James Brightman Wednesday 11th October 2017 Share this article Share

Making games is expensive. Let me rephrase that: making games is really, really expensive.

Obviously, that's no secret, but the numbers involved are even surprising to those of us who follow the industry every day. Last month, Kotaku reported many studios budget around $10,000 per person per month to cover salaries plus overhead. Considering that many of the more polished games on the market can take years to create, budgets can spiral out of control very easily and this has a impact on the entire ecosystem.

Moreover, that $10,000 figure is actually lower than many studios spend, industry veterans Brian Fargo (inXile Entertainment) and Jeff Pobst (Hidden Path Entertainment) tell me.

"I used $10,000 per man-month [for budgets] when I was a producer for Sierra online in 2000," Pobst notes.

Fargo concurs: "I would say [$10,000 is] on the low side. I think Tim Schafer pointed out a couple of years ago that this is why these things cost so much to make. There's a big difference between small developers cutting their teeth that have no overhead versus a team of people who've been in the business for two decades. They have families and expect medical insurance, and so it's not going to be something that costs less than $10,000 on average for my people.

"That's on the low end by maybe 20% or 30%. I don't think we're seeing double that, but certainly it's the trajectory we're all going towards. I think that's a fair number. It's always been a funny disparity. We talk about making a game with a budget of, say, $10 million and the smaller developers tend to look at it and go, 'How do they waste so much money?' And then the triple-A guys say, 'How do they do it for so cheap?'

"That seems to be the perpetual argument on these budgets when you want to do something that is ambitious, and that's ultimately what we get rewarded for. Any title that comes out that is ambitious in some way is more likely to be rewarded than one that isn't."

Ambition is a wonderful thing, and most developers have ambitious visions for their games, but then they meet the reality of what ambition costs. The double-A space is now having to invest more than is reasonable for small or mid-sized studios.

"The industry continues to get more binary between the haves and have nots," Fargo continues. "When I see something like salaries going to as high as $20,000 per man-month in San Francisco, that really only affects the smaller to mid-size companies. The big companies - take Blizzard, for example - they can drop $70 million on a project, kill it and then start all over again. Rockstar can spend five years on a game.

"The extra salaries really don't affect them, in my opinion, as much as it does the smaller to the mid-size companies. So yeah, it definitely puts pressure on us.

"Also, what I'm seeing recently is that there was the single-A and double-A indie space that was sort of ripe for opportunity for a while - us included, and we've been doing well - but that's getting more competitive. And the budgets of the double-A products are starting to approach triple-A budgets of 10 years ago."

"The double-A products are starting to approach triple-A budgets of 10 years ago" Brian Fargo, inXile Entertainment

Citing Ninja Theory's Hellblade and Larian's Divinity: Original Sin 2 as recent examples, Fargo laments that expectations for games coming out of the double-A space are rising too rapidly.

"All of a sudden double-A developers are spending in excess of $10 million," he says. "And it's only a matter of time before this rises to $20 million. In fact, I wouldn't be surprised if there were some at those values already. So now what you've got is the triple-A people who are unaffected by the salaries and they're going to be spending hundreds of millions of dollars between production and marketing, and then you've got the double-A companies now starting to spend significant money. What that's going to do is to create an expectation from a user's perspective of what the visuals should look like.

"It creates a harder dynamic for even the smaller companies, because some product is at $39 or $44.95 that doesn't have a multi-million dollar marketing budget. It's still going to have production values that are incredible, and so what will people expect out of a smaller developer? That's the cascading effect of all these different things, and of course you layer on top of that the discoverability issue we've all got with an un-curated platform and it makes it very tricky."

While the major publishers like Activision or EA still manage to reap massive profits, other studios are certainly not getting wealthy by making games. California, where so much of the industry is based, makes the cost equation even more difficult.

"Consumers don't fully understand how truly expensive it is to put out a AAA game now," says Turtle Rock GM Steve Goldstein. "If you start looking at what it costs for someone to be employed in southern California, working in the knowledge industry, it's a lot. And the most frustrating thing actually, and it's something I complain about at the studio all the time, is that we got people here that are working their butts off, who do well, but still can't afford to buy a house in southern California. It's ridiculous. The cost of doing business in tech is so high, especially in California, [that] unless you are the biggest of the biggest, there's a real risk of being able to continue in this medium.

