Extra Credits on the Cost of Making Games …

So, as a follow-up to the video talking about how much video games should cost, Extra Credits did a video talking about how much it costs to make a AAA game and about how there isn’t really that much room to cut costs there. I’m not going to get into whether, for example, marketing is as important as they make it out to be or whether graphical fidelity is really as important to the console market as they say, but what’s interesting about it is that they take the idea of as slimmed down a studio as you can get and say that that would be 200 people working for 2 years to finish a AAA game. It so happens that I, in fact, worked in a 200 person department making software (not games), and I can say with certainty that if that’s the minimum case it isn’t at all sustainable.

The issue is that those 200 people would be working on a product for two years, and the company would see little to no revenue from that product for that entire two years. In our case, we were releasing an update to the product at least once a year if not multiple times a year, and also were adding things to that product and not starting over roughly from scratch. While franchise games aren’t quite starting over from scratch, even they are doing more than adding new features to a pretty much finished existing game. The closest we have to that are the sports games that EA does so well, and that’s only if they only do roster changes and not engine updates or major features. In our model, if we wanted a completely new product — particularly if that was supposed to be a replacement for the existing product — what we did was use the old product’s revenue to fund the new product. We’d shift people away from the old product to work on the new one, while still maintaining enough people to add new features and fix bugs to generate new releases that generated enough profit to cover the development costs of the new one until it had enough market share and revenues to generate profit on its own. But we could do that because we were developing mission critical software that our customers did not want changed. They didn’t want new interfaces or new engines or any kind of new experience. New experiences with that software cost them money in terms of training and potentially in the effectiveness of their operators. They wanted, ideally, one product that did everything they wanted it to do and that when they needed new technologies it was just added to this product and worked in pretty much the same way as all the other technologies did. That’s obviously not true for games, where customers generally purchase a number of widely varying products that they can roughly use in parallel.

So, what we have in the gaming space is a product that takes two years to make a game, costs a fortune to make — again, a 200 person department/studio has a large number of fixed costs — and the game has to earn its money back in a shockingly short amount of time, because games don’t have a huge productive shelf-life. You’re looking at a percentage of revenue after one or two years even if you gradually reduce prices that the product I was on had during the last 2 – 5 years of a 20+ year run. And you have to be working on the next game almost immediately, even before you see how well this one has done, because you can’t stretch the next game out for longer than two years. So we can see why AAA game developers would really like to get a model like ours was, where they build a basic software product and do add-ons to it for the next while, so instead of developing an entire new game over two years, they instead build a set of add-ons every six months, say, and get either a constant revenue per month (a subscription model) — or an in-flux of revenue when each add-on is released (DLC, expansions, and loot boxes). The EA services model and, of course, loot boxes are the more recent and controversial attempts to do just that.

The problem is that this model does not work very well for video games, at least in the long term. The customers for games generally don’t want to play just one or a small number of games for years and years. They like some variety, and to even have a stable of games that they play and so don’t even necessarily play the same game the next day. They also have strict time and budget restrictions when it comes to playing games, since it comes out of their entertainment budget. The more that they play a specific game, and the more they have to pay to keep playing that specific game, the less time and money they have to play or purchase other games. If one game becomes really successful and charges a significant enough percentage of the average gamer’s gaming budget, it can lock out other games as there just aren’t enough gamers left who are willing to play and pay for those other games while they spend most of their time on that one. This can not only hurt existing games, but can of course greatly impede new games, who can’t even break into the market because everyone else is still playing that old game. And this, of course, will also impact new games from the same studio, as their players are still playing the old game. Should the old game hit saturation where they can’t add anything interesting and their customers are tired of the existing game, they may — and are likely to — lose customers to something else faster than they can get an alternative up and running. If anyone still has any alternatives available.

And this isn’t actually speculation, but is something that we’ve seen already in the MMO space. In 2014 I talked about MMO saturation, with there being a large number of MMORPGs still running, with World of Warcraft being the killer game that hampered new MMOs when they came out. At the time, MMOs were the big thing, in large part because they provided this sort of revenue stream. But once WOW gained prominence, new games struggled, and a number of promising candidates faded away far earlier than the original games had, and weren’t profitable. Most MMOs had to adopt some kind of Free-To-Play model to generate sufficient revenue to keep going. While you can talk about the MMO shooter games like Destiny and Overwatch, MMOs aren’t the growth industry that they were back then, and it very much seems like they are fading a bit. I don’t know of too many new ones coming out, and Shamus Young — my main source for industry information — used to play a lot of them a lot.

If AAA gaming companies try for this expanded revenue stream, they are likely to run into the same issues. Even the sports sim genre hits this because the revenues from the previous years’ games tend to fall off fairly sharply when a new release comes out, but this steady revenue system wants to prolong the life of existing games. There are some ways to mitigate this — extra things being compatible with multiple games, for example — but aiming for this sort of revenue stream is not going to help games as much as you might think because of the very nature of games. If you prolong the life of a game, people don’t buy new ones, but you need them buying new ones, too.

One Response to “Extra Credits on the Cost of Making Games …”

  1. Musings on The Old Republic and AAA Games | The Verbose Stoic Says:

    […] me back to talking about the cost of games, which I talked about before in reference to a couple of videos by Extra Credits.  On the one hand, it’s really difficult to get customers to pay more for a […]

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