In their London Games Summit talk earlier this month, Lionhead's Peter Molyneux and Mark Webley talked about the history of the noted UK independent developer (Black & White, Fable), from its founding in June 1997 though its acquisition by Microsoft earlier this year.

Gamasutra has previously covered some of the tips for indie developers that Molyneux and Webley espoused - and these are reprinted at the end of this article to complete the picture. But it was the amazing honesty in which the duo discussed Lionhead's actual history that impressed - specifying both the positive steps and mis-steps along the way, and providing a full, behind-the-scenes expose of the company's almost ten year run as one of the most high profile independent game developers in the world.

Small Beginnings

Webley explained that Lionhead was set up in 1997, significantly after Molyneux's last company, Bullfrog, had been bought by EA, with a credo: "If we kept it small, we could keep that tribe feeling." The passion articulated by Molyneux behind Lionhead's founding was, simply enough, "to do something different."

The first project launched by the firm was, of course, Black & White, and it was started in January 1998. Webley comments that finding the right people was key to Lionhead's genesis as an intentionally small and hand-picked company.

Black & White

But as Black & White was starting to form, another Lionhead co-founder, Steve Jackson, had the idea of forming the Lionhead Satellites, small developers associated and nurtured by Lionhead but not owned by them, initially including Intrepid (B.C.) and Big Blue Box (Fable).

Molyneux explained: "I still think it's a very good idea - the problem was that we could help them grow and make a deal... but what the publishers really wanted was to be associated with the sexy stuff that was going on with Lionhead. They still weren't really incentivized with what the Satellites are doing."

While at least one of the Satellites, Big Blue Box, was eventually responsible for Fable, this was after the Satellites were signed to development contracts by Microsoft in June 2000, and folded back into Lionhead itself in 2002 - effectively making the completion of the game a Lionhead in-house project using much of the Big Blue Box staff.

Even as the Satellites were growing up and signing deals, creature-featuring RTS/virtual pet title Black & White, which Lionhead's Molyneux himself described as "probably one of the most hyped games in existence," was approaching its debut. Molyneux commented of the insanely rabid hype behind the game, which was beyond what any of the Lionhead creators expected:

"At one point in 2001, the game was the 6th most-requested piece of information on the Internet." In the end, the game, which debuted in March 2001, sold two and a half million copies on the PC, despite a slightly mixed critical reception following the extreme hype.

Time To Expand?

Following the sales success of Black & White, Molyneux noted that the resultant cashflow "...put us into a very unique place" in terms of possible future expansion. So what did the company do next? Molyneux grinned: "I played a game of squash with Mr.X, who was a city person."

Apparently, this un-nameable Mr.X insisted that there was a valuation of half a billion pounds for Lionhead, explaining: "All you have to do is float your company." Working towards this plan meant that the company had to expand in certain very specific ways to satisfy the financial types, and led to the swift expansion of the company to a "massive team of people."

Why so? Well, to tick the right boxes to float as a firm, Lionhead as a company had to get bigger and had to have a much more complex infrastructure, including a full board; as Molyneux noted, "These were serious business types." He continued by commenting that the founders set up Lionhead "to do original games" - and the momentum "was such was that the focus was at least somewhat off the games."

Fable

This financial-friendliness even had to extend to game concepts, unbelievably, as Molyneux noted of the game concepts they were working on: "It had to be an idea that bankers understood,". Apparently, the bankers were a little confused by Black & White, basically understood the RPG/fantasy nature of Fable, and particularly 'got' The Movies. But whatever the amount of banker comprehension, the expansion proceeded apace - Lionhead was growing very fast, "by 2 or 3 people per week," in this 2002-2003 timeframe.

The Bust, The Alternative Plan

At this point, Molyneux and Webley commented, about "100% of our time" was spent on working on the financial deal - Molyneux even lamented that he put on around 3 stone in weight from business dinners revolving around the Lionhead flotation.

The deal was finally set to go through and Lionhead were to make a public statement on the float. But around 48 hours away from the final Go/No Go meeting that would have preceded the public announcement: "That's when the luckiest thing of our lives happened, and there was a crash." The bankers decided to call off the public floating of Lionhead.

Suddenly, this meant a significant change of tack - Lionhead needed to turn their float-centric business model to one centered around not floating. Thus, the firm signed The Movies to Activision in March 2003, and also focused on Black & White 2, while development of Fable continued at Big Blue Box/Lionhead. Even though a plan was still firmly in place, Molyneux referenced his thoughts at times on the financial-centric company workings: "My God, what the hell are we doing here?"

Black & White 2

Nonetheless, the company moved on, and Webley noted that the firm took the step of "closing down some of the prototype teams" at that stage in 2003, and focused on what they were doing next. Development for Lionhead's major titles included significant resources - around 70 people for Fable, for example.

