Raph Koster on the cost of making games from the industry side

All of this talk about the price of making games and the price of playing games thanks to Star Wars: Battlefront II has meant getting a pretty decent peek behind the curtain. Case in point: a lengthy discussion and explanation by Raph Koster about how expensive games really are. While Koster outright says that it’s wrong to say games are “too expensive to make,” he also points out that it’s undeniable that costs on making a game have risen hugely while box price has proportionally fallen. And as he points out, that’s because there’s no real market for second best.

The key thing to understand is that the public doesn’t buy B games. A game with stellar gameplay and less than state of the art graphics is generally simply left on the shelf. Yes, indie games with distinctive art have managed to break through so everyone will cite counterexamples, but looked at statistically, it’s something like 99.9% don’t.

Koster also focuses in on the idea that free-to-play is inherently predatory or winds up costing more in the long run; people will have price limits to get into something, but many will pay more over a period of time than they would pay up front. (The example he uses is of golfers dropping $50 a weekend for a full year when they’d never pay that much money up front.) It’s a worthwhile read if you have any interest in the costs of making games and how the economics work, which should be all of us; it also mirrors several of the things said in our recent Soapbox on the same topic, albeit from a development side rather than a journalism side.

Source: Raph Koster
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peor togs

Part of the problem is that normal middle class peoples salaries and wages haven’t kept up with the cost of food, housing, taxes, etc either. It’s inflation of cost with no proportional increase in income. People don’t have as much to spend.

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Jonny Sage

And yet theyre buying more $5 lattes than ever before…

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Raph Koster

This is an excellent point that has come up several times in the discussion so far.

Nick
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Nick

Very insightful article and also great discussion below. I feel like I’ve learned quite a bit so thanks everyone who participated.

I’ve been a gamer for over 30 years now, and this is pretty much the only hobby that has stuck with me since I was a toddler. That and my love of movies and animals. Everything else has come and gone but those are my constants.

I’m already willing to pay more for AAA games now, as I want these to continue to be made. I recall spending $80 for Street Fighter 2 Turbo when it first came out on SNES. That was over 20 years ago. People would never pay $80 for a standard game release these days and costs have to have increased exponentially since then.

In recent years I have dropped $90 – $100 pre-ordering games like Street Fighter V (I know…), Injustice 2, Assassin’s Creed Origins, Final Fantasy XV, and possibly a few others. I’m hoping Season Passes are actually make hte games more profitable as I know they often take effort and more money to create the additional content.

I feel $100 for me these days for a AAA game with extended support is fair. I would not pay this for lesser games, however. For games other than AAA I am happy to spend $20 for a small indie to $60 flat for a more extensive game.

In regards to MMOs – this year I spent $200 on Marvel Heroes (and hundreds in prior years) and a shocking $600 on Aion of all games. For ongoing MMOs though I justify this in my head that I get many more hours out of them than a standard console game as they hold my interest far longer. A lot of that money went towards RNG lockboxes though so it is a bit shameful.

Anyway I am glad this topic is being covered and look forward to more insight on this issue.

Benjamin Northrup
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Benjamin Northrup

I just wonder why so many consumers care how game companies make money, or counter argents with, “we’ll they have to make a profit!” I’m a consumer, I don’t care about producer profits, i want the cheapest product i can get at the highest quality I can get. Games should cost what we’ll pay for them, just like anything else. This inforation is fun to know, just because I work doing economic analysis myself and have a strong passion for economics, but ad a consumer I just do not care about the input costs of games. If I could get the exact same thing for less, I would and often do after waiting for it to hit a price threshold that I’m okay with.

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socontrariwise

Koster is writing such odd stuff since a while that I am loosing belief in his analytical skills and realistic self-assessment.
Restaurants compete on fixed costs of ingredients which are the same for everyone? Never seen the insane price differences for a fruit or piece of meat depending on quality? Rental differences based on contract length and timepoint and neighborhood changes? Liquor license? Food waste based on menu and portion type and audience is a significant factor too. Heck even prices for butter and eggs and such varies tremendously over time, even from year to year for all kinds of impacts by nature, fads, global economy etc.

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Raph Koster

“Fixed cost” doesn’t mean costs never change. If so, nothing would ever be a fixed cost. It means prices stay pretty predictable.

