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Analysis: 'Socially Awkward' - Wall Street Envy

Continuing his eccentric essay series on social games, game designer Patrick Dugan analyzes the industry's new obsession with Wall Street, and the "obscene reality of today's bubble-yum flavored funding environment".

Patrick Dugan, Blogger

August 5, 2011

9 Min Read

[Continuing his series of eccentric essays on social games, independent consultant and game designer Patrick Dugan analyzes the industry's new obsession with Wall Street, and the "obscene reality of today's bubble-yum flavored funding environment". You can also read the series' inaugural piece on how Metal Gear Solid 2 predicted Facebook. Here's "Socially Awkward II".] It used to be that "cinematic" games were a hot ticket. The majority of a game's budget came to involve extensive animations, textures, environments, and B-quality voice acting to make your generic action-adventure seem more like a movie. The way you adapt a virtual "camera" implied by the 3D grid of the game became both an art and a science, with licensed engines running splines and Hollywood writers running lines. The games would end with a "rewarding" video sequence followed by turgid credit scrolls, replete with John Riccitiello's extended family and every pie-eating QA tester -- minus a few hard-working developers that were on the wrong side of producer politics during crunch time. Chris Crawford wrote about this once back when he had a column (long ago), where he also mentioned how he pretended to be Spock when he was a teenager. That's all old hat now; the game industry has a new fixation on trying to be something it's not. See, for a long time the Hollywood obsession lead to shrinking margins on games and a famished probability distribution of return-on-investment for each title. Games have always been a hit-driven business with a power-curve of success depending on how closely the experience hits the player right in the soul. That's power! Games are also a typically awful way to invest your money; you might as well buy way far out-of-the-money options -- like betting Netflix will drop by half in a few months or that gold will go above $2000 before Christmas -- at least that way you don't have to deal with arguments about features that end up getting cut, 60-hour weeks, and the disagreeable odor of the alien hominid sharing your table (cubicle walls removed to reduce expense). Much better to slowly lose all your money from the comfort of your own home. Driven by the relentless urge to be the next Kubrick, but orthogonally more awesome, designers capitulated with a vertically-integrated publishing model that sought the high ground of raging sequelitis and an assembly-line production model for arraying visual assets in linear sequences. The games industry was maturing into Hollywood-plus-Circle-Strafing(tm), and for a while all these dinosaur publishers could do was a 10 percent annual profit margin. Best way to become a millionaire: start out a billionaire and invest in AAA games. Then something magical happened: broadband internet made it possible to go from a 20 percent gross margin per game sale to a 70 percent gross margin, or even 97.5 percent if you're handling distribution and payments on your own. Huge difference, like thiiiiiiiiiiiIiiiis big. Social networks made it possible to market the game from within its design; recursive boils of pestilent "virality" and flares of triple-digit operating margins resulted. Suddenly, games were not a desperate attempt to throw monolithic assembly lines at a narrow and precisely-expectant market for tired margins, they were a flowering. And where there are flowers, there are land sharks that love to shred flowers in their multi-rowed teeth. Greed, for the lack of a better word, is gameplay. Fast forward to Zynga CEO Mark Pincus on the cover of Fast Company. Instead of fantasizing about attending some game-version of The Academy Awards, we fantasize about attending Bilderburg (not a game version, just Bilderburg). Who cares about winning awards when you can dump stock on the public at a 30x revenue multiple pop? The makers of Angry Birds took a $42 million dollar round of venture funding even though they claim they didn't need it. Because why not? Hollywood glamorized easy sex, superficial personalities, reckless drug abuse, and a disdain for soulful storytelling in favor of a weaponized formula. The Academy Awards are a band-aid and not how most of studio revenues are generated. But at least when Hollywood releases a "sequel to a sequel to a sequel to a movie based on an amusement-park ride," nobody starves in another country. Wall Street, on the other hand, bases its business on robbing investors who don't have the time to trade like professionals. Sometimes it provides capital formation for genuinely useful businesses that improve society -- that's Wall St.'s equivalent of the Oscars. It's mainly an MMO operation industry where the MMO is society and the business model is churn'em and burn'em. The culture of investment banks is predicated by misplaced incentives for young people like me to make aggressive bets with other people's money, taking a bonus if they win and changing jobs if they lose. The one thing Hollywood, Wall St., and now Silicon Valley have in common is over-leveraged derivatives. There was a time when game companies had to grow on revenues. I sound like a doofus saying that. It such a truism that it's only worth saying to contrast the obscene reality of today's bubble-yum flavored funding environment. I bought an Everything Bagel from Einstein's in Mountain View, and I accidentally stumbled into a VC's office on my way to the bathroom. I said "the gamification of hyper-local, social offer derivatives", and without another word, they literally just threw a million dollars at me in a big duffle bag -- hitting my head, leaving a swell. Instead of bound stacks of Benjamin Franklin mints, the bag contained little $1000 notes, literally written on notebook paper, and on the bendy, detachable part with holes was a straight line -- it must have been drawn with a ruler or something, bisecting each hole straight through -- and the "strike" price above the line was $10. On the back it had a date 18 months from now, and even though I didn't really have a business plan, I knew I needed to mail a $100 check to the capital of Delaware (can anybody name it?) and then open a bank account for that new LLC (I know we'll have to incorporate later, but time is money -- or is money time?). Suffice to say on may way back from the bathroom I bought another hundred thousand Everything Bagels from Einstein's -- a good breakfast program is a GRRReat way of compensating employees with pre-tax dollars and firing up their brains for a busy day of code monkeying and social graph leveraging. On the other hand, I met some developers who intentionally took less money than they could have in order to reduce the pressure and not waste time chasing the cash. They didn't need it to survive, only to supplement more hiring. They want to grow via revenues, play the long-game, and they are, by the way, located pretty dang far away from Silicon Valley. But what happens if all their talent is hoovered up by a better-capitalized incumbent? What if your development partners get tender offers (like a young man makes to a young woman), and you have to raise a C round just to start rolling out talent acquisitions and beat the established international company to the bid? This has nothing to do with your schedule, with your plans for cultivating fandom, for slowly experimenting and finding the fun -- all experimentation will be reckless in pursuit of funding the find. Once upon a time, Gabe Newell cashed out his Microsoft options and focused on doing it right. They did it, and it was awesome. Now, fifteen years later, Gabe Newell is a fucking billionaire. He says that you gotta be able to fund stuff internally. If you have to worry about when your debt is coming due or you've got to report better earnings quarter by quarter instead of quarter-decade by quarter-decade, it will disrupt your ability to make quality... wait for it -- not products, not services -- experiences. But even then, Valve's line-up consists entirely of titles that include numbers at the end. When I got home, I opened the duffel bag and examined my convertible notes again. I had tried taking them to several banks to be cashed, at least enough to pay the credit card bill on my hundred thousand bagel order, but no tellers would tell me anything. I played with the detachable notebook paper thing, and it started to come off. I wondered if I just exercised someone's option, and if they would mind. Maybe if I gave them a better pitch they would have just given me $100 bills instead. I was going to say "the gamification of Jesus" but Jason Rohrer already did it. Making games was so much easier when I lived in my mother's basement. I made a pro-quality casual game for less than ten grand when I was 21. The art was outsourced to Argentina, before inflation cut the PPP in half, the programmer was cut-in for back-end revenue share and a small fee, and I lived with zero expenses in mah muther's basement. The game was made and posted online, we got people playing, and we got good feedback. My big mistake was trying to flip it. I went out and tried to sell it to PlayFirst, Mumbo Jumbo, Big Fish -- I thought this was my "business model". The money blinded me to the first-person viscera of game development and the second-person pulse of forming relationships with satisfied, paying customers. All the remained was Mammon, the third person, and my programmer ultimately couldn't finish the project from the Beta stage because he had three mortgages (count 'em), and he needed to find paying work. The game was about cuttlefish who get addicted to candy, with the player making a business out of selling it to them. By the time I got down to learning how to code gameplay prototypes, I was already employed. It's like the dad who says, "By the time I saw a naked woman, I was already married to her!" What I was allowed to prototype was constrained by monetary fears. Guess what happened to that company? $150k in arrears! Then I worked at a company that had everything going for it, tons of slack in its operating margins, and it never once considered investing in any kind of innovation. I interviewed at a company that had a tight-knit culture of few people but was focused on replicating a safe bet, San Francisco cost-of-living being what it is. I interviewed at another company that had a sprawling engineering culture with tens of thousands of employees... now more than ever focused on replicating a safe bet. It's like my 21-year-old self is living in the limbic systems of all too many board members. The collective mind always takes longer to mature, and when all the defaults wash over, and the dust settles, what remains of gamification will be a useful operating system for using information technology to organize human behavior. What remains of social games will be sticky bonds that go deeper than a FREE Gift. And then maybe we can say something nice about the remains of our pie-chart eating species.

About the Author(s)

Patrick Dugan


Patrick Dugan believes games about characters and social dynamics are the future of the medium. He is currently prototyping a cutting edge, independent drama game about Irish pagans running up on English paladins. Before this he did QA and Level Design for Play With Fire, an innovative casual title released at the launch of Manifesto Games. He keeps a blog called King Lud IC, detailing the new school of game design.

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