BSCG lecture notes part 1

May 16, 2010 20:13

Table of ContentsSubject Introduction
  • Objective
    • Value chain in the computer game industry
      • Console manufacturers, game publishers, distributors, retailers and consumers
    • Marketing of games
    • Intellectual property rights in the game business
    • Business models and ePayment methods used in the games industry
  • General Learning Outcome
    • Explain the various roles in Game Industry Value Chain
    • Knows the various Intellectual Property Law
    • Knows the process of
      • Entrepreneurship
      • Business
      • e-Payment Models, that are applicable to various games genres and sectors
    • Costing
    • Deliver a Proposal Presentation
  • Prior knowledge needed?
    • Communication skills
    • Artificial Intelligence Game Development
    • Introduction to Computer Games
    • Online Game Development
    • Business sense
    • Common sense
Game Industry Roles and Economics
  • Think about this...
    • How come Game A might outperform other Games?
    • How does a computer game thrive?
    • Who are the different players making a winning game?
    • What are the different measurements of marketing success?
    • For a profitable result, how would you reach out to your target segment?
  • Objectives
    • Understand and differentiate the various roles in the games industry
    • Understand the economics of games development companies, and explain how they thrive
  • Marketing pitch to a publisher
    • With mainstream videogame titles now costing upwards of $2 million to develop, and often more than that again to distribute and market, publishers have to be completely convinced of the ability of a title to perform commercially before committing it to their portfolio. However, with development timescales now averaging around 14 to 18 months (and sometimes several years), and the nebulous nature of "good gameplay", it is extremely difficult to judge these factors at a sufficiently early stage in a title's gestation. This is one of the key factors in the recent trend for licensed titles and high-profile sequels.
    • What this all means is that even before a contract has been signed, there is an immediate power struggle between the (comparatively) cash-poor developer, who is unable to sustain the cost of developing a game to completion without the security and financial incentives of a guaranteed publishing deal, and the risk-averse publisher who must be careful not to back an unsuccessful title, but who also does not want to miss out on signing the next potential Grand Theft Auto or Tomb Raider super-franchise.
  • Video Game Industry Value Chain

  • The Development Studio Value Chain
    • Publishers
    • Producer
    • Designer
    • Developers
      • Managers
      • Programmers
      • Artists
      • Testers
    • Distributors
    • Retailers
  • Game Developers: Full-Service
    • Cover all disciplines: art, animation, programming, asset management, production
    • Idea for the game ("intellectual property") can come from developer or publisher
    • Work for publisher on contract basis
    • Paid set amounts per milestone completed
      1. Payments are advances against future royalty payments (development fee, upfront fee)
      2. Royalties are calculated as percentage of publisher's "net receipts"
      3. Definition of net receipts is frequently obscure
    • But how do they ensure future sustainability? MGs - enforced by publishers
  • Publishers
    • What does publishers do?
      • Funding development
      • Manufacturing
      • Marketing and public relations
      • Distribution
      • Customer Support
    • Publishers assume all the risk, they also take most of the profits
      • Star developers can often bully publishers, because publishers are desperate for content
      • Most developers are at the mercy of the almight publisher
    • Publishers may specialize in some platforms
      • PC only
      • PC + console
      • Mobile
      • Import
      • Web
    • Originally grew out of developers
    • Massive consolidation in recent years
    • Most also develop games
    • Most publishers have a "greenlight process" that they use to determine which projects go forward
    • Because development cycles are so long (one and a half to three years), games have to submit to the greenlight committee at five independent stages
      • Concept
      • Assessment
      • Prototype
      • First Playable
      • Alpha
    • At each stage, the committee reviews progress, decides whether or not to continue funding the project, and evaluates the market potential of the product and adjusts unit forecasts and marketing spends accordingly
  • Producers
    • Projects are assigned by studio management to an Executive Producer
      • Have any number of Producers and Associate Producers working for him or her
    • Producers oversee the production aspects
      • Manage Developers towards their milestones, and often provide additional resources, creative input, management advice, etc.
    • The Developer delivers "milestones" each month, and don't get paid unless the milestones meet strict definitions. Most developers are unlikely to receive any royalties, because the funding they receive is an advance against future royalties
      • If their game is not a hit, then the Developer may not even be able to "pay back" the advance
    • External Producer works for publisher
    • Internal Producer: project manager, project lead, director
    • Game's champion to the rest of the company
    • Management's champion to the development team
    • Gets the team what they need
    • In charge of risk management
      • What if development kits are late?
