Editorials Features

State of the Industry – The Rising Costs of Game Development

Written by Taryn Beach

Over the past three years publishers’ sales expectations for their projects have risen dramatically.  Games like Dead Space 3, Kingdoms of Amalur: Reckoning, and Tomb Raider all carried a heavy burden to sell millions upon millions of copies to be considered a success.  By all accounts, these three games have been critically acclaimed and are worthy of a purchase yet some in the industry look upon their sales numbers as failures.  It is no secret that the cost to develop a big blockbuster game has sky-rocketed.  The video game media have been discussing and railing on how the cost of development has impacted a game’s vision, final product and how it’s success or failure will affect the possibility of a sequel. Unfortunately the average gamer usually doesn’t understand the developer/publisher relationship and how each works to create that highly anticipated game.  What I wanted to do is cover a broad overview of many of the factors involved in development and publishing and how that impacts the overall cost of getting it from concept to the store shelf.

Quality development teams earn every penny working incredibly long hours and making incredible personal sacrifices during crunch time periods.

Quality development teams earn every penny working incredibly long hours and making incredible personal sacrifices during crunch time periods.

So games cost too much money to develop.  How do we fix it? In order to fix the problem, you must first understand the driving forces causing it.  Everyone could work for free, but that isn’t likely to work is it?  I mean, would you go to work for free, the only payment being the knowledge that you made a bunch of geeks like me happy?  Probably not.  The video game industry is extremely competitive.  The best programmers, artists, designers and thinkers are head hunted by every developer out there in order to get an edge on their competition.  Everything built starts with a solid foundation.  A development house with the most talented work force, managed by the best managers has exponentially increased it’s odds of being successful.  Studios don’t hire the best by paying the least.  When given an option to work at multiple successful and prestigious studios, people will often choose the highest bidder or at the very least a competitive compensation offer.

Once the talent is established, the director will work closely with the team of concept artists to create a main protagonist and overall theme for the world and environments that the entire project will be based upon.  This is a critical time as the producer and director of the game flesh out the core concepts.  The average massive budget blockbuster is in development for approximately 2 years.  It’s just like a movie in that the game goes through pre and post production phases but also has to go through vigorous testing and certification to ensure they aren’t broken and won’t break your system.  During the development process, depending on the type of game being made, a game engine has to be either developed from the ground up or licensed.  Some of the most well known engines are Unreal, Havok, and Frostbyte. The game engine is the sandbox in which the programmers assemble all of the pieces to bring the game to life.  The engine manages things like ragdoll and character physics, background physics (all the physics!), lighting, particles, clothing and character rendering.  All of that and more.  Bigger and better sandboxes are developed all the time and the cost to license them is expensive, just like the cost of employing talent that can work with them.

Teams at Naughty Dog are building amazing game experiences on relatively short (2 year) development cycles.

Teams at Naughty Dog are building amazing game experiences on relatively short (2 year) development cycles.

Over the course of the development cycle, the publisher will check in on the progress the studio has made.  Bonuses will be paid out, which are spelled out in their contract, based upon hitting or exceeding certain benchmarks.  In the majority of cases, the developer is paid in full before the game is even shipped to stores. The publisher, your EA’s and Activision’s, are the ones actually bankrolling the entire project from start to finish.  It’s their belief in the core concepts that enabled them to invest in the project and see that it actually gets created.  With that venture capital risk comes sacrifices which are made on the development studio’s behalf.  Often times the intellectual property is owned by the publisher once the game is completed.  Therefore, the publisher holds the right to create any sequels and can hire whoever they want to develop them.  All of the profits from the intellectual property are taken by the publisher. In some rare cases, the development studio has enough cache and clout in the industry to actually maintain control of their intellectual properties (IP) or at least share in some of the profits on the back end when a game is released.

As the development studio puts its finishing touches on the project they’ve been working on for the past two years, no-one even knows anything about it if the publisher hasn’t done their PR work properly to create buzz for it in the industry.  Before the game is even finished the publisher has likely shown the game off at E3, Gamescom and perhaps even Comic-con multiple times.  For the publisher, the financial burden will only get heavier from this point out.  An ad firm will need to be hired to create online and print ads to market the game.  The firm will also likely create television spots which are extremely costly.  By the time the dust settles, the marketing campaign has met or exceeded what the publisher has paid the studio that developed the game before receiving a single return on their investment.  They are now millions upon millions of dollars into the hole.

Money funnelNow consider this, if the publisher is a third-party (read: not Microsoft, Sony, or Nintendo) the prices for their games, on those platforms, are set at $60.00 by the console manufacturer and they must also pay royalties to the console manufacturer by giving them a cut of every game purchased.  The vast majority of sales will be made in the first month the game releases as only the most rabid fans are usually willing to pay the full $60.00 to get the game. Also take into consideration, that built into that $60.00 price is a little bit of profit to your brick and mortar retailers and I think you’re starting to get the picture.  The tolerances are getting tighter and tighter and big budget games are needing to sell more and more copies just to break even.  This is why micro-transactions and DLC packages are being created to help make the whole thing sustainable.  Publishers are being forced to experiment with alternative revenue streams to make future projects viable.  The point is to make as much money as possible on each project to avoid ending up in a position where they are relying on every game to be an absolute success in order to keep from going under.  A publisher that is healthy is usually more likely to take a risk on a creative/artistic title that is not a guaranteed top seller.

I suppose the counter argument to these cost drivers is that gamers don’t need graphics as good as they are right now to enjoy a game,and that games don’t need to be as big and bombastic as they are getting. That’s true, to a point.  Think about this though, some of my most memorable gaming moments over the past 20 years have been because the graphics at the time were pushing towards realism and immersing me in the scene unfolding.  I felt like I was there, in the game, as events played out.  Games that approach the photo-realistic boundary, backed up by solid gameplay, can create a rich background tapestry that further immerses the player.  Graphics, of course, are pushed by technology and the advancement of technology is a juggernaut.  It literally cannot be stopped, and as time progresses components are going to become smaller and faster.  More capable hardware will be developed that will be able to create bigger and better video game environments.  And all of that continues to drive up costs.  There are also a myriad of background factors like the overhead of running a company, for both the studio and publisher that aren’t even being accounted for here.  Staffing a human resources team, custodial services, renting/owning a building in which to work.  These are all overhead costs that come with running a business.

RIP THQ. You will be missed.

RIP THQ. You will be missed.

As time goes on we’re seeing more and more of the middle-tier publishers fall by the wayside.  Atlus was the latest victim (purchased by Sega), but perhaps the biggest shock was the fall of THQ, which was drawn and quartered; its IP’s strewn across the industry as they were auctioned off to pay off the company’s debts. The current trend is that smaller independent developers are filling the void.  These games are usually much smaller but also much less costly to produce.  Games developed by these smaller studios often feature gameplay mechanics that are off the beaten path.  Some are ground-breaking and revolutionary.  The small independent developer doesn’t fix the problems that face blockbuster game development though and truth be told, short of a complete industry collapse, I’m not sure that anything will.

About the author

Taryn Beach

I play a lot of video games. I'm a fan of most genres but have an affinity towards racing, rpg, shooter and fighting games.

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