"For us to make a new IP that's AAA and that's a boxed product just doesn't make sense. Because the publisher's going to have to spend $50 to $100 million, which, as your math just points out, isn't making anybody rich over in development. They're going to make that investment... They'll release [that IP] during the holiday season so they can get that additional sales push, but it's going to be coming out amidst a ton of other titles and established franchises, so you have to try to get above the noise level just to get the IP known - it just doesn't pencil out."

When you combine the continued escalation of costs with the challenge of getting above the noise upon release, it can feel like a Sisyphean task for a small or mid-sized games studio.

Fargo offers, "It feels like the budgets for the double-A products have doubled to tripled just in the last five years. Back in 2012 when Broken Age and Pillars [of Eternity] came out, I know what our budgets were then [for Wasteland 2] and I know what the budgets are going to now. I have a sense of what Larian and Obsidian are spending, and I know these numbers have gone up significantly.

"Curation has always been a hot topic. One might argue there's a greater risk of a game being lost in a sea of products, than that of a great game not making it through the quality bar to be in the store. The stats of more and more and more games hitting Steam have not been favorable for any of us... You've got kind of a one, two, three-punch against the smaller publishers/developers."

The shift to digital storefronts and the rise in the sheer number of titles flooding those digital shelves is not ideal, Pobst agrees, and it's making life hard for the really small indies out there.

"For a period of time... we could sell games that were not $60 top price games, and we could make good money... and we could get the opportunity to make more games," he says. "That opportunity is being challenged because there is such a large number of games at low prices in the marketplace. That takes the market, which gives lots of people choice and is really good for gamers in the one sense, and it splits the amount of money against a large number of people.

"I know a large number of individual indies who are closing up shop because they aren't now even making enough money to pay for their own well-being. And that used to be a pretty sure thing. If you had a three-person shop or a four-person shop, you could sell enough to actually make a living. Now that's becoming challenging with so many games available for purchase."

"We have people here that are working their butts off, but still can't afford to buy a house in southern California. It's ridiculous" Steve Goldstein, Turtle Rock

One way to alleviate the sting of rising costs has been to use crowdfunding sites like Kickstarter, and while that has been a boon for the mid-size studios like Double Fine or inXile, in some ways the crowdfunding phenomenon has been a double-edged sword when it comes to setting expectations on budgets, says Pobst.

"If there's a financial pressure, it's really hard for people to get together and actually make great entertainment. So this is hard; this is really hard. And the only reason I think that there is a surprise is in part because of the Kickstarter phenomenon, where people were looking to raise the last $500,000 of a $2 million game, and people thought the game was made for $500,000... Games are really expensive to make, especially the kind that the consumer really desires.

"What we saw with the crowdfunding experience, that we went through ourselves as well as many others, is that the average experience where you get a certain amount of money or you just make your minimum, becomes an expectation of what it takes to actually create product, and that's pretty much not true. You're typically investing some of your own money or another investor's money into the product and, often, people are using crowdfunding to complement that so that they can have enough to make the whole thing."

The $10,000 man-month figure, while scary, is not necessarily universally applicable. Location of your studio and cost of living certainly is a factor in how much employees get paid, and smaller indies aren't going to have the same overhead as double-A teams filled with veterans. Beyond that, there are different approaches to what kind of team to build.

Pobst explains: "If you visit a development studio there are going to be several different models. The model we [use] at Hidden Path, and I've heard places like Crystal Dynamics, is to try and favor a smaller staff with more highly compensated people... The philosophy is that, if you have people who know each other really well and work together really well, their output is going to exceed what the other model [yields].

"The other model is a few highly experienced people that you compensate very highly because they're your leadership, and then [you hire] a larger number of younger and more inexpensive people. You tend to have more of those people to do the same amount of work, and there's a lot more management overhead. That can work, and there are many companies that use that model. In fact, if you start looking at successful titles, you're going to find examples of both. There is no one right model."

While the cost per head may not compare perfectly on a project-to-project or company-to-company basis, the budgets for games continue to go up no matter what. What can the mid-size studios do to compensate for this worrying fact?

