Indie economics: A discussion on sustainable business models

At IndieCade in Culver City this weekend, veteran game developers Raph Koster and Greg Costikyan were asked to contemplate a business question: For all the tactics and articles and thinkpieces about the business of indie games, what options are we not considering right now, and what frameworks can be created to enable developers to thrive more easily? As you might expect, there was no easy answer. Otherwise all the usual suggested tactics would have worked better for Costikyan, who deadpanned right away: "I have founded two failed companies. Follow my advice and you too can fail." Koster, who despite having sold a successful company, noted "You can be successful business-wise, and still not achieve what you want in games." But the two men weren't willing to let the question go unanswered. They began by painting the landscape indie developers face. Ten years ago, a shift in triple-A publishing toward large, expensive games left gaps in the market that indie games could fill, thus allowing for the indie boom. But that boom is now challenged by crowded digital platforms like Steam, Amazon, Apple's App Store and the Google Play store. "For every platform, we have a monopoly on that retail environment," Costikyan said. "And that's bad." Koster elaborated: In the older days of the game industry, there were different roles that a number of companies fulfilled in delivering a game from creator to to consumer. This included publishing, marketing, shipping, and selling the games. The manipulation of that chain, Koster said, was what allowed companies like EA to succeed, as they were the only video game company that owned their own distributor. In those days, as a harbinger to Steam and the App Store's control over the marketplace, they could get their own games to the marketplace, and sidestepped a whole group of companies "whose sole purpose was to move games from Activision to Electronics Boutique." The vanishing of those companies, according to Koster and Costikyan, has created a situation similar to the music industry, where Koster asserted, "artistic product becomes less than luxury, less than commodity, and starts slipping down almost to utility. Music is so readily available now almost every given song is going to be disposable."

"The trap with taking [venture capital] money is if people give you money, it’s because they expect a return, and in games that return typically isn't a game by game basis."

Costikyan’s solution -- one he joked he'd charge headlong into if he wasn't 55-years-old and done with startups -- is the idea of the co-op. Specifically, the Rochdale Principles, the core model for co-ops used across the world today with store brands like Ace Hardware still using the model successfully. The Rochdale Principles encourage democratic control among member businesses and institutions, giving them the appearance of franchisees, but instead with the focus on paying gathered funds back into the companies instead of out to shareholders. This setup aligns itself much more with the interest of its owners. But, an obvious problem arose. It's hard to raise capital if you have no equity to sell, and even further, Koster argued that "The trap with taking [venture capital] money is if people give you money, it’s because they expect a return, and in games that return typically isn't a game by game basis. They want a piece of you, they want a piece of the company. The only way to give a piece of the company is to sell it. If you take money like that you're kind of signing up to get shot in the head." This was, as Koster noted, part of the story behind Gathering of Developers. "I don't know if anyone here remembers Gathering of Developers, which almost began as a cooperative and quickly turned into 'no let's take money and shoot ourselves in the head.'" The two developers also spoke of the notion of building a hobby out of a game, not just a singular product. Costikyan spoke of games that are "systemically rich enough that people can play for a long time, and [developers] can find ways [to keep players financially invested]." He added, "If someone wants to play Civilization for 10 years, and you can't find a way to make a living off of that, you're not thinking enough about ways in which you could be interacting with the player." And ethical microtransactions were a part of that hobby mentality--giving players the opportunity to spend money on something they feel attached to, rather than punishing them during the course of general gameplay. "Microtransactions itself, the place where the evil sneaks in...it’s in analytics. It's using analytics in a particular way that suckers you in to that behavior, moreso than microtransactions in the first place.” (You can read more of Costikyan's views on ethical free-to-play design here.) On the topic of new business models in games, Koster mused, "I could see interesting business models if an indie collective got together where part of the premise was touring the games and building social events around them. There's something really interesting there. And charging for a ticket, charging for a T-shirt. Finding ways to make that connection and turn it into a following." This perhaps, may be the territory where new structures and old advice can work together--because even if indie developers can make games that capture the attention of millions, the people who can manage those marketing hats, and those supply chain hats, will be necessary once again to make the connection between player and creator. For more thoughts from Koster and devs' financial future, read his Gamasutra blog on the topic.