[casual_games] Business Models

Wed Aug 31 14:47:28 EDT 2005

Brent,

Publishing deals definitely vary company-by-company, and also within
each company, I would think. Keep in mind that I can speak only for
PlayFirst, but I'm guessing that other companies have similar programs.
I'm not trying to advertise here, but to give specific, plain
information without speaking for someone else. I'd encourage other
companies that publish (not just sell on their web site) third party
titles to share their models in this forum as well.

At PlayFirst, we take into consideration the particular needs of each
developer and try to craft a deal that meets them. All of the terms are
connected like levers - push one down and another goes up - and the
options run a wide spectrum. For example, a higher advance on just a
concept means more risk for us and thus a lower royalty. At the other
extreme, there are distribution-only deals with small or zero advances
that allow you to take advantage of our sales/marketing capacity for the
current version of a title and maybe shorter-term for rights to other
platforms where we are active (mobile, retail) without transferring
ownership/control of the IP longer term. 

Examples of various deal structures:

*	
	Non-exclusive distribution-only deal: no advance, high royalty
*	
	Exclusive distribution-only deal: possible advance (depending on
the title), highest royalty
*	
	Concept-stage publishing deal: advance to cover the full cost of
development, paid on milestones, and we would expect to control the IP.
The IP thing is sticky for some people, but ideas are cheap - execution
counts. The party taking the financial risk for development should
control the IP. Publishers are designed/optimized for this role -
developers should make sure they are getting some sort of participation
in perpetuity, which could then result in the best of both worlds for
developers (no risk, perpetual upside). The royalty rate will not be as
high as for self-funded projects, but it is very often 1.5X, 2X or even
more as compared to a "traditional" console development gig (which might
have very low or no royalties).
*	
	Late-stage (nearly complete game) publishing deal: full advance,
possibly with a premium, paid quickly - because the development risk has
been greatly reduced (but not the market-acceptance risk, and there's
still plenty of work to be done on the distribution side). I say "nearly
complete" because our QA is very intensive and we would likely request
certain modifications to optimize the title for success in the market.
These points are positive reasons to work with a publisher - they know
what they are doing. Advice: Check out the publishers more successful
titles - they will probably want to replicate design/structural elements
that worked. For example, we often find ourselves pointing to the
structure of Diner Dash.

Note that most publisher money is considered an "advance" that is
"recoupable". Again, there are options and levers:

1.	
	Standard recoup against Royalties otherwise payable to developer
- longest time to start getting royalty checks, but highest possible
royalty rate and largest upside if the title is a hit. Example using
silly numbers: a $100 development budget and a 10% royalty rate means
$1,000 is earned by the publisher before the developer starts earning
checks. After $2,000 in Net Revenue the developer has made $2,000 * 10%
- $100 for dev = $100 royalty.
2.	
	Recoup against Net Revenue - faster recovery of the Advance,
lower royalty, medium upside if the game is a hit. Example using silly
numbers: a $100 development budget and a 10% royalty rate means $100 is
earned by the publisher before the developer starts earning checks.
After $2,000 in Net Revenue the developer has made ($2,000 - $100) * 10%
= $190 royalty.
3.	
	No recoup - fastest time to start getting checks, lowest
possible royalty rate, smallest upside if the title is a hit. Example
using silly numbers: a $100 development budget and a 10% royalty rate
means $0 is earned by the publisher before the developer starts earning
checks. After $2,000 in Net Revenue the developer has made $2,000 * 10%
= $200 royalty.

Of course, the developer royalty would be far less in the second and
third scenarios. Real royalty rates vary greatly depending on the
budget, how excited the publisher is about the title, how hungry the
publisher is for the deal, how much cash the publisher likes to spend,
the track record of the developer, the scope of the project, the amount
of resources the publisher will throw against the project beyond money,
etc. It's pretty straightforward to model this out in a spreadsheet if
you get into serious negotiations with a publisher - they might even do
it for you - it doesn't hurt to ask for options and explanations. Just
be realistic that you CANNOT negotiate a royalty rate based on standard
recoup and then as for recoup-from-Net; that's a huge difference in
terms for the publisher, and if they agree they will want something back
elsewhere. That goes for most terms.

Hope this helps. Maybe we should spiff this up for a Quarterly or next
year's white paper. :-)

-John

________________________________

From: casual_games-bounces at igda.org
[mailto:casual_games-bounces at igda.org] On Behalf Of Brent Lowrie
Sent: Wednesday, August 31, 2005 6:52 AM
To: IGDA Casual Games SIG Mailing List
Subject: RE: [casual_games] Business Models

Thanks John!

This is the sort of info I am looking for. Excellent. Thanks!

I actually edited the case studies on the latest white paper. It's been
a while since I read the first draft and haven't had a chance to read
the completed version. Pardon me if my question is answered there. What
does a publishing deal typically look like? Do they vary wildly or are
they all pretty standard across the board and from publisher to
publisher? Thanks in advance...

Brent Lowrie
Games & Animation

RARE METHOD  
500, 1812 4th Street S.W. Calgary AB T2S 1W1
P. 403.543.4500 x341 F. 403.532.3004
www.raremethod.com
games.raremethod.com

Strategic Interactive Marketing
Provoke Thought Direct Action Get Results

________________________________

From: casual_games-bounces at igda.org
[mailto:casual_games-bounces at igda.org] On Behalf Of John Welch
Sent: August 31, 2005 1:25 AM
To: IGDA Casual Games SIG Mailing List
Subject: RE: [casual_games] Business Models

Brent,

There's a middle road - work with a publisher who will fund a serious
project (take all of the risk) and give you far more exposure (it's not
just about development) as well as ongoing participation (upside far
better than work-for-hire). Ideas are cheap - execution counts. If you
can do it well once, you can do it better the next time. So, get a
publisher deal and use it to learn the ropes, build your business case,
and get some name recognition in the casual space. If you like what you
see, think about self-funding your next project. Talking from
experience, starting from scratch isn't easy - but once you have some
momentum it's a heck of a lot of fun. 

