The Art Of The Game Deal: Expanded Edition

Note: This feature originally appeared in the October 2004 issue of Game Developer. This extended cut includes passages, denoted by an asterisk, not included in the original print feature that provide additional insights into the ways publishers and developers can work together.

While no deal is typical, there are certain familiar threads that stand out in the game development mating ritual between publisher and developer. Is there a strong game here? What are the revenue projections? How risky is the innovation? When is the right time to sign? Can we make the game we want to make? Are we going to get paid what we deserve?

These generic questions become concrete realities frequently enough, and the deal between Myelin Media and Tilted Mill to develop and publish Immortal Cities: Children of the Nile is no exception. While the name Myelin may seem new to you, its driving force, Gene Mauro, has been building interactive entertainment deals for years with Dotted Line Entertainment and more recently the infamous Capital Entertainment Group (CEG). His first deal as CEO of Myelin was to publish Tilted Mill's latest game. On the other side, Chris Beatrice, Titled Mill's president and director of development, also has a rich development history, having led Sierra's Impressions studio. In that capacity, his team developed and shipped the Lords of the Realm and the Lords of Magic series, as well as the city-building archetype Pharoah.

So what went through their minds? What criteria determined their decisions? Perhaps most importantly, how did this deal come about? Some of it was the old, unavoidable wink-wink, nudge-nudge. Yet a substantial element of making a deal comes down to balancing widely divergent goals. Read on to see how you too can doublethink your way into a publishing contract.

But before we get to that, first things first.

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The Publisher

Jamil Moledina: Gene, why wasn't CEG able to raise enough money?

Gene Mauro: There was a lot of buzz at the time; a lot of interest around and in the industry, obviously a $30 billion industry, brought a lot of interest from professional fund managers and venture capitalists alike. It was not unlike the way they approach a lot of their investments, meaning concentrate your early stage investment on a very specific focus, and then only on the strength of that focus proving true do you go to the next step. That kind of methodology really was familiar to them. What was unfamiliar to venture capitalists - and where ultimately the hurdle was for us to close the $30 million that we needed to sufficiently capitalize the company - was the creative production risk. At the end of the day, the venture capital community was really interested in the size of the market, the potential of the market but as it relates to game production, not unlike film production, or television production, or other creative production businesses in entertainment. They came to the conclusion that, jeez, this is going to be, at the end of the day, based largely on a creative process that is not necessarily predictable. And that was their big concern. There really isn't in console or game production a proprietary game component that you could run your numbers against, and that was the thing that really got in the way.

JM: So how have you overcome this hurdle with Myelin?

GM: Well, the CFO of CEG, Grant Winton, and I decided that there's still a gap between independent developers and publishers, and we wondered if maybe we can't apply what we learned at CEG into a model that might be more palatable for investors. And that was the genesis of Myelin - to change the investment target so that it was a bit later. Not quite as late as most traditional publishers like to see their product in terms of prototypes, but where a clear, quantifiable vision meets execution, is really what we were looking for. That was our first step.

We were then introduced to Carl Icahn, who is a prominent member of the Forbes 400. He had been looking at the videogame space on an opportunistic standpoint, and he has some portfolio companies that would benefit from some game content, and that's what initially brought him into this space. So with some of the principles of CEG, we began to form Myelin and actually made some other substantial changes that also mitigate risk. Certainly, changing the stage of investment is one way of mitigating risk; you can see more demonstrably what kind of gameplay you have if the mechanic is fun and interesting and can be differentiated in the market, therefore salable, but another way is to make a substantial leap from CEG, meaning to really behave much more like a publisher in bringing your products to market yourself.

JM: But creative development is still a risky business. In your model, isn't the risk just being passed to the independent developer?

