104: Playing the Spread

"So, do the suits have it right? As with personal investing, it comes down to a question of how much risk you are willing to bear along with your objectives. If you are super risk averse, don't expect to make massive returns - T-bills do not the millionaire make. Fundamentally, this boils down to modern portfolio theory, using diversification to optimize a publisher's range of IPs (internal and external, as well as new and franchise)."
"But, what's the right mix?"
IGDA President Jason Della Rocca looks for the balance between internal and external properties.

Playing the Spread

Thank you, thank you, thank you. I love seeing some analysis with more than a selective dash of math thrown in to support the assertions. I think it's because I'm an engineer. ;)

Overall, I'm inclined to agree with your conclusions. In the private sector as a whole there seems to be an overemphasis on short-term returns -- when a company's quarterly figures are announced, they're generally compared to the preceding quarter and the pervious year's time-equivalent quarter... and that's it, at least as far as investors are concerned. The pressure to perform on a quarter-over-quarter and year-over-year basis lends itself to some questionable decisions, in my opinion.

I've noticed that BioWare seems to have realized the value of internal IP, transitioning from making games with D&D and Star Wars licenses to making games with their own original IP (Jade Empire, Mass Effect, Dragon Age). Hopefully more developers will follow suit.

Great article! I love when the numbers don't tell the same story as the popular wisdom. When it turns out the question is much more complex than 'art vs. business'. Especially when it turns out that what's good for gaming also seems to be good long-term business strategy, and being cynical means being *less* in touch with reality, not more.

One question: should the Y-axis in Graph 2 be labeled 'Sales' and not 'Profits'? It seems so from the text of the article.

Jason, things look a LOT better for internal IP when you rule out both sports licenses and kids licenses -- two exceptions that make a lot of sense to pursue for publishers. The particular licenses I think the game industry relies too much on are the Hollywood licenses. I've done a lot of research on Hollywood licenses versus internal IP (as you call it), and internal IP wins hands down, year after year after year, if you look at the top 20 charts each year.

Brash Entertainment has no chance in the game industry, because most Hollywood licenses do not have the stuff to becomes games. And by "stuff," I mean inherently unique and compelling gameplay mechanics. Spider-Man works beautifully as a game, because it has two things that translate into unique, compelling gameplay: wall crawling and web-slinging/swinging. Star Wars, too, makes for a great cross-media IP, because it brings to the game industry the force and the light saber, not to mention a deep storyverse ripe with possibilities. But, really, most Hollywood licenses lack uniquely compelling gameplay crossover potential. Brash will soon discover this.

Scott
3D Realms

Interesting stuff.

One other factor possibly worth mentioning: titles which don't appear in the retail figures because they never made it to retail (with either the project or the entire company folding first). I don't know what including these would do to the figures, but across the last five years it seems like it could be significant.

Scott, in most cases I would agree, but I don't think that Hollywood licenses are going to go away anytime soon. It also depends on what corner of the game market you're talking about. In terms of AAA titles, Hollywood tie-ins often seem to be trouble when you're talking about simultaneous release. To some extent with those games it feels like there is a cap in how innovative they can be within the parameters of the license, which is why I thought this was an interesting theme for the Escapist to address in general.

But one thing Jason does tangentially mention in the article is the cross-marketing factor. This isn't as much of a big deal with a big budget title, but over in handheld we are entirely reliant on it. Without that cross-marketing factor we wouldn't have any exposure whatsoever, in many cases, and the license stuff is more our bread and butter than I think it even is for AAA studios.

Sort of continuing that same idea, I think you might count the sports licenses differently (and I think they are entirely different beasts), but remove data from the other set, not just specifically 'kids games', but all tie-ins. Many of the games -- and they are often for the younger market, a "gift" market where the primary purchaser is not going to be the primary consumer, which has all sorts of inherent effects on the necessary quality of the game and how it is marketed -- are basically fancy action figures, toys that are part of the merchandise wave that follow a major media event. The strategy for those kinds of games is entirely different than something for the hardcore games industry, games for their own sake. And I think it is more appropriate to count them as toys than games in many cases. But even in this market there is a spectrum, not a binary separation, between tie-in and games that reach further despite their license connection.

What would be nice is to see a strategy or series of strategies toward making these games be more comfortable being what they are, because it seems what we often see is the license stretched into the kind of game we are used to making (ie, take Movie Superhero, add platforms, scroll the screen), rather than the license given its own specific consideration and having its actual game design wrapped around it.

In terms of the original article, it's always interesting to look at these numbers, but something that struck me was that I'm not sure the stock metaphor is complete. It's definitely the case that individual studios seem to do best -- and I think this is what most independents reach for -- when they have staples and take strategic risks, often on their own IP, when they've achieved the stability and liberty of doing so... but I was reminded of the parallels in book publishing. People look at the numbers -- the submission-to-acceptance ratio -- and say "what are my chances of getting published?", when these numbers don't really mean anything specific and don't apply uniformly. If you write an excellent story and submit it to an appropriate market with correct formatting and a sharp cover letter, your "chances" of getting published are exponentially higher than they are if you write a crappy story with incorrect formatting and spell the editor's name wrong. Something roughly similar applies in games. If you have a crack team with a stellar delivery history and some awards under your belt, and you've talked up the right people, the chances of you selling a non-licensed IP deal to a publisher are exponentially higher than if you're an indie coming from nowhere with the Next Great MMO. There are so many other dynamics that I'm very impressed that an article like Jason's can be written and remain coherent at all. (In short: never tell me the odds!)

However, in terms of dollars and cents, a publisher is going to have an easier time selling an idea to its investors if it has purchased property, because it's coming into an investment not just with theory (a GDD) but with something "tangible" that it has paid real money for. Add into this the business dynamics of where large companies need to spend money and the current license climate is pretty clear, and unfortunately it doesn't have a whole lot to do with quality gaming. But I think what we can do is learn how to work with these dynamics and push innovative technologies in the "safe" field of licensed IP work -- then leverage the hell out of that innovation when we get the opportunity to create from the ground up, which, certainly, is what everyone reading this kind of publication is going to want.

 

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