.com
 Addictinggames.c...
Self-Publish!
 http://www.indiegames.com/
 http://forums.indiegamer.com/
Game Trailer Analysis
In this lab, each of you will present your analysis of a game
trailer.
Like this one…
Assassin’s Cre...
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
LAFS SVI Level 7 - Game Publishing
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LAFS SVI Level 7 - Game Publishing

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Lecture for Level 7 of The Los Angeles Film School's Survey of the Videogame Industry course.

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LAFS SVI Level 7 - Game Publishing

  1. 1. Level 7 David Mullich Survey of the Videogame Industry The Los Angeles Film School
  2. 2. Economic Terms  Cost: The value of money used to produce something  Revenue: The income a company receives from its business activities  Profit: When revenues exceed costs
  3. 3. Man-hour  Man-hour: The amount of work an average worker can perform in one-hour  Researching and writing a college paper might require a student to do 4 man-hours of work  Preparing a family banquet from scratch might require 10 man- hours
  4. 4. Goods and Services  Good: A product or material that is sold to satisfy the wants and needs of a customer  Service: An intangible item that satisfies a customer’s wants and needs  Market: A system where parties engage in the exchange of goods and services  Value: The worth of a good or service as determined by the market
  5. 5. Video Game: Product or Service?
  6. 6. Capital(ism)  Capitalism is a system of creating a profit by producing a good or service  Financial Capital is “money lying around”
  7. 7. Personal Capital  Your weekly salary  Taxes  Expenses ○ ○ ○ ○  What’s left is Discretionary Income
  8. 8. Discretionary Income (DI)  Revenue – Overhead = DI  …or Gross Income – taxes – necessities = DI  What do businesses do with their discretionary income?
  9. 9. Financial Capital  Capitalists want to put their money to use to make more money  This is called “Re-Investing”  Any use of such money involves RISK
  10. 10. Risk  “Nothing ventured, nothing gained.”  Lottery players > Very great risk of money, no risk of time  Stock buyers > Moderate risk of money, small risk of time  Entrepreneurs > Great risk of money and time  Corollary to the Golden Rule:
  11. 11. Golden Rule of Risk  Whoever risks the most gets the greatest reward.  Which of these two risks the most at the Springfield nuclear power plant?
  12. 12. Labor vs. Owners  Employees (laborer):  No risk of income (as long as company stays in business)  No share in profits (unless negotiated or offered)  Owners (capitalists):  No guarantee of income unless company makes a profit  Lion’s share of profits (less what they’ve promised to investors)
  13. 13. Risk = Stress  Most released games don’t make a profit  Game projects are frequently cancelled  Employees are frequently laid off
  14. 14. Why don’t most games make a profit?
  15. 15. Sturgeon’s Law 90% of everything is crap
  16. 16. Pareto Principle (80/20 Rule)  For many events, roughly 80% of the effects come from 20% of the causes  80% of your sales come from 20% of your clients  Only about 10-20% of video games break even
  17. 17. Publisher A video game publisher is a company that publishes video games that it has either developed internally or has had developed by a video game developer
  18. 18. Game Developer (Studio) Stakeholders  Studio Head  Project Lead  Design Director  Technical Director  Art Director  Business Development Manager (Sales)
  19. 19. Game Publisher Stakeholders  Product Development  Legal  Finance  Marketing  Sales  Customer Service
  20. 20. Electronic Arts G4 Icons Episode #45: Electronic Arts (21:32)
  21. 21. Publisher Functions  Production  Marketing  Market Research  Advertising  Packaging  Manufacturing  Distribution  Support  Technical  Community Management
  22. 22. Most of All – Publishers are the Bank  Have the most money at risk  Cost of development  Cost of marketing  Cost of inventory
  23. 23. Types of Risk  Things that can go wrong all along the chain:  Technological risk  Schedule risk  Market risk  Inventory risk  Distribution risk  Liability risk  Result is always the same: MONEY LOST
  24. 24. Portfolio Management  Diversify by genre  Diversify by platform  Diversify by budget  Hope that your hits cover your losses
  25. 25. The Blockbuster Trap Companies try to replicate success Source: Anita Elberse, “The Creative Industries: Managing Products and Product Portfolios,” HBS No. 409-077 (Boston: Harvard Business School Publishing, 9002), p. 11 because demand is uncertain, they imitate “winners” competitors do the same, so investment goes up greater reliance on winners greater desire to avoid risk and copy past successes
  26. 26. So Why Do So Many AAA Games Suck? Source: http://www.gamasutra.com/view/news/231661/When_big_games_launch_badly _Breaking_the_vicious_cycle.php
  27. 27. Avoiding “Technical Debt” Source: http://www.gamasutra.com/view/news/231661/When_big_games_launch_badly _Breaking_the_vicious_cycle.php Technical debt is bugs and other technical problems that arise early on and become worse the longer you put off fixing them. • Sort out potential technical problems early, before they become "known shippable" problems. • Be more aggressive about getting their games in front of lots of people before launch day However, developers get the short end of both sticks: death marches and the blame for low quality. The solution is to address this culture of unrealistic expectations from publishers.
