$10,000 Is The Magic Number
Hi there, #AltDevBlogADay denizens! I’m Simon Cooke, and this post is all about how to budget your game in preparation for pitching to a studio. How do I know anything about this? Well… Back in 2008 I was incredibly lucky to join X-Ray Kid Studios (a group of very talented people involved in the creation of Google Lively, and with a history in comic books, animation and video games going back decades) as their Director of Engineering. As time went on, I also shifted sideways into the role of Business Development Manager, where I helped take us from concept to pitching a number of game titles to several publishers. Unfortunately we ran out of steam before we could sign a deal, but I learned a lot along the way. (X-Ray Kid is still around though – it just morphed).
I’m very lucky to have had a number of very highly-positioned and experienced mentors at a variety of publishers. (They’ll remain nameless for now to protect their privacy, but let’s just say that one of them was the VP of Publishing for a large games publisher, and the other is the Production Director for a very large AAA franchise). And I got a lot of help from the wonderful people at Loose Cannon Studios, who helped fine-tune our pitches and took a lot of time out from their heavy production schedule right before they shipped to work with us on the process. Their input was invaluable (thanks, Dev, Ricci, Matt and Darci!).
So what is this Magic Number then?
$10,000 is the magical “man/month” cost of running a games studio, if you’re a publisher.
That is, it’s how much they expect you to spend on average, per employee, per month. Got a 100 person studio? They’ll want to write you a check for $1,000,000 a month. 5 people? That’ll be $50,000 a month, please. Although if you’ve got a 100 person studio, you’re probably in a different class of developer – the established, AAA title studio – and at that point, you’re on your own. All of this math goes out of the window, and your costs have probably gone up (last I heard was somewhere on the order of $17,000).
If you’re working at a games studio making $38,000 a year, you will probably now be wondering “what the fuck?”. Try to bear in mind that this is an aggregate figure – it includes the studio heads (who rightly or wrongly are probably making a lot more than you – after all they did take the risk and get the company up and running, which is no small feat; if you don’t like that, start your own company – it’s worth it, if you can do it). It also includes overhead such as paying for rent, office cleaning, phone lines, internet service, unemployment insurance, health insurance, employer-side payroll contributions, 401k programs, etcetera.
What it doesn’t include is software, computers, desks, office chairs, Maya site licenses, devkits, servers, running your company website and so on. Publishers expect that if you’re serious, you’ll have all that stuff already (either that, or if you’re sneaky, you’ve hidden them in your budget as something else so that you can buy them as you go along). Your infrastructure is your problem. As a side note here, so is having office space. You can get a games company started in your garage, and some people will laud you for it. But if you really want to avoid setting off red flags, you’ll need to rent some office space somewhere.
Devkits are actually a special-case. The publisher will provide those if you don’t want to buy them yourself – but they’re only borrowed, and you don’t get to keep them after the project is over. Where you will get into arguments there is how many they’ll provide. Expect to share them between folks at first unless you’re dealing with a nice large publisher.
Where You Are Matters… A Bit
$10,000 is only a rule of thumb. It’s a stake in the ground. It’s a handy hook to hang things off of. And it’s sticky – it’s a nice round number, so people like it. That’s psychology for you – it doesn’t matter if it’s correct or realistic, as long as people like it, and it makes sense in their world-view.
Depending on where you are in the world, you’ll cost more or less than other locations. For example, Seattle in 2009 was averaging $11,700/man/month. LA was roughly $9,300 – which is weird as all hell because LA is more expensive to live in than Seattle. I imagine that Wisconsin or Edmonton are quite cheap places to run a games company – and if you’re in Georgia, you can probably get a state tax benefit to offset the costs.
None of this actually matters. Get used to the $10,000 figure – it’s the rule of thumb everyone uses. Use that to get your pitch and budget off the ground, and at least then you’ve got an excellent starting point for the next phase of your endeavor – namely, refining it before you make a fool of yourself in public.
Keep Your Friends Close
Your best weapon in the war of making sure your pitch is fine tuned, and your budget makes sense, is to lean on the experience of others. We all have friends in the games industry (if you don’t, you’re not getting out from behind your desk enough). Over time, those people end up in different positions, work at different places, and eventually might even end up running the show.
You’d be crazy not to use this to your advantage. Your friends can help you to sanity check your proposal. Take their advice to heart; if at least two of them are telling you the same thing, then listen. Change your pitch. Change your budget. Change anything that you have to.
Keep doing this over and over until they’re satisfied and it feels right. Whatever you do, don’t do it in a vacuum – you’ll be wrong.
One of the weirdest experiences I had was putting together a $4,300,000 budget for a game, and being told repeatedly “this is too low!”. I’d done the numbers (including publisher-side cost and ROI estimates, because it never hurts to know what they’re getting out of the deal, and where the bottom line for them lies), and I thought that coming in pretty lean, even with a 15% profit margin baked in would be a big selling point.
It’s not. Actually, it hurts you. Lots.
The Sniff Test
Psychology plays a big part in selling people on a project. Remember: they’re going to give you a large chunk of money in return for what at the start is a vaguely defined promise of something great happening over the next two years. They’re going to keep throwing money at you until it’s done. (Because, after all, you can’t ship an 85% finished game – or even a 95% finished one).
This is a very scary prospect to most publishers – well, heck, imagine if you were going to give someone half your salary every month for two years because they told you that they were very experienced magic makers, and they were going to make some magic for you. You’d be extremely cautious. And what’s more, you’d be highly skeptical because your experience with magic makers in the past has taught you that it’s really hard to make magic, and a lot of the time you’d be better off burning that cash. At least then you’d be warm for a while.
