“But it’s just like film!” is a common catch cry when I have mentioned investing in the game industry in a public forum where people often discuss such things, or “they’re just games, my kid plays games” is another common utterance at this point.
More and more, that seems like a generational gap and lack of understanding and does not reflect the reality of the games industry. Let’s go back to basics. The game industry makes money inherently, otherwise you would not see posters of Triple A (the “Hollywood of Videogames”) titles on public busses, billboards, on the side of large buildings (if you had the luck to go to E3) etc. In fact it makes a lot of money. Globally, sites like Newzoo have and Statistica have reported that in 2016 the videogame industry made over $US100 billion.
What nation, state province or city would not like some of that revenue coming to businesses within their boundaries? What private investor would not like to see some of that adding to their wealth?
The fact is that investing in videogames and investing in film are two very distinct situations. With film, typically larger productions with bankable names and stars make money. Short films, with small budgets typically do not. This is not the case with videogames. Smaller teams with smaller budgets are quite capable of producing big outcomes. All it takes are the right conditions to be met and a game that did not cost much more than some peoples’ salaries, some computers and rent for the duration of production and still the game brings in large revenues and with such low costs, large profit.
Titles like Papers Please and Gone Home have both made over $US10million and both had core development teams fewer than five people. The return on investment in those circumstances is significant.
And then there is the definition of “game” and the sales vectors the developer is targeting. In 2017, we all have games on our mobile devices, tablets, smartwatches, laptops, desktops and VR headsets (for the forward thinkers amongst us). The term “casual game” has broadened the market and often one might decide that the casual market is far more large and lucrative than those products for videogame enthusiasts. Augmented Reality games like Pokémon Go have shown that the classic definition of a gamer, sitting alone in a bedroom is completely irrelevant in 2017. Gamers are everyone.
So from a practical perspective, an investor would want to make a distinction between investing in a Triple A studio (of which Australia, where I am based does not have a lot of) or a smaller business. As I mentioned, Triple A studios have multi-million dollar budgets, however Independent developers range from single-person operators right through to studios of 30+ people. The main defining factors is that they are independent and are not owned by a particular vendor or large publisher. By 2017, “Triple I” has become a concept, that is studios producing high quality games, for various platforms which are professional, commercial and often have a huge depth of content. The budgets of a Triple I studio still do not match their larger brethren, however they can be significant and in the millions of dollars for a production.
Australia has a number of studios that would be approaching this definition.
So with all that in mind, an investor has a variety of different businesses they may want to choose from. Some work on original Intellectual Properties (IP), others work more on contracts for other entities. Many (such as my company, Stirfire Studios) do a combination of both. We balance the original IPs as that is ultimately what will drive the value of the company and the brand, however cash flow is important and our staff also enjoy working on serious games for business, NGOs and government.
Games can be monetised in a variety of ways.
It is not always a case of “buy the license and play forever.” Many games are free to download and play, and then sell content to the players through micro-transactions. Many exist primarily on advertising and others are episodic, so players buy a section of the game at a time and others still have a subscription model. This is where games differ greatly from film. With film, it is difficult to charge for the same product twice (short of having “cult” status) where as with games, often the players pay repetitively to keep playing and adding to their product. Even a discrete game with an initial charge can have paid-for Downloadable Content (DLC) added to it later.
So in an investment market, particularly in my home state of Western Australia which is primarily dominated by the Resource Sector, why would an investor look to videogames? The case is because our industry performs better in certain economic conditions than others. We are a truly global industry as our distribution is almost exclusively online (for most independent studios), so there are no logistics costs. We can often do well in recession markets as people look for cheap entertainment (smaller games often do not cost the premiums that the Triple A titles do).
And then there’s the “blue sky potential.” Our markets are really only limited by the platforms we can sell on to and the market visibility we can receive. With over one billion iPhones sold, plus their Android counterparts, tablets, and over 60 million Sony PlayStation 4 consoles, and a plethora of other devices, our blue sky potential is very high indeed. One only needs to look at the huge success of titles like Minecraft or Angry Birds to see the potential of what a small operator could achieve- although those are rare cases to see them become that big.
With the advent of affordable Virtual Reality (VR) headsets, a whole new market is emerging.
So the case for investment becomes one of high potentials, low barriers to entry, and diversity in one’s interests. There are a variety of different styles of operation to invest in and opportunities in cutting edge technology. It is about investors and game producers finding a synergy, rather than if it is viable. So far, my company has successfully raised over $1million in seed capital and we have greater ambitions to come. Investing in games is a viable and profitable business with a lot of opportunity.
For more info on Black Lab Games’ spectacular forthcoming game, Battlestar Galactica: Deadlock. Check the Kotaku article here.