CEO Survey Report of Japanese Video Game Developers - Mirko Ernkvist


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CEO Survey Report of Japanese Video Game Developers - Mirko Ernkvist

  1. 1.             CEO Survey Report of Japanese Video Game Developers Mirko Ernkvist       February  2012                 ©2012 Mirko Ernkvist Email: To cite this publication: Ernkvist, M. (2012). CEO Survey Report of Japanese Video Game Developers, Working Paper, The University of Gothenburg. Mirko Ernkvist is a Researcher at the Centre for International Business Studies, the University of Gothenburg, Sweden. During 2010-2011 he was a Visiting Scholar at the Interfaculty Initiative in Information Studies, University of Tokyo. Dr. Ernkvist holds a PhD in Economic History from the University of Gothenburg. His research is concerned with entrepreneurship, development and innovation strategies in creative industries. Acknowledgement. The findings, interpretations and conclusions expressed herein are entirely those of the author. This research was pursued by the author as a visiting scholar under a JSPS Postdoctoral Fellowship for Foreign Researchers at the University of Tokyo, Baba Game Lab. I would like to thank Professor Akira Baba, Professor Masahito Fujihara, Zeng Qi, Sumika Ito and the other members of the lab for their help and support during this project.    
  3. 3.     3   Introduction     This is a report of some of the results from a survey conducted in aim to gain more knowledge of management and innovation strategies of Japanese video game developers. The descriptive statistical results give quantitative indication of characterizing features of video game development, some of which confirms issues that previously has been expressed by individual game CEO’s in public remarks, some which might provide new knowledge. As often is the case in statistical surveys, it describes the quantity and amount of phenomena, rather than the underlying why and how. To account for this would have required a large number of additional interviews, something that have not within the scope of this project. The survey was sent out during the summer of 2011 to the CEO’s of all Japanese video game developers with at least 3 years of business experience. I would like to express my gratitude towards all the CEO’s that have shared their time and knowledge for the survey report. This survey report would not have been possible without their kind help. As in all survey results, the extent to which we can produce reliable results and the opportunity to test more complex hypothesis is dependent on the cooperativeness of respondents. The survey and this report has been part of a JSPS Postdoctoral Research Project for foreign researchers. I am grateful for the valuable help and assistance in various part of the project from Professor Akira Baba, Professor Masahito Fujihara, Zeng Qi and Sumika Ito. The kind cooperation from the survey pilot test companies and industry experts is also acknowledged. Despite effort of proofreading and checking the results, there is no guarantee that there might be errors of factual or judgmental nature in the report. I personally hold the responsibility for any potential mistakes or factual inaccuracies in this report. Mirko Ernkvist      
  4. 4.     4   Survey  Design     Reference  literature  on  survey  design   Established research indicates that business surveys to executives and upper management at firms are some of the most challenging for academic researchers to pursue in terms of achieving a high response rate (Bartholomew & Smith, 2006; Baruch & Holtom, 2008; Cycota & Harrison, 2002, 2006). Among the factors contribute to this challenge is the limited time that CEO’s has to their disposal, the lack of an established social network between researchers and the respondents, the challenges to motivate CEO survey participation and the layers of hierarchy in the organization that makes it difficult to reach to the CEO. In an effort to get a higher response rate, the current survey has followed principles from the “Tailored Design Method” (Dillman, Smyth & Christian, 2009), involving specific principles when crafting the survey question, the survey design, layout and implementation. In accordance to the method, a five-step survey method was used consisting of (1) pre approach letter, followed by the (2) survey letter, (3) first reminder notice, (4) second reminder and (5) final contact through either phone or email (Table  1). These steps in the survey took place during the period June-August, 2011. Table  1: Steps in the survey process Survey steps and time plan for distribution Distribution method for each company Time of distribution 1.PAL (Pre Approach Letter) Mail with letter 4th week of June 2011 2. Cover Letter with survey attached (2 weeks after step 1) Mail with cover letter, survey form and prepaid response envelope. 1st week of July 2011 3. First reminder: Thank you letter, no survey attached (2 weeks after step 2) Mail with letter 2nd week of July 2011 4. Second reminder: letter, with survey attached (2 weeks after step 3) Mail with letter 1st week of August 2011 5. Final contact though phone or email (using a different mode of communication). Email (with attached survey) or reminder phone call 2nd-4th week of August 2011 Respondents   The survey was addressed specifically to the CEO’s of Japanese video game developers, using a database of Japanese game developers developed for another research project as a starting point (Fujihara, 2010). The database was developed and updated though information from each companies Internet homepage to incorporate additional variables (including CEO name, game platforms active
  5. 5.     5   on as developer, company founding year). This allowed the survey to specifically address Japanese video game developers (companies active in development with packaged games on handheld and/or console platforms). The survey questionnaire was pilot tested with game industry CEO’s and industry experts, leading to some alterations of design, questions and wording. Survey  sample   Due to the surveys focus on business activities during the last 3 FY, video game developers that had been established 2009 or later were not included in the survey. A few companies that recently had gone out of business or otherwise erroneously included in the database were also secluded from the survey process. The survey was distributed to a final set of 289 Japanese video game developers. Only companies engaged in video game development were included in the survey. This excluded company that only were engaged in other types of the broader category of “digital game” industry (arcade games, PC games, mobile games). Response  rate     74 CEO’s responded to the survey, representing a response rate of 25.6%. The response rate was relatively high in comparison to other CEO surveys (Bartholomew & Smith, 2006; Baruch & Holtom, 2008; Cycota & Harrison, 2002, 2006). Some items in the survey received lower response rate, presumably due to perceived confidentiality reasons from responding companies. Items  surveyed   The choices of question and the distribution of topics in the survey were made with references to the respondents (CEO’s) and the planned dissemination of the research results. The areas of coverage are summarized in Figure 1 and a more detailed list of items is described in Appendix  1.      
