2008 Indie Sales Statistics

Obtaining reliable sales stats is one of the harder things to do in the video game business. Unless you have access to the NPD reports (which are very expensive) you can only rely on numbers from the developers and publishers themselves. Unfortunately, many of the contracts out there prohibit discussing these sales numbers publicly. There is a general ‘brotherhood’ of indie game developers in the PC/Mac scene, however, and just recently a few of them were able to release their sales revenues for 2008. Thanks to all of the developers out there courageous enough to release your numbers!

The sales statistics are conveniently cataloged here, at Grey Alien Game’s blog:

http://greyaliengames.com/blog/some-fantastic-indie-sales-stats/

Looking at the stats, you’ll notice a pretty wide variety in generated revenues. This is just a very small sampling of all indie studios out there, and can’t be considered representative of the whole. However, I do think that it may be useful in understanding market potential for niche genres and mass-market casual games.

To throw more numbers around, I’ve seen the estimates of what a very popular casual game makes on average. It’s important to realize that this is not based on factual evidence I have seen, only hearsay from other contacts in the industry. A popular casual game in this context, refers to a casual game that makes into the Top 10 list of the major portals (such as Big Fish Games) and remains in the Top 10 for a couple of weeks. The [estimated] average revenue for such a game is between $150,000 and $200,000 which results in a developer’s cut of $60,000 to $90,000 if the game was developed without external funding. Of course, making a Top 10 game is no easy feat!

And finally, let’s look at the biggest of the big. Big Fish Games is one of the largest portals for casual games in terms of total revenue. They have created several flagship properties internally (or simply bought IP rights), one of which has been tearing up the casual charts for a good while. Mystery Case File games are hidden object/puzzle games, which recently saw a fifth iteration released. Conveniently, Big Fish Games announced that the first 4 entries of the series on the PC have moved a total of 2.5 million units to date. It’s hard to estimate how much revenue these games have generated, because they can be bought for either $20.00 or only $6.99 with a Big Fish membership. However, I’d estimate that these 4 games have generated between $15 million and $25 million. Not bad. Not bad at all.

An Addendum to Economy of Pain

Many of the economic (and social) policies I described in my last two posts about the economy of pain have been floating in my head for a couple of years now. I’ve seen some similar views, but nothing quite as drastic as what I think is really necessary. I decided to dig a little deeper, and found an excellent interview with Ralph Nader from last year, mentioning some of the very things I wrote about.

I found it interesting, perhaps you will too.

http://www.businessweek.com/smallbiz/running_small_business/archives/2008/10/_for_the_past_f.html

Economy of Pain Part 2

Previously, I have hinted that laissez-faire capitalism (including quasi systems like the USA’s) is not a modern solution for economic stability. The reasons are numerous, but one of the central problems in a pure capitalistic system is the inability of small businesses to truly flourish. Modern laissez-faire capitalism will always be dominated by massive corporations, which either run competition out of business (natural selection is fine by me – when the playing field is level) or buy up the competition. The results of mega-corporations are: less competition, more outsourcing, political power shifts from the people to businesses, and indirectly mega-corporations contribute to increases in gains on capital and lower gains on labor (almost always a sign of an impending economic collapse – and also applicable to our current situation in the USA.)

I’ve always been of the mindset that capitalism is a system (which requires a viable central entity) that should function to serve the general population (my preferred term is Small Capitalism). In this scenario, small businesses would represent the largest slice of a nation’s GDP, not mega-corporations as is currently the case in almost all developed, capitalistic nations. Capitalism centered on a large, strong core of small businesses would require vast government promotion, tight regulation, and probably even the nationalization of the financial and health sectors. This is the exact opposite on the scale of capitalism compared to an anarchic laissez-faire system and in some people’s minds will smack of socialism (it’s not.) This kind of change would almost certainly require a full blown revolution in the USA, but I’m optimistic that in my lifetime I’ll see a developing nation take this approach to economic structure.

Despite the inability of the USA to promote an economic system which empowers the small business model, it is still possible for any citizen to form an LLC or similar, armed with nothing but perseverance and a vision, to try and start up and sustain a small business. The current recession is both an opportunity and a challenge for start-up businesses. The challenges are numerous: it’s difficult to secure credit, retail sales are vaporizing (for both luxuries and necessities), and the future is very, very uncertain. The solutions to these challenges are: develop a business model that does not rely on credit or outside capital injection, develop a business model that produces products or services that survive best in economic decline, and finally, develop a business model that can be sustainable over the short term on low gains but has real long term value.

These are the three parameters that I have been using for the preparation of my own plans to start up an indie game shop at the end of this year. Conveniently, an indie video game company has a lot of advantages during periods of economic distress. But first, let’s talk about the video game industry as a whole as it relates to recession.

This past fall there was a term tossed around in the media like a hot potato regarding the video game industry: “recession-proof”. The theory goes that the video game industry wouldn’t suffer as the general economy takes a nosedive. The idea is actually rooted in logic; the entertainment industry did very well in the Great Depression and since then has fared equally well in hard times. Also, since the video game bust in the early 80’s, the industry has increased revenue year over year. Even this past fall in the midst of the decline, video games sales improved over the previous year. 

