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Loot boxes and Micro-transactions
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Depends on whether you want your next game to be bigger than your previous one I guess. If you aim for 100% profit over production costs then unless you have another stream of income your project is only going to have a similarly sized budget at best. If you're a publisher you're also going to have your own operating costs outside of the development studios budgets which need to be covered on an ongoing basis plus enough for capital expenditure for expansion and enough cash reserves should something go horrifically wrong.Mark Hamill wrote: »How much of a return will you need if you sink €300 or 400 million into a project?
The Witcher shows us that putting $81 million into a game, including marketing, gets you well over that in profit (you need to check your numbers, CD project red made $90 mil profit in 2015 when Witcher 3 came out, and then ~$64 mil profit in 2016 when it's free DLC came out). So maybe game companies should conservatively be expecting a return of 100% profit over the production costs of games of equal quality.
That covers "need" anyway. Bearing in mind a lot of these companies are publicly traded and need rapidly becomes want which is a totally different argument. :pac:
Yup, I was a year out with the $64m figure, cheers for that! Again though that's for CD Projekt, the parent company of CDPR, who also owns GoG so not all of that will be profit from The Witcher 3. That being said, based on previous years filings in the link I'd wager TW3 made up the lion's share of the year on year jump.
And historically speaking they'd be correct, the franchises with the biggest marketing budgets are also the ones that tend to sell the biggest numbers. The addition of loot boxes or other systems used to offset spiraling development costs have no justification in cases like this however.Mark Hamill wrote: »Companies like EA and Activision seem to think that increasing the marketing 8 fold (going from 1/2 production cost to 4 times production cost) will get you an equivalent return in profit. That they are now relying on exploitative gambling mechanics in micro-transactions shows that that is not the case.
Yup, and as above, the publishers of those games don't have a leg to stand on in this instance. That being said, I'd still consider the $100m+ area for a budget to be astronomical, a good example of the rising development costs we've been talking about here and an understandable candidate for the kinds of micro-transactions we're seeing. Conversely if they want to use it to justify ballooning marketing costs which are being applied on top of bigger budget titles in order to reach that billion dollar revenue club then they can get ****ed.Mark Hamill wrote: »The point is that all games carrying massive financial risk. But there is a difference between the risk in a $90 million game and a $300 million one, and if the only reason $300million one isn't costing only $90million is because of the marketing, then it's the marketing that is creating the extra risk which supposedly justifies loot boxes and micro-transactions.
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Depends on whether you want your next game to be bigger than your previous one I guess. If you aim for 100% profit over production costs then unless you have another stream of income your project is only going to have a similarly sized budget at best.
Why would it only be similar sized at best? These companies must have gotten investment before making their first games, and they are making 100% profit after paying back those investers. It should be easy then to get at least the same investment for the next game and then add their own investment to significantly bulk up the budget.
e.g. 100m invested for game. Game sales - 100m paid back to investers and 100m in profit for makers. Next game gets 120m invested, plus 50m from makers. So 2nd game has budget of 170m (nearly twice) and makers keep 50m profit from previous game.I'd still consider the $100m+ area for a budget to be astronomical, a good example of the rising development costs we've been talking about here and an understandable candidate for the kinds of micro-transactions we're seeing.
Is €100m astronolical though? What were the production costs of games in the 8/16 bit eras? I don't know how accurate this is, but I found this table and while it includes arcade machine production for some games, it still has many old games (Street Fighter 2/Super Mario World etc.) with complete production costs of several €100ms in todays money.
There is also this graphic breaking down where the money went in when you bought a SNES game:
33% to Nintendo, 30% to retailer, 15% to publisher. How much of that is gone nowadays? EA sells it's own games via Origin, so the 33% Nintendo cut and 30% retailer cut are gone for them. Even accounting for Steam taking 30% as retailer, the 33% Nintendo cut is gone. How much cheaper is it to physically make games today? Those big old game cartridges were much more expensive to produce than the blu-rays used today for physical games (the proportion of games that are not sold digitally).
