Author: by Stephen Ford

"You know what's wrong with the industry?"

So begins just about every conversation that I have around the water cooler, in the work kitchen, in the pub, at friends' houses. This conversation arises whenever two people who work in game development get together, particularly if one or both works in a small or mid-sized developer.

It borders on cliché to talk about the problems affecting development, the problems of developer studios having to merge or close, or the inflexibility of the whole industry system. A whole host of causes get blamed from publishers to management, economic conditions, brain drain to other industries, incompetent designers, the second hand market, lack of professional methods, hardware manufacturers, media coverage, you name it. And then we all get drunk and reassure each other that if we had our way, all would be better.

While these are all lovely rationalisations, and some of them surely are symptoms of the real problem, they are not the cause. The actual causes are simple:

Eventually it is a combination of these five pressures that bring companies great and small to their knees.

Downtime

Developers don't know what to do with staff once a project winds down because the nature of the industry is such that nobody can guarantee constant work. When working in a low-cost market such as 16-bit development, this problem existed as it does today, but the negative weight of it was relatively insignificant. Yet as costs and contract issues and the seriousness of the industry has grown, the problems of having fifty or a hundred people doing nothing for an extended period of time have multiplied that negative weight, to the point that it kills companies.

Some developers have opted for using limited term contracts (employees explicitly only hired for the term of the project) but this results in experienced staff shying away from those developers unless they also offer very high wages to compensate. As a result, the experience ratio in these companies tend to be quite low, the ability to recruit for a project is limited, and the limited contracts structure ultimately saves very little.

The fact that you have employees on limited term contracts does nothing to counteract other business expenses, namely office rental, equipment and other material costs. These still cost a lot of resources to maintain regardless of whether they are filled.

Flexibility

Most development companies have inflexible structures for when projects start to go wrong. As is so often the case, developers make promises that they cannot keep in order to get a contract (which publishers all too willingly lap up). They end up committing to bad processes, such as the obsolete and counterproductive use of the GDD, negative milestone cycles, and approval phases that last forever. They also commit to top-heavy management structures that don't respond well to the trouble on the ground, tend toward drilling down to maintain the illusion of control, and tend to fall back on immediate solutions to satisfy the next milestone and the nervous publisher than actually adopting a strategy.

A lot of developers find themselves trapped into the milestone cycle of tail chasing before they really know where they are, and this is always a bad place to be. Lacking the flexibility to negotiate sanely, poor practises continue to propagate until projects eventually die.

Goals

Most of the remaining development companies believe that they can make money if they can only get into the franchise game, without really knowing what a franchise is or how one is made. Lots of developers believe that they need to maintain a code-base because it actually represents a valuable intellectual property that they will be able to license to someone someday. For a very few companies who were positioned in the right place at the right time this was true, but for most that boat sailed years ago. Lots of companies believe that if they can get into prime position on whatever the hot new format is that they can develop a brand without stopping to think what a brand actually is and what it might take to make one.

The worst sin, however, is that most developers are trying to pursue all of these goals at the same time in a kind of corporate game of round robin, and the truth is that diverse goals kill companies. Even when times are great, diverse goals drain away resources that eventually end up becoming millstones when the recessions eventually come. Diverse goals are born out of not knowing why the company is in business in the first place and what being in business in game creation actually means.

With diverse goals in mind, lots of hidden costs creep into development companies, such as an unnecessary level of business development (to develop those franchises that you will never have), technology investment (for that code-base that you'll never license), image consultancy (for that brand that carries no weight) etcetera. These factors all add to the down-time drain and ultimately end up producing a net loss in the company that grows from investment spike to generation shifts until it eventually kills them.

Focus

Successful companies have a focus and they make that focus their life’s blood. Whether their focus is to create platform games, handheld computers, kinky underwear, whatever, a focused company with a clear strategy is far more likely to succeed than a company which is in business "to make games because games are cool". Focus provides clarity. Lack of focus creates opportunities for vagueness, and traditional development companies are very much unfocussed creations that have no overall strategy.

It's not really an issue of "if" for many dev companies. Many of the smart ones that survived the last round of culling in the PS2 generation did so by being pretty smart and managing to develop at least some relationships and product line relationships with publishers that staved off the worst of the trouble. This is a stalling tactic, however, because all it does is help reduce the hemorrhaging. A lack of a clear strategy results in companies that set up studios hither and thither, or get into half a dozen sections of the market at once making a diverse range of games. These are companies which don't know their business any more than to say that they are in the games industry. They rely on tactics rather than strategy, which eventually kill them.