      • What if engine developer is late with key feature?
      • What if key hire cannot be found in time?
      • What if AI programming takes longer than scheduled?
  • External Producers
    • Have multiple projects
    • Select external developer
    • Contribute to game design based on publisher's goals
    • Track milestones
    • Approve payments
    • Handle hardware requests
    • Pull the plug
  • Internal Producers
    • Manages development team
    • Works with art and technical lead to staff project
    • Manages project plan
      • Checks milestones
      • Makes tradeoffs
      • Works with external producer
      • Manages bug-list
  • Assistant Producers
    • Manage assets
      • Data Wrangler - make sure latest files are used
    • Supervise the daily build
    • Maintaining the design website
    • Generate screenshots for Public Relations
    • Review milestones with a group
    • Everything else
      • The music
      • The videos
  • The Game Designer
    • Ususally the vision guy
    • Writes the design document
      • With help from level designers, technical lead and art lead
    • Must continue to make design decisions during development
    • Sometimes involved in development
      • Mostly at scripting level
    • Keep up on current games
  • The Developers
    • Design and implement the game, including programming, art, sound effects and music
    • Historically, small groups
    • Typically work for royalties and funded by advances
      • Do not have the capital, distribution channels or marketing resources to publish their games
    • Very unstable
    • Level Designers
  • Programming
    • Technical lead - create and manage the technical specifications
    • Programmer tasks
      • Define interfaces
      • Rendering engine
      • Artificial Intelligence
      • Physics
      • Tools
      • Database
      • Networking
      • Sound effects
      • Scripting language
      • Special graphic effects
      • Asset management and integration
    • Must have lots of communication
  • Service Providers: Motion Capture
    1. Used to automate animation process for more realism in human characters
    2. Magnetic or optical systems
    3. Internal motion capture studio at publisher or external service provider
    4. Services include accompanying software and technicians, and post-capture data processing and tuning
  • Service Providers: Art and Animation
    1. Developers can outsource art and animation assets to external companies
    2. Specified at contract and included in development budget
    3. Art houses can become full-service developers with judicious addition of programming talent
    4. Cost is a function of quality, team location and volume of assets
  • Service Provider: Quality Assurance
    1. Alternative to maintaining team of full-time salaried testers
    2. Established in PC publishing, due to amortization of multiple hardware configurations over multiple projects
    3. Gaining ground in console publishing; security of sharing proprietary console equipment is a perceived concern
  • Public Relations Firms, Advertising Agencies and Merchandising Teams
    • Public Relations firms communicate with
      • "consumer" media (i.e. mass-market general media)
      • "specialist" video game publications
    • Ad agency prepares creative for marketing campaign
      • Good communication ensures alignment of vision with publisher
    • Merchandising teams ensure all is in order at store level
  • Delivery Media Manufacturers
    • Delivery media for closed platforms include anti-piracy technology
      • Engineered by platform holder
    • Console companies historically manufacture finished goods for publisher
      • Nintendo and Sony continue to do so
    • Sega pioneered direct relationships under license between DVD manufacturers and publishers
      • Microsoft follows this model with Xbox
    • Some publishers only manufacture disks, then complete assembly at contracted pack-out companies
  • Retail
    • Brick-and-mortar retailers generally earn 30% margin on a $50 game
    • Sales of packaged goods by Internet retailers follow the brick-and-mortar model
    • Electronic download of games via Internet is a newer but growing model
  • Sales Channel: Distributors
    • Purchase games from publishers, and resell to smaller indepedent stores and chains
    • Compete on price, speed and availability
    • Earn profit margin of around 3%
    • For bigger play,
      1. A sub-publisher purchases the rights for multiple countries to a certain Game title from publishers, and then re-sells to in-country distributors who in turn sell to smaller independent stores and chains
      2. Compete on price, speed and availability, plus economies of scale
      3. Profit margin varies but are much better due to the scale of operations

  • Sales Channel: Manufacturer's Representatives
    • Small companies with personal relationships with buyers at national retailers
    • Compete on credibility and knowledge of retail processes and systems
    • Beneficial for new product launches from new companies
  • Sales Channel: Regional Retailers
    • Independent store chains with in-depth consumer sales relationships
    • Compete on product knowledge and differentiated product offering
    • Buy games from distributors
  • Sales Channel: Rental Retailers
    • Purchase games from publishers at standard pricing, but with no returns
    • Allows consumers to try a game before buying
      • Boosts sales of good games
      • Kills bad ones
    • Some rental retailers have begun selling games
  • Sales Channel: National Retailers
    • Familiar names:
      • Toys "R" Us, Comics Connections, many stores in Funan IT Mall
    • Publisher bears burden of relationship
      1. Ships games to distribution center, or direct to stores
      2. Provides in-store mechandising materials
      3. Provides store staff with sales materials
      4. Generous payment terms (net 60+)
      5. Inventory auditing
      6. Perks: concert tickets, business dinners, golf
      7. In-store promotional events
  • Sales Channel: In-country Distributors
    • EpicSoft, Asiasoft, IAHGames, etc.