  6. 6.     6   Figure  1  Survey  areas  of  coverage     Survey  areas  of   coverage   CEO   Background  &   demography   Firm   Background  &   demography   Game  development   &  innovation   strategies   Technology  usage   Information   sources  &  market   feedback     Financial   performance  
  7. 7.     7     Aim  of  the  survey  report   The report mainly provides descriptive findings of the survey. There are a number of annual reports with quantitative data of the game market in Japan that is published annually, e.g. by CESA, Media Create and Enterbrain. However, the information regarding the supply side in the form of game developers is more limited. In particular, there is a lack of data regarding the large number of medium sized and small video game developers in the Japanese video game development ecosystem. Previous academic research surveys of Japanese game developers include a study of HRM (Human Resource Management) (Fujihara, 2010) and game companies in-house versus outsourced development strategies (Shintaku, Tanaka, and Yanagawa, 2003). To the author’s knowledge, this is the first industry wide survey to CEO’s of Japanese game developers. The aim of the report is to provide descriptive results of the current status of Japanese video game developers in the following areas: • Technology usage in development • Knowledge sources for game development • Application of user feedback methods in game development • Financial performance of game developers • Game development strategies • Business relationships with publishers • CEO demography & background Structure  of  the  report   The areas listed above are analyzed in their own separate chapter of the report. The chapters begin with a “Background” section, briefly presenting the research area in its larger frame, with reference to some selected references (if applicable). This is followed by a “Result” section, in which the survey results are presented and analyzed. Interpretation  of  the  results   There are many sources of error and biases, some of which are applicable to survey research in general and some which are specific to CEO surveys. Detailed discussions of all of these are not
  8. 8.     8   within the scope of this report. However, below is a description of some of the more important sources of error and bases, including the research design strategies applied to account for them. Representativeness   Due to the comparatively low response-rate of most CEO surveys, they are often prone to problems regarding how representable the responding sample is to the general population (in this case the video game development industry). As discussed, the survey has tried to limit this problem by adopting various strategies to increase the response rate. Nevertheless, the issue of representativeness remains one of the major sources of potential bias and error when interpreting and generalizing results from this report. Terminology  and  interpretation  error     Diverging interpretation or misunderstanding of the surveys terminology provides a potential source of error and bias. Some terms in the video game industry do not have a coherent definition. The survey has tried to handle this issue by several strategies. For example, efforts have been made to: • Identify ambiguous terms in the design and pilot-test of the survey. • Use survey terms that are close to the terms commonly used in the industry (rather than terms which might be more commonly used in an academia). • Write out definition of terms and in some cases examples in connection to the questions. • Define the key term “video game” clearly at the start of the survey.1 • Remove survey responses apparently based on erroneous understanding of the questions from the survey results. Memory  recall  error,  sensitive  information,  cognitive  complexity   Certain types of survey question are more prone than other for memory recall errors, biases due to question being perceived as sensitive information or errors due to questions that are too cognitively complex/demanding. In terms of memory recall errors, the questions have been limited to the last 3FY. The survey has tried to avoid or reformulate question of such nature that prone to memory recall errors in the questionnaire design. In terms of sensitive information, some questionnaire items are likely to have received lower response rate as a result of the, being perceived as confidential or sensitive to reveal. This has e.g.                                                                                                                 1 Although efforts have been made to define the term video game, a few responded have included downloadable games
  9. 9.     9   likely been the case for the questions related to company financial performance, game titles developed and some items of development strategy. Due to the lower response ratio of these questions, they should be interpreted more cautiously. In an effort to try to account for the low response rate of financial items, the report has collected complementary data from two external corporate financial databases. In terms of cognitive complexity/demands, respondent could have regarded some questionnaire items as too cognitively demanding or complex to give an exact or correct response. The survey has tried to limit this problem through the feedback during the design and pilot test of the survey. However, it is notable that some questions might be more cognitively demanding than other, especially fore larger firms with large-scale operations and development activities.
  10. 10.     10   Financial  performance     Background   The current survey has taken place in a context characterized by challenging economic environments for Japanese video game developers, both at the supply and demand. At the demand side, shipments to both the domestic and international market have been declining in recent years (Figure  2). At the supply side, production economics has been challenging with increasing development costs of game software (CESA, 1998-2011). In addition to these industry factors, Japanese video game companies also had to cope with the general macroeconomic challenges that have faced the Japan during this time.2 It has been a lack of data regarding how the larger ecosystem of Japanese video game developers have been able to handle the challenges the industry has faced in terms of financial performance.3 The current report had the aim to measure the financial performance of the ecosystem of Japanese video game developers.   Figure  2  Japanese  video  game  market,  1996-­‐2010     Source:  CESA  Games  White  Paper  (1997-­‐2011)                                                                                                                     2 E.g. factors such as the strengthening of the Japanese yen, the unfavorable demographic development in Japan and the challenging development of domestic consumption. 3 While financial performance data regarding the larger publicly listed video game companies’ financial performance is readily available, the situation for medium-sized and smaller video game developers is less well-known (besides opinions expressed by individual developers). 0   100000   200000   300000   400000   500000   600000   700000   800000   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006   2007   2008   2009   2010   Million  Yen   Domestic  Japanese   market  shipments   Total  international   exports   Exports  to  North   America  (US   +Canada)   Exports  to  Europe  
  11. 11.     11   Results  of  financial  performance  from  TSR  and  Teikoku  Databank   The databases used to collect financial performance data for Japanese video game developers have been two corporate financial databases: TSR (Tokyo Shoko Research) and Teikoku Databank. By combining these two corporate databases to the dataset of video game developers, it has been possible to report the financial performance data from slightly more than half of the companies from the database of Japanese video game developers (n=289) (Table  2). This alternative was preferred over reporting data collected in the survey form as it was able to cover a larger sample of Japanese game companies and limited the potential errors and biases from self-reported financial performance data. 4 The financial data reported from the database are profit margin (profit/revenues) of the companies. When interpreting the data, it should be noted that this measure include the profit margin for the entire company in question which might also include other business activities than video game development. Data was collected for the two latest years in order to also be able to provide the data for a two-year period. This measure of financial performance could provide a more comprehensive account of financial performance, taking into account the fluctuation in revenues and profits that could take place over the lifecycle of video game platforms.5   Table  2:    Financial  performance  for  Japanese  video  game  developers  as  reported  in  Teikoku  Databank  and  TSR   Last reported company FY Second last reported company FY Last 2 reported company FY Mean Profit Margin (%) -2.59 -4.68 -1.82 Median Profit Margin (%) 0.86 1.22 0.90 Percentage of companies with positive profit margin (profit margin >0%) 54.8 56.2 54.7 N (Share of companies in the databank which provided data though Teikoku Databank or TSR) 157 (55.0%) 169 (58.5%) 150 (51.9%)                                                                                                                   4 The survey also collected financial performance data by asking companies to report the sales and operating income during the last 3 FY in order to analyze return of sales (ROS; operational income/revenues). However, response ratio for these financial items was relatively low. It has also been noted in the research literature that CEO self-reporting of financial performance data has some challenges in terms of reliability. Accordingly, this raise question regarding the reliability and how representable the financial performance data reported from the survey was. Based on this, it was decided to only report the financial data collected from the TSR and Teikoku Databank in this report. 5 Within this context, the financial performance reported concerns a time period in the middle/later stages of the lifecycle of the current video game platform generation. This is likely to be the more profitable period, as the period during platform generation shifts involves high R&D costs.
