So you get your funding

So you get your $30,000,000 from a publisher. They're sold on your idea, they're sold on your team being able to create the game engine, they believe in you. That $30,000,000 is the advance. You have a primo team so you get a very high royalty rate – 25%. Low-end teams can see as little as 7-10%.

Here's your income formula:

(Gross – License) x Royalty – Advance => Net.

Gross income on a 3,000,000 seller = $105,000,000. Let's say you don't have a License, you're not relying on a movie, book, or sport, or a licensed engine. You multiply the remainder by your Royalty rate, or 0.25, and you get $26,250,000. Then you subtract your Advance, or $30,000,000, and ... you've lost $3,750,000. That's right, red ink baby.

Why is this formula so unfair to developers? For starters, it can be. Publishers control the purse strings, they have the money, they have the stronger negotiating position. They're the ones taking the risk with $30,000,000, not the developer. As we've all seen with games that bomb spectacularly, that risk quite often doesn't pay off. The publishers are hedging their bets by racing 5 horses and betting that two or three of them will make enough money to pay for everything.

That doesn't help the developer though, does it? Well, here is where sequels come in. But before we go there...

90% of game development delays are not because of bugs or late artwork or anything like that. Mostly, it's about capturing that elusive “fun” quality. Fun can't be quantified, you can't formulate fun. You can try, and design documents try to bring the various parts of development – design, sound, art, technology – together.

Due to the costs and risks related with prolonged development cycles, companies try to get everything done at the same time and then put it all together. It's like having a thousand piece puzzle, giving 200 pieces to different people and trying to assemble the parts and then put them all together. In the end, a lot fits, but everyone's going to have left-over pieces which keep it from being perfect. That's where the delays begin, trying to fit in the last bits of the puzzle to make it truly complete. All this is because of the cost of development – the more that can be done simultaneously, the cheaper it is and the sooner the game gets to market with its new tech features that no one else has seen before.

Now, when you're making a sequel, you're just doing a variant of the puzzle. You've got the core elements down. Anyone who's played Call of Duty and Far Cry knows how far superior the weapon feel, control, sound, and balance in CoD was. That's something that probably took months if not years to perfect. Far Cry weapons and movement are sloppy and feel laggy by comparison. So when it's time for a sequel, you can build off what you already did right – the movement code, the engine, the sounds, some artwork, the animation system – everything is there. The content is easy to create by comparison, and that is what sequels usually do – they have new levels, some new art, a few new enemies, and a couple of cool new technology/gameplay tricks.

This is why we see so many sequels – it's the only way for companies to make money. Did you just sell a hit game? Then you've got a built-in audience dying for more and it's very easy to make “more”. Even if the game wasn't a run-away hit (ie, Crackdown), if the core gameplay is solid, you can elaborate on it and work off that core fanbase to build on.

That assumes that the publisher has the patience to do this. Sometimes they'll have a great IP and potential franchise on their hands, then they'll want a sequel very quickly, typically in time for the holiday season, just to earn the quick bucks. They may be short on cash, or they may underestimate the difficulty of creating a AAA game, or perhaps they just don't see the purpose of continuing the franchise (ie, their 2-game movie license deal is going to be done, why risk a lot of money on a sequel?)