So you’re going to want to build trust. Part of that is sounding like you know what you’re doing. And part of sounding like you know what you’re doing is sounding like everyone else who knows what they’re doing. You need to match the herd, become one with it, and look, smell and feel like the polished professionals you are. (Even if this is the first time you’ve done this).
In order to not set off red flags then, you need to make sure that your game proposal’s budget matches the budget of other games which are similar in size and scope to it. If you’re going to come in lower than them in terms of cost, you’ll need to make sure that you can justify it. The easiest way to do this for your first title is to not staff up too much internally and outsource everything you can. (Usually this will be art). (Sorry, artist folks… I love you, but honestly, this is the easiest way. The second title is where you can bring people in-house, which works better for communication anyway).
So my budget started at $4,300,000. (“That’s way too expensive for an arcade title, and waaaaay too small for a small game”). Then it grew to $5,800,000 (“That’s a mid-range small game… yours is bigger, you need to go higher”). $9,800,000 came and went with a “That’s really low for a mid-range title”. And finally, after much wrangling and gnashing of teeth to increase the budget, we landed on $12,800,000. And like Goldilocks, the budget was now just right.
A problem I never ever thought I’d ever have was trying to figure out how to spend more money. Wrestling with putting the right people in the right places was really tricky. But as you can imagine, this was a good problem to have.
No red flags. A huge budget, unexpectedly large to me, but no red flags. It’s a good place to be.
The Moment Of Truth
We walked into a number of major publishers with a budget put together like this. We brought printed copies with us, sanitized somewhat so that we were giving them aggregate data and not a salary breakdown of everyone on the project. (Oh, and I stripped out my projections for their side of the business too – because that’s apparently just plain rude). We walked in the door – and every meeting had at least one business development guy/finance guy.
We handed the budget to him, and collectively held our breath.
To a man, every time we did this, the financial guy flicked through it for a few seconds, nodded and left. He was satisfied. We weren’t clueless jerks. (Although we were asked if this included Wii and PS3 ports of the Xbox version, and when I said yes, eyebrows were raised… Which goes to show – you can’t always get everything right).
So here’s the salient points in bulleted list form:
- $10,000/man/month is the average cost of a title. This may have gone up a bit over the last couple of years, but it’s such a nice magical round number that it’s sticky in the minds of those with the money – even if it’s not always realistic.
- Use your friends to sanity-check your budget. They know better than you, and more eyes are always better.
- Cheaper is not always better – sometimes it just makes you look like a rube who doesn’t know what you’re doing. People don’t give money to people who look like they don’t know what they’re doing, so be careful.
Your monthly budget is not the only compensation detail you need to work out for your project. There are many ways to slice & dice completion bonuses, royalties, milestone bonuses, merchandising, so on and so-forth. And most of them are highly negotiable. This is the bedrock though – get this right, and you’re in really good shape.
You will also discover through this process (and this is a delight I’m trying not to spoil) exactly how much money flows through a company, where it goes, and what it does. If you’ve only ever been an employee, and not run a company, you will be surprised by how this all breaks down. And you’ll understand why at bad companies, the folks up top get noticably tetchy around milestones and start making poor decisions. It’s because they have a lot more money than you might think on the line. It’s worthwhile doing this exercise, even if you’re not planning on starting your own company, just to learn how it all works.
Who Am I?
Oh yes… I guess I should introduce myself. If you were of a certain age in the UK around 1992/1993, and had a Sinclair Spectrum, you may know me as Spec Tec Jr – from my monthly column in Your Sinclair magazine. (I also wrote for .net, arcane, How To Get Online, Online World, Internet & Comms Today, Internet Today and Net User – back when the Internet was something new, that most people explored through magazines before they bought 14.4 modem). I’m one of the better known SAM Coupe developers, having been involved in a number of major games and ports on that platform, as well as its demo scene.
More recently, I’ve worked at Sierra Online (as a Software Architect and a Lead Engineer), where I shipped more SKUs than I can count. I was Lead Tools Engineer, Lead Gameplay Programmer and Principle Technology Engineer at Surreal Software (Midway), where I shipped The Suffering: Ties That Bind, and spent rather a lot of time working on This Is Vegas, which I’m assured will still ship, someday after the sequel to Duke Nukem Forever. At X-Ray Kid I helped design about 20 different games we were contracted to work on for Microsoft, and three of our own – one of which (The 99) is the story I’m telling here.
Today I’m working at Microsoft in the Advanced Technology Group, where I get to influence the development of Microsoft’s game and entertainment technologies, as well as helping games ship on Microsoft’s games platforms. It’s a really fun, random place to work. We also run, present at and coordinate the Gamefest conference.
I write screenplays for fun & profit. I’m still waiting for the profit part, and rewriting really isn’t that fun. But some day, I shall direct/write/produce films. I’ve already done one short.
So, pleased to meet you! There’s more to come on this whole business-development topic, including a run through of what an actual pitch experience is like and what not to do. Hopefully you’ll find this useful when pitching your first title as an independent developer to a studio. And all of this is based on rather heartbreaking personal experience – but it was a really fun wild ride. My loss is your gain
And one more note… while I work at Microsoft, none of this is information I learned while there (which is protected under NDA). This is all from the actual pitching experience. Sorry guys, but I value my job, and my testicles…