  12. 12.     12   The result confirms the picture of a relatively challenging business climate for Japanese video game developers.6 The mean profit margin for the studied sample of companies was negative, both for the most recent reported company fiscal year (-2.59%) and the second most recently reported company fiscal year (-4.68%). Median profit margin was slightly positive (0.86% and 1.22% respectively). Furthermore, almost half of the companies do not pass break-even in terms of profit margin. During the most recent reported company FY, 54.8% of the companies reported a positive profit margin (>0%). During the second most recently reported company FY, 56.2% of the companies reported a positive profit margin.                                                                                                                     6 The sample has certain bias in terms of company size. The Japanese video game developers that it has not been possible to collect financial data from are predominantly smaller video game developers. Hence, the data could be interpreted as more representative for medium size and larger video game developers in Japan.
  13. 13.     13   External  knowledge  sources  in  video  game  development     Background:  Knowledge  sources  and  video  game  development   Each industry relies on its own specific external knowledge base for product development. This points towards the recent emphasis within the field of economic geography of examining the different knowledge bases of different industry contexts (Asheim, Coenen, and Vang, 2007). As an industry both high on creative elements as well as technology, the video game industry could best be described as an industry in the intersection between a creative- and a technology-intensive engineering knowledge-base. Accordingly, we could expect the video game industry to be oriented towards the general features of both the “symbolic” knowledge base that characterizes many creative industries and the “synthetic” knowledge base that characterize the technology-base of engineering/technology based industries (Table 3). By comparison, the analytical knowledge-base that are highly reliant on scientific knowledge and are not expected to be especially characterizing for the game industry.   -­‐ Table 3: Categorization of analytical, synthetic and symbolic knowledge bases Analytical knowledge base Synthetic knowledge base Symbolic knowledge base Important type of knowledge Importance of scientific knowledge often based on deductive process and formal models. Importance of applied, problem-related, knowledge (engineering), often though inductive processes. Importance of reusing or challenging existing conventions. Knowledge learning process Research collaboration between firm (R&D department) and research organizations. Interactive learning with clients and supplier. Learning though interaction in the professional community, learning from youth/street culture or ‘fine’ culture, and interaction with ‘border’ professional communities. Proposed importance for video game development Low High High Source: Asheim, Coenen, and Vang, 2007:661   The symbolic knowledge-base of creative industries have been characterized as highly dependent on learning-by-doing with face-to-face interaction as essential component, a deep understanding of specific user groups, highly tacit knowledge, and a reliance on local “buzz”(Asheim, Coenen, and Vang, 2007). Synthetic knowledge bases, often characterizing of engineering based industries, have been characterized by applied knowledge and learning though interaction with clients and suppliers (Ibid).
  14. 14.     14   Previous research has outlined the knowledge base of other industries (e.g. Martin & Moodysson, 2011), but we have little quantitative evidence pointing towards the characterizing knowledge base involved in video game development. Based on this theoretical framework, the survey aimed to map which sources of knowledge that were perceived as important for video game development in Japan. Results   To gain an estimate of the perceived role of different sources of knowledge in Japanese video game development, the survey asked game developer CEO’s to rate the importance of different sources of knowledge for their game development efforts during the last 3 FY. The 10 categories of knowledge sources were similar to those used in a recent Japanese national innovation survey (NISTEP, 2010), with some minor alteration to better fit the context of the video game industry. Each knowledge source was rated on a scale: “not a source”, “not an important source”, “moderately important source” or “very important source”. The results are presented in Table 4. There are no established ways in the literature of how industry survey ratings of knowledge sources should be interpreted. However, we suggest a basic classification of “critical” and “general” knowledge sources as follows. A critical knowledge source could be interpreted as those that are rated as a “very important” for a majority of the firms in an industry. A general knowledge source could be interpreted as those that are rated as “very important” or “moderately important” for a majority of the firms in an industry. Based on this definition, “users” falls under the category of critical knowledge source with a majority (61.5%) of responding CEO’s regarding it as a very important source. The broader category of general knowledge source included users (87.7%), competitors (75%) suppliers (73.2%), professional magazines (65.7%) and exhibition/fairs (57.6%). It is notable that the least important knowledge sources on the list were those 3 related to research and education. A large majority of the firms rated private research institutes/consulting firms (92%), Universities/Higher education institutes (85.8%) and Public institutes (84.1%) as either “not a source” or “not an important source” of knowledge for video game development.  
  15. 15.     15   Table 4: Perceived importance of different sources of knowledge for video game development during the last 3 FY Not a source (%) Not an importa nt source (%) Moderatel y important source (%) Very importan t source (%) N (Number responding CEO’s) Mean (0=, Not a soruce, 3- Very important source) Std. Deviation Suppliers 12.5 14.3 35.7 37.5 56 1.98 1.02 Users 6.2 6.2 26.2 61.5 65 2.43 0.87 Competitors 3.1 21.9 48.4 26.6 64 1.98 0.79 Private research institutes/consulting firms 44.4 47.6 4.8 3.2 63 0.67 0.72 Universities/Higher education institutes 42.9 42.9 11.1 3.2 63 0.74 0.78 Public institutes 44.4 39.7 11.1 4.8 63 0.76 0.84 Academic conferences/Association of technology 28.1 31.3 28.1 12.5 64 1.25 1.01 Professional magazines 10.9 23.4 43.8 21.9 64 1.76 0.92 Exhibitions, Fairs 10.6 31.8 42.4 15.2 66 1.62 0.87 Patents from other companies 19.4 35.5 35.5 9.7 62 1.35 0.91   When the results are interpreted in relation to the theoretical discussion of knowledge-bases, they imply that the video games industry is an industry with significant elements of symbolic and synthetic knowledge bases. The later is evident by the perceived general role of learning both though suppliers in game development and the former by the critical importance of interaction with users and the general role of professional community of other firms (competitors). The result also implies that the Japanese video game industry is less depending on analytical knowledge-bases, as evident by the small perceived importance of learning through collaboration with research organizations and institutes.      