    • Outstanding partnerships and product bundles
    • Hold special launch events
  • Sales Channel: National Retailers
    • Retail buyer makes all game purchasing decisions
      • Indifferent buyer = poor sales and disorganized in-store selection
    • Buyers hold various controls:
      1. Not stock a game at all
      2. Stock only in best-performing stores
      3. Feature game in weekend circulars
      4. Pricing adjustments
    • Open-to-buy = amount of money available in buy'er budget that month to purchase new inventory
      • Function of sales velocity and selling season
      • "No open-to-buy" = high competition among new releases for the period
    • Sales data vital to publishers
      • Weekly and monthly reports
      • Tracking
  • Revenue from $50 Console Game - for explanatory purposes only
    • AmountPurposePaid ByPaid To$3Cost of goodsPublisherMedia manufacturer$7Publishing license royaltyPublisherPlatform holder$13Retailer profitConsumerRetailer$3Markdown reservePublisherRetailer$8Development costPublisherDeveloper$10Operating costPublisherInternal (overhead, freight, co-op, bad debt)$6MarketingPublisherAd agencies and mediaItems in bold can be converted to profit through careful publisher cost management
    • Due to the sheer size of the business, sub-publishers have emerged
  • Platform Holders
    • What are the Revenue sources?
    • Where does money come from?
    • Revenue comes from:
      1. Hardware sales
      2. Licensing fees from compatible peripherals
      3. First-party games
      4. Licensing fees from third-party games
      5. Licensing fees from development tools
      6. Revenues from sales of proprietary delivery media
  • PCs are Open Platform
    1. Intersecting relationships among
      • CPU manufacturers, application software providers, graphics chip manufacturers and box assemblers
    2. CPU (Intel, AMD) and graphics chip (NVIDIA, ATI) manufacturers provide developer support and market their technology benefits directly to consumers
    3. Application software providers (Microsoft, Silicon Graphics) give developers free tools to ensure compatibility
    4. Box manufacturers (Dell, HP) may bundle hot software titles to add value to their sale
    5. Telcos (SingTel) on the marketing bandwagon too
    6. Low barrier to entry for developers, but high competition for shelf space
  • Consoles are Closed Platform
    • Console companies (Nintendo, Sony, Microsoft) control nearly every aspect of games on their platforms
      1. Proprietary development hardware and software
      2. Permission to become a licensed publisher
      3. License to use console company trademarks in marketing materials
      4. May require permission to start a game
      5. Certification of a finished game
    • Investment in hardware must be offset by revenue from software (around $7/unit for third-party games - rate differs from game to game and pricing is part of "trade secrets" - held close to one's chest)
    • Behold, the steady emergence of price strategists
  • Summary
    • Entities in video game industry have not changed much in thirty years
    • However, flow of money (ergo, balance of power) has shifted greatly
    • Balance of power shifted in 2005/2006 as next-generation console project costs skyrocket
The Publisher-Developer Relationship
  • Objectives
    • Understand the relationship between publishers and developers
    • Understand what each party wants to get out of the relationship
    • Understand what can each party provide to the other in the relationship
  • Developer/Publisher Divide
    • The developer is responsible for
      1. Game conception
        • Expresses the core idea of the game
        • A one- to two-page document
          • Necessarily brief and simple
          • Encourage a flow of ideas
        • Target audience
          • The people whom you want to describe your game to
          • Particularly those who can advance the idea to the next step
            • Formal game proposal
      2. Prototype
        • The publisher will normally look for the following features in a prototype:
          • Core gameplay mechanic or key gameplay points of difference
          • Demonstration of control method and camera system
          • Demonstration of team proficiency with proposed technology and tools
          • A good approximation of "final quality" proposed visual styling
        • Many developers today aim to complete a full working level of the game to give the best facsimile of how the finished game will look and play
          • A racing game would likely include a full track and at least one car to demonstrate the handling, styling, and type of racing
          • An action adventure title would have a fully textured and animated character negotiating a single game level, including the key control or game features that make it different from other action adventure titles, as well as some example adversaries displaying rudimentary artificial intelligence
      3. Design
        • The outline game design documentation is much more thorough than the pitch presentation, and focuses on intimate design detail such as storyline, control dynamics, camera system, user interface, inventory, and so forth
