There has been a lot of talk recently about game funding. On one hand, venture capital firms still have bad taste from seeing giants like Zynga struggling to show consistent success in mobile. On the other hand, publishers have had trouble turning their market presence into success for their 3rd party titles. If you look at the top 25 charts, there are no ‘publisher games’ in there.
Does the VC model fit the volatile gaming industry?
Is the publisher model still relevant in the world of digital distribution?
Will we see a new model for funding games?
These are the question that everyone is trying to answer.
What Do Game Developers Say
- There is still a need for a partner to handle the commercial elements: funding, distribution, expertise and a bundle of tools and services that can accelerate the project and revenue. Out of all these, funding is the most important to developers.
- Distribution only deals can work only for international markets that have a specific advantage to a local partner. The publishers’ ability to cross promote titles in his successful games is limited and most 3rd party titles end up ‘on the bench’ after a short period of time. At the same time, local markets that require special expertise are easier to tackle with a partner. A good example of that is the Chinese market.
- The two main flows of standard publisher deals for free 2 play games:
- The revenue split model kills the ability to acquire users. On every dollar made via IAP, 30 cents goes to Apple/Google and the rest is split between the developer and the publisher. It means that even with an ARPU of $2, buying users at $1/user is not profitable for either side.
- In deals that have an advance for the developer, that advance is taken from the game revenues in the first few months. In free 2 play games, these months are critical and the developer needs to tweak the game and listen to customer feedback but he can’t focus on that as the deal starves him.
- Equity deals have their own problems:
- You give away a part of the company, including all the titles that will come in the future.
- Venture Capital firms are a better fit when the studio has a special formula for making hit games. However, if your studio is focused on creating unique IP (content IP) there will be misalignment of interests in the long term.
Bottom line, both models have fundamental flaws. There might be a room for new funding methods but until we see new ones the best option might be to stomach it and publish games on your own.