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camelotcrusade

Really engaging to read, and just as gloomy as I feared. When Ralph said this in his post:

Basically, there isn’t a good business plan. There aren’t any realistic expectations. Any sane business person would say “don’t make games.”

… I found myself thinking of something I’ve said to my friends many times, along the lines of “Wow, I’m sure glad I didn’t follow my dreams as a kid and become a game developer.” Sad, and not a thought I enjoy having.

And yet the industry endures, and from the glut on steam it seems to show no signs of slowing down (at least to the consumer). Is it a bubble that has yet to burst? What is going on?

It seems to me at least part of the answer is that a void of reliable, comparable data is propping up unrealistic expectations by virtue of failing to defeat them, and when data does cut through the noise it tends to be sensational (in either direction, good or bad) rather than empirical.

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camelotcrusade

Thought of something to add later than I could edit.

I work in the research industry, and in many consumer industries it’s a given that solid analytics (industry jargon for data analysis) helps you make better decisions–analytics which companies are willing to pay for as the risks and rewards of product development get higher.

The need for that data creates a secondary industry which gathers, analyzes and then sells the insights these companies need (sometimes in partnership with them, at least for data collection), and which also drives think tanks to publish learning that educates the industry justifies the relevance of the data at the same time (i.e., with case studies that demonstrate how data-based decisions are better than the alternative).

Unfortunately, this research also costs money, and given game developers are already in the hole it’s got to be tough for them to a) devote resources to in-house analytics or b) pay another company to provide them. Add to it the lack of industry collaboration (to invest in a foundational data pool with standard, client-neutral metrics, for example) and it may be quite a while before data can have the influence it should.

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Raph Koster

There’s a bunch of industry analytis stuff, but it’s mostly confidential. Many companies have in-house analysts. They use EEDAR externally, or Quantic Foundry for different purposes.

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camelotcrusade

It’s not as powerful if you can’t benchmark against the industry, though, and certainly it doesn’t help the industry as a whole if most of the learning from successes and failures is anecdotal or extrapolated.

Obviously competition is cited as a reason to keep all learning proprietary, but I think there eventually comes a realization that *some* level of sharing benefits everyone enough to warrant establishing norms. Perhaps the market isn’t mature enough for this, is changing too much, or has too many ephemeral players.

On the note of learning, thank you for making us all smarter on this topic. It takes time and effort to share – and you’ve given a lot of it!

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Raph Koster

Agree, sharing is obviously going to get to more accurate results. Instead, only certain analyst firms really have good overviews.

And you’re welcome. :)

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socontrariwise

There is a good article on that. http://maggotranch.com/MMO_Metrics.pdf

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camelotcrusade

Yes! Dated but still relevant. There are so many things that could be measured, benchmarked, and shared. And that’s not even touching the huge challenge of distilling “what gamers want” from what they say they want, starting at the concept phase.

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Raph Koster

A lot of it is starry-eyed kids getting in on the indie side.

A lot of it is that the major incumbents are in a good place, for a while. It’s the lower end of AAA and the middle tier that feel the crunch.

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Armsbend

See my post below about the name ‘Ralph’.

:)

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camelotcrusade

LOL, yes, my brain has auto-correct. :p

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Eliandal

Thank you for this intriguing discussion! Also, thank you to Mr. Koster for coming in here and (repeatedly) defending his assertions/viewpoints. Appreciated, and much food for though in the comments!!

miol
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miol

I guess, he doesn’t know about Hellblade and how top notch graphics, acting and motion capturing are affordable even for Indies!

It’s the wanted higher shelf-lives, which publishers want through their so called “services”, that makes games cost more!

They just want less risks and more constant incoming revenue streams, so a single game has to hold its ground for more than just a single year, therefore costing more overall, BUT NOT more per year!

https://www.youtube.com/watch?v=0qq6HcKj59Q
https://docs.google.com/spreadsheets/d/1lGS8t84T8excDoTkBZOtapA72H2IGAA0kyHMLtUlVXE/edit?usp=sharing

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Raph Koster

If anything, Hellblade validates my points. Certainly the CEO of Hellblade agrees with just about everything I’ve been saying about the financial structure of the industry. See here: http://www.hellblade.com/the-independent-aaa-proposition/

I mean, he says

Many have packed it in and started over in indie gaming, apps, or other areas. Others have been absorbed into publishers who are not willing to bet $100m+ on external game developers. Most have simply gone bust because they cannot attract funding to compete with huge teams…

This isn’t “survival of the fittest”. Evolution has nothing to do with being “fitter” or “better” and everything to do with being more adaptive to a changing environment….

