Paradox Interactive's Fredrik Wester says the Stockholm-based developer-publisher is surviving gamely amid the global economic crisis -- working primarily in the PC game arena to boot -- thanks to a very targeted operations method Wester suggests might be a wise way forward for many such companies.
The company started in 1999 doing development only, but since entering global publishing in 2004 and adding a New York office, has published 20 games, mostly PC strategy titles including Europa Universalis, Galactic Civilizations
, Rush for Berlin
and fan-favorite Hearts of Iron
"The type of games we've been doing are map-based, very in-depth strategy titles, like our World War II title Hearts of Iron
," Wester explains. "The second installment sold 60,000 units in North America; we're actually doing number 3 right now, this year."
Aside from its publishing activities, the company has an in-house development team of only nine staffers, with a lot of work outsourced. "We try to keep operations here very lean," Wester notes.
Paradox could be said to operate in a highly niche market, on a platform that many developers and publishers seem unsure how to negotiate alongside the current console generation. But as the global crisis makes profitability more challenging for the larger games industry than ever, Wester states: "2009 is going to be our best year ever."
Digital Distribution Is Not Optional
Cost efficiency has always been a large part of the company's business model, says Wester. "We haven't really spent a lot of money on big teams trying to reach all markets at the same time."
But readiness for digital distribution is key to the survival of developers and publishers, Wester says. "I think what's hitting back now is the digital distribution revolution taking place -- especially in the PC business. If you can't take advantage of that, you're going to suffer a lot."
In fact, the rise of digital distribution has helped strengthen the company, says Wester. He's also the founder (and still 20 percent owner) of digital download portal GamersGate, which just yesterday announced it would switch its catalog to a client-free model.
So not only does Paradox handle its own worldwide publishing, but it relies heavily on download services including, but also in addition to GamersGate, like Steam, Direct2Drive, and Impulse. "30 to 40 percent of our revenue [this year] is going to come from digital distribution," Wester says, "and that's obviously a significant part of the revenue stream."
"I think that's one of the reasons we have been growing so much lately," he says. "We are really focused on getting the business online."
In fact, Wester says a strong migration toward digital distribution and alternative business models like microtransactions has become an essential survival move for PC publishers, and "it may already be too late" for those now hurrying to catch up.
"To release a game in box retail costs a lot more than releasing it online," he says. "Obviously, you should do both, because in-box distribution is still the majority of all sales."
A Rewarding DLC Model
One strategy Paradox has employed is to charge $10 for large-scale updates to its titles, rather than prescribing a steady drip of smaller DLC. Although such expansion-level releases are usually purchased by the most core players, "it's proven to be very good for us on the cash flow side," Wester says. "When you are as small as we are, you are vulnerable to dips in cash flow."
This model only works on top of a solid basic client-installed game that is strong enough for players to enjoy as a standalone without subscription fees, Wester notes.
"But then, for people who enjoy it a half year or a year more... you can add additional content for it that can radically change the gameplay and make it into a new experience. Like reinvent the game, so to speak... I think a lot of gamers appreciate that."
In fact, the expansions were originally simply intended to be an "investment" in user retention and less a profitable enterprise, but they've pulled their weight as far as helping break even on their costs and keeping games "alive" for longer.
On the publishing side, the company already has six projects slated for the coming year. "We pick up a lot of independent developers these days," says Wester. "The most important thing is they have an edge at what they do."
In other words, to Paradox, focusing on a single area better than any other is of paramount importance, moreso than more popular ideas than the widest-possible audience or the least genre-specific.
Largely, Wester suggests that it's better to publish many products that each address a single niche very well -- even if they each sell on average in the 40 to 60,000-unit range -- than to slate a few big budget games aimed at the most crowded market segments.
For example, Mount and Blade
, developed by small Turkish indie TaleWorlds, is a medieval combat action RPG -- not exactly a competitive category. But Wester found it was the best medieval combat action RPG he'd seen, and so signed the title.