People

But the King Cause is simply this: Most game development management is pretty incompetent.

Companies that don't have a plan for down time, any flexibility, any clear and consistent goals or any focus are incompetent. Companies that make quick promises, adopt the latest buzzword phrases (scrumm, innovation, original IP, casual, etcetera) without following through, never seem to say no, always deliver GDDs of mighty poundage and written in marketing Greek are incompetent. Companies that are always re-negotiating their milestone commitments are incompetent.

Like so many other areas of the technology and entertainment industries, bad management didn’t really matter when times were good, but as the situation worsened its failings caused companies to die. As the generation shifts have continued, the dramatic swings from prosperity to penury shake out more bad apples, and eventually even the star developers of yesteryear become has-beens.

Many companies have become adept at hiding their flaws, but their future is not bright. Bad management has led to bad decisions, bad practises and ultimately to a badly structured kind of company. As most or all of the mid- and large-sized companies have been constructed by these same people, it follows that the company structure itself may be at fault.

The Game Production Company

While conventional wisdom holds that many of the above practises are survivable, the holders of this wisdom simply haven't run up against hard enough times yet. Hard times show the real mettle of any company, and most developers prove sorely lacking.

The problems inherent in game development are basically a function of the way that game developers think and operate. It is a mentality based on those formative years of the early 90s and on the practises that emerged from that time. A surprising number of people in the industry still believe that those practises were sound despite the wealth of evidence to the contrary, and they also believe that the current chaos will pass.

Well, no, it won't. What will happen is that they will die. While some head off in the direction of the internet to seek their fortune in service games, ad-based games and other innovative business models, there will still be a market for games to be made for the consoles, PCs and handhelds. While publishers dally with their campus-style operations for a little while, they are simply incubating the same problems that kill developers, but on a larger scale. Smart publishers will realise this, and start to look outside themselves for talent again. Enter the game production company.

A game production company is completely different from a game development company because it is based entirely on just one goal:

Everything else is tailored toward ensuring that this goal is reached.

How?

The Pitch

Game production companies do not maintain multiple offices or a large staff. In its down time, a game production company consists of 3-5 key people, mostly executive producers with significant experience in concrete disciplines in a small office. This is because projects can take months or even years to get off the ground.

The pitching and idea development phase of down time is very important, because it helps the company really focus in on the kind of product that it is best suited to deliver. Rather than run as an afterthought, production companies always have multiple concepts in various stages of development. Rather than tender on work for hire that they are ill-suited to develop, they focus on the genre that they know they are good at. As many companies that work in entertainment do it, game production companies find what it is that they do well and they stick to it.

The pitch is not just a flimsy document with bullet-point sales items that they can't back up. A production company examines viability of ideas, benefits of inclusion, available technologies and so on. Rather than bluffing, a production company spends money on its pitches, invests in them. Each one is like a seed that they will one day turn into a full-fledged product, though that process may take five years.

The Demo

One of the key shifts that will happen in the industry in the next few years is that publishers will pay for demos.

Many corporations actively fund seed projects as potential products and this will happen in games soon. As the television industry funds its pilots rather than expecting the likes of Ronald D Moore to come up with the requisite millions himself, so too the smart publishers will realize that always waiting for development companies to come to them with million dollar demos is inevitably going to result in the same old faces pitching the same old ideas. The current demo cycle encourages the developer with the deepest pockets to win and is a hold-over from those early 90s bad practices, but that doesn’t mean that publishers are seeing the smartest product. To a corporation like EA, production company pitches will become the equivalent of Apple turning to a freelance product designer.

Circumventing the traditional process by inviting quality pitches from production companies rather than developers, and then buying the rights and paying for demos is just better business practise because it gives them a broader range of potential projects. This is especially important going forward as most of the pitches that publishers are now receiving are from the same unfocused, resource-heavy incompetent companies that are circling toward self-destruction. Pretty soon there will be no companies out there of sufficient ability that a publisher can strike a deal with any sense of confidence.

The way the demo process works is that the production company hires a demo team of well respected contractors with one goal: To make a demo to match the pitch.