I think the price of classic games are presented in these discussions as if a) those prices actually represented production costs and b) those costs represented the same things now as then.0 -
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Nope, but the same flaw is still present in your argument. That initial $100m made on the game isn't just there to be used to cover production costs on the next game, it will have be used, amongst other things, to cover the operating costs for the studio for the previous two years work, the work that cost $100m which was either their own capital or investment which needs to be repaid. Therefore, when you begin development on the next game, you really only have the $100m profit to work from.Mark Hamill wrote: »Change investors for publishers and has my point changed? Developers make game with 100m of publishers money and it makes 200m in revenue. 100m pays back publishers and 100m is profit (which, lets face it, goes to the publisher). Next game is then made with 100m of publishers money plus e.g. 50% of that profit. The circle continues, game budgets and profits grow.
Yup and if you look at the breakdown of the figures you'll see there's a hell of a lot of money coming from alternative digital revenue sources. In the case of EA, this used to be Season Passes for their various franchises but that's been completely eclipsed by the Ultimate Team system across their sports titles. This actually came up in the Shadow of Mordor thread before and I replied here with respect to their FY16 numbers.Mark Hamill wrote: »Well, looking at EAs and Activisions financials and it seems like their gross profits have been on the up for a number of years, all before our current talk of gambling-mechanic loot boxes. Their costs have also been going down each year (the jump for Activision in 2016 might be from them buying King).
Oh for sure, physical costs now are but a fraction of what they used to be. Hell, Nintendo dropped the ball on this big time and arguably opened the door for Sony to steam roll them back in the Playstation days as they took advantage of lower royalties charged as well as the lower cost-per-unit that CDs brought. That being said, with platform holder royalties now around the 11.5% mark that represents a change of a little under 20% on the retail cost of a current physical copy, so what, a tenner extra to the publisher? I don't really think that would do much to make up for the current development budget differences as well as the other ancillary costs required to get a game onto retail shelves.Mark Hamill wrote: »It has a good few holes and I would like to see other data if people have them but the table tries to take account of the cost of the physical cartridges, which it puts at $15 (I have seen $10 quoted elsewhere too). So even if the software development costs were minimal, the 15 million cartridges for Super Mario World could have cost in the region of $150m to produce (and that's not corrected for inflation). That overhead hasn't existed for a long time in gaming (although, while googling for sources, I saw more than a few articles discussing the Nintendo Switch's reliance on cartridges being the reason multiplatform games are more expensive on it).
On a related note, the UK Government have responded to the petition regarding the regulation of in-game gambling. As I kind of expected, it really comes down to the monetary value of the things you're getting and whether they can be sold or traded on afterwards.
Government response to loot box concern is predictably non-committal0 -
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Nope, but the same flaw is still present in your argument. That initial $100m made on the game isn't just there to be used to cover production costs on the next game, it will have be used, amongst other things, to cover the operating costs for the studio for the previous two years work, the work that cost $100m which was either their own capital or investment which needs to be repaid. Therefore, when you begin development on the next game, you really only have the $100m profit to work from.
I'm not saying the initial $100m made is for the next game, it is specifically to cover all costs for making the first game. The next game is funded from the same source as the first $100m came from (be it loans or publisher cash reserves from profit from other works). If the previous game made a profit, then some of that profit can be used to increase the budget of the 2nd game, to hopefully make an even greater profit.Yup and if you look at the breakdown of the figures you'll see there's a hell of a lot of money coming from alternative digital revenue sources. In the case of EA, this used to be Season Passes for their various franchises but that's been completely eclipsed by the Ultimate Team system across their sports titles. This actually came up in the Shadow of Mordor thread before and I replied here with respect to their FY16 numbers.
You are saying "alternative digital revenue sources" as if they are from some separate department to their game development departments. They are revenue directly from and tied into the making and selling of the games that use them. And we can see from their financials that EA were making increasing profits every year, whilst reducing costs at the same time. These companies might want more money, but their financials, at least since season passes were invented, put the lie to their claim that games are costing them more to make and they are loosing profits. It proves that micro-transactions, especially gambling mechanic ones, are pure greed.Oh for sure, physical costs now are but a fraction of what they used to be. Hell, Nintendo dropped the ball on this big time and arguably opened the door for Sony to steam roll them back in the Playstation days as they took advantage of lower royalties charged as well as the lower cost-per-unit that CDs brought. That being said, with platform holder royalties now around the 11.5% mark that represents a change of a little under 20% on the retail cost of a current physical copy, so what, a tenner extra to the publisher? I don't really think that would do much to make up for the current development budget differences as well as the other ancillary costs required to get a game onto retail shelves.