Despite all of this, the truth is not so rosy: during serious economic recession, every sector of the economy will slide. The video game industry is not immune, nor is the entertainment industry in general. Fortunately, the statistics seem to show that the video game industry isn’t sliding as bad as other sectors. There have already been losses and there will continue to be losses, but for the moment it appears that video games will not suffer a knock out blow. The large publishers flush with cash will likely tighten up their project schedules, but remain without substantial losses. The medium and smaller publishers without large cash reserves will probably fare far worse: without free flowing credit, projects will be canceled or delayed, and ultimately some of these companies will fail.

This high level pressure has already begun to filter down to developers. Without a steady stream of projects, many developers will be forced into drastic cutbacks and several will fold. I personally believe that the smaller developers will actually survive better during these times; the developers which have lower overhead and are capable of developing in the digital distribution space.

Although video game revenue may fall for the first time in 25 years, the economic crisis might actually play into the hands of increasing digital distribution’s revenue: the games are cheaper and can be purchased from the comfort of your living room. Of course, digital distribution requires an internet connection but the internet is so ingrained in modern society, I doubt it will be an amenity many will be willing to drop. With the internet you can watch TV shows, movies, and get hours and hours of  entertainment, news, and social interaction. If anything, I believe people will keep their net access and drop cable TV, landline phones, and even a night out on the town.

So from the perspective of an indie game start-up, the goals during this recession are clear: keep overhead to a minimum, generate enough revenue to survive the next few years, and create products and a reputation that will help propel your company into 6th gear when the sunshine finally arrives on the horizon, however long that may take.

Economy of Pain Part 1

Apparently, the economy of the USA world is in quite the mess. Who knew? Well, probably just about everyone: it’s virtually impossible to not read/see/hear about economic doom and gloom everyday  in the present recession. The media has the tendency to sensationalize just about everything they print ( smart business) and a few people out there think that the media is, again, blowing things out of proportion. But I disagree; for once, the media is actually printing unabated truth and the scary part is that the truth is already quite sensational. 

I’m definitely not an economist but I am good with numbers and I like them. With this at hand, it’s not difficult to scour through financial reports of the past and the present, do a little artithmetic, and see that yes, the global economy (which up until this point has largely hinged on the USA and Western Europe) is in a good deal of trouble. The real question, however, is: how far down does the rabbit hole go?

Opinions vary from expert to expert and I believe that most Americans believe that the worst has past and that if we are not at the bottom, then we must be excruciatingly close. Again, I disagree. Sure, the financial sector was absolutely rocked by poor mortgage underwriting and moronic sub-prime lending. This in turn froze credit lines solid, and the myriad businesses which depend on this free flowing credit became deadlocked. The result: people lost their homes, Wall St. lost their jobs, businesses had to cut down, more people lost their jobs and then their homes, and here we are, fresh into 2009.

Unfortunately, I believe it’s going to get much, much worse. At best, I believe we have survived the first cycle of this recession. It started with people losing their homes, going through a financial crisis which caused more lost jobs (and savings), and ended with more people losing their homes. Conveniently cyclical, eh? The next phase: unsecured debt will fail. Credit cards, retail credit, small business loans, peer to peer capital; all of these sectors are going to see excruciating losses in the next two fiscal quarters. The result: more lost jobs, more lost homes, another credit squeeze which causes more lost jobs, and finally, more lost homes. Again, nice and cyclical. The USA received a black eye this past fall, but the rounds of losses mounting this spring will come to a full blown concussion.

But there’s more. This past fall, the sub-prime mortgage fell apart leaving the USA shaky but still on its feet. The bad news is that this is only the first wave of failing mortgages. Round two will come in from 2010 to 2012, when non sub-prime ARM-style mortgages crash. Many of the sub-prime mortgages that failed did indeed contain variable APRs. Sadly, many of the ‘prime’ mortgages that currently exist also use variable APR underwriting. I’ll let you Google for yourself to find the shocking and scary numbers. In an effort to recoup their tremendous losses (and probably just to stay afloat) the big bank lenders will have to increase the interest rate on these mortgages. The result? More homes lost, more financial crisis, more credit problems, more jobs lost and finally, more homes lost.

At the end of 2012, the USA will likely be a shadow of its former powerhouse glory. There is pretty much no way to avoid this; we have set ourselves up for catastrophe. There isn’t anything that the Federal Reserve, Congress, or President Obama will be able to do. It’s kind of like pushing a brake-less, broken-down car over the peak of a hill. Once the car is rolling down that hill and gains momentum, it’s very difficult to stop – and even more difficult to get back to the top. 

Well, since this is kind of the bleak and depressing post of the week, I suppose it is important to say that it isn’t all gloom and doom out there in the big bad world of economics. The next 3 years are going to be very painful for almost everyone but the wealthy. My advice (which I am taking) is eliminating debt – immediately. Saving up cash – by the truck loads. And just be prepared to wake up one morning and realize you have no job. Ok, that’s still kind of depressing. Let me try again.