  16. 16.     16   The  role  of  users  in  video  game  development   Background:  Users  and  video  game  development   The nature of symbolic knowledge and the uncertainty regarding the market acceptance of creative products means that firms are involved in an design process in co-development process with users where certain user groups act as lead-users in an on-going design dialogue (von Hippel, 1986; Morrison, Roberts, Midgley 2004; Grabher, Ibert and Flohr, 2008). Accordingly, users have been described as having a key role in product development for creative industries. In the game industry, some previous qualitative case studies have analyzed how individual game companies have used different methods if user feedback in their development (e.g. Jeppesen, 2002; Pagulayan, 2003; Sotamaa, 2009; Zackariasson, Styhre and Wilson, 2006,). These studies have also noted some of the major challenges involved in collecting, interpreting and implementing different forms of user-feedback in game development. In recent years, user-feedback methods have received renewed attention. In particular, several studies of the use of focus-group tests and test-lab have been reported in trade magazines (Dobson, 2011; Greenwood-Ericksen 2010; Viggers, 2011). While no comparative data exist, accounts from game developers imply that the use of more formal user-centered methods such as focus group tests still is more common practice among game companies in the US than in Japan (Author’s interview). Hence, there is a lack of statistical data regarding the current status of user-feedback practices in the Japanese video game industry. The current report aimed to address this by surveying the usage of feedback-methods among Japanese developers. Results   To gain an estimate the application of user feedback methods in Japanese video game development, the survey analyzed how often and when different forms of user feedback were used in game development. A total of 8 categories of user feedback methods were included in the questionnaire. The categories were chosen based on a list of existing user feedback methods in the industry that were derived after secondary literature, expert interview and the survey pilot test. A category of “other” that could be specified were also be included. This other category did not generate any additional user feedback method from responding companies, indicating that the chosen list sufficiently covered significant user-feedback categories. The results are presented in Table 5. The top 3 most common form of user centered feedback methods was playtesting with the company’s own employees (80%), followed by playtesting with company external users (66.7%) and informal field studies of users (44.6%). Some of the more
  17. 17.     17   formal ways of analyzing user feedback were used by relatively few developers, with 21.5% having experience of focus group test and 27.7% of user surveys. In terms of video game development process, different forms of user feedback methods are focused on different stages of the development process. In this sense they might complement each other. For example, user surveys are more used to gain knowledge during the early concept/prototyping phase, while playtesting with users and informal field studies of user are more common in the late beta phase of game development.   Table 5: Experience with different forms of user feedback in video game development during the last 3 FY Experience of the method (any stage of development) (%) Experience of the method during concept/pro totyping phase (%) Experience of the method during Alpha phase (%) Experience of the method during Beta phase (%) n Playtesting with users (excl. company employees) 66.2 16.9 24.6 46.2 65 Playtesting with company employees 80 46.2 61.5 67.7 65 Focus group test 21.5 4.6 13.8 10.8 65 User interviews 21.5 9.2 9.2 7.7 65 User surveys 27.7 18.5 3.1 10.8 65 Internet forum feedback analysis 26.2 15.4 0 10.8 65 Media feedback 27.7 6.2 4.6 18.5 65 Informal field studies of users (e.g. during game shows, company events) 44.6 1.5 10.8 36.9 65   The mean number of user feedback methods used based on the surveys classification was 3.2 with 1 the most common answer (mode) reported by 20% of responding companies (Table 6). Around half of responding companies (53.8%) had experience of 1-3 feedback methods.  
  18. 18.     18   Table 6: Number of user feedback methods used in video game development during the last 3FY Number of user feedback methods used during the last 3 FY of video game development Responding companies (n) Percentage of responding companies 0 5 7.7 1 13 20.0 2 11 16.9 3 11 16.9 4 7 10.8 5 9 13.8 6 3 4.6 7 2 3.1 8 4 6.2 N=65 Game  development  tool  usage   Background:  The  use  of  game  engines  and  SCM  programs  in  game  development   The increasing complexity of video game developments had given rise to a range of support industries developing middle ware. This includes e.g. companies making graphic engines, physic engines, AI engines and version control tools.   While the larger game publishers in Japan have extensive resources to develop their own game development tools (e.g. Capcom’s MT Framework), the situation is markedly different for smaller and medium sized developers that have more limited financial- and R&D resources. As one of the challenges facing the Japanese game development industry, individual developers have expressed the perception that Japanese game development in general has not been able to advance its technology to the same degree as U.S. game developers in recent years (e.g. Sheffield, 2007; Tabuchi, 2010). It has further been argued that Japanese game developers have been reluctant to adapt and invest in the usage of game development tools such as game engines, physics engine, AI engines and Software Configuration Management programs (e.g. Burns, 2010; Carless, 2008; Parish & Mielke, 2008). However, despite these individual accounts there has been a lack of statistical data regarding the usage of middle-ware and development tools among Japanese video game developers. In order to investigate this, the survey asked video game developers about the usage and source of game development tools. Results   CEO’s were asked about their experience of 4 game development tools. They were selected for inclusion in the questionnaire as they have increased in importance during the last decade as game
  19. 19.     19   development has become more complex. Each game development tool also has a number of external suppliers, providing companies with the additional option to develop them internally or license them from external parties. To investigate the usage of each strategy, the questionnaire asked the developers if the game development tools they used were developed internally and/or licensed from external parties. The results are presented in Table  7. In the survey, 57.8% of the developers reported having used game engines in video game development during the last 3 FY. This was followed by physics engines (40.6%), Software Configuration Management (SCM) Programs (37.5%) and AI engines (35.9%). Developers were also asked about the sources of these development tools, i.e. if they were internally and/or externally developed. The results varied considerably between different type of development tools. While a majority of developers with experiences from game engines and AI engines reported having developed them internally, the distribution between internally and external sources were rather equal for physic engine and SCM programs (Table 4). Although there are no directly comparable data from western game developers, some data indicates that the usage of game development tools is comparatively low in Japan. 7   Table  7:  Experience  of  using  game  development  tools  during  the  last  3  FY   Experience using it Experience of using it, developed internally Experience of using it, developed externally n Game engine 57.8 43.8 18.8 64 Physics engine 40.6 21.9 21.9 64 AI engine 35.9 25 12.5 64 SCM program 37.5 18.8 21.9 64                                                                                                                 7 A recent survey from Game Engine Survey from Game Developer Magazine indicated that 58.7% of PC and video game developers had been using a licensed (externally developed) game engine for their current development project (DeLoura, 2011). This is significantly higher than the most related result from the current survey results in which 18.8% reported experience of using externally developed game engines during the last 3 FY. The differences are even higher considering the fact that the Game Developer Magazine survey only asked about the current development project and not the experience of all development projects during the last 3 FY. However, several differences between both surveys (survey mode, potential response biases, question wording etc.) make a direct comparison of results difficult. Nevertheless, this might indicate that experience of using externally developed game engine technology is higher among Western developers. These potential differences and their cause might be a topic that could be of interest for future studies.
