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Short: Inside Game Development's Profitability Challenge

In an environment where the high-end game biz is becoming increasingly hit-driven, according to EEDAR chairman Greg Short, "anything that can be done right the first time has value", and his Game Business Law lecture outlined crowding and royalty issues a
Electronic Entertainment Design and Research chairman Greg Short has been discussing the state of the game industry and budgeting as part of a Gamasutra-attended entertainment law conference. Speaking to a lunchtime audience of developers and attorneys at the Game Business Law summit in Dallas, Short said an environment where he claims a majority of titles either break even -- or worse, lose money -- means games are becoming more and more a hit-driven business. One reason for the steep profitability barrier is planning challenges. Short claims -- citing anecdotal information in an IGDA Quality Of Life article -- that up to 60 percent of a game's budget is lost on reworks, false starts, and changing directions. "Anything that can be done right the first time has value," Short says, noting that rework is qualitatively different from iterative design -- for example, a mid-stream decision to change the game from a resolution of 720p to 1080p. He says that 2008 was a competitive year, according to EEDAR's research, with 1,200 retail PC and console titles released. But half of them were released in the same quarter. Between September and November of 2008, 597 games were released. Not only does that mean consumers had more choices than time, but it also means that 603 titles were spread across nine months of that year, potentially making for less crowded release dates away from that quarter. Another issue that publishers face, according to Short, is overspending on royalty rates. While each console maker charges a slightly different rate, generally, publishers are charged a fee of $8 for every disc the manufacturer puts out. If a publisher runs 100,000 copies of a game, they must pay the console $800,000 -- and if the game only sells 50,000 units, the publisher cannot get a refund. Even worse, the royalty is not tied to the Manufacturer's Suggested Retail Price (SRP). For example, if the publisher reduces the price from $59.99 to $49.99, or $39.99, it still must pay the full royalty rate to Microsoft, Nintendo, or Sony. "It's important to get the right amount into the retail channel the first time," says Short. Finally, the relative youth and experience level of game professionals plays a role, claims Short, apparently suggesting that with maturity comes greater planning skills. Citing an IGDA study, Short said that only 18 percent of the industry's executives are over 35 years of age -- and less than ten percent of all lead developers have more than ten years' experience.

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