At the end of this horrific economic rollercoaster, there will be brighter days; it’s the nature of dynamic systems. This poses a tremendous opportunity for all of the middle and lower class Americans out there; an opportunity to hit the ground running with innovation and excellence, so that when good times do roll around again, you’ll be leading the pack.

That’s my goal, anyway.

Choosing a Target Market

As a fledgling indie game developer, I believe you have roughly 2 major potential markets to try and attack.  Both of these markets revolve around digital distribution, which is the selling of games (or other media) directly over the internet. This avoids the need for costly physical production materials used in console and handheld retail games, which further frees an indie developer to finish and distribute a title without a publisher.  Currently, the mainstream console/handheld retail market is the most lucrative available to game developers, but it is also the most expensive and has the most barriers to entry. Fortunately, I believe that in the next 5-6 years (essentially another console generation) this will no longer be the case, and digital distribution will be the primary revenue source for games.

It’s  important to make a decision early on in a company’s life cycle (although it will often evolve with a company’s success)  regarding what target market presents the most opportunity for the company’s business strategy. This is important because it determines what your development restrictions are for production, how much capital you will have to invest in a title, and the potential sales revenue a game can generate. 

(1) Consoles

Each of the three modern console systems have introduced their own network to sell digitally distributed games. These games are typically much smaller in scope and content than full retail games and are sold for $5 – $20. Digitally distributed titles on consoles can take full advantage of the system’s computational prowess while removing much of the overhead inherent in retail. Consoles also have the largest dedicated audience: an audience that is primarily interested in playing games. This audience is also composed of a larger number of purchasing ‘core’ players, thus an indie game can take liberty with design choices, genres, and difficulty. There are a couple of truly notable indie games that were recently released: Braid by Number None on the XBox Live, and World of Goo by 2DBoy on WiiWare. These are fantastic games that have garnered both critical acclaim and solid sales. And both of these indie teams consist of only 1 or 2 people, supplemented by a few contractors.

Although digital distribution on consoles eases some of the overhead associated with developing a retail game for a console, there are still upfront development expenses. You’ll need development kits and must pass a certification process, so there is an investment of capital. It may be possible for an indie to secure a publisher to cover these costs, but this will greatly reduce your returns and somewhat defeats the purpose of being independent. In the retail market, an independent developer must be flush with cash to cover the costs of publishing their own game, so it is most common for developers to ‘work for hire’ under publishers. However, digital distribution presents a unique opportunity for indies to eliminate the middle man, and I hope that many follow this path.

After poring through statistics, it seems to me that console digital distribution is not the most lucrative of the 2 digital distribution markets; the PC market is. However, I strongly believe that digital distribution will eventually completely overtake the retail markets (it’s cheaper and more convenient) and that the dedicated audience of the console market will eventually surpass PC sales.

(2) PC/Mac

By far, the PC/Mac digital distribution market has the lowest barriers to entry. There are no development kits necessary or mandatory certification process. All you literally need is a computer. Of course, that’s all you need to make a game; actually selling them requires a lot of business savvy and marketing prowess. The PC/Mac market also has the largest audience: far more people own computers than console systems. However, unlike the dedicated market of consoles, the PC/Mac audience uses computers for a wide range of tasks, and cannot compete with the near 100% dedication to games that the console market boasts. Thus a major problem with this market is exposed: finding people interested in playing and purchasing your game. 

There are two other primary issues with the PC/Mac market: piracy and the ‘casual effect’. You might hear many large companies complain about how piracy is destroying their sales revenues, but I think that this is largely blown out of proportion. In fact, I don’t think that pirates are really a problem at all. From my perspective, they were never potential customers and thus you cannot really count pirated versions of games as ‘lost sales’. Recent statistical analysis has actually shown that making it more difficult for pirates to secure a version of your game results in very few actual sales versus the number of copies pirated, and can actually discourage legitimate customers.

The ‘casual effect’ is actually a really poor name for something that is moderately intangible. Essentially, ‘core’ indie games (complex, difficult, provocative, etc.) have a very difficult time generating substantial revenue (on average) in the PC/Mac market. On the other hand, casual games ( simple mechanics, no mature content, easily accessible) revenue has been exploding over the last few years. Large websites dedicated entirely to selling such games (these sites are known as portals) have been extremely profitable and indie developers have found a niche that can see serious returns. While a developer may be more creatively limited to develop games that fit within the sphere of ‘casualness’, I don’t believe that this a problem with the PC/Mac market either. To me, it actually represents an enormous opportunity for indie developers to devise a business plan which has a higher chance of success than in any other market. 

While the two markets above are, in my opinion, the best markets for new indie developers, there are a couple of other markets worth mentioning: mobile (iPhone, cell phones) and flash (browser based games). These markets also have appropriate strengths and weaknesses, but after thorough research, I cannot find hard evidence that either of these markets can foster an environment of success for start-up indies and/or provide a sustainable business model which promotes growth. The iPhone is already getting a lot of attention from indie developers, but I’m still not convinced that it’s a viable and sustainable market to target for budding and growing indie developers.