  20. 20.     20   Video  game  developers  as  outsourcing  service  suppliers  and  providers   Background   The increasing complexity of the game development value chain and the increasing development costs of games have provided incentives for outsourcing activity in the industry. To get a better estimate of the current status of outsourcing activity in the industry, the survey measured the extent and focus of outsourcing activity. Questions were divided into supply and provider activity in order to measure both (1) how developers are working as partners providing services as outsourcing suppliers and (2) how developers are outsourcing activities to external companies during their own game development efforts. Results:  Companies  as  outsourcing  service  partners   The results confirm that many Japanese game developers also work as outsourcing partners in addition to their game development efforts (Table   8Table   9). According to the survey, 63.5% of responding video game developers had worked as outsourcing partner for other companies’ video game projects during the last 3 FY. The survey also asked which specific part of game development that respondents had worked on as outsourcing service partner (Table   9). Looking more closely at specific parts, the top 3 most common was: Animation/CGI (59.2%), Programming (53.2%) and Art (40.4%).   Table  8:  Developers  as  outsourcing  service  suppliers   Worked as outsourcing partner for video game projects during last 3 FY (%) n 63.5 63   Table  9:  Specific  part  of  video  game  projects  developers  worked  on  as  outsourcing  supplier  for       Percentage worked as outsourcing supplier during last 3FY n Art 40.4 47 Programming 53.2 47 Story 21.7 47 QA/game testing 14.9 47 Animation/CGI 59.2 47 Planning/Design 34.8 47 Music/Sound 26.1 47    
  21. 21.     21   Results:  Outsourcing  service  provider   The results confirm that a large majority of Japanese game developers had outsourced parts of their game development efforts (Table  9). In the survey, 78.7% of responding video game developers had outsourced some parts of the video games they developed during the last 3 FY. The survey also asked which specific part of their game development that respondents had outsourced (Table   11). Looking more closely at specific parts, the top 3 most common was: Animation/CGI (64.7%), Programming (58%) and Art (47.1%).   Table  10:  Developers  as  outsourcing  service  providers   Outsourced parts of video game titles during last 3 FY (%) n 78.7 61     Table  11:  Specific  part  of  video  game  projects  developers  outsourced   Specific part of video game company outsourced during last 3FY Percentage of companies that outsourced part n Art 47.1 51 Programming 58 50 Story 34.7 49 QA/game testing 44 50 Animation/CGI 64.7 51 Planning/Design 20.4 49 Music/Sound 72 50
  22. 22.     22   Business  ties  with  publishers   Background   Japanese business practice is often characterized by sticky business ties, although the structure of business networks have changed during the last decade (Lincoln & Gerlach, 2004). Within the Japanese video game industry, a previous study has analyzed the business network between game publishers and video game platform holders (Inoue and Nagayama, 2011). However, there is limited quantitative data of business ties between video game developers and publishers in Japan. To account for this, the survey asked developers to report the strength and length of business ties they had with game publishers during the last 3 FY. Results   Respondent companies (n=70) had business relationships with a mean of 4 publishers during the last 3 FY (Table  12). The most commonly occurring number of publisher relationships (mode) were 3 (18.6% of responding companies). The result confirms that the number of publisher ties among individual developers is relatively low. Around half of the developers (47.2%) had worked with 1-3 publishers during the last 3 FY (Table  13).   Table  12:  Number  of  developer  ties  with  publishers   Mean 4.04 Mode 3 Standard Deviation 4.20 N 70   Table  13  Frequency  of  number  of  developer  ties  with  publishers   Number of publisher relationships during the last 3 FY Responding companies (n) Percentage of responding companies 0 6 8.6 1 11 15.7 2 9 12.9 3 13 18.6 4 7 10.0 5 7 10.0 6 7 10.0 7 4 5.7 8 1 1.4 10 3 4.3 14 1 1.4 30 1 1.4 N=70  
  23. 23.     23   In order to study the length of develop ties with publishers, the survey asked companies to rate the length of the ties with the publishers they had business relationships with during the last 3FY. The survey contained 3 categories: 0-3 years, 4-6 years and >6 years. Of the total number of publisher relationships reported, 49.1% had lasted 0-3 years, 26.7% had lasted 4-6 years and 24.2% had lasted >6 years (Table  14).   Table  14:  Length  of  publisher  relationships  (that  the  companies  had  during  last  3  FY).   Publisher relationship been lasting 0-3 years Publisher relationship been lasting 4-6 years Publisher relationship been lasting >6 years Percentage of companies 49.1 26.7 24.2 Number of relationships 138 75 68 N=64            
  24. 24.     24   Game  development  and  innovation  strategy   Anticipated  and  actual  game  development  time   Background   Game development is a complex endeavor, shaped by several sources of uncertainty. Development time seems inherently challenging to predict accurately. Some of the suggested sources of these challenges include such factors such as underdeveloped planning and development methodology among developers, unrealistic expectations about development time from publishers and the inherent uncertain and unpredictable nature of game development itself. A meta-analysis of Game Developer Magazine post-mortems of game development projects (published Feburary 2008-January 2010, n=24), found that a large number of development projects reported an extension of the game development time to finish the project (38%) and/or crunch-time (38%) (Shirinian, 2011).8 Results   The survey asked respondent CEO’s about their experience of extended game development time. In order to provide a quantifiable and coherent way to measure this, CEO’s were asked how many of their game development projects during the last 3FY that had taken longer time than anticipated at the original design document.9 Because it is likely that some games did not have a specific development time at the design document, a third alternative was also included: “no anticipated development time in the original design document”. The results are presented in     Table  15. Based on the survey answers, 50.7% of games were responded to have been developed on time, 43.9% took longer than anticipated at the start of the alpha phase and 5.4% of video games had no anticipated development time in the design document at the start of alpha phase. The result confirms that it is common with game development projects that take longer time than anticipated at the start of game development. The present survey has not investigated the main underlying causes for these delays, something that might be of interest for further studies.     Table  15:  Anticipated  and  actual  video  game  development  time                                                                                                                 8 The results should be interpreted cautiously as meta-studies of self-reported postmortem include several sources of uncertainty, including differences in definition of the terms, differences in the degree of self-reporting the issues, different positions of respondents etc. 9 Other existing strategies to handle time-constraint challenges (crunch-time, feature cuts etc.) were secluded from the survey because they were perceived as challenging to define and measure accurately in a coherent way.
