Is There Money To Be Made?

As I said in my last post, I'm looking at releasing an Xbox Live Indie Game in the next few months. Today, along with Darius, I started doing a little bit of math about indie game numbers, and it's gotten me wondering, can you actually support yourself, and a company, on indie games (indie, in this case, meaning a smallish team experimenting with interesting gameplay concepts and styles). Now, I understand that this whole post, since it deals more with money than passion, may end up alienating me from the indie community, but as a developer I want to see small experimental games flourish, and I want to see those people developing them do well for themselves. This post questions whether or not that's even possible under our current thoughts and models.

We've been seeing recently a number of small game companies really hitting a wall when it comes to funding. Introversion had a post on their blog about their money problems, and Mommy's Best, though still pushing ahead, made it clear that the number's on Weapon of Choice were not good. We've had rants from game players about alternative funding models and suggestions from Gabe Newell about public funding for games. What can we take from all of this? What can we do for funding models?

So this whole thing starts with one piece of information: How many copies of a single game does a developer need to sell per year in order to support themselves? Let's start at a base line of $40k per year for a single developer. This may sound like a lot for indie developers and, let's face it, it really is. But I will tell you it SHOULD be a pretty good base line number, for a lot of reasons, not the least of which include the fact that, in the US, as a single developer, you will be taxed on that both as a business and again as a person. Also take into account health insurance costs and the possibility of supporting any person other than yourself, and $40k starts to sound pretty slim.

Now we need to figure in loss to distributors. Let's ignore distributors with up front cost / approval process (XBLA, PSN, and WiiWare) because even developing for these services usually requires either an already proven game or proven team, and we're assuming neither. This leaves us with iPhone, PC (in various forms, we'll focus on two as you'll see shortly) and Xbox Live Indie Games. For each platform, you need to look at distribution numbers, likely price points, and gross income, meaning the income after your distributor (or whatever) has taken their fair share.

iPhone

Let's start with the newest (and, for all accounts, sexiest) guy on the block, the iPhone. Most apps on the iPhone sell for $.99 to $3, with Apple taking 30% off the top. In addition, selling on the iPhone is really all about staying new, staying fresh, and staying on top of the most popular list. In order to do that, you need to stay at the lower price points to encourage impulse buys. That means staying at around $.99 for as long as possible. Here are the numbers:

So at the pretty much standard rate of $1, a single developer needs to push 57 thousand copies of their game per year in order to support themselves, or push multiple applications which can come up to that number. With the number of iPhones on the market somewhere around 6 to 10 million, the question is, how many sales can you except? Mac Rumors reports 4 apps that easily hit almost a million sales, but what's the data like for games? And indie games at that? The most telling post probably comes from the developer of Dapple, who wrote a very long post on how much money he actually made on the product (summary, he has sold a total of about 500 copies). In addition, this post on the price of apps versus their popularity shows very few indie games in the list, Field Runners (essentially an App Store Launch Title) being the notable exception, and very little money being made. Is it possible to be an indie and loved on the App Store? Only indies who have accomplished this can tell you, but 57,000 copies is a really hard number to hit with something interesting or experimental.

Xbox Live Indie Games

So what about Xbox Live Indie Games. Their Gross To Dev numbers are actually exactly the same, though the $2 price point doesn't exist, and the highest amount you can charge is $5. That said, until recently $2.50 was the lowest you could charge, which required about 22,800 copies to be sold per year. Unfortunately, XBLIG sales figures came up very short for most developers. Total download rates are low, as Indie games were hard to find on the dashboard until recently, and good apps are very hard to find, so I believe most people have been ignoring the service entirely. Sales for most games topped at probably around 5,000 copies since launch, far from the required 22 thousand to support a single developer.

PC

Finally we come to PC. On PC, sales numbers small, but you can expect to be able to charge more, though more is expected of a finished product. Games average anywhere from $5 to $30, even from indie developers, and you'd think that, hosting it on your own or through Steam, you'd get more of the pie. Steam unfortunately doesn't publish their numbers, but PayPal does, and we can actually use them as a baseline. Now, we're assuming that you're looking to get above $40,000 here, so we're going to use their range for $10,000 to $100,000, which is 2.2% + .30 per transaction. Here's the numbers:

Looking at these numbers, it's almost obvious why most successful indie developers start on PC. Even with the PC market shrinking (this talk form GDC shows us that you can expect PC sales numbers in the hundreds of copies, thousands if you're lucky), you get to keep a lot more of your money, and the audience is self selecting. People interested in indie games tend to have PCs and may buy your game. (A note to pirates: Look at those numbers and see how much you're taking from that developer, and the numbers EACH DEVELOPER has to hit before even becoming profitable. That, more than anything, should make you think twice about piracy). Hitting these numbers is possible, but not probable. It's quite obvious, to me, from these numbers why most successful indie devs are one man shops, making fairly quick games. This model doesn't scale to multiple developers, and definitely not for multiple years.