This pre-production phase more fully evaluates existing technologies and tools, builds features in a timely fashion, constructs whatever tools are necessary, plans content, prototypes controls, and finalizes game mechanics. The one thing that it does not do is immediately engage in large amounts of content generation, because that is always fruitless work at this stage. The demo is designed to be a focused demonstration of the promise of the pitch, a ready-to-rock technology environment, whose goal is to fund main development and build publisher confidence.

Flexibility

One amazing fact that has yet to permeate the strata of the industry is that most of their employees have the equipment that they need to do their jobs at home. One example is freelance audio engineers, who do most of their work off site and mail the files in. However, for code, design and art there are still large levels of resistance to the idea that you can effectively export work off site and maintain control.

On-site control is an illusion, and while the camaraderie of a large office space is nice, it is also the least financially efficient way of getting production work done in an age of broadband. A development company spends $5,000 dollars and more per month per desk in wages, rent and other costs. A production company uses a roster of professionals charging professional rate fees who work from home or their outsourcing firm. These professionals are hired based on work available, so the production company pays on material rather than time.

In practise, this means that individual pieces of work appear more valuable (because a professional freelancer is likely to charge double what he would have on salary to cover his down time), but not when all the other wastage of the development company methods are taken into account (rent, equipment, software licenses, relocation costs, support staff, sundries, etc). Should the project run into trouble, or the publishers pull it for whatever reason, the production company is not left holding the bag.

Goals

Unlike the development company which puts its finger in about a dozen pies, the production company has but one goal: Make one profitable game at a time. They do this by avoiding the death-traps of franchises, product lines, technologies, etcetera. Those are goals for other companies.

The production company makes the game that they have pitched and demonstrated work. They do this by charging the right price, and exercising their flexibility. They have the flexibility to walk away from sour deals, avoiding the trap of under-bidding, and removing contract clauses that they are not comfortable with. A production company is able to say no without staring immediate bankruptcy in the face. How many developers are in that position?

The production company’s goal is always to make the game they are currently working on profitable. Get the right people in, do a good job, don't get locked into bad payment rates or the illusion of royalty schemes that will never yield a dime. Better to do one thing well than a dozen things badly.

Focus

Single-minded goals provide a long term strategy for the game production company. It's a simple strategy, and it has the advantage therefore of actually working.

While a lot of people are currently trying to talk big about leveraging value chains, about ownership schemes where the project is split into various ownership companies for investment, and many other vague measures, the company with the focused, simple strategy is the one that usually prevails. No publisher wants to do business with a developer that wants ownership, and a game production company doesn't bother with trying to get blood from that stone. They offer the whole package, IP rights and all, to the publisher because their goal is one profitable game at a time.

This sounds like they are willfully missing the big trick, but that is an incorrect analysis. Most developers are never in the position where they can make their franchise hopes and dreams a reality because they have no leverage to make that happen. Publishers want IP. IP is their primary business.

For a developer to focus on IP is therefore an exercise in loss of focus. It is analogous to an advertising agency wanting to negotiate royalty rates off the back of an ad’s success. No corporation wants to do business with an ad agency that seems intent on cutting into their core business, and the same is true for game publishers. A few developers that have the resources and reputation from the good old days might be pandered to in exchange for their celebrity, but this does not mean that the way is open for most to follow.

So a production company simply doesn’t bother with any of this. Instead, it adopts a smart negotiating strategy. By being focused on one clear goal, the production company knows that its business is not with the public. It’s with the industry. Its tiny infrastructure is designed to work within the industry, and therefore its payment structure is designed likewise. Production companies look for a full paycheck and leave the royalties and rights to businesses that know what to do with them.

People

None of this works without the right people and finding good people is hard. However, the internet is proving to be a useful meeting place. Industry forums and contacts services like LinkedIn are putting people together, helping air some grievances out of the public spotlight and educating individuals in a better way of working. Individual developers are talking like never before and slowly realising their true worth. It is only a matter of time before these people start to organise a new industry based on solid reputations as professionals, hopefully sweeping away the old order in the process.

As with all industry changes, it will happen slowly and then suddenly. The business climate is going to be much more professional, much less ego driven, and much more coordinated to work on a world-wide basis. This is primarily going to be driven by game production companies becoming the root and branch of the industry rather than the sick man developer whose time is clearly up.

Welcome to the games industry, version 2.0.