Structure of the Industry (in brief)

The games industry, once a niche form of interactive entertainment often dismissed as being for children or teenage boys, is now a multi-billion pound industry that rivals the film industry in terms of revenue and prestige.
Gaming was perceived as having ‘hobby culture’ (created by enthusiasts rather than big business) as recently as the 1970s so this is relatively young industry and the way it functions is constantly changing. The main reason for this is due to it being a technology led industry, and as software and hardware develops so does the framework around which games are created, sold and consumed.

The games industry is made up of the following institutions:


Games are created by development studios comprised of software engineers, artists and programmers who write the code, create the structure and animate the game making them playable for gamers. It’s these developers that are perceived as the ‘talent’ in the industry.

Production tool manufacturers
Companies that create the software that allow the developers to make their games. This includes content production tools, game development middleware, customisable game engines, and production management tools

These are companies that are responsible for the marketing and distribution of the game. Often they are responsible for the initial investment in a project.

A distributor works with retailers (shops, online) to make product available for the consumers to purchase. In the games industry the Publisher often handles the distribution.

Hardware/Virtual or Software Platform manufacturers
While developers create software, other companies create the hardware that the games run on. In the games industry the major players are Microsoft, Sony and Nintendo who make the Xbox 360, PlayStation 3 and Wii respectively. There are, however, many other types of hardware apart from consoles on which games can be played such as PC, phones and handhelds (DS, PSP) and evenn non-hardware platforms such as virtual machines (e.g. Java or Flash), or software platforms such as browsers or even further Facebook, etc.

Or ‘the audience’ - anyone that buys, plays, downloads games.

Below is a basic illustration of how the videogames industry functions and the process in which games go from ‘concept to consumption’:

Developer - Production Tools - Publisher – Distributor – Hardware – Consumer

It should be possible to identify the Institutions involved for each of these sections for any game, however the same company might be responsible for several of the sections.

Choose your favourite game - can you find each institution involved?

Different ways to get a game made

Different models of production

Here are few examples of other ways you can make videogames. The first is a business model but brings home just how expensive it is to make games these days especially for the PS3 and 360.
The Indie game scene is really growing and represents the other extreme from GTA and any Iphone game would make a good case study.

‘Tent Pole’ business model
This is similar to the business model a lot of Hollywood studios: the idea is that the publisher releases one ‘blockbuster’ game accompanied with heavy marketing and investment. Then the money made from this game supports the development of other ‘riskier’, potentially more creative games.

For instance: Grand Theft Auto brings in a lot of money for Rockstar which allows them to invest smaller hits such as Canis Canem Edit, Manhunt and future products such as LA Noire and Agent.

Capcom use franchises like Resident Evil to pay for No More Heroes or Killer 7.
EA rely on the annual updates of Madden and FIFA to create cash for the research and development of other games. In 2008 EA spent $372million on research and development, the reason for this is that PS3 and Xbox 360 games can cost up to $30 million to make.

The problem with this is the company are gambling on that one game being a hit, and sometimes even big games don’t return the money – e.g. Spore, sold 1 million copies in its first 17 days, but the development costs were so big EA only expect to make their money back with 5 years of updates and sequels.

Hollywood model
The idea is to contract out parts of the games design (art, car physics, quality assurance etc.) to other companies in order to lower development costs. So instead of having a permanent in-house development team of 50+, developer can have a team of 10-20 piecing the work together undertaken by specialist external teams. This is like the Hollywood idea where specialists (stunt teams, Director of Photography, scriptwriters) are hired in for particular films rather than working for the studio in a full time capacity. e.g. Wideload Games developer of Stubbs the Zombie

Interview with Wideload Games chief – Alex Seropian
"My solution was to have a core team of 12 guys who come up with the concepts, design the games, and prototype them," Seropian explains. "When it comes time to do the actual production work -- that is, building the thousands and thousands of assets that go into a game -- all that is done by independent contributors, by contractors."

According to Seropian, if all the work on "Stubbs" had been done in-house, it would have required a full-time staff of 65-70. Instead, his 12 employees began 18 months ago and spent six to eight months to plan the project. Then, outside contractors took another six to eight months to build the assets. And now the internal team is filling another six months assembling it. All told, contractors accounted for about 75% of the work hours. As a result, the project cost 35% less to produce than if it had been produced entirely in-house.

