In this reprint from the June 2000 issue of Game Developer magazine, Peter Molyneux breaks down the many ways that developers can effectively fund development at the dawn of a new generation of consoles. The hype surrounding the next generation of games is at fever pitch. But with quality comes big expenses and long development times. Developers need money and publishers need products. Something’s got to give. Any number of seasoned game players knows about the next generation of hardware. They have a good idea of its speed, power, and versatility, and therefore not only expect but demand software to be worthy of it. The public wants ever more accessible, better-looking, more compulsive, more immersive, deeper games. And every development studio, big or small, is going to try to give them exactly what they want. Of course, this is exactly how it should be. But there’s a price to pay for these new, better-in-every-respect games. Unparalleled innovation costs dearly. It takes a lot longer to create software of this magnitude and it costs a lot more money. I have witnessed a great many game concepts recently and virtually all are attempting to implement brave, sometimes outstanding ideas. Some of these are original, some are born of licenses, but the one thing they have in common is that all are very expensive. And industry-wide, they aren’t going to get any cheaper. So how is funding currently arranged? A lot of existing publisher-developer contracts are based upon the music industry model. A publisher, perceiving greatness and predicting success in a group of talented individuals, hands over a wad of cash. The team then goes and creates a hit product. While this model has worked well (with a few exceptions in both the music and game industries), it’s a risky prospect, and really only seen in cases where the game will be in development for less than two years and will cost less than $4 million to produce. The truth is, with the new games being conceived now, figures of three years and $10 million will become the norm.

The Problems Developers Face

We’re all starting to compete like crazy with each other in every aspect of game creation. This is good for the consumer, because it means we build games to a far higher specification than ever before. Admit it — in the U.S. and Europe, we view the latest screenshots from Japanese development houses with awe and mounting dread as we realize that the eyebrows on our main characters don’t comprise individual hairs. So competition is a good thing, even if it means we have to keep pushing the envelope until it rips. There are three recognized ways of keeping up the momentum. First, you can grow a team of geniuses. Talented people don’t come cheap, and you’ll be looking to lure the best from Disney for your animation and Pixar for your models. So we’re not saving money here. Second, you can form partnerships with out-of-house resources. Many studios are doing just this and relationships can thrive with animation houses or art or programming teams. Watch the spreadsheets, though. Budgets can easily creep upwards toward the gulp-worthy $10 million mark. In fact, there are some projects and game designs being talked about at the moment with figures of more than $20 million attached. If that kind of money makes you shiver, consider that as a rule, only the top five games at any one time make money. Another option is to purchase existing game engines, animations, art, and other middleware development tools. This approach is the current flavor of the month: Why struggle to produce your own technology and artwork when you can dial out for it? O.K., but we’re talking about the next generation of software, here. It'll take ages before middleware is good enough and plentiful enough to satisfy innovation-hungry consumers. And since there isn’t an abundance of middleware, most games using it are going to end up looking the same.

The Publishers’ Point of View

Now let’s look at the problems from the publishers’ perspective, now that they can no longer afford the hit-and-miss approach of funding lots of projects with the hope that a quarter of them will result in high-quality, high-selling games. First, they can fund games to the prototype stage, forcing the developers to prove themselves in game play and graphical terms in order to gain further cash. The problem is that it still costs around $200,000 to produce a prototype and it extends the development lifespan of any advancing project considerably. Alternately, publishers can sign only talent with a proven track record. Such developers have been there and done it before, and are as safe a bet as you’re going to get. But again, these people cost big money and you might get similar projects and stifle the innovation you crave. Third, publishers can construct their own internal teams through creation and acquisition. This is a long-term answer with flexibility and growth potential. But will such a corporate culture lead to “safe” projects and a lack of creative hunger from these teams?

So How Can Developers Fund Games?

First, developers should fund their games not based on the music industry but rather the movie industry. Set up a company based on the game’s intellectual property. Anyone can purchase equity in the whole package, including merchandise, film or TV rights, online properties, and other spin-offs. This extends also to marketing, distribution, and, well, everything to do with the concept. Second, you can pool your talent to give smaller teams access to resources otherwise denied them. This isn’t limited to technology, but can include everything from office resources to ideas. Lionhead’s own satellite scheme works in this way, with the smaller groups benefiting from AI, 3D, and, just as importantly, testing and focus group access. Another alternative is for software houses to get listed on the stock market. This is an extremely popular move at the moment, and can provide all the funds necessary for a team to take their game from conception to bagged and boxed without worry. You can get a higher royalty rate, too, by finding a publisher and distributor at the end of the project. You do of course need a track record, a stunning idea, and ultrasmart management, but if you can pull it off, you’ll have the last laugh. Finally, venture capitalism is also a viable alternative. Although you’ll get locked in with the backers, you’ll receive the money you need and you might not face the tough milestones a seasoned publisher would demand. The purse strings are held tightly but the men in suits want to see your game out there and selling, so they’ll remain on your side if you can ultimately deliver the goods. Our industry needs to face the fact that tomorrow’s games will cost more. But games will still need the lifeblood of innovation, especially if we desire the holy grail of being truly mass-market. Both developers and publishers have to be innovative in another way, too. They must find alternative sources of investment and convince a great many people that their game is going to sit comfortably in the top five. For the games that ultimately achieve this kind of success, this is and will always be an incredibly profitable business.