GM: In a sense. The reality is that there is no other alternative financial channel available to independent developers today. We very carefully and very deliberately established greenlight criteria that are designed not to push the independent developer to the point where he's not able to achieve a level of demonstrable gameplay, which I think often is the case with traditional publishers. What we're looking for is a team of developers that have a very strong vision, and some level of execution to support that vision. Now if that's 15 percent or 50 percent through, we're open, and we're flexible. The most important thing is looking back behind where you are at that stage, so that a lot of titles we've looked at might have been in production for two years, but frankly it's not working, because it's not the right game - the game's not fun, or it's derivative, it's not unique, or whatever. Whereas there are other products that might be in production for as short a period of time as six months, that clearly has a special X-factor - something unique is happening there, something fun is working there. Now you want to get behind that project and provide the resources it needs in order to get to market successfully.

*JM: Being able to find that X-factor is the holy grail of most publishers out there, sure-thing licenses and sequels notwithstanding. How do you sense that X-factor? Do you use a set of guiding principles in selecting a title to publish?

GM: We do it opportunistically. We're not putting up arbitrary targets or guidelines necessarily that are fixed. We don't think it's about a movie license, we don't think it's about a book license, we don't think it's about some borrowed media that's going to mitigate risk by having some preexisting audience in place. I think there's been a lot of examples where that strategy hasn't worked. Certainly there's been many that have executed well on that strategy. What they have in common is good gameplay. I think it's hard to put some kind of measurement in place, some kind of metrics where you're pursuing a strategy that is again based largely on some kind of arbitrary sense of security, when if the game's not fun, the game's not fun. It's not going to do well. What we look to do rather is focus our efforts on a very small amount of titles. We don't look to put in production during any particular period of time more that five or six titles, so that we can really respond to the market and be opportunistic within the market, rather than set expectations or bars that are either unachievable or unrealistic and be in a situation where we've gotten behind a title because we think a movie's going to do well. There's often not a strong correlation or translation between those things, as I'm sure you're familiar.

JM: So how does your first game, Tilted Mill's Immortal Cities: Children of the Nile, satisfy your X-factor test?

GM: When we happened upon Tilted Mill and their desire for a publishing deal for Children of the Nile, it was pretty evident to us that they had really evolved the category even further than they ever had before. I think it's based largely on a specific vision and focus that Chris Beatrice, the president of Tilted Mill and the lead designer, had. He very clearly identified an opportunity in the market. He saw that not just based on his experiences in designing and developing for the category, but based on real-time market conditions. There was a real absence, a real void in this category, and he saw his market opportunity and very deliberately went out and designed and developed a game to address that need in the market. We were fortunate to come upon Chris at a point where he had advanced that to at least a 30 percent stage, and we very quickly moved toward wanting to do a deal with Tilted Mill.

JM: What does a developer like Tilted Mill get from you?

GM: We want to have a very close relationship with the developer. We bring them into the marketing process. Frankly, at the end of the day, we treat every one of our titles with a tremendous amount of focus and detail that I think a lot of large publishers simply can't. They've gotten so large, and the focus on dollars being spent, be it from promotion or marketing or otherwise, can often become a tricky and difficult thing to manage. So I think Chris is probably at the end of the day most excited by the amount of attention that we bring to his product.

*JM: So if I understand you correctly, your method of empowering the developer means that you let them develop the game, which is their core competency, and then you guys do the marketing and promotion, which is your core competency.

GM: That's right, we really don't look to get too close or interfere too much with the creative process. It's just not what we do, we're not bringing on that level of creative competency to tell the developer how it ought to be done or how it can be done better, which is one of the reasons why we focus our targets for acquisition where we do, because clearly that creative vision is being realized. My experience has always been that often you can have a publisher come on board to a project and have creative tastes that are inconsistent with what is best going to serve that product and you can end up with a tremendous amount of wasted time, and often redirect that the potential of a product that may have done very well and take it a in a direction that might just miss the primary market that you're trying to hit. So we really look to partner with developers, which is why I try to emphasize the division and execution, it's so important. That they're coming together when we pick those up. Because our assumption is that they're not ultimately going to need us, or certainly desire that we were going to get involved with certain creative or design issues that may not serve the product. Instead we look to, as you said, empower the developer to do what they do best, while we do what we do best, and we're bringing the resources to the table to ensure that the product is going to succeed in the market.