"It depends on the genre you're in, but the scope and scale of the thing is what you really need to keep an eye on," Fargo advises. "The visual and audio expectations are rising as the budgets for the double-A games has risen... I would tell developers to keep a really close eye on the scope of the product; better to have something that's very small and tight and polished than something that's overly large... and hits a lot of different things but don't quite visually hold up to the others."

The other issue to contend with is how games are transforming to games-as-a-service, which could be a positive in terms of generating more revenue or a negative because of the need to support staff year-round.

"As I look out towards the future, we are most definitely looking to incorporate aspects of that business model," Fargo notes. "The plus sides of it, of course, is that there's no piracy, and you're able to do better business in some territories where piracy is extremely high. But also it allows you to build a community and have a live-ops team and do [fewer] products, but keep people on it everyday and make it better - doing tournaments and all of those things... It's a very compelling thing to have [but] it does put pressure on a single-player experience game."

Turtle Rock's Goldstein sees the games-as-a-service model going one step further, effectively becoming Netflix-like subscriptions to access content; something big publishers like Ubisoft and EA have predicted is on the horizon. Subscription revenue could be a way to help mitigate rising costs.

"I can absolutely see something like that happening down the line," he says. "Netflix is now playing with budgets that are approaching blockbuster films, so I could see those numbers working for each of the publishers, where they have their users paying a subscription and they release a certain number of really high-end titles as well as a bunch of indie titles... I could see that in five years."

Rising costs have been putting the squeeze on mid-sized studios, but that's not to say triple-A developers and publishers are immune. As Pobst points out, "There used to be a lot more publishers than there are now." As the saying goes, the bigger they are, the harder they fall, and smaller companies have a chance to succeed by being more nimble.

"If I'm really focused on the dollars... then I'm not actually focused on the best entertainment I can possibly create" Jeff Pobst, Hidden Path

"Adapting is part of the game industry," Pobst continues. "You try and find the areas to adapt to that match your skill set. If you're a great narrative designer and your team makes great narrative games, you probably don't go into mobile and focus on free-to-play monetization. It's not really playing to your strengths."

Being nimble allows a studio to try new things. VR is the perfect example of that. Both Hidden Path and Turtle Rock are taking a chance on the emerging medium in the hope that it does become a growth market, and their respective experience should set them up well for the future if VR truly goes mainstream.

And if a studio manages to create a hit, suddenly you have a built-in audience that's more likely to purchase your next title, based on studio reputation alone.

"You've got to give Bungie credit for creating Halo after several other games before that, and then creating Destiny after Halo - that's a big challenge to do," Pobst says. "And then the folks as Blizzard, they've created multiple different hits, which is fairly rare in our industry. If you can build trust with an audience and they can really buy into the anticipation of whatever you're going to do, your ability to spend more to get it right is there.

"Once you do cross over that threshold, Bungie or Blizzard, their budgets are going to be much, much larger than anything you or I have talked about. Their per head rate or the amount of money they'll put into a game is much, much higher for two reasons: one, they know that if they deliver something quality, people will buy it because of the reputation they have. And two, by spending more money, they are putting a greater distance between them and the next competitor. And that greater distance will pay off in the long run."

If a studio does manage to cross that threshold, a huge advantage is unlocked. Suddenly, you're not worried as much about the money to achieve your creative vision, Pobst says.

"If I'm really focused on the dollars...then I'm not actually focused on the best entertainment I can possibly create. If you know that the audience is going to come in a disproportionate way to what you spend, spending stops becoming the problem. A lot of these [bigger] studios are really focused on: 'How do I execute the best? How do I have my team work well? How do I know exactly which features to invest in and which features not to invest in?' You get to a whole set of problems that are far beyond the money problems."

Some have made comparisons to Hollywood and the drastic divide between indie film labels and behemoth studios like Universal, but for all the talk of haves and have nots, Fargo concedes that game creators have a chance at success for lower investments - for now, at least.

"You look at PUBG, that would be considered a smaller Hollywood film and it sells 15 million copies, but that's more profitable than most of the Hollywood blockbusters," he says. "I don't know that there's a parallel in the film business where people on a semi-regular basis are spending under $10 million on a movie yet it's producing blockbuster Hollywood profits. The games business does continue to do that - Rocket League, for example.

"There's enough cases where these smaller titles have just nailed it, but the effect of that is their next ones are going to see a huge difference in budget."