  28. 28. The Greenlight Process Greenlighting is getting everyone on your team to agree “let’s do it!”
  29. 29. Development Contracts  Work-for-Hire  Flat fee  No retained rights to developer  Publishing License Agreement  Advance against royalties  Developer may retain certain rights
  30. 30. Royalty  Percentage of every sale  Up-front money is an “advance” on future royalties  Advance must be “earned out” before true royalties are paid
  31. 31. Stupid Developer Trick  “I’ll cover all my costs with the advance and wait for profits when the royalties come.”  MOST GAMES NEVER EARN OUT (make a profit).
  32. 32. Advances  Never paid in one lump sum  Too risky  Bad for cash flow  Paid out over a series of “milestones”
  33. 33. Milestones  Typically paid against “deliverables”  Signed Contract  Documents (GDD, TDD, Schedule)  First Playable (Will it work? Will it be fun?)  Alpha (feature complete)  Beta (asset complete)  Gold Master (publisher approved to sell)  Source Code & Assets
  34. 34. Milestones  Production milestones (such as Alpha and Beta) are typically defined by:  Features: Degree of completeness  Assets: Percent final  Bugs: Number and severity allowable
  35. 35. Risk vs. Reward Video Game Developers vs Publishers: Who Wins? (12:33)
  36. 36. 1950s-60s – Priceless
  37. 37. Early 1970s - Rent Early video game machines were placed along side pinball machines, pool tables, foosball and air hockey
  38. 38. Late 1970s - Buy
  39. 39. Early 2000s - Rent You “bought” early mobile games, but you didn’t really own them
  40. 40. Free To Play  Sell premium features or additional levels  Sell items or services individually  Sell eyeballs (advertising)  Blend two or three
  41. 41. Conversion Rate  Percentage of players who spend money on your game. (for example:)  Subscriptions  Premium features  Digital goods
  42. 42. Online Business Models
  43. 43. The Times – They Are A Changin’ Game Theory with Scott Steinberg - Episode 1: Reinventing the Video Game Industry (10:00)
  44. 44. We’re Sudden Millionaires Our rich Uncle Carlos left us $2M (USD)!  We can save it  Risk?  Reward?  We can invest it  Risk?  Reward?  We can start a business  Risk?  Reward?
  45. 45. Let’s Make (and Sell) a Game!  What are we going to make?  Concept Doc  Feasibility Study  Who’s going to buy it?  Business Case
  46. 46. Marketing  Demand for the Product  Optimal Market  Value Proposition  Create Awareness  Communication Channels
  47. 47. Market  “Those whose money you want.”  Who’s buying?  What are they buying?  How competitive is the market?  Are there voids to fill?  How do we create demand for our product?  Marketing seeks to answer these questions through the Business case.
  48. 48. Marketing Terms • Installed base: a measure of the number of units of a particular type of system • Market share: the percentage of a market (defined in terms of either units or revenue) accounted for by a specific entity • Metrics: the continuous iterative exploration of past business performance
  49. 49. Types of Research  Concept tests  Competitive research  Gameplay/usability research  Advertising research  Demographic research
  50. 50. Demography “The statistical study of human populations”  How would we describe this room?  100% Californian  100% nerd  100% ages 17-34
  51. 51. Demographics  Different ways of describing groups  Age  Gender  Geographic distribution ○ States or Regions ○ Urban / Suburban / Rural  Income  Ethnicity  Family size ○ Single/Married ○ # of kids
  52. 52. Research  Inherently flawed  Sample size  The Observer Effect  Asking the wrong questions  Misinterpreting the results  Better than  Anecdotes  Polling your friends  Calling your daughter during a meeting
  53. 53. Chicken / Egg Question:  Does the game determine the market? or  Does the market determine the game?
  54. 54. Considerations  How does the market impact game design?  What genres are appropriate?  What platforms are appropriate?  How difficult is the game?  How steep is the learning curve?  How long does it take to play?  Is it single-player or social?  What licenses work?
  55. 55. Why to Buy?  The marketer’s (and the designer’s) job is to answer that question.  Answer must be more specific than “it’s cool!” or “it’s fun!”