20% goes a long way. Then add in the profit from Season passes and DLCs. While they may sell fewer units that original game, modern Season Passes and DLC are almost entirely digitally sold (so no physical costs) and each unit produces more profit relative to the original game. We can see the effects from this in the reduction in development costs over the last years within EA and Activisions financials.On a related note, the UK Government have responded to the petition regarding the regulation of in-game gambling. As I kind of expected, it really comes down to the monetary value of the things you're getting and whether they can be sold or traded on afterwards.
Government response to loot box concern is predictably non-committal
It more comes down to the UK government not even understand the question, from the article you provided:The government response is, unsurprisingly, evasive and appears to be ill-informed on the issue - citing the prosecution of two third-party gambling websites despite questions asking about in-game gambling.0 -
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Or maybe I referred to it as "heinous crap" an hour before it was posted in here?I'm sure gizmo will find a reason for it to be ok :pac:
Then again, in my first reply on this topic, I also said...
But I guess that was missed too.Given that emotions tend to run high in this debate I feel the need to preface my reply with saying I'm not defending this stuff, I'm simply pointing out the reasoning behind it and who it generally appeals to rather than grabbing the closest pitchfork.
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No company in their right mind would operate like that though. They'd effectively have €50m left in the bank at that stage and would have no other source of income for over two years. What happens if the next game gets delayed as they so often do? What happens if the budget rises for other reasons? What happens if it's a commercial flop? Publisher goes tits up, developers are scrambling for someone else to step in. We've seen these kinds of problems countless times before, even so far as developers shutting after being left in the lurch to what were previously considered publishing giants fall due to bad decisions and under preforming games. 'member THQ?Mark Hamill wrote: »I'm not saying the initial $100m made is for the next game, it is specifically to cover all costs for making the first game. The next game is funded from the same source as the first $100m came from (be it loans or publisher cash reserves from profit from other works). If the previous game made a profit, then some of that profit can be used to increase the budget of the 2nd game, to hopefully make an even greater profit.
I refer to them as that because that's how they're refereed to in most financial reports but you're correct, they still fall under the umbrella of development. In the case of EA, those profits can be attributed to a smaller number of high profile titles, periodic layoffs and studio closures across their group and as they said themselves in those financials, the revenue generated from those season passes and other "new" income sources, such as Ultimate Team. To argue that games somehow aren't costing them more to make is just ludicrous, they've simply gotten better at making more money from them.Mark Hamill wrote: »You are saying "alternative digital revenue sources" as if they are from some separate department to their game development departments. They are revenue directly from and tied into the making and selling of the games that use them. And we can see from their financials that EA were making increasing profits every year, whilst reducing costs at the same time. These companies might want more money, but their financials, at least since season passes were invented, put the lie to their claim that games are costing them more to make and they are loosing profits. It proves that micro-transactions, especially gambling mechanic ones, are pure greed.
This is part of the problem though, the margins earned on DLC are huge compared to what is gained from the main game sale. In my case, I really struggle to understand why some folk jump on Season Passes which cost over half the price of the full game for just a couple of hours of extra story content and some new, or even just reskinned, items sometimes. Meanwhile you have something like the Borderlands 2 Season Pass which increases the amount of genuine hours of play and content dramatically for pretty much the same price.
Totally agree, as above. But you also need to factor in that development team sizes alone are, variably of course, around ten times the size of what they used to be. Those larger team sizes have their own considerably higher and on-going costs and that's before you even look at the increasing size of the publishers themselves as they expand into different countries to make, manage and their wares.Mark Hamill wrote: »20% goes a long way. Then add in the profit from Season passes and DLCs. While they may sell fewer units that original game, modern Season Passes and DLC are almost entirely digitally sold (so no physical costs) and each unit produces more profit relative to the original game. We can see the effects from this in the reduction in development costs over the last years within EA and Activisions financials.
Not really though. To be fair, the author of the piece also said...Mark Hamill wrote: »It more comes down to the UK government not even understand the question, from the article you provided:The government response is, unsurprisingly, evasive and appears to be ill-informed on the issue - citing the prosecution of two third-party gambling websites despite questions asking about in-game gambling.
But as I mentioned before, the crux of that particular case was the ability to sell the currency back on a marketplace which introduced a monetary value to the winnings. Overwatch and their ilk don't have that which appears to be why the Gambling Commission and by extension the Government, don't consider them gambling yet.0
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