Video Game CEO Panel in Atlanta Tonight

Hi Folks,

The MBA program at Emory Univ in Atlanta is putting on a “CEO Panel” tonight with local industry types from the video game industry: http://www.emory.edu/BUSINESS/game/

Some of the presenters include:

Rick Sanchez formerly of IGN (now with TBS)
Erez Goren from Hi-Rez Studios
Ken Lightner formerly of Holistic Designs, among others

I thought I’d post because (1) there might actually be someone who reads these boards attending and (2) I’ll pass along any questions you might have.

Atlanta isn’t nearly the powerhouse in video gaming that it perhaps should be, and I’m always eager for networking opportunities when they present themselves.

Well Pie, I’m in Atlanta*, but I’ve given up on it having any relevance for computer gaming. I know Ken, last I heard he was at Blue Heat, a wireless gaming company.

For Pen-and-Paper RPGs, however, it’s got White Wolf and Holistic and probably a few others.

OTP, W. Cobb County

Why not ask the question why there isn’t more of a gaming industry here? We are a good sized city for IT, the weather is great, and the cost of living is a lot cheaper than the west coast.

My current job pays well and I’m in no hurry to leave, but if the right gaming type job opened up down here, I’d certainly be interested :shock:

Gawd, I’m more or less an Atlanta native and when I left it eight years ago I was happy as hell to be out of there. Terrible traffic, hotter than hell, and urban/suburban sprawl out the wazoon. I have to go there occasionally because parts of my family are still suffering there but man, I would have a hard time living there again…

You could simply ask “Why there isn’t more of a gaming industry anywhere?”.

To answer, you gotta look at the history of computer gaming. Invariably one small startup would grow up big and then spawn off a ton of little child companies. You need that one startup for that to happen. Sierra, EA, Origin, etc. are the common examples of these initial trees.

During this Golden Age, or whatever, you had development centralized in a few key areas: southern California (OC and LA mostly), northern California (Bay Area), Seattle, and Austin – all with obvious and identifiable progenitors. Many timese these are also tied to “college towns” where the talent is young and cheap.

Sometimes a small company starts up, but it can’t sustain and so no community builds up locally, and it just kind of peters out. Parallax/Outrage (Ann Arbor) and Volition (Champaign) did that. In Madison you have Human Head which was begotten from Raven.

Today we’re not seeing the satellite studios startup nearly as much. The climate is against it, and to be frank, those days are over. Publishers aren’t willing to risk $10M on a startup unless the trust level is through the roof – back when a game could be funded for $1.5M, it was a lot more tenable. But you can barely make a screensaver today for $1.5M with today’s salary demands.

Not only are the small satellite studios not showing up anymore, existing ones are being shut down and consolidate. If MegaGameCorp can save $2M/year by closing down a branch office and relocating its non-redundant staff to the mothership, it makes sense. Ten years ago that wasn’t the case – the talent needed to be nurtured. Not so much these days, a lot of people are just flat out replaceable (it’s just that everyone is still expensive).

So, to get round to the point, Atlanta has several great things going for it as a game development center. Major international airport hub. Excellent student community (Georgia Tech). Relatively affordable (although that’s hard to believe these days with the home prices in my neighborhood). Major sports teams. Unlikely to be hit by a hurricane, massive earthquake, volcano, tsunami, or something similar. Quite a lot of technology companies, mostly in the realm of telecom.

Cons: Bible belt; rather mediocre weather (worse than San Diego, better than Texas); lacks any real cultural identity; relatively rednecky; nowhere near a major publisher.

And, of course, there has not been the major independent studio that sprouts up and develops a community around it. It just never happened, but that can be said of a lot of places that are similarly situated for gaming goodness.

Given the business environment today, I highly doubt that there will be any major studios in Atlanta forming. Right now there are a handful of wireless companies and that’s about it. Red Orchestra are here, and Holistic did games for a while, and DW Bradley is local, but that’s it.

But you can barely make a screensaver today for $1.5M with today’s salary demands.

That’s a bit of an exaggeration. Kiyon, my employer, was able to make a wireless mesh router with BACnet IP and BACnet MSTP bridging capabilities for something less than $1.5M. And that’s including hardware and test equipment. To say nothing of our ultra-secret 802.11 MAC futzing.