  56. 56. We Buy to Fill Needs  Cheetos  hunger  Mountain Dew  thirst  Zoo York hoodies  clothing  Gasoline  transportation  Anything cool  self esteem Psychologist Abraham Maslow proposed that we unconsciously prioritize our needs:
  57. 57. Maslow’s Hierarchy of Needs
  58. 58. Know Your Market  Mass  Core  Niche
  59. 59. Mass Market  Very large and diverse
  60. 60. Core (or “Hardcore”) Market  Smaller and more homogeneous
  61. 61. Niche  Small but very loyal
  62. 62. Marketing Channels  Magazine/Web Advertisements  Billboards  Tradeshows  Radio/Television Commercials
  63. 63. PR ≠ Advertising Public Relations is publicity that you don’t pay for.  Sending out press releases  Doing interviews and press tours  Being reviewed  Writing blogs  Appearing on podcasts
  64. 64. There’s no such thing as bad PR  Screw-ups double the press  Piracy is a nice issue  Linux port? Do it!
  65. 65. Create Assets  Make a deviantArt account for your concept art  Post gameplay videos on YouTube  Publish and spread screenshots
  66. 66. Everything A Game Trailer Should Do  Have sound  Be shorter than two minutes  Have a minimum of text  Leave viewers with an understanding of how your game plays  Show what makes your game special
  67. 67. Distributor An organization or set of organizations (go-between) involved in the process of making a product or service available for use or consumption by a consumer or business user.
  68. 68. Retailer Retail consists of the sale of physical goods or merchandise from a fixed location, such as a department store, boutique or kiosk, or by mail, in small or individual lots for direct consumption by the purchaser.
  69. 69. Retailers  Major, Game Retailer  GameStop/EB Games  Minor, Game Retailer  Pink Godzilla (Gorilla), Hyper Game, Hastings  Major, Tech Retailer  Best Buy, Fry’s Electronics  Major, Mass Retail  Wal-Mart, Target, Kmart, CostCo, Amazon
  70. 70. Retailer Issues  Displays  Pre-orders  Trade-ins  Ratings/Appropriateness  Cross-Regional sales
  71. 71. Displays  Buying Visibility  “Street Date”  “Stock Date”
  72. 72. SKU A SKU is a stock-keeping unit, a number code that represents a unique identifier for each distinct product and service that can be purchased.
  73. 73. Pre-Orders  Consumer: Guarantees prompt delivery  Manufacturer: Allows them to gauge demand  Retailers: Assured of minimum sales  Marketing: Used to generate buzz A pre-order is an order placed for an item which has not yet been released.
  74. 74. Trade-Ins  Decreases unit sales for publishers (and developers)  Significant profit for retailer
  75. 75. Downloadable Content (DLC)  Additional content released through the internet  “Live Team”:  Producers  Development  QA  Community Managers  Revenue is NOT split with retailers
  76. 76. DLC by Genre  Fighting: Extra characters, costumes  Shooting: Maps, multiplayer modes, unbalanced new weapons  Sports: Release annual full-priced title instead  Action-Adventure: New areas, sidequests, non-standard weapon type  RPG: Items, weapons, armor, quests
  77. 77. DLC by Genre  Strategy: New scenarios, maps, units  Racing: Cars, tracks, combat mode  Party: Minigames  Music: Songs, famous musician avatars  Exercise: Routines, yoga poses, mode where the game just complements your body
  78. 78. Community Managers  MMOs and other Online games  Roles:  Beat Cop  Cruise Director
  79. 79. Beat Cop  Griefing  Abuse  Fraud  Farming  Exploits
  80. 80. Cruise Director  Information help  Problem solving  Event planning and management  Content creation
  81. 81. GM Tool  Master control panel for any account  Create/delete items/money  Change character attribute  Customer service functions  World control  Rare spawns  World events
  82. 82. Community Management Extra Credits: Community Management (5:17)
  83. 83. Indie Development Extra Credits, Season 6, Episode 21 - So You Want to be an Indie (6:29)
  84. 84. Indie Project Funding Options  Publishers  Day Job  Credit Cards  Friends, Family & Fools  Festivals & Contest Prizes  Angel Investors & Venture Capitalists  Incubators & Accelerators  Government Programs
  85. 85. Crowdfunding Extra Credits, Season 4, Episode 10 – Crowdfunding (7:29)
  86. 86. Monetizing Indie Games  Portals – Share of ad revenue  Kongregate.com  Newgrounds.com  Miniclip.com  Addictinggames.com  Many, many others!  iOS, Android – Direct sales  WiiWare, PSN, XBLA – Direct sales  Web self-publish – 100% of ad revenue
  87. 87. Self-Publish!  http://www.indiegames.com/  http://forums.indiegamer.com/
  88. 88. Game Trailer Analysis In this lab, each of you will present your analysis of a game trailer. Like this one… Assassin’s Creed 1 Trailer (1:52)

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