Friday, May 25, 2012

If Hollywood Can Do It...

With layoffs happening at Bioware and now the news that 38 Studios gave everyone the boot, I find myself wondering: Just what is a good launch metric? 3 million is not good. 1.2 million is not good. How about 5? Or is anything short of WoW's double digit millions just not good enough?

It's not an easy question to answer. Obviously, it varies a lot based on the size of production budget. Still, I can't help but feeling like there's a lot of dumbassery going around. If you sell 3 million copies of something, especially something that costs like $50 a pop, how are you losing money? Well, spending it, derp, and I suppose video game production ain't cheap.

It makes me think about movies. Aren't there a whole bunch of movies with ginormous budgets that completely tank and lose money. Yet, you don't hear about huge layoffs at Universal, do you? (It's an honest question, I confess that I don't really know). It seems to me that perhaps video game companies are going about this the wrong way.

How do movies work? Don't they secure a whole bunch of financing and then create a specific subsidiary company to produce the movie? Contracts are signed, people get paid (a lot in some cases), and the movie gets made. If it tanks, the smaller company files for bankruptcy or something and the big cogs keep on spinning.

Okay, a financial analyst I am not. This is just me spitballing here. I may be completely off base. I'm just saying that perhaps game companies need to shift to a more Hollywood approach. Currently, it feels like gaming companies need to hit a home run on absolutely every release. That's a horrible way to do business. It's just not going to happen. You can execute everything to perfection and still have a flop. Maybe the idea was flawed. Maybe the fickle waves of society have swung in a new direction. It happens.

Not that Hollywood is a bastion of fiscal responsibility or anything. I guess I just feel like, if they can muddle through it, with all the egos and flash, why can't gaming companies? Or maybe the movie studios have all the same problems, they just don't make Internet news as much. I don't know.

Who takes the loss when a movie flops? The stars still get paid, right? Maybe video game developers should have similar contracts where they get paid for the job, then... done. Not salaried, but contract work. I don't know, that probably sucks. As an engineer myself, going from the security of salaried to the rick of contract is rough. However, how much security is there really in the video game industry?

Like I said, this is all just idle, mostly uninformed speculation. I was reading the gaming news and thought about how I've heard of, say, superhero movies with a lot of special effects that brought in $100 million or something... and oh, darn, had a $200 million price tag. By the time those numbers are in... the stars have already been paid and moved on to the next project. You don't hear about people getting laid off. I assume that lawyers just fight it out in the dark of the night or something. (Lawyers are like Batman, is the main point here.)

My point is just that if Hollywood can weather $100's of millions in shortfall, keep producing movies (many of which probably fail), then why can't game companies figure out a sustainable system? Or is my image of Hollywood just overblown and it doesn't really work either?

I guess at the end of the day, I'd be thrilled if a million people are buying my work. Maybe gaming companies should just aim (and budget) lower. I don't know that we're going to see a 10 million subscriber behemoth again (except when Zynga perfects mind-control and puts out Hypnotoadville). I'm okay with a lot of niche 1 million subscriber games done well. How about you?

10 comments:

  1. I'd say a movie is more akin to say a good single player game, say Civilization5. You see it once, everyone makes a little money and everyone goes home. There are a few repeat viewings, but nothing really again until the dvd/BluRay is released.

    On the other hand, I see an MMORPG, more like a video rental, i.e. Blockbuster, store. You're only good as your community. Good customer base, lots of regulars, you can afford to weather a week of no one renting movies. Then comes Netflix, Amazon Streaming and Diablo3 and your community just isn't there to help pay your rent.

    Zynga does seem to have a good model. Get it on Facebook and everyone will play. Then sell the app on iPhone and you've got a huge subscriber base that will each pay $1-$5 for the game.

    Draw Something? Words with Friends??

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  2. Doesn't Hollywood "layoff" everyone after the movie? I mean the actors come in.. they do the movie.. the movie production ends and everyone pretty much gets fired except post-production crew who get fired later.

    Sort of the same as 38-Studios.

    I was kind of surprised how much cash they went through in 5 years. I was not really aware how expensive it is to make a game. I mean how much do people make? 15 million a year seems like an ton of money for some developers and designers in some out of the way studio somewhere.. I must be clueless on the whole process though..

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  3. Eh, labor is expensive. 150 people x $50,000 per year x 2 (standard overhead) = $15,000,000 per year.

    Maybe 150 people is a large team, but rumour has it that SWTOR was 800 people, and they just cut 200 of them.

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  4. @Elk - I think Zynga thinks smaller. That is, they make simple games with a hook. And likely reuse a lot of their code.

    @SirGman - Right, it's contractual work. The contract is for a specified job/period time. Once it's done, you're done. I would think game companies should use contracts for the pre-launch stuff, then after launch just keep those needed to run the game. Something like that so you're not really laying off. It's more anticipatory. comment...

    @Rohan - That seems absolutely huge to me (the # of people, that is). These games are not small projects, but I find it hard to believe that ToR was 800 people working efficiently. I've been on a lot of projects where the solution is to "throw heads at the problem" and that never works. Recently, my company has been using a lot more contract work to weather the spikes and keep cash flow positive. Just seems like mismanagement to me. But this, of course, is a completely uneducated opinion...

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  5. Not to mention that a decent chunk of the movie's profit stems not from ticket sales, but from government subsidies for things like filming in specific locations, which defray a sizable portion of the movie's budget.

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  6. Ah yes, I hadn't even considered that. I wonder if games could do the same... obtain funding by setting their stories in specific locations, rendered more or less faithfully. For instance, Assassin's Creed. I'd imagine I wasn't the only gamer who really, really wanted to go to Italy. :-)

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  7. I think you need to look at movie studios like big corporations. Yes, they fund individual movies but each one is seen as a separate product and line item for a market segment they are trying to reach. They have enough established funding to keep several projects afloat. The more profitable ones help fund the others. Larger corporations like Proctor and Gamble and many others are well diversified. They will take a market loss in some areas just to gain a footing in a particular product class, relying on their cash cows and money makers to fund them. This isn't even including some products/movies/games could be made at a loss on purpose due to tax purposes. Sad but true.

    It saddens me about 38 Studios, it appears they weren't at the point of being able to support themselves from only a few projects. Also, from the postings of several of their employees speaking up, I'm sure you've read about how the promises the state gave them weren't exactly kept at par. I've seen this same thing in my local community where the city and county promised tax credits and abatements to a company when it relocated to our town. Two years went by and the local governments decided they would change that contract when the agreement came back up for more money in tax revenue. The company got hit with a bunch of taxes they weren't expecting and less than 2 years later, they took their 200 jobs and left for another state not even 150 miles away.

    *Sighs*

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  8. Yes. *Sigh* is the appropriate response. :-)

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  9. In the mean time, if I told you I could make you a buck, one dollar, for investing $107 in my company would you look at me like I had tentacles growing out of my head? Would you do it? Welcome to Facebook.

    I suppose a 1 million player base would work if you didn't have a lot of production costs or overhead. OTOH, there is Angry Birds. Go figure.

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  10. I find it a bit hard to believe that the size of staff these places use is strictly necessary. Seems like an abuse of the mythical man-hour to me. But that is another uneducated opinion. I just know how engineering managers like to throw heads (and $$) at a problem.

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