Dedication on the part of a studio plays a role, too, says Wester, for independent developers seeking a good match in a small publisher. "We're looking for people very, very dedicated in what they do," he says. "That always shows in the gameplay. You can see from a game if they put all their heart and soul into it."
And as many small indies do, TaleWorlds had originally started off by continually offering in-progress beta builds to a small fanbase via its website. Wester noted the players' loyalty, and the fact that they'd even volunteer donations to encourage the game's completion.
It took two years to fully polish and rework Mount and Blade
for digital and retail publishing, but that initial something that Wester first saw in the title made it, to him, worth the wait.
PC's Passionate Audience
So as Paradox takes an approach somewhat different to the norm -- selecting independent studios and niche titles, and relying heavily on digital distribution to reach a global audience -- how does Wester feel about the state of the PC market right now?
"The PC market is much more... hardcore," he says, taking a minute to mull on the appropriate term. "PC players are more decisive in what they want to play; they're more focused. You can't release a crap game for the PC anymore, and people will just rush out and buy it."
"For the Xbox 360, for example, it's much more mainstream, and you can release titles... of lower quality, to be honest, and still sell a lot. That's not saying all PC games are really great -- because they're not -- but the games that are not great don't get any sales at all, so there is a larger pressure to create great games for the PC. But if the game is good, you can sell a lot of units."
Especially combined with digital distribution, Wester feels there's still a very good market for PC games. "And it's also opening up a market for smaller games," he notes, "Like what Microsoft is trying to do with Xbox Live; that's growing a lot on the PC platform as well."
In other words, a shorter or simple title that would hit a retail shelf at a $19.99 price hardly even outweighs the costs of getting it to retail, ultimately -- "the margin eats up the revenue, mostly," says Wester. So as an established connected platform, he believes the PC holds great potential for smaller-scale, easy-to-learn, lower-priced games.
Announcing Mezmer Games
With that in mind, the company's starting a new sub-brand within Paradox called Mezmer Games, to house high quality, smaller games that aren't at all benefited by retail distribution, focused on supporting independent developers with the marketing to reach a larger audience via digital channels. One of the first titles under the new label, for example, will be a quirky strategy-lite called Stalin Vs. Martians
"It's kind of an arcade RTS game," Wester explains. "Lightweight, but really fun -- and full of Russian techno music."
Though Mezmer Games as a site is still in alpha, the ultimate aim is to gather independent developers and allow them to conduct their own individual forums there for fans.
It's beneficial to indie developers to start small, Wester says. "I don't think you should aim too high, initially. To create a game like Oblivion
, you need the development and marketing budget that they have. It took Bethesda 20 years to get to where they were today... and they didn't have their first huge super-hit until [just a few years ago.] Not everyone can be Bethesda or Blizzard."
The Big-Budget Myth
Wester says an unidentified studio once told Paradox that it required a $5 million budget to build its vision. "It was their first game!" He says. "Maybe you should create a small game first, just to prove -- and to prove to yourselves -- you can create a good game."
$5 million, Wester marvels, is generally considered the "lowest of the low" budgets for high-quality titles, and it surprises him how many people believe that's the minimum needed.
"My belief is you should work step-by-step," he says. "If you aim to create bigger and bigger games, you shouldn't go for very niche games all the time -- but if you have to start somewhere, I think that would be a good start."
And he also hopes developers won't exclude the PC as a potential development avenue, even in a climate of migration toward consoles and handhelds.
"We have a company here in the neighborhood who only creates games for Xbox Live Arcade and PlayStation Network," Wester says. "All of a sudden, Microsoft just switches the royalty model on them -- they get 30 percent instead of 70 percent, and it was just, 'oh! FYI!'And everyone got really pissed off, but what could they do?"
"I think PC has a great future," he concludes."With the PC, you control everything yourself. More people should develop for the PC -- especially small companies that are totally dependent on the big consoles."