*JM: How did you secure funding from Carl Icahn?

GM: It was just an incredibly fortuitous thing, Grant and I had just gone through the wind-down of GEC, and we were tweaking a different approach that was going to be more financially driven and less creative management driven, and Mr. Icahn through one or more of his portfolio companies had been looking at game content as one of his potential investments, so the interests and the synergies lined up in such a way that it made an excellent match. We bring some experience, expertise, and contact to how capital can be invested wisely into the game industry in a content-driven way, geared toward the biggest opportunity, which I think is independent developers, at a time when the capital is hard to come by. So we came together in that way. We formed the company earlier in the year, in March, and so far so good.

JM: Considering you're a publisher with a single investor, how do you, Icahn, and Myelin's management team make publishing decisions?

GM: There are two other principles in the company besides Grant and myself. There's Kenneth Woo, and Brett Icahn, Mr. Icahn's son. The way we greenlight products is not too dissimilar from what most publishers do. We have weekly meetings and we gather up the various opportunities that we're evaluating, that we're looking at, and we weigh in with opinions and perspective on what we think is interesting and why, and not interesting and why not, other companies, and we ultimately have a vote on the one or two products that we think warrant further evaluation or further assessment, or due diligence. We have a very flat and lean management team, so we look to move through that very process quickly and really don't delay decisions to developers. But once we get to the point where we're serious about wanting to publish a game and make that investment, we'll work with Mr. Icahn as you would with any investment committee, on laying out what it is that we see as the opportunity in the market, what the financial models look like, what the projections and marketing analysis looks like, and from there we move, forward or not.

*JM: What do you think about the market potential of developing games for the Sony PSP and Nintendo DS?

GM: Well it's going to be interesting to see. We're enthusiastic about it, because it really brings into the environment a new platform to develop on, console-oriented, that I think is going to serve up some unique and original content. Right now the biggest issue facing the industry is the continued downward pricing pressure on both PC and console. It's becoming pretty severe, and it's something we're obviously watching very closely. So as I look at what we think some of the bigger variables are in terms of how it is that you put together a model, in terms of opportunity, for publishing a game, clearly what we anticipate it's going to sell at in two years is a big consideration, relative to the market and development budget. And PSP and DS are certainly new ways of bringing new and fresh, widely appealing content to consumers that I think is going to continue to be difficult to do on Xbox 2, and PlayStation 3. The development budgets we've been looking at have been really substantial, which by itself is okay, but then you put in manufacturing and marketing, and it begins to make for a pretty difficult equation, so we've also been trying to look at alternatives to the primary opportunities on the platforms as they exist today. PSP and DS look pretty interesting to us. The PC will continue I think will continue to be a focus of our business, since the economics there are really attractive to our business. There are a number of console opportunities that look pretty interesting to us too. But as we continue to see the evidence at retail that there's going to continue to be a pushback to force those prices down. If you look at front-line titles like FarCry and others come out at $39, as a front-line new IP, makes for a difficult risk profile. One of the things we're interested in as well is the online distribution business. Platforms like Steam are pretty exciting to us. It's a way to bring new content to consumers and leverage the expertise and experience of developers in a very cost-effective way. We think that the PC as a whole, as a category, will continue to feel those pricing pressures. As the technology supports it, we believe that ultimately there will come a point in time where you can shift that consumer behavior and bring them to a Steam for purchasing their content, which we're watching real closely.

*JM: Yes, it seems we're stuck in a weird paradox, where expensive cartridge games have given way to cheaper disc-based games, while production costs have soared exponentially. That wiggle-room just keeps shrinking.

GM: Yeah, it's a dynamic that's somewhat real-time. I can tell you, just from discussions we continue to have with retailers that it's very real and I think that ultimately is going to be the real driver of the online distribution model. There's been talk through the years that it's designed to circumvent the retailers, and I don't think that's it at all. I think it's going to come from a place where frankly there just isn't any other choice as it becomes the only way to develop a PC game in which there is an opportunity to get a reasonable return on your investment.