        • This documentation is primarily for the core development team to reference their work from, but is often given to the producers and technical workers at publishers so they can see the substance behind the glossy prototype
        • As well as detailed written descriptions, the game design document will also include representative diagrams, schematics, and concept visuals to ensure no room for misinterpretation of features between the design team and the programmers and artists who will create the content
      4. Technology
        • The technical specification appendix is usually broken into two sections
          • one section written by the lead programmer who will cover the technical and code-specific aspects of the concept
          • the other written by the lead artist covering the technical art and content requirements of the concept
        • Whereas the design document focus is very much on the core concept idea and how gameplay and the associated components will fit in with the plot of storyline, the technical design will cover the practical details on how the proposed design will use the various platforms, development tools and technologies
        • From the programming side, the content of this document will cover topics such as AI requirements, special effects, the proposed rendering and animation technology, any tools or middleware that are going to be used, and what kind of programming needs and skill sets will be required by the technical team
      5. Development and implementation
        • In this super-competitive market, publishers book advertising space, in-store point-of-sale, OEM deals and press coverage months in advance of release. Therefore, missing the original release slot for a title can have catastrophic consequences, as it may not be possible to rebook these activities to accompany the new launch date, and the carefully timed press and PR activities will be wasted as the fickle game-buying public focuses on the next big launch
    • The publisher is responsible for:
      1. Commision
        • Help to get a game development started with seed funding
        • Provide advice, guidance, etc.
          • Improve gameplay?
          • Better chance of success?
      2. Funding
        • Provide the initial funding
        • Partial or full
          • Milestone payment?
        • Direct cash funding? Claim based? Product funding? Or others?
      3. Promotion
        • Media and grabbing attention
          • High retention value
        • Parties
        • Merchandise for Collectors
        1. Announce the product in development
        2. Provide early screenshots
        3. Demo an alpha version
        4. Send more screenshots and character art
        5. Provide a beta version
          • Initiate an online forum and community
        6. Offer developer Qs and As
          • Keep the community alive with news, events, tips, etc.
        7. Distribute a gold master
        8. Reviews
        9. Tips and Tricks
        10. Promote any awards the game wins
      4. Marketing
        • How will the game be made known to consumers?
        • Competitors are also selling similar products, how does your game stand out from theirs?
        • Unique Selling Point (USP)
      5. Distribution
        • How will the game be sold?
          • Retail shops?
          • Online retails?
          • Direct sale?
            • Publisher to consumers?
        • How much inventories will they have?
      6. Support
        • Post sale
          • Customer support
          • Patches
          • Wallpapers
          • FAQs
          • Offer fansite kits
  • When publishers and developers meet?
    • The pitching process!
      • Each side has their own agenda and demands
      • Negotiate to a point where both parties are agreeable
        • A compromise on one side or both
        • Otherwise negotiation fails
  • The Pitching Process: Pitch Presentation
    • Key pitch presentation content:
      1. Concept overview and genre profile
      2. Unique selling points
        • What makes it stand out from its competitors
      3. Proposed technology and target platform(s)
      4. Team biographies and heritage
      5. Outline marketing information, including potential licensing opportunities
  • The Pitching Process: Pitch your game
    • Focuses on details such as:
      1. Storyline
      2. Control dynamics
      3. Camera system
      4. Level progression
      5. Game features and functionality
        1. Core gameplay mechanic
        2. Key unique selling points
        3. Game engine and technological proficiency
          1. Graphics engine
          2. AI routines
          3. Audio system
          4. Online capability and requirements
          5. Peripherals and controllers
          6. Development asset management and backup
        4. Artistic and styling guide
        5. Demonstration of control and camera system
        6. Example gameplay goals
      6. Score systems etc.
  • The Pitching Process: Project Schedule and Budget
    • You need to tell the publisher how much time you will take and how much money do you need to develop a game!