Cursed Mountain (Wii)
Cursed Moutain’s design and concept was created by Deep Silver Vienna but much of the assets were created by Sproing Interactive, Rabcat, Immersive Games, Perspective Studios.

Developing without a Publisher
The most common model of development had developer pitching for investment from publishers or the publisher hiring a developer for a job, but occasionally you can get developers that begin on a project without a publisher. The risk is that their game might never be released and they have to raise the capital themselves, but what it does do is give them more creative freedom and no pressure from the publisher in terms of deadlines.
E.g. Games developer Avalanche worked on Just Cause before it was picked up by Eidos.
Also there is a game in development called The Outsider from developer Frontier Developments that hasn’t got a publisher.

Independent Game development
Until recently games development was a costly business, usually requiring a developer to a have a publishing contract in order to pay for the development and the license fee required to develop for a particular console. However, now there is a growing ‘Indie Game’ market thanks to open source software, Apples App Store and Xbox Live Marketplace small teams and even individuals can create games, get them distributed and make money.

The point to make is that because of new technology, convergence and new ways of distribution we have a return to the bedroom development culture weird, wonderful, often abstract games – so it means not all games have to be GTA 4.

Developing for the PlayStation Network, Wii Ware, Xbox Live Marketplace
Each console has an online store where ‘indie games’ can be bought. However, unlike release a game for the PC, Nintendo, Sony and Microsoft have certain criteria that needs to met before they agree to distribute a game.
Aside from basic development costs, console game developers are required to pay fees to license the required Software Development Kits (SDKs) from the console manufacturer. Manufacturers often impose a strict approval process and take a percentage of the game's net profit in addition to yearly developer fees. As of this writing, to develop for Nintendo Wii, Xbox 360, or Playstation 3 requires an SDK license fee of between $2,000 and $10,000 USD, in addition to yearly developer fees and profit cuts.
Interestingly Sony have slashed the SDK cost from $10,000 to $2,000 in order to cut development costs and hopefully increased third-party productivity.

Braid was created by Jonathan Blow, taking three years and $180,000 of this own investment , to make. It was originally release for the PC and sold 55,000 copies in first week (making £530,000 in revenue).
Blow then agreed to release a version for the Xbox Live Marketplace but had reservations as Microsoft have the final say on what goes on there and have a four stage approval process:
‘Blow was critical of the Xbox Live certification process, as he believed the effort to meet all the requirements could have been better spent on polishing the game. At the same time, the certification team allowed him to retain certain aspects of his vision for the game that were otherwise contrary to the process, including giving the player immediate control of the game instead of requiring a start-up title screen.[52] Microsoft also requested that Blow include some additional hints to the player based on results of playtesting, but Blow held his ground, refusing to release the game if he was forced to add these.[21] He said he would likely not release a game again on the Xbox Live service under the same business model.’ (Wikipedia)

Developing for the iPhone
The iPhone SDK is a software development kit developed by Apple , targeted at third-party developers to develop applications for iPhone OS, released in February 2008. The SDK itself is a free download, but in order to release software, one must enroll in the iPhone Developer Program, a step requiring payment and Apple's approval. As of January 2010, cost of enrollment in the iPhone Developer Program is US$99 per year (the cost varies from country to country) for the standard program.

Developers who publish their applications on the App Store will receive 70% of sales revenue, and will not have to pay any distribution costs for the application.

Examples – Doodle Jump, released April 2009, it has had nearly 4 million downloads. Doodle Jump is the brainchild of Igor and Marko Pusenjak, two Croation brothers who released the app under the banner of their company Lima Sky.  Click here for an interesting interview with one of the developers.

Zynga is a ‘casual’ games developer that specialise company develops browser-based games that work both stand-alone and as application widgets on social networking websites such as Facebook and MySpace.
This is possible as Facebook has ‘open’ technology that allows third party companies to develop software for it. Zynga’s big success is Farmville which is a simple game and has an effective business model – the game is free to download, but the items within the game cost money – but significantly, not much money. These are called micro-transactions – small on their own but once the 82.4 active Farmville users get involved you can see how the revenue builds-up.
In terms of development these are easy to create games but as they are online and ‘live’ they require a team of engineers to maintain the smooth running of it.
Inside Zynga