*JM: As a publisher though, you must be very conscious of your relationship with your retailers. You probably can't tell them, "Hey, I have to go online because there's no other choice."

GM: We are very conscious of it, and we're real careful about what kind of alternatives might be available to us, and clearly retail is our primary channel. But pricing is certainly a trend, once has to look at very closely. To do that, we're tracking very closely what's happening today, and what we anticipate is going to happen a couple of years from now, relative to other platforms that might be interesting over time. You know, like Steam or others. So it's certainly one of the things we're empathetic to.

In terms of the issues that an independent developer has to really address, to your earlier point, changing the stage as we did with Myelin versus where we were with CEG, really has less to do with wanting to push out the jump-in point or getting behind, investing, and publishing a game, and has more to do with really wanting to make sure that every developer we align ourselves with has that vision, has a level of execution that's already under their belt, and ultimately frankly has some skin in the game. They really need the title to success as much as we do.

JM: What games are you playing now?

GM: I'm playing Red Dead Revolver and I'm a bit of a football sports fanatic on PC, so I've always enjoyed Madden.

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The Developer

Jamil Moledina: When you started to develop Children of the Nile, what was your pitching strategy for publishers?

Chris Beatrice: I've been making games for about 10 years but actually running a development studio for four or five of that, as a head of a studio at Sierra, working with one of my partners at Tilted Mill who was the financial guy. So when we spun off, we were passionate about a lot of different games, but also really passionate about running a business that's going to be around in a few years. Part of our pitching strategy was not to spin off and do something that had never been done before, but to do something that we knew we could do well; and so when we went to publishers they would also know that we had done it before and we could do it well. We wanted to pick or create a genre with a lot of potential but was untapped. And again, we were forced in that this was a genre that Impressions had basically invented, and although some other Impressions spin-offs had done some things like this, it was pretty much playing field. From those two perspectives, you could almost say our pitching strategy was kind of conservative. We built this kind of franchise in the past, now no one's doing it. We took most of the team from Impressions, so no one's doing it. This was our first product and what's most important is that it's a great product, and that the company gets on its feet. That was our pitching strategy originally, and that morphed over the years. When we first started out, just to get the foot in the door, it was a lot of, "We're the guys who ran Impressions, I'm the lead designer of Pharaoh, now we're making an Egyptian city-building game." As the game has finally taken root, now we're definitely not emphasizing the Pharaoh connection because now we're fighting the other battle, which is, "How is it different?" [being asked by] the audience. So a pitching strategy for publishers is different from a pitching strategy for the audience.

JM: How far along were you before Myelin came along, and what was your gameplan leading up to the contact?

CB: Almost exactly two-thirds of the way along. We started in October 2001 and met up with Myelin in December of 2003. It's been generally accepted among many of my peers that the more you can do yourself before you approach a publisher, the better deal you're going to get and the better off you're going to be. Not just in terms of the finances, but because for a lot of people, if you go to them with an idea or something that's half done, as much as they want to say they have foresight, they don't. They see something that's not quite working just right, and they get turned off to it. I should say, though, that that's a bit of the old school mentality because I've also found the exact opposite to be true, which is you go very far along and you have a great looking product, but when you go to a certain publisher, they say, "You know what, we would have really liked to do a game kind of like this, but we really wish it was about developing an ice cream stand instead of a hot dog stand." In that case, it would have been better if you had been working with the developer from the beginning, which is much more like our past experience being an internal development studio. We would start ideas very early on just bouncing around, "What do you want us to do?" kind of a thing. By the time you got to full development, of course the publisher was completely on board. Here, it's kind of hit or miss. It's like this particular publisher just doesn't happen to be interested in this kind of thing right now. There's nothing wrong with what you're doing; they're just not interested. If I had to do it over again, I think I would do both approaches. Do a lot of proposing at the idea stage, just to see if you can catch a publisher who's really excited about that, before you've invested a lot of money into it. We had invested a lot of money by the time we started looking for a publisher.