    • Schedule and budget must:
      1. Be detailed and transparent
      2. Allow for contingency scenarios
      3. Have several sets of outcomes for different size publishers
      4. Be realistic
  • Is it a good deal for the DEVELOPER?
    • Points developers should research of prospective publishers:
      1. Are they financially stable?
      2. Do they have global reach?
      3. Do they market/PR their games well?
      4. Is there a history of non-payment of milestones or royalties?
      5. Have they "canned" many titles?
    • Intellectual Property Rights include:
      1. Game name
      2. Logos
      3. Unique game mechanics and storyline
      4. Unique characters, objects and settings
      5. Game source code, artwork and associated assets
      6. Unique sounds and music
    • Current approximate development costs:
      1. $4-5 million for AAA multi-platform
      2. $2-3 million for AAA PlayStation2 only
      3. $1 million for A-quality single platform
    • The developer must carefully balance the following parameters:
      1. Clearly defined PR and marketing support
      2. How does publisher pay developer?
        1. Cash advance against royalties
          • An advance royalty payment is usually the agreed royalty rate multiplied against a percentage of the total unit guarantee
          • Advance royalties will generally fit in around the 60 to 100% mark of the predicted first year unit guarantee
        2. Milestone payments
          • Milestone payments represent the agreed rate of release for development funding
          • Developers will usually be given a lump-sum advance payment, with the remainder of the payments split into regular milestones payable upon delivery of agreed content
        3. Post-release royalty payments
          • Royalties are percentage payments of profits made above and beyond the recoup of development costs
          • Royalty rates are calculated the wholesale price of the product
          • Developer royalties can range from 0% to work for hire, to 40% for a self-funded AAA title (% varies according to services included or excluded. e.g. hardware like servers and their maintenance)
          • Other considerations:
            1. Rising-rate royalty, increasing percentage the more units sell
            2. Clear royalty definition of 'wholesale price' (i.e. including cost of goods etc.)
            3. Right to audit publishers book
            4. Currency/exchange rate/VAT figures
        4. Guarantees
          • Guarantees usually come in two forms:
            1. A figure that is contractually guaranteed by the publisher and must be paid for regardless of how well the game actually sells (MG)
            2. A figure that is based on an amount of units sold necessary to maintain title exclusivity with that publisher
  • Development Milestones
    • Here are some example development periods for different platforms:
      • 4 to 6 months for a high-end mobile game
      • 18 to 24 months for an original console game
      • 10 to 14 months for a license or port
      • 16 to 36 months for an original PC game
    • An example milestone schedule for a 20-month development cycle:

    • At Alpha stage, a game should:
      1. Have all of the required features of the design implemented, but not necessarily working correctly
      2. Be tested thoroughly by QA to eliminate any critical gameplay flaws
      3. Still likely contain a certain amount of placeholder assets
    • At Beta stage, a game should
      • Have all content complete
      • Be tested thoroughly for bugs and gameplay tweaks
      • Be shown to press for preview features
      • Then again, there are sub-stages within Beta:
        • Closed beta testing (CBT)
        • Pre-open Beta (pre-OBT)
        • Open Beta testing (OBT)
    • At Gold Master stage, a game should:
      1. Be sent to the platform holder(s) (where applicable) for TRC (Technical Requirements Checklist) testing
      2. Be sent to press for review
      3. Be sent to duplication for production
      4. Be backed up and stored
  • Tips for Developers
    1. Strengthen sales pitch - staff, technology, game content
    2. Catch investor's attention with hard-to-beat costs-benefit analyses
    3. Highlight Unique Selling Points
    4. Outline tech refresh to keep the game exciting
    5. Order the roadmap for content development
    6. List content update
  • The Pitching Process: Technical Design
    • First, you need to explain your game, demo, and show its "attractiveness", both technically and financially
    • What are your game's Unique Selling Points?
    • What are the compelling ROIs (Return On Investment)?
    • Why are the cost-benefits so much more attractive than those of other developers?

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