Alternative Funding Models

So what about Gabe's suggestion? Running basically a "stock market" for games where you can invest in projects, get a game out of it, and possibly see a little bit from the net profits off of a game? So far, We've seen a commission system partially go out, and partially work, but what about Gabe's suggestion?

Let's assume that for these systems, we're talking about multi-developer, multi-year projects. Still talking indie, let's say 4 developers over a year and a half, which is pretty reasonable I think. This totals (not taking into account taxes, office space, servers, or anything else) $240,000 that needs to be raised over the course of a year and a half. Though this is potentially possible, we'd have to look at other concerns. If a person invest in this game with a promise of returns on the net profits (after other expenses / taxes), he needs to understand the risks involved. After all, if a game company never hits that $240,000 number, and can't survive long enough to complete the game, that money is lost. Attached to this, is the idea of due diligence. Each investor is now an INVESTOR in your game, and can have possible legal rights to it. If you just take the money and never finish the game, they might be able to sue you. What is there in place to protect both the investor and the investee if this happens?

Now, provided these legal fees could be worked out, how much of net profit would you be looking at loosing, and how much would you charge for each point of net profit? What would developers look to gain, and what would investors look to gain. This post is all about numbers, so here we go.

First, let's start with a game that sells about 20,000 copies at $20 each (we're assuming these are good games that have a following, otherwise they wouldn't have been funded in the first place), on PC using the numbers above. That totals $391,000 revenue on the game, and let's assume (for argument's sake) that we have $41,000 in expenses for the game (to make nice round numbers). That leaves us with $350k net. Assuming we split to always end up with getting the funding we need, here's what the graph looks like:

In general, that's pretty grim. Only in the 70% case do the investors come out just breaking even, and the developers have enough to fund half of their next game. Is it possible? Maybe. But is it worth it for the investors? How many times will an investor loose most of their money from games that aren't finished, or games that don't break 20 to 30 thousand copies before they just kind of give up investing? How much work is required of developers just to set up the legalities to make sure they don't get sued, and their investors don't get screwed?

Another funding model for indie devs is to keep titles relevant from year to year, keeping sales of the title up while you work on the next title, and into your third.  By keeping these games selling, you can start to see actual profits. However, this also means consistently releasing games year after year, and surviving until these games come out. This takes a lot of start up capital, or at least the ability or desire to eat ramen for years on end, with only the smallest chance of reward (from looking at these numbers anyway).

Conclusion

These numbers make it really obvious to me why most indie (and, in some cases non-indie) business models exist, and why they produce the games they produce. To be successful, you need to be in one of a few situations:

• A single developer that makes a good title (Petri, for example)
• A single or set of developers with short release cycles to keep multiple games relivant over short periods of time.  (Almost all iPhone developers).
• A developer that has an already popular game and is able to get on one of the more visible services  like XBLA, PSN, or WiiWare (That Game Company, the Behemoth, 2D boy, Number None)

This is why indie games experiment the way they do.  Shorten the dev cycle, concentrate on mechanics and prototypes, keep art resources and requirements low, release lots of games quickly.  I feel like there needs to be more available.  I'm sure there are indies out there that want to experiment with things that take longer dev cycles, (weird dynamics, involved dynamic art styles, or, god fobid, strange narative structure), but can't for survivability reasons, and that's a damn shame.

So my answer to everything here is, maybe there's not a good living to be made in indie games. Even with alternative money sources, it doesn't look like you can sustain a business, even of small number of developers, without competing for AAA numbers, which seems to have a quality bar that almost requires a AAA team. Obviously, the math for that is wrong somewhere, as we've seen it happen, but is it worth it for me (or anyone else) to attempt the struggle when the reward seems to be mostly just more struggle? Is there an answer I'm possibly missing? Is there money to be made in remaining truely independent, or even survivability?  And if there is, can it be done for more models than what we have now?