Some Accounting on the Cost of Making Games

Sorry about the delay in updating. PAX was fantastic, but exhausting. I was talking to another Hothead at PAX about the cost of the show and the return it actually has. While exhibiting at an event like PAX is certainly expensive, my claim is that it's probably the best investment you can get for your marketing dollar. And getting that attention from a community is very important, especially for a smaller developer.

I like Frictional, and not just because they're one of the few studios left making interesting horror games. For those not aware, they made the Penumbra series of games and just released Amnesia: The Dark Descent. They're also pretty transparent about their process, including a very interesting post Kieron linked in this week's Sunday Papers. It's from January of this year and discusses how much it costs Frictional to make a game. Specifically, how much development $100,000 gets them. Spoiler: it will cover about six month of development time for Frictional's five employees (and contractors).

Games, and software in general, are interesting because there is almost no materials cost for the products created. Maybe a little bit for hardware, but the cost of development is almost entirely labour and overhead. The cost comes from bodies on the project. Which means a project being even a little late can quickly send a viable budget into "maybe we'll break even" territory. Aside from actually producing a quality game, keeping your schedule will determine whether or not a game is profitable.

As an aside, one interesting thing to note from the Frictional post is that it actually costs the company about $2200/month to pay an employee $1500/month. That extra 30% comes from government taxes and vacation pay. Sweden is a pretty socialist country, so I assume that figure is higher than in the US, but it's probably not far off from here in Canada (and with our/Sweden's awesome socialized health care, the employer doesn't have to pay for medical insurance for employees, so the end cost in the US might be about the same anyway). I didn't really consider this before, but I suppose that's part of the reason why hiring contractors (sometimes repeatedly and contiguously, creating perma-contractors) is an increasingly common practice in the industry.

Here's the interesting part the Frictional post didn't really discuss. The cost of making Amnesia is only half of the equation. The other half is how many copies does Frictional need to sell to make that money back? Frictional estimates that $100,000 gets them 1/6 of the way to completion, so Amnesia cost around $600,000 total. The game sells for $20 on Steam, so after Valve's cut (30%), it's $14 per sale for Frictional. If you buy it directly from Frictional's website, they keep all $20. It will take about 43,000 sales just to cover the cost of development. If Frictional wants a comfortable buffer to cover the cost of developing whatever's next, they'll probably need twice that. Just guessing, 90,000 copies seems like a solid success.

That's both enlivening and intimidating. A digital distribution-only indie horror game with next to no marketing could be hard pressed to hit almost 100,000 units. But it almost means if just 4 of every 100 people that bought Dead Space (2.2 million worldwide) also buys Amnesia, Frictional will be doing just fine. That makes it seem like a more attainable goal.

It's also god damn hard to make a game, even as an indie, for less than a million dollars. Another person here, another few months there and a budget can easily hit seven figures. Most people seem unaware of just how expensive even seemingly small independent games are. Frictional's post mentions a conversation with a friend outside the industry who guessed their budget might be $25,000. I imagine even many serious gamers wouldn't be much more accurate. Even an order of magnitude increase to that guess is less than half the actual budget.

To be clear, I don't care about profit for profit's sake. If you're in games to make money, you're probably an idiot, because there are lots of ways to make way more money with way less risk. But profit is important because developers need to eat and pay their rent. Financial success means talent creators can keep doing what they're doing. That's what matters.

The point of looking at this balance sheet is I think it emphasizes just how much influence the community of knowledgeable consumers have over what titles do well. A community getting fired up about some indie title and sending a few hundred more sales their way is actually a big difference. It's a rounding error to EA or Activision, but for Frictional, it's significant.

Part of the reason why I actually like the space I work in so much is that there's room for weirdness. When a big publisher has to move literally millions of copies to just break even, they're not going to take any big risks, creative or otherwise. But if you only need 100,000 sales for a comfortable success, you can make something weird that a lot of people might not like. But if even a small subset do, an indie studio can do just fine.

Every time you recommend some wacky indie title to a friend, you're helping out maybe more than you think. Gamers have far more influence over weird little games than they do tentpole blockbusters that get millions of advertising spend, so wield that influence wisely. Reward developers for doing weird, interesting things. In that spirit (if nothing else that to thank them for the frank discussion of their financials), go check out the demo of Amnesia. If you like it, or know someone who might, spread that word. A little kindness and we might help Frictional hit that comfortable 100,000. I think that would be great for all of us.