  25. 25.     25   Video games developed on time (last 3 FY) Video games taking longer than anticipated at the start of alpha phase Video games with no anticipated development time in design document Percentage of games developed 50.7 43.9 5.4 Number of video games 308 267 33 Mean 4.97 4.31 0.53 Standard Deviation 6.27 6.34 2.30 N=62   In order to get some rough sense of the length of additional development time, respondents were asked to rate the number of games that were 0-6 months and >6 moths over time. Based on the responses, 93.9% of the games were within 0-6 months over time and 6.1% >6 moths over time.10 Hence, among those games that take longer than anticipated, most of them is finished within less than half a year delay compared to the plan at the start of alpha phase.   Abandoned  game  development  projects   Background   It has been well known that creative industries often are characterized by a significant overproduction. A large number of projects are discontinued during the various stages of development before they reach the market and only a limited number of the products that reach the market become unprofitable (Caves, 2000; Hirsh, 1972). As the sunk-cost often increase rapidly in each subsequent stage of production, one of the key challenge for managers in these industries is to try to improve ability to predict which concept that become market success as early as possible (De Vany, 2003; Caves, 2000). There are little data regarding the degree to which video games are abandoned in different stages before they reach the market.11     Results   In order to study the extent to which games were abandoned during the development, CEO’s were asked how many games they had abandoned during the three stages of production: prototype-, alpha- and beta phase. The results are presented in Table  16.                                                                                                                 10 The number of responding games companies were slightly lower for this item, 60 companies (reporting 229 games that were delayed). 11 According to one guesstimate from a book author, “only 20% of games that begin production will ever finish” (cited in Chalk, 2008). However, it is likely that these guesstimates are erroneously overestimating the number of abandoned games.
  26. 26.     26   According to the result, 11.4%of the total number of video game projects (abandoned and released) during the last 3FY was abandoned.12 The number of abandoned projects appears relatively low, but the survey results should be interpreted carefully as there is a risk of underreporting of sensitive self- reported data. Looking more specifically at the different phases of development, games are most often abandoned during the earlier phases with the prototype phase representing 46.4% of abandoned game projects, alpha phase 37.7% and beta phase 15.9%.   Table  16:  Abandoned  games  development  projects   Video games abandoned in prototype phase (last 3 FY) Video games abandoned in alpha phase (last 3 FY) Video games abandoned in beta phase Percentage of abandoned projects last 3 FY 46.4 37.7 15.9 Percentage of total video game projects during the last 3 FY (abandoned and published, n=604) 5.3 4.3 1.8 Number of video games 32 26 11 Mean 0.53 0.43 0.18 Standard Deviation 0.99 0.89 0.47 N=60 Self-­‐published  games   Background   The choice between self-publishing games and using an external publisher could be a complex one for developers involving a number of economic as well as creative factor. During one of the interviews preceding the survey, one game companies expressed the opinion that the choice was depending on the nature of the planned game: the company tended to self-publish game concepts that was “out-of-the-box” concepts posing difficulties for publisher to analyze their potential (Author’s interview). The current surveyed asked the companies how common each strategy is. Results   According to the results, 60.6% of the games reported to have been released during the last 3 FY by companies in the survey were self-published (Table   17). In terms of each mode, responding companies tended to use either strategy for all their games (i.e. either mostly self-published or using an external publisher), with relatively few companies choosing a middle ground.                                                                                                                   12 The number for “total number of video game projects” do not include games abandoned in earlier concept phase or game projects that still are in development but not have reached the market.
  27. 27.     27   Table  17  Share  of  self-­‐published  games   Published by external game publisher Self Published Share of video games developed 39.4 60.6 Total number of games reported 168 258 Mean 2.95 4.53 Std. Deviation 5.05 10.8 N=57   IP-­‐ownership  in  game  development   Background   IP-ownership is often an area of controversy and negotiations between publishers and developers (see e.g. Orland, 2011). While ownership and creative control of game IP often is expressed as a preference and goal for many developers, publishers often have a strong interest in IP ownership due to economic reasons and for control over future sequels. Results   The survey asked responding CEO’s about the IP-ownership of the games they had released during the last 3 FY in order to get a better estimate of how it was distributed between game developers and publishers. Although more complex forms of IP ownership sometimes are used in the game industry (e.g. co-ownership or multiple party ownership), the survey only asked about publisher or developer owned IP for the sake of simplification and clarity. The data answer was cleaned and 3 responding companies that had misinterpreted the survey question were secluded from analysis.13 The results are presented in Table   18. Of the total number of games developed by responding companies, there were roughly an equal number of game IP owned by external publishers (51.9%) compared to those of the respondent developers (48.1%). The result confirms the view that IP- ownership owned by the publisher still is the dominating form of video game development in the industry. Looking at the distribution of game developers in terms of IP ownership, there is a large variation among developers with a tendency of them to be specialized on either side of the spectrum. A large number of developers were reporting that all of their games have publisher owned IP and a smaller group of the developers at the other end of the scale that reports that ≥75% of their developed games have self owned publisher.                                                                                                                 13 These companies had misinterpreted reporting as involving downloadable video game as well (not only packaged video games). The results should be interpreted carefully, as it is possible that other companies that has not been identified also have included the reporting of downloadable games in their reporting.