How have we survived? We focus on quality, stay on budget, ship on time but then, so have many others on this list. it comes down to this: we have been lucky.

He explicitly lists merch as a revenue channel. Merch is upsells too.

Most critically, he argues for pursuing genres that AAA cannot because the finances don’t make sense at an AAA level. I said the same thing elsewhere in this thread.

miol
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miol

This isn’t “survival of the fittest”. Evolution has nothing to do with being “fitter” or “better” and everything to do with being more adaptive to a changing environment

What does being “fitter” or “better” mean?
Exactly, for instance better graphics!

What is this “changing enviroment”?
It’s seeing games not as a product but as a service for many years longer!

Who are only able to afford labour intesive services, than just selling merch from a small webshop?

This is what the CEO of Hellblade also said:

“We’ve variously been told point blank that single-player story games are dead!”

“Independent AAA is a path by which developers can make bleeding-edge games for specialist audiences and maintain stewardship over their game vision. Developers making games to serve gamers, not the salesmen, not the middlemen.”

Why do you think a single story RPG game with best acting and graphics for Star Wars was simply cut mid-production in favor of a Battlefront II with more repeatable content?

It’s really not about the production costs, but about revenue!

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Sally Bowls

Why do you think a single story RPG game with best acting and graphics for Star Wars was simply cut mid-production in favor of a Battlefront II with more repeatable content?

It’s really not about the production costs, but about revenue!

In my opinion, one of the reasons is that the majority of gamers are criminals. I.e., the majority of copies of a game tend to be pirated. So you can avoid all the hassles of DRM that does not work with a nice online multiplayer game.

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shear

I don’t think he is wrong but the thing is that gaming was always, at least to me, an entertainment form that is cheap and everyone is on a level field.

When 1% tells me that we are not paying enough it makes me laugh.

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Zora

One has to question, at some point, why would the industry allow for costs to levitate to this level when, at the end of it all, said industry does not have direct control on its market sustainability.

To put it simply, once we are done going all over the charts and proved that no really, games should cost more because this and that… what happens if that “more” is still over what a significant and potentially growing slice of your audience is wiling to shell out for them, for whatever reason?

The burden of keeping costs in check is on those who offer the product. If they are unwilling/incapable of that, expecting the customers to come to the rescue with their wallets is hardly an acceptable discourse.

Customers being promoted to business partners is the ultimate kickstarter, I suppose?

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Raph Koster

This is just what happens in capitalistic markets with these characteristics.

Everything would change if, say, computers stopped getting more powerful. If we hit true photorealism.

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Zora

Everything would change if, say, computers stopped getting more powerful. If we hit true photorealism.

Heh, and then -I- am the one depicted as a romantic idealist all the time!

I agree with your sentiment, although precisely because it is a free market economy I have to accept that the price point will -always- be right. With right meaning not “fair” to either sides or any such nonsense, but simply just as much as the publisher believes it can get away with before the customer turns around and leaves.

I got it that the industry can (try to) offload its expenditures on lil customer me, but how far can it push it? When free choice is involved it’s more of a battle of will than a pure number game, based ultimately on perception of value and perception of growth… and boy oh boy I don’t envy those beancounters trying to put such volatile realities onto charts.

Ironweakness
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Tobasco da Gama

I think Raph could have done well to expand more on the risk aspect of “cost”, from a business perspective. It’s more difficult to quantify risk objectively, but at the same time risk is a huge consideration in business decisions (at least for publicly-traded companies), probably to a greater degree than any other single factor.

That’s why we see the same trends happening in AAA games and blockbuster movies. Game studios and movie studios keep churning out rehashed crap that gets poor reviews brings in billion dollar profits anyway. Because it turns out that if you spend enough on an entertainment product you can probably convince people that it’s worth buying. However, you have to first put a critical mass of money on the screen for that strategy to work.

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Raph Koster

This video makes the ahistorical claim that this is all traceable to FIFA, which is silly you remember MMO history. :) It’s more like convergent evolution.

Both things can be true: games are too expensive, AND the top studios are making serious bank.

I’m halfway through the video and haven’t found the evidence that EA dev costs have dropped yet… got a pointer to the specific data?