There aren't many publishers in the casual space, but there are a few of
us, and terms are currently a lot better than "traditional"
developer-publisher contracts. Each publisher has its personality and
benefits, but I don't think you could go wrong with any of them. There's
a list of publishers addressing this space in the SIG's 2005 white
paper: www.igda.org/casual. 

-John W.
________________________

John Welch, President & CEO
PLAY:  www.PlayFirst.com <http://www.playfirst.com/> 
________________________

________________________________

From: casual_games-bounces at igda.org
[mailto:casual_games-bounces at igda.org] On Behalf Of Brent Lowrie
Sent: Wednesday, August 31, 2005 12:09 AM
To: IGDA Casual Games SIG Mailing List; IGDA Casual Games SIG Mailing
List
Subject: RE: [casual_games] Business Models

See, this is why I joined the IGDA! thanks everyone for the replies. 

It was before I discovered the IGDA and its Casual Games SIG that
researching the industry was difficult. without friends and connections
in the industry, we found getting feedback, let alone, finding answers
to simple questions like the one I posed impossible. I can only
speculate as to the reasons because we never once got a response.
Seriously. Now, we were obviously knocking on the wrong doors and
calling the wrong numbers. Contact-envy aside, I appreciate the
candidness of the members here and find the dialogue refreshing.

Brian, I definitely wish we could commit the time to cranking out a game
a week. If it were our own games, perhaps, although our games tend to be
pretty ambitious. however, our clients just don't move that fast. I
think we actually spend more time waiting for feedback and approvals
than we do in development.

My question was perhaps worded poorly as well. I wasn't just curious
about how to fill our portfolio, but rather how studios are funding
their development and the percentage of IP vs. "work-for-hire" games in
their portfolios. I am building a case for our company executive to
invest heavily in R&D (game engine development as Brian points out and
new technologies like mobile game development) and our own commercial IP
games and I find it's a "cart-before-the-horse" kind of issue in a
publicly-traded company. Rather than a "build it and they will come"
mentality, it is more a "find me a funded project and we'll let you
build it" sort of deal. Your comments are all very interesting. thanks

Its late here so I hope I am not blithering. thanks again for the
insight folks and I look forward to future conversations here and at one
of the many new (and established) conferences. cheers

Brent Lowrie

Games and Animation

RARE METHOD

500, 1812 4th Street S.W. Calgary AB T2S 1W1

P. 403.543.4500 x341 F. 403.532.3004

www.raremethod.com

games.raremethod.com

Strategic Interactive Marketing

Provoke Thought Direct Action Get Results 

________________________________

From: casual_games-bounces at igda.org on behalf of Brian Robbins
Sent: Tue 8/30/2005 8:32 PM
To: IGDA Casual Games SIG Mailing List
Subject: RE: [casual_games] Business Models

I agree with Wade on this, the purpose of this group, and the IGDA in
general is to encourage open communication between developers. While on
some
level we're all competitors I hardly see enough head to head competition
to
warrant any kind of over the top secrecy.

Having myself worked both for a tiny casual game developer, and now
growing
the game team at a leading advergame developer, the best way I've seen
to
develop a library of games is to dedicate yourself to doing it. At
CleverMedia we had a long standing production cycle of a new game EVERY
week. We missed a week occasionally for holidays, etc. but for several
years
we released a new game every Thursday. The result is that CleverMedia
now
has one of, if not the, largest 1st party catalogs of games anywhere.

Here at Fuel our strategy is to develop our own games as customizable
and
open as we possibly can. In essence we are not building a game, rather
we
are building a game engine and a game utilizing that engine at the same
time. Once we have a solid engine, and a wicked game developed using it,
we
can leverage both to become profitable. Perhaps one of the best examples
of
this is Laser Envy (http://www.fuelarcade.com/laserenvy/) and another
game
utilizing the same underlying engine we built for MegaBloks
(http://www.megabloks.com/en/kids/dragons/game/fire_and_ice.php).

This can be a bit risky in that it takes a good deal more effort to
build a
game engine than it does to build just a game. However when it works
right
it can be very successful and rewarding for the team and the company.

--
Brian Robbins
Director, Online Gaming
http://www.fuelgames.com/blog/
Chair, IGDA Online Games SIG  & IGDA Casual Games SIG
http://www.igda.org/online/     http://www.igda.org/casual/

-----Original Message-----
From: casual_games-bounces at igda.org
[mailto:casual_games-bounces at igda.org]On
Behalf Of Brent Lowrie
Sent: Tuesday, August 30, 2005 10:44 AM
To: IGDA Casual Games SIG Mailing List
Subject: [casual_games] Business Models

I know this is a topic that many are interested in but few are really
willing to talk about. We are all competitors after all.

We are a relatively small game development group fighting to establish
some
independence within an interactive marketing firm. As the group leader,
I
have been putting together a business plan of sorts and would like to
field
some questions for those established developers with many games in their
portfolio. How did you go about producing so many games? That is, was it
self-funded internal development in the hopes of licensing them? Were
they
games developed for clients that you retained rights too and now offer a
non-branded version for licensing? A combination?

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