I think the real problem is that all the games out there are either mega-studio wundersucks or Windows Solitaire competitors, with nothing in-between. It’s not that the market doesn’t exist; it’s that no one’s bothering to exploit it.

It’s not a case of “bothering”, it’s a case of financing. You can self-finance a one-man operation by working nights. External financiers like publishers aren’t interested in financing a $750K game that might sell 50K copies.

So that’s pretty much a deadzone. Inexpensive overseas developers can make decent mid-range titles (e.g. Space Rangers 2 or whatever) but they still have a hard time with funding and then distribution in the states.

Yeah, that’s totally true. Game budgets have grown beyond the market’s ability to sustain them, at least for all but the few real blockbuster sellers that come out each year. But developers used to make quality games with good production values for far less than they do today. I think the fact that developers seem compelled to work every advance in hardware into their games contributes to that. Back before every game in every genre featured an uber-3D engine, it wasn’t unusual to have game budgets under $1 million, even for A-list titles. Developers often say that 3D makes some things easier, but I’m skeptical. The skyrocketing cost of making games seems to be at odds with that statement.

External financiers like publishers aren’t interested in financing a $750K game that might sell 50K copies.

That also seems silly to me. Shouldn’t savvy investers be more interested in margins than in total dollar amounts? I would think that financing ten $750K games that sells 50K copies each would be more attractive, from a business standpoint, than financing a $7.5 million game that sells 500K copies. Because with the cheaper games, you diversify your risks while getting the same return on your investment. With the expensive game, you’re in a sink-or-swim situation–either your game is a blockbuster, or your company goes bankrupt.

Which is exactly what has happened to a lot of publishers.

So BTG, you basically agree with me – it’s not that the market isn’t there, it’s that no one wants to exploit it. And I think Ben Sones points out some good reasons why it’s silly not to.

I think the fact that developers seem compelled to work every advance in hardware into their games contributes to that.

There was a good reason for this: 3D advances give you that whiz-bang draw, the “gee, golly, lookit that” that draws customers to try your game. Would Doom3 have caused anyone to bat an eyelid if it had used the old Quake 3 engine?

What’s happening now is that the cost/benefit of new 3D graphics is getting ugly. The 3D revolution is over; 3D is just an expected part of games, now. You have three consoles coming out next year with extremely similar hardware. No one’s going to get that “gee, golly, lookit that” feeling past the first year, so things like Nintendo’s funky controller and PS3’s blu-ray support are going to make more of an impact on who buys what than any graphics whiz-bang.

I think the middle ground is ripe for plucking, and the first investor with the money to make that happen is going to be fucking rich as hell five years later.

Yes and no. Sure, it makes sense, but you figure in that a lot of investors don’t want to amortize a 20% return on investment, they want to see a huge, HUGE win. “Go big or go home”. Games are risky as hell to invest in, probably more so than movies, so if you’re going to go in, you need to go in full bore to maximize your chances. At least, that’s one theory.

For some companies, making $1M just isn’t even worth looking at. I was pitching a kind of Starflight On-line style of game that I could develop for $500K and which would reasonably get 10K subs and sustain at that. The publisher I talked to about it basically said “That’s an awesome idea, but it’s not worth our time to make $1.2M/year”. And I kind of see their point.

It’s all about relative scale. WoW makes Blizzard like $40M/month or something absurd. I think Blizzard made that much off of Diablo 2 total. So what are the odds that Blizzard will devote resources to Diablo 3 instead of milking the WoW franchise?

Which is exactly what has happened to a lot of publishers.

Unfortunately a lot of the smaller publishers did jus as you suggested, financing a bunch of niche, lower budget titles, and they still end up going out of business.

Any investor who has that kind of money is already rich as hell. And I’d argue that the money is strongly either in the mass market commodity game market or it’s in the high priced boutique game market. “Average priced games with average budgets” isn’t a particularly lucrative sounding market, particularly when the entire budget for one of those games might be less than what EA spends just getting endcaps at EB.

For some companies, making $1M just isn’t even worth looking at. I was pitching a kind of Starflight On-line style of game that I could develop for $500K and which would reasonably get 10K subs and sustain at that. The publisher I talked to about it basically said “That’s an awesome idea, but it’s not worth our time to make $1.2M/year”. And I kind of see their point.

