Monthly Archives: January 2016

In a sudden fit of spreadsheet fun, I looked at steam spy data for 26 indie games that were released roughly a month ago. I then calculated their approximate revenue. Then, I looked at a recent game positech released (Big Pharma) and worked out what percentage of the last 7 months revenue was from month1. Using that, I extrapolated the final income for the first 6 months for each of those games. I assumed each game had cost $100,000 to make. (Possibly an over-reaction, but don’t forget the time involved). Anyway, the profits, and ROI are shown below…

stats1

So lets assume I was being crushingly silly here, and instead look at a very long tail of a game, such as Democracy 3, and use the stats from its month 1 vs total income and use that to calculate ‘lifetime’ income, assuming multiple patches, DLC releases, sales and so on, given month 1 income:

stats2So what non-scientific stats can be drawn from this? well… even if you are prepared to wait for two and a half years to see the money come in, 69% of indie games are going to lose money. Looking at those stats, the overall income was 13 million dollars so the ‘average’ game made a half-million dollars profit. WAHEY! But obviously thats bollocks, because the median game made a 55% loss. Without any mitigating factors, you are statistically likely to make a loss.

Here is another way to look at it. Chop off the top 3 selling ‘hits’ and the ‘average earned by the remaining games is a profit of $40k over two years. Thats actually not that bad a ROI.

Another way to look at it: there is a 34% chance that you will lose 75% of your money if you make an indie game.

Figures are fun.

 

edit: Forgot to take off steams percentage soo…. assume the figures are even less optimistic, or that your game costs $70k to make :D

Analyzing game development risks

January 05, 2016 | Filed under: business

There is absolutely no guaranteed return on an indie game. You might lose literally everything. Some people obviously cannot afford to take that gamble, and I suspect a lot more people *can* but decide they do not want to risk it.

Would you risk $100,000 if I said you have a 25% chance of losing it all, 25% of getting it back, 40% chance of making a 30% ROI and 10% chance of making a 200% ROI? In theory the expected return for this is…

0.25 * -100k = -25k plus

0.25 * 0 = 0 plus

0.4 * 30k = 12k plus

0.1 * 200k = 20k.

Total expected outcome is $7k profit, 7%, so not bad, better than the banks. But would you risk it before you did the maths? I suspect not. I suspect most people would not. The big problem is the fact that most people do 1 game a year, or even every 2 years. Thus your ‘rolls of the dice’ are pretty limited. If you have 1 roll, and lose it all, you are fucked. If you have 1,000 rolls, the chances are high you will get your 7% return.

This is why publishers are a thing. They spread their bets, and reap the 7% premium. They get that 7% because they are able to risk $100k. The maths are not different for them, just the scale. The same thing applies to movie studios and record companies and TV networks.

Shadowhand or Democracy 3 or my top secret other thing may fail and lose me at least $100k. The chances of all three doing that are really slim, so I’m not worried. But if I was a new indie dev with one roll of the dice, I’d probably be pretty scared.If your $100k of kickstarter and friend-funding is your one chance, you are basically taking a 25% chance of your career imploding with that single dice roll.

BTW Those figures above are pure guesswork, and I suspect the real figures are MUCH more hit-skewed. I wonder if steam spy has the stats…

The deep discount era is over

January 01, 2016 | Filed under: business

A short while ago, steam introduced refunds, with the somewhat bizarre idea that a legitimate reason for a discount is ‘its on sale cheaper now’. People rejoiced, but one side effect of this was to screw up the old system of one-day ‘flash’ sales. A lot of people get confused as to the real reason behind quick ‘one day’ and ‘flash’ sales. People sometimes think its purely to introduce a ‘false’ sense of urgency and encourage impulse buys, but the real reason is very different.

The holy grail of economics is per-user pricing. If you make a game, it has a different value for every potential customer, based on their fandom, their desire for new games, their income, their mood and so on. In an ideal world, the price always matches the value. Unfortunately, people get very upset when they discover that everyone has paid a different price, except in flights and hotel bookings where somehow we accept it.

Anyway… companies normally do their best to maximize income in this way by ‘market segmentation’. That basically means getting the rich to pay more and letting the poor pay less. This happens all the time. Movies are cheaper during the day (for retired people and students have less money and yet are free this time). Movies also offer ‘premier’ seats that cost 5% more to make but cost 40% more.  Restaurants sometimes have ‘meal deals’ with coupons in cheap magazines or on ‘discount coupon’ websites, so people who don’t care where they dine can get a better deal than the wealthier spur-of-the-moment diners.

coupon-icon-lrg-300x226

Steam flash sales did this too. Some people are too busy (have jobs, just don’t care about discounts much) to check steam EVERY day during a sale to see what is cheap. They often miss one-day or flash sales, but they don’t care. A game is $5 instead of $7, who cares? On the other hand the super-time-rich and cash-poor students will happily check a website every day to save $2. Thus…everyone is a winner, the poor pay less, rich pay more, devs earn more.

The current steam refund system kills that. The flash sale now always lasts at least two weeks, meaning that level of price discrimination is unavailable. The existence of shady/illegal grey-market re-sellers has exactly the same impact. Refunds & grey market means less price-discrimination and less deep discounts.

So if you think the current steam discounts are less generous that’s why. Don’t blame us, its just economics and maths. And where steam leads, others follow, so I conclude that the days of deep discounts are over.