More on the horizon

Of course, we hear about games that sell 3,000,000 to 6,000,000 copies over their shelf lives. As we all know, however, that doesn't happen every often. The profits from these games usually simply cover the losses incurred by funding other titles. A publisher might fund 5-10 games to AAA status per year, and maybe 2-4 will actually achieve those sales. These will pay for the costs of the other games that bomb or sell, but not enough to cover their expenses.

So everything is good, right? The industry has a system that rolls along, right? Wrong.

Just over a decade ago, around 1995, a game might cost $300,000-500,000 to make. It was a “hit” if it sold 300,000-500,000 copies, at $25 per. So if you had a hit game, you needed only one dollar per sale to cover your costs.

Nowadays, a game costs $30,000,000 to make. It's a hit if it sells 2,000,000 copies, at $35 per. If you achieve this hit, you take $15 per copy just to cover development expenses.

Also in 1995, a game cost $50 in 1995 dollars at the store. Now, games are still $50 in 2007 dollars (which, if you've been following the dollar's decline against all other currencies, means a lot less money). Margins for publishers and retailers are both thinner by default. A low dollar helps bring in extra income from abroad, but it also makes developing in foreign countries expensive, and of course puts inflationary pressure on the dollar internally, which leads to higher living costs and thus more pressure for increased salaries and higher licensing costs.

Developers and game engines

Every wonder where all those independent developers went to? Why most dev houses are actually owned by publishers (a la Raven, Relic, etc.)? If things are tough for publishers now – which they are, unless you're EA (and to a limited extent Activision), they're horrible for developers.

A developer gets an advance to work on a game. Let's say the team is experienced, has good leadership, a proven track record of finishing games (more on that later), and a killer idea. The problem is that no engine out there for license can do what they want, and they need to make their own. This is going to be a Big Project. We're talking something on the scale of The Sims, Neverwinter Nights, or WarCraft III.

The first thing the team needs to do is develop an engine. Forget what you think you know about engine development. It's not John Carmack or Tim Sweeney sitting down in their office for a year and grinding out a wicked fast renderer with physics, object loading, animations, terrain, hooks for the latest shader effects, networking, content creation tools, sound, speech synching, conversation trees, item values, and so on. There's a whole team working on this, usually for at least 18 months and sometimes in excess of two years. The biggest developers out there have a dedicated engine team keeping an engine up to date for their game development group(s) to work with (who further customize it to their own needs). Eventually, however, every engine reaches its limits.

A new console generation comes out. Or the old engine, built on the “graphics cards are going to have more memory and faster memory and cores and CPUs are going to be faster” paradigm, suddenly doesn't work. You can hack in shader support and better lighting and maybe normal maps, but support for multiple cores and multiple GPU paths is going to take a complete re-start.

Cost? $5,000,000 on the low side, $10,000,000 on the upper end. Think about everything that the Source engine does. Lighting, networking, scripting, physics, a superb animation system, excellent sound, it loads huge levels into relatively limited memory and does this quite quickly, it has support for complex scripted events and state of the art AI. One guy doesn't do that any more. Ten men can't do that any more. You're looking at hiring around 20 excellent programmers with a good work ethic and good communications skills to get all that done, along with the actual development tools.

Add that $10,000,000 to that conservative $20,000,000 estimate for $30,000,000. How many developers have that kind of cash lying around? Pandemic and BioWare thanks to Elevation Partners. Id Software because of its long track record of success. Perhaps Epic, though there are rumors that they had some rough dealings with Atari, and Microsoft did co-fund Gears of War.