  28. 28.     28   Taking all respondent companies into consideration, then around half of the developers (49.2%) did report that all of their game IP were self owned, while slightly more than a quarter (27.1%) of the developer reported that ≥75% of their games had self-owned IP and 11.9% reporting that all of their games developed had self owned IP. The above sample also includes small and relatively new companies that just have developed a few games during the last 3FY. The distribution is slightly different if we only include the responses from companies that have developed ≥5 games during the last 3FY from the survey sample (n=36). 41.7% of these companies reported that all their games were self owned, with 27.8% of the companies reporting that ≥75% of their games had self-owned IP and 5.6% reporting that all their games developed had self-owned IP. The results confirms the view that there is a relatively small group of developers that predominantly pursue a strategy of self-owned IP and a large group that only have been pursued development of publisher owned IP.   Table  18:  Developer  owned  and  publisher  owned  IP  of  games  developed  during  the  last  3  FY   Developer owned IP External Publisher Owned IP Share of video games developed 48.1 51.9 Total number of games reported 293 272 Mean 4.73 4.39 Std. Deviation 5.239 9.481 N=59
  29. 29.     29   CEO  background  and  demography     Background   The survey asked respondent to provide information regarding a variety of demographic variables. The descriptive results for these survey items are provided below. CEO  Age,  tenure,  company-­‐  and  industry  working  experience   The average CEO in our sample were 47.4 year, having worked 10.7 years as CEO in the current company, 12.9 years in the company and 20.1 years in the industry. Of the responding CEO’s, 80.3% (n=71) reported that they also were the founder of their companies, with the remaining 19.7% being appointed CEO’s.   Table  19  CEO  Age,    tenure,  company-­‐  and  industry  working  experience   Mean (years) Std Deviation N CEO Age 47.4 8.1 72 CEO Tenure 10.7 7.7 71 CEO years working at current company 12.9 8.2 72 CEO years working in the game industry 20.1 6.8 71   CEO  educational  experience   Responding CEO’s were asked about the highest level of education they had attained based on 8 categories of education (lowest to highest). The results are presented in Table  20. A majority of the CEO’s had a university degree, with the most common educational level being bachelor degree (55.7%).   Table  20  CEO  Highest  level  of  education  attained   Share of CEO’s (%) 1.高等学校 [high school, did not graduate]. 0 2.高等学校卒業 [high school, graduated] 20.0 3. 高等専門学校卒業 [college of technology] 1.4 4.専修学校専門課程卒業 [vocational school] 11.4 5.短期大学卒業 [junior college] 2.9 6.学部卒業(学士)[university bachelor degree,] 55.7 7.大学院修了(修士)[university master degree] 8.6 8.大学院修了(博士)[university doctoral degree] 0 N=70
  30. 30.     30     CEO  main  fields  of  experience   To measure background experience, we asked CEO to report up to 3 areas in which they had gained most experience during their career. The choice of the 8 areas included in the survey was intended to give an extensive coverage of areas of experience. The list was derived though prior studies of CEO surveys, qualitative analysis of a selection of video game CEO career backgrounds and pilot test with industry experts.14 The results are presented in Table   21. The top 3 most common areas of experience were in production (63.4%), design & story (43.7%) and creative direction (40.8%). This provide a support for the notion that a large share of video game developer CEO’s have a background of experience in areas that is related to the management of the creative processes and project. A smaller number of CEO’s had experience of areas related to business, i.e. marketing & sales (35.2%) and financial & administrative services (18.3%). Human resources (8.5%) and Animation (0%) do not appear to be areas that many CEO’s have experience from.   Table  21:  CEO  main  areas  of  experience   Share of CEO with significant experience from the area (%) Production (e.g. game producer) 63.4 Design and Story (e.g. game designer) 43.7 Animation 0 Creative direction 40.8 Technology and programming (e.g. lead programmer, technical director). 21.1 Financial and administrative services 18.3 Marketing and sales 35.2 Human resources 8.5 N=71                                                                                                                     14 An open-ended category of “other” was also included to enable respondent to provide any potential area that might not have been included among the suggested categories. During the data-analysis of the survey responses, the few responses from this other categories were interpreted to fit into some of the existing 8 categories in the survey and data were adjusted accordingly.  
  31. 31.     31   Conclusion  and  discussion   Based on the first research survey aimed specifically towards CEO’s of Japanese video game developers, the current survey and related analysis presented findings of Japanese video game developers related to the following areas: • Financial performance of game developers • External knowledge sources in game development • User feedback methods in video game development • Development tool usage in video game development • Video game development strategies, outsourcing and business relationships with publishers • CEO demography & background The overall CEO response rate for the survey was 25.6% (N=74), with some of the individual survey items received lower response rate. The following present some of the findings from the survey. Based on the response rate, survey results have to be treated as indicative. Each chapter of the report provides further information regarding response rate, results and background. Financial performance of video game developers. The report data provides indication of a challenging economic climate for Japanese video game developers with almost half of them having zero or negative profit margin. These results support the concerns expressed by individual game developers regarding the current financial status for video game development in Japan. External knowledge sources in video game development. As reported by responding CEO’s, the most important sources of knowledge involved in video game development were knowledge from users and competitors. Notably, the results indicated that knowledge from research related institutes (e.g. universities) were not regarded as an important for video game development. User feedback methods in video game development. As reported by responding CEO’s, playtesting and informal field studies are the most common ways of gaining user feedback in video game development. Despite the importance applied to users and the discussion about user feedback methods in industry trade publications, game developers were using a relatively limited set of user feedback methods. More formal ways of gaining user feedback though focus groups have not yet been widely adopted among the respondent companies.