I do, too. I’ve heard the same talk at Kiyon. But here, they’re willing to toss in a few pennies for our initial starting size, to grow us to a mid-level company, to eventually have us be big in the end. Games publishers are basically saying, “No middle.” Which means their investment model is not sustainable – there’s no fresh talent pool being groomed for the next generation of big-budget games.

EA started by financing mid-budget games like Starflight and Bill Budge’s Pinball Construction Set and Bard’s Tale and Madden and they had so many on the shelves that a few of them had to be hits.

You can go for a large number of mid-budget titles to make Big Money just the same as you finance a small number of big-budget titles. The real benefit of the latter is that mid-budget developers have potential to become big-budget developers, and from those results you learn which ones are likely to succeed as big-budget guys. So you lower your risk on the Big Budget side as well.

Meanwhile, you keep your talent pool going by continuing to fund new mid-budget guys, so that your growth is sustainable as big developers leave, retire, break up, or otherwise devolve into suckitude…

This is sort of a self-fulfilling prophecy, though, since the only low-budget titles that get made are niche titles. Then when they don’t sell, publishers say “hey, small-budget games don’t sell,” when it’s equally (or, I’d argue, more) likely that niche titles don’t sell. If you took a big franchise–or at least a more mainstream game–and made it with a smaller budget, would that impact sales? It’s hard to say, because pretty much nobody does that.

On the other end of the scale, more than a few big title publishers and developers have gone out of business, too. As you said, putting all your eggs in one basket hoping for the big win is risky, and eventually most investors get burned. I understand why they do it. It’s all about this:

It’s all about relative scale. WoW makes Blizzard like $40M/month or something absurd. I think Blizzard made that much off of Diablo 2 total. So what are the odds that Blizzard will devote resources to Diablo 3 instead of milking the WoW franchise?

But not everyone gets to be Blizzard. How many PC games in the history of the business have ever enjoyed success on that scale? Publishers hoping that a large investment is going to deliver a multi-million seller would probably be better off investing the money in lottery tickets.

[size=2]Edit: Speeling[/size]

I was pitching a kind of Starflight On-line style of game

If I ever win the Superlotto I’ll give you a call ;D

But not everyone gets to be Blizzard. How many PC games in the history of the business have ever enjoyed success on that scale? Publishers hoping that a large investment is going to deliver a multi-million seller would probably be better off investing the money in lottery tickets.

Precisely. If you invest $500K apiece in 100 small developers and you make $100 million off of it, how is that different from making $100 million off of a $5 million investment in 10 big developers?

Everything.

The guy who makes $100m off of 10 big developers can fire the losers, but then the only people left to hire are other big developers that someone else fired. And if he doesn’t hire anyone new, he’s putting fewer and fewer eggs into his basket. And the mid-range developer to promote into a big-time developer doesn’t exist.

The guy who makes $100m off of 100 small developers can then pick ten to get the $5m budget next year, and find 10 more small developers with young talent, and repeat the cycle.

Of course, this kind of strategy is boring as hell, but if there’s one thing I’ve learned about money, it’s that the way to make money is boring. That’s the real reason why so few people are rich. If I really wanted to be rich, I wouldn’t have gone into software. But then I’d be bored. And I’d rather be poor than bored.

Friction cost. One publisher I talked to said it costs about $150K/year just to manage a single relationship with a developer. That’s one reason that a $1M payout just isn’t worthwhile.

Not to mention that to find 100 small developers worth investing in, you are going to have to look at many, many more.

Not really. You pick 100 at random, upgrade the best 10, drop the worst ten, lather rinse repeat

So Pie, how was it?

Repost from my email to you:

It was interesting, and there were a few people at the panel that I learned more about. Honestly, they spoke for the majority of it, and I think the moderator only allowed 3 questions from the audiences. That was my lone complaint. After some lengthy introductions, Ken and Jay actually ended up answering most of the questions, simply because they were mostly about hardcore gaming.

It was interesting to hear them discuss many of the ideas discussed here on Qt3 (PC gaming is doomed, piracy, content distribution, etc.), as well as some of the IP issues they see that will shape the future of the gaming biz (something I’m interested in). We did hear from a GA govt policy maker who said they were pursuing developers to come to the ATL, but I guess I’ll believe it when I see it.

Nothing show stopping, but worthwhile on a personal level for me.