As of the writing of this blog post we all live in a hyper-connected world by comparison of when commercially available (and viable) games started to be produced (1980s or so). I recently read an article that briefly mentioned how starting a game development studio in the 90s was a relatively simple endeavor, as well as one that didn’t involve needing hundreds of thousands, if not millions of dollars just to get off the ground. I feel like lately there has been quite a bit of discussion online about games revenues (and the various new forms of game revenue that have cropped up in the last 10ish years), but almost never any discussion about the cost of game development, aside from speculation on occasion. So that’s what I wanted to ruminate on here, albeit in hypothetical and broad fashion. Partly for simplicity, but also because most game publishers are fairly quiet about this aspect, and with perhaps understandable reasons.
I remember back reading about a back and forth Doublefine’s Tim Schafer had on Twitter back in 2012. Some people didn’t seem to understand why his crowdfunded game at the time needed so much money, to which he broke it down a bit in replies which seemed to silence the critic. But it’s something I feel like a lot of players may not consider, nor in a way should they ever have to unless they wish.
Overhead
So let’s start with a completely hypothetical new game studio working on a hypothetical game. There are a number of initial expenses that the studio would have to cover; employees, equipment, software licenses, etc. But for the sake of simplicity let’s just focus on the true game makers, the devs. In this little experiment we’re going to say there are 100 developers working on this game, and let’s give them all a salary of $75,000/year (this is hypothetical, but certainly there are devs in the world would be paid more than this, as well as, perhaps unsurprisingly, ones that would be paid much less than this, but let’s keep this simple).
This would mean for each year this game is in development there is a very simplified overhead cost of $7.5M.
Revenue
In order for a game studio to make money, they need to sell games. Most games seem to currently still sell for around $60, and while there are now things like season passes and microtransactions let’s not consider them for this game. This game is going to be sold as a full package with zero microtransactions (maybe something some players would appreciate these days) and there are no continuing costs for things like servers that would need to run to play parts of the game.
Now while the dream scenario would be that the game studio would receive the whole $60 from the sale, that is almost completely unlikely. Many people are aware that a platform like Steam takes a 30% cut from sales on the platform, and similar deals are not uncommon on other platforms as well. Not to mention a number of other costs per unit sold that would reduce the revenue back to the studio. But for this experiment let’s assume the game is only going to be sold on Steam, and the only reduction in the studios revenue is the 30%, so for each copy of the game sold the studio receives $42, and let’s reduce that a touch more to $40 for slightly easier math.
The Math
So if a game studio of 100 developers each being paid $75,000/year take 1 year to develop and publish a game, the total cost is $7,500,000.
If the game makes $40 in revenue per unit sold, that means the game would have to sell 187,500 copies of the game before breaking even.
That seems like a fairly small amount of success needed for our hypothetical game and game studio, but unless the studio is laying people off immediately after development is finished they will likely need to sell at least double that to remain financially solvent. So let’s say the game needs to sell double that amount, 375,000 copies (at full price) in order to continue as a game studio.
Other Costs
While 375,000 units is certainly not a number to scoff at, it is also not a small number. In order to even make players aware of the game there will need to be some sort of marketing done (big or small, communal or commercial). As well there can be a number of other expenses beyond what can even be accomplished inside a game studio’s walls. This can be one of the reasons studios sign on with a publisher for a game’s release. Aside from some possible capitol investment to get the studio going on developing a game they may also provide other services like marketing, localization (to broaden the potential player base), and even market research.
Publishers negotiate to take a part of the sales of the game, these can range from anything like a fairly generous 20:80 split, or even all the way up to a 80:20 split. And while some of this is simply risk management on the publishers side, they too have employees they need to pay as well as the recoupment of all the costs of services provided for the game.
For our experiment let’s assume it’s a 50:50 split. So now our hypothetical game needs to sell 750,000 copies in order for our studio to break even and have enough revenue to keep the lights on. The marketing would certainly help with reaching that number, and hopefully with the publishers help the quality of the game may be raised to help create a buzz about the game as well.
750,000 Copies Sold
This little experiment barely scratches the surface of things, for instance I can’t think of a single game I’ve worked on that took 12 months or less to develop. But maybe gives a very broad stroke idea of how games spend and make money. Maybe next time we can do the same with a free-to-play model and see what that looks like.