JM: How did you connect with Myelin?

CB: It's not what you know, it's who you know. You know I honestly don't know how this industry survives! [Laughter.] I've known Gene Mauro for seven years. At his first company, he was basically a talent scout, and he recruited some key members of Impressions. I left Impressions about the same time he set out to start Capital Entertainment, and he was my first contact when I started Tilted Mill. I was really enthusiastic about working with Capital. So they kind of paralleled our development all along. When he closed Capital, I actually e-mailed him, and said "What are you doing now? 'Cause here's what we're doing." And he said, "Funny you should ask!" [Laughter.] And there wasn't any kind of formal introduction, we just happened to know each other.

JM: Since you know Gene so well, how would you characterize your working relationship with the entire Myelin team?

CB: I knew you were going to ask that! Can you turn off the tape recorder? [Laughter.] No, no that's okay. This business is just incredibly tough, and in all my 12 years now, I'm used to going home every Friday having gotten into a big argument with someone at one of the various publishers we're working with.

It's a very high-pressure thing. As far as our day-to-day working relationship, all that pressure and that kind of stress is still there, it's no different. The environment's the same, there's no magic that makes all that stuff go away. It's a dynamic industry, you've got to do a lot in a very short amount of time, and there's never enough time. But what I will say is that when Jeff Fiske and I were deciding, choosing which publisher we were going to go with, out of all those that had expressed interest, there's a lot of focus on royalties, and what's the business side, and blah blah blah. I don't want there to be a misunderstanding there. Our business deal with Myelin is excellent. But the thing that Jeff and I came down to is, we said, "Which environment is going to allow us to make the best game?" And that's one of those things you don't always think about when you're setting up the business deal. But we had been working independently for two years and looked back and said, "If we were working with a big publisher, applying a lot of oversight to us, I don't think we could have made this game," because we had to make some big changes half-way through and it would have been difficult to explain to someone who wasn't part of the process. We have been making games for 10 years, we know how to do it, and when it came right down to them, we were looking at Myelin and some other people, we said, "We're going to be able to make a really good game with these people - they're not going to get in our way." That's the promise Gene made, and he's absolutely kept that promise, a thousand percent. He has let us do what we know how to do. All that other stuff, the marketing, the PR, that's all the same headaches, they haven't figured out how to make that any easier than anyone else. But the game development, I have to give them credit for that.

*JM: It sounds like you were in a really strong position if you were deciding among a range of publishers for your game.

CB: Well, we weren't in a great position. The thing about publishers is that they're just on an entirely different timetable than developers. It's like things are very relaxed, and I've been on the publishing side, assessing products and deciding which ones were going to move on. You've always got something else to do, and when it turns out to be like June, you're like, "Omigod! We need something to ship this year!" We got a lot of interest from publishers, but it was always like, "Okay, I've just got to run it by my European counterpart, and he's on vacation, so that won't be for another three or four weeks." Meanwhile, we're trying to stick to a schedule. We had a lot of interest, but to pursue those different interests takes effort. You go, "THQ's been great, let's follow up with them." It's a lot of time - we're preparing builds, we're going out to see them, so you've got to figure out where to focus. And that was when we made the decision to focus on Myelin.

JM: How did you balance the risk of going with a first-time, unproven publisher?

CB: Absolutely! I said that to Gene from the moment we first met about this. I said, "You guys have never done this before, and I cannot tell you how many people I have seen come into this industry and they either trivialize what it is, they think it's fun and games, or they look down on it, they say, 'I'm a senior marketing executive from Kraft with 15 years' experience, I'm going to show you how marketing really works!' And then they meet the gaming community, which is really well educated and intelligent, and knows the product - the typical marketing thing just doesn't work." So I've seen this, and people say, "Yeah, yeah, yeah." The pace is very different.