  32. 32.     32   Development tool usage in video game development. Although the number of development tools has increased in video game development during the last decade, their usage were still relatively limited among responding video game developers. Although slightly more than half of the companies had experienced using game engines, less than half had experience with physics engine, SCM programs, and AI engines. In terms of game engines and AI engines, most of the companies with experience of them had developed the tools internally. For physics engine and SCM programs, there was a rather even distribution between internally and externally developed (licensed) tools. Video game development and outsourcing strategies. Video game developers also working as outsourcing partners for other game projects were relatively common with over half of the responding companies reporting having experience doing that. As expected, labor intensive work-tasks of development were most commonly pursued as outsourcing partner with animation, programming and art being the most common. Video game developers outsourcing part of their own development projects were highly common, with a large majority reported having experience doing that. Animation, programming and art were the most common part that game developers had outsourced. The survey also reported results regarding various video game development strategies. These included e.g. degree of self-published games, extent of development time overrun abandoned game development projects and the status of IP-ownership of games in the industry. CEO cognitive thinking style, demography & background. To get an indication of the background and demography of CEO’s in Japan, the survey presented results regarding the educational experience, career background and other variables. Limitations in the response rate of individual items did not allow for reliable test of how this was related to financial performance and innovation at the company level. Discussion       To the degree that the results of the survey also are representable for the larger population of Japanese video game developers, they might have implication for the industry, policy and research. For industry policy and academic research, the survey highlight that there are some specific characterizing feature of video game development which differentiate it from other industries and might warrant specific policies tailored to its conditions. Two areas of interest in this regard are the knowledge base of video game development and the specific development tools in the industry. In terms of knowledge underlying video game development, user knowledge were perceived as highly important while research institutes and universities were considered unimportant. The
  33. 33.     33   implication of this is that traditional industry policy models which often relies on knowledge network between universities and industries are less applicable to the game industry. At the same time, existing industry policy have yet to build up tools to support the knowledge network with users in the game industry, especially as it involves specific challenges related to interpreting the symbolic elements that makes games appealing. Despite the perceived role of user knowledge, the results showed the relative lack of experience with user feedback methods among developers. This might be an area in which industry policy e.g. could support such efforts as learning, best practices and costly infrastructure (e.g. usability testing labs) related to user feedback methods. The survey also revealed a relative lack of experience among Japanese developers with many of the game development tools that have increased in prominence during the last decade. This is also a potential area for industry policy support, as the lack of familiarity and usage with game development tools according to some accounts have been one factor contributing to a lack of technological sophistication of Japanese video games compared to U.S. counterparts.    
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  37. 37.     37   Appendix  1: Items surveyed Area   Variable   Measurement   Firm  demography   Firmsize   Number  of  full  time  employees       Firm  demography   Firmage   2011  subtracted  with  the  year  company  was  founded   Financial   performance   Firm  sales     Sales  each  of  the  last  3  company  FY     Developer  financial   performance   Firm  operational  income   Operational  income  of  the  last  3  FY   CEO  background   CEO  age   2011  subtracted  with  CEO  year  of  birth   CEO  background   CEO  firm  experience   2011  subtracted  with  the  year  when  CEO  started  working  at  firm   CEO  background   CEO  tenure   2011  subtracted  with  the  year  when  CEO  were  appointed     CEO  background   CEO  industry  specific  experience   2011  subtracted  with  the  year  when  the  CEO  started  to  work  in  the  game   industry   CEO  background   CEO  ownership  status   If  CEO  are  founder  of  the  company  (yes/no)   CEO  background   CEO  level  of  education   Highest  level  of  education  attained  (6  items)   CEO  background   CEO  functional  experience   Up  to  3  functional  areas  of  most  experience  during  career   CEO  cognitive  style   CEO  analytical  thinking  style   6  items  ,5  point  Likert  scale.  3  ability,  3  engagement  in  analytical(rational)   thinking  style.  Based  on  items  from  REI,  Pacini  and  Epstein  (1999)  with  no   negative  items  to  better  suit  Japanese  language  context.     CEO  cognitive  style   CEO  intuitive  thinking  style   6  items,  5  point  Likert  scale.     3  ability,  3  engagement  in     (experiential)  thinking  style.  Based  on  items  from  REI,  Pacini  and  Epstein   (1999)  with  no  negative  items  to  better  suit  Japanese  language  context.   CEO  cognitive  style   CEO  Social  skills   6  items,  5-­‐point  Likert  scale.  3  social  adptability  and  3  social  perception.     Based  on  Baron  &  Tang  (2009).   Game  development  &   innovation  strategy   Number  of  packaged  video  games   released   Number  of  video  games  released  during  previous  3  FY   Game  development  &   innovation  strategy   Degree  of  outsourcing  contracts   pursued  in  video  game   development   Number  of  games  in  which  the  company  has  worked  on  a  specific  part   during  the  previous  3  FY   Game  development  &   innovation  strategy   Aspect  of  video  games  that  the   company  has  been  pursuing   outsourcing  contract  for   What  aspects  of  games  that  the  company  has  been  used  as  outsourcing   partner  (8  items+  other)   Network  of  suppliers   &  publisher   Degree  of  use  of  external  partners   used  in  video  game  development   Number  of  developed  games  in  which  the  company  has  used  an  external   partner  for  developing  specific  parts  during  the  previous  3  FY   Network  of  suppliers   &  publisher   Aspect  of  the  game  for  which   external  partners  are  used   What  aspects  of  the  game  that  the  company  has  used  external  partners  for   (8  items+  other)   Network  of  suppliers   &  publisher   Network  of  publishers:  number  and   strength  of  ties     Number  of  publishers  the  company  has  had  relationship  with  during  the   previous  3  FY.  Length  of  relationship  with  publisher,  3  items  with  a  range   of  years   Game  development  &   innovation  strategy   Firm  focus  on  own  game  IP   Number  of  games  with  game  IP  owned  by  the  company  versus  publisher   Game  development  &   innovation  strategy   Firm  focus  on  self-­‐published  games   Number  of  games  published  internally  versus  using  external  publisher   Game  development  &   innovation  strategy   Shares  of  game  project  time   overrun   Number  of  games  requiring  longer  development  time  than  planned   Game  development  &   innovation  strategy   Degree  of  game  project  time   overrun     How  long  time  games  were  overtime  (2  items)   Technology  usage   Use  of  game  development  tools   Listing  of  3  types  of  middle  ware  and  project  planning  tool.   Technology  usage   Source  of  game  development  tool   (external,  internal)   If  game  development  tool  has  been  externally  developed  or  internally.     Information  usage  &   market  feedback   Use  of  external  information   scanning  for  knowledge  of  game   development   If  different  sources  of  external  information  has  been  used  in  game   development  (10  items  listed  +  other).   Information  usage  &   market  feedback   Importance  of  external  information   scanning  for  technical  aspects  of   game  development   How  important  different  sources  of  external  information  has  been  in  game   development  (3  stages  of  importance,  10  items  listed  +  other).   Information  usage  &   market  feedback   User  information  method  adopted   Which  user  information  method  the  company  has  adopted     Information  usage  &   market  feedback   Development  stage  in  which  user   information  method  is  used   Listing  of  4  stages  for  each  user  information  method  (concept,  prototype,   alpha,  beta)