E3 2006 Panel: How Game Industry Leaders are Managing Risk

Author: by Christopher Woodard

"Future Shock or Smooth Sailing Ahead: How Game Industry Leaders are Managing Risk," held on Thursday at this year’s E3, was among the last of the discussion panels held. It featured a talk on how some of biggest companies are dealing with the potential difficult changeover and associated risks to next generation hardware. The panelists were Todd Hollenshead, CEO and Co-owner of id Software, Inc., Lee Jacobsen, Vice President of Business at Midway Games, Ray Muzyka, Joint CEO of Bioware Corporation, and Jon Niermann, Senior Vice President and Managing Director from Asia Publishing at Electronic Arts. The moderator was San Jose Mercury News writer and author of the recent Ebook “The Xbox 360 Uncloaked,” Dean Takahashi.

Starting with what he described as “a little game,” Takahashi asked each panelist to discuss what they would do if they were fully in charge of their company and were given 50 million in cash, no strings attached.

The first, and most eager panelist, to speak on this hypothetical situation was Todd Hollenshead of id. “We’re a very small company. We started independent... very bootstrap. Today we have about twenty-eight employees," he said, adding that as a result of having such a small staff, "our approach to products is to focus on one project [at a time] internally in the company.” Tackling the situation proper he said, “First I would shield the info [about the 50 million] from my partners. Take 15 million of that as a development budget, knowing that we’ll eventually spend 20 million. But 50 million is too much for one game. The other 30 million I put into the bank and earn interest. Our projects are dictated by design goals more so than budget and time.”

Bioware’s Ray Muzyka went next, and began by describing how his company approached game development in general “Focus, investment in content creation tools, and developing a community... Bioware’s [main strengths] are story and character. So we focus on making the things we think we’re good at. Our mission is to deliver the best story based games in the world.”

“We have about 300 employees across two companies," he continued. "Our games take a long time [to create] and are expensive as a result.” Emphasizing that “We do a lot of QA. We aim for about 50 to 100 hours of gameplay... We do a lot of P.R and marketing and spend a lot of time communicating with the online community.” Adding that “We have a lot of post release content... The final stage of development for us is post release... Multiplatform is also something we invest in.”

Prodding him on for perhaps a more specific answer, Mr. Takahashi commented that “50 million sounds a little low for all that.” to which Mr. Muzyka replied that “It wouldn’t cover all the titles involved. It would be a good start though. You’d get a good return on your investment.”

Jon Niermann was next up responding that “Screw it, I’m going to buy a hockey team!” After some subdued laughter he continued with “Let’s focus on Asia since that’s where I am. We can do things cheaper there. [Firstly] build up publishing opportunities in those countries. [Then] build up a portfolio of games, not spending over 1 million on any one game. [Mostly] Casual games. Supplement that with some mobile games. So 50 million would go a long way for us.”

Finally, Midway’s Lee Jacobsen approached the situation from the publisher point of view, “As a publisher you look at analyzing the market... analyze what the consumer wants. You clearly see trends evolving. There’s a market analysis that clearly must be done.” Continuing that “You have to do a portfolio analysis. What are the bets you’re going to take on portfolio titles? I’d take 60% [of the 50 million] and allocate it to something you can count on,” such as sequels to successful or at least well known franchises. “I’d then use the other 40% to develop new intellectual properties which is where the long term revenue comes from. It’s new things that’s going to create value for your company. But you still would want your internal studio to work on something you knew has a high chance of success. Pair that up with cost effective measures, [for example] outsource [labor] and strengthen internal management.”

Abandoning his whimsical 50 million “what if?” scenario, Mr. Takahashi pointed out that though id Software has only a core team of 28 employees, they do licence titles to Raven studios to do work. “So you spread out risk that way, but why not create a second team?”

Mr. Hollenshead responded that “It’s [a question] we deal with every time we have to figure out what we do next. We have a large portfolio and since we only do one game at a time there’s a lot left to the side. We couldn’t beat Bioware or Midway in terms of management,” pointing out with candor that at id, “Most of us are doers, not managers... [id Software programming magician, John] Carmack isn’t someone I’d choose to lead a programming team. If you made him manage multiple teams working on multiple games you’d just dilute his efforts.”

Responding to a question about increased development times he further added, “It’s a concern. You look at our projects, Wolfenstein 3D was 6 months [in development]. Doom 3 was three and a half year project. We’re either going to have to add more staff or take a very long time to make games. What we have to come to grips with is managing the process of creating content better. That's where the bottleneck usually is.”

Bringing the conversation back to Bioware, Takahashi told Muzyka that he was aware of Muzyka’s penchant for poker, and asked him “What are [Bioware’s] biggest gambles?”

Mr. Muzyka responded that “I don’t see poker as a gambling game is one way to answer,” adding in more detail that “One of the reasons we have multiple projects is it reduces risk. There’s always a chance that the market won’t be receptive to a game... tastes change and one of the games could fail. Having more than one project in development allows us to make different kinds of games.”

One of the more difficult decisions to be made is when to pull the plug on a game that has already cost a company potentially millions of dollars. Speaking on that, Mr. Jacobsen explained that “There is no silver bullet. Every project has the moments when everyone is excited and then putting it together doesn’t look too pretty. Every team needs a core passion to be successful, a severe passion that goes beyond just getting the project done. And that helps because it helps you fight for the product. It’s also about a realistic assessment of costs vs. the upside -that’s very nebulous area of course- but from the publishing side there’s enough examples out there to at least get an understanding.

“Realizing that the type of game isn’t very popular in the market and the project is going south... that’s a good time to kill the game. Sometimes it’s to your detriment, though."

A lot of speculation among other sessions discussed the idea of platform exclusive titles may be on the way out as a way to reduce risk. Commenting on this Mr. Muzyka said that “I think the key is finding the right partner. You need the passion and you need someone who will market the hell out of it. First party publishers usually are more willing to fund new IPs to help launch new hardware.

“When you look at the overlap of games on next gen systems, apparently studies show that it’s going to be more prevalent. So having an exclusive title can help sell the game and hardware.”

Also up for discussion were the new business models that have begun showing up and will most likely continue in the future. Appropriately, EA’s Jon Niermann tackled this by saying “In-game advertising is getting a lot of attention now. Customization is a big thing. For online, the models working right now are microtransactions. That’s relatively new for us at E.A.,” adding that “it’s something we’re exploring in Korea with FIFA online. Digital download is a new one for us, it’s been a challenge. A lot of people want to have the actual disc, but we need to make it available online as well. Jamdat is another example for us. We’ve had about 40 distribution deals around Asia alone with that. New IP is something we haven’t done locally in the [Asian] market.”

Niermann continued with refreshing candor, saying that "we’ve also never gotten Japan right. We’re like number 12, with 1 and half percent of the market. And it’s not like we’ve just been trying to sell NASCAR there, we just don’t have the RPGs and character based games that make up so much of that market.”

Overall the session was more overtly optimistic than most other panels, where the concern of the industry’s sustainability overran any real hopes for the future.