So I laid this all out to Gene. There's nothing they said that gave me any more confidence. There was definitely a risk. But again, Jeff and I said, "We're going to make the best game with these guys." That is ultimately what we need to defend. I have seen good games fall apart because of bad management, and I've seen bad games get funded all the way to completion and no one knows that they're bad games, just from mismanagement from the producer's side. We just felt like we were going to make a great game. If Myelin screws up and it doesn't get marketed right, that's the position we'd rather be in. And that's not just some falling on sword thing, because the fact is, in this business, if you make a good game, then you'll get some pretty good sales. Maybe Myelin wouldn't be able to move two million units worldwide on day one, or something like that, but I would much rather move a quarter of that amount and have it be a great game. There's much more risk from it all falling apart if the game doesn't come out right. That sounds kind of condescending, so it's not to say that their job is easy, but even if they do half as good as your typical publisher, that's fine. [Laughter.] That was our attitude. That sounds insulting, but really, you've got to look at the other half of Myelin's philosophy, which is empowering developers. So it doesn't take a rocket scientist to say that they have not established a track record in marketing yet. They've never done it, fine. But the opportunity Gene has figured out is that there's a lot of developers out there like us who have done this a while. They're reliable, there's a lot of money to be made in PC games specifically, and if you could just get the egos and the overhead out of the way, this will probably have a much more functional relationship. And to his credit, that's what he's done.

*JM: Given the movement among large publishers, and by proxy many developers, toward large-scale Hollywood budgets and sure-thing titles, how do you project the impact of what you and Myelin doing?

CB: I don't want keep talking too much about money, but assuming that Myelin had unlimited money, the fact is that still what they're doing is not going to make a huge immediate impact. The previous dynamic that you described, that's growing and growing, of doing sequels and licenses, has so overwhelmed the industry, that it will take a while before it recovers. Developers that had a lot of talent have probably gone under. Other developers that are in franchises that fall under that category of the sequel kind of title are entrenched and the publishers are not going to give them up because they're sure things. The gaming industry obviously used to be a lot more creative, a lot more inventive, and you were trying to create a revolution within the game you made, we didn't even have genres, you didn't know what that was. Just different games. I don't think it's going to go back to that. I think the only thing that will create significant change is the major publishers figuring this out too. And it's kind of beyond the scope of my abilities to know if they will. If they're making money, though the audience may be getting a lot of the same dribble, I don't know that that's going to change anything. We certainly aren't going to change that single-handedly.

You asked about my pitching strategy, we started right off the bat knowing, "If we go completely revolutionary, we're going to be right on the street in six months" [Laugher]. The biggest problem with the industry, and it's the same in any creative industry like movies and television, is that picking the winning horse is the hard part - even people who have done it successfully for a long time, can't do it perfectly. It's impossible to be consistent that way. You add to that that the people who make these decisions do not play games. There is this filter up front, that if they don't even understand what's being presented to them, it doesn't even make it through that first check. And the only way they understand it, is if it's like something that's already out there. And that filters out a huge amount of games. If you literally can't describe your game in terms of other games, you will not go anywhere, you will not make it past square one. How a game like The Sims actually makes it through all that is beyond me. There is this tiny thread in the publishers that is as harmful as it is beneficial, and that is where sometimes people will get like a pet project and they will be excited by something, and they'll go for it, even though nine times out of ten, it still flops. I'm definitely not enthusiastic about where this is going, but I'm hoping the gaming community will continue to cry out. This is especially appropriate for your magazine, because it's so upsetting when the customer says, "No one comes up with new or good ideas anymore." No, we do have new ideas! There's no shortage of new ideas on the developers' side. It's that publishers will say, "We're looking for something that's kind of like a cross between this and that but we don't want to alienate that audience, so a little bit of this. Look at the two games that had the highest sales last year, and try to combine them." And then when you say, "Well look if you have an idea for a game you'd like to make, just tell us." "Oh, we don't come up with new ideas, you have to propose something." It's insane.

JM: What games are you playing now?

CB: Children of the Nile, Zoo Tycoon, RollerCoaster Tycoon, and some of the older city-builder games.

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