But the company's freewheeling attitude to scheduling had led to some issues. Molyneux freely admitted that his "the game will take as long as it takes" approach wasn't necessarily the right choice when such big budgets were on the line. He commented: "My big mouth got us into trouble,", continuing, "You can't have that ethos when you're spending $10 million."

At this point, lacking the flotation-centric funding they had expected, Lionhead needed further investment to continue to thrive - and looked to venture capital. Webley commented: "They were very sympathetic for what we were going for,". Thus, deals with muliple VC firms were successfully signed in July 2004, allowing Lionhead's continued expansion. Fable, developed by Big Blue Box and Lionhead, finally debuted in September 2004, and has now sold over 3 million copies worldwide on both Xbox and PC - another significant sales success, although the game also suffered somewhat from excessive hype in some area of the press.

So Big, Where Next?

It was then that Lionhead ran into what the co-founders described as "our biggest challenge," since they were now up to around 220 people, and, according to Molyneux: "Our burn rate was well over $1 million per month." In other words, games "had to be insanely successful" in order to keep the company going. Molyneux did ,use: "We could have made that step into publishing," but instead, Lionhead started to talk with another bank about further financing.

In the meantime, the three teams within Lionhead "...were stretched to the absolute limit," trying to finish a Fable expansion, Black & White 2, and The Movies all within a few weeks of each other for a holiday 2005 release.

In the end, neither Black & White 2 nor The Movies got the critical or commercial reception that Lionhead might have hoped, and Molyneux commented: "I feel that we rushed them." What's more, he noted ruefully of the crunch that occurred in order to get the products out for holiday 2005: "The original idea of the company... had gone out of the window."

Thus, in early 2006, the Lionhead management started serious talks with third parties with regard to acquiring the developer, with three major game publishing firms (which Molyneux would not name) all vying to buy the firm. Molyneux also commented hopefully: "A lot of the people we spoke to actually wanted us to do the thing we founded the company for" - that is, making original and innovative games.

The Movies

In the end, he felt that the Lionhead founders "...spent so much of our time focusing on... talking to the City" and not enough time making games, and the eventual acquisition by Microsoft was what made sense to the duo in order to have Lionhead focus on the actual games.

In between the negotiations and the Microsoft acquisition, there were around fifty layoffs at the firm in early 2006. Molyneux made clear his rationalization for this happening: "This made sense - nobody at Lionhead including us wanted to have three games in production at one time." Webley added, of the staff cuts: "We made an absolutely fair and transparent process."

Thus, the two concluded, in the end they chose Microsoft to buy the company, since they had been "such great allies" with Fable. Molyneux noted that "it was the best thing for our ideals," since Lionhead could then concentrate on "actually focusing on making brilliant games" - which they are now attempting to do with the development of Fable 2 for the Xbox 360, as well as a separate team working on some early prototype concepts which are not yet public.

Indie Developer Tips From Lionhead

The talk ended with a list of tips for indies, and the first was simple enough: "Know what you want." In other words, if you can understand exactly what you want from a company, and "have a long-term goal and a timescale in mind" when you found it, then you know where you're going.

Lionhead's Molyneux also urged: "Never, ever, ever sign away your IP - ultimately, as an independent developer, your IP is your bargaining power." The duo also noted that licensing your IP falls into similar traps, and it's vital that you keep hold of control in order to control you and your brand's future.

Another key point: "Every game says something about your company," as it was noted: "You're only as good as your last game" - the industry has a relatively short memory, and signing subsequent titles is vital to indie developers' livelihoods.

Possibly the most forceful part of the presentation was the Lionhead duo's comment: "Don't be pulled into the spiral of doom." Specifically, this relates to signing a new game in order to use some of the new resources to help finish existing games - an extremely tempting thing to do, but a harbinger of doom for any firm that does it. (The Lionhead co-founders noted that they'd been tempted, but had never done this.)

Fable: The Lost Chapters

Something that came up in the Q&A, but functioned as a major talking point for indies as well, was the subject of developer/publisher contracts for gaming. Molyneux suggested that the way these deals are negotiated is "completely flawed" for the independent developer, as he urged: "There needs to be a mindset change in this industry".

The Lionhead co-founder referenced the problems of milestone payments when you have no idea what a specific feature set will be many months down the road, and also publishers' possible reluctance to pay for milestones for what is essentially 'polish' with no major content. Overall, as a "hybrid model [derived from] the record industry," including royalty payments kicking in often with some delay, Molyneux concluded that the current method just "doesn't work any more."

The final tips for indie game developers from Molyneux and Webley were heartening, being simply enough: "Be true to your goals," and "...enjoy what you're doing." It was suggested that, as an indie, enjoying facing the problems and defeating them will get you through. And this remarkably honest London Games Summit talk from the duo did a great job of explaining where they felt Lionhead had gone right and wrong, and signposting the major lessons for all to see - also an admirable goal.