Monday, March 29, 2010

Indie game publishing costs, or the grim reality of game economics

Today, I'd like to share my thinking with regard to the economic viability of publishing games with relatively small print runs. This would cover either small game companies or self-publishing - whatever you want to call it, that's what I'm looking to do.

To get started, I've solicited manufacturing cost estimates from a number of manufacturers both in the U.S. and overseas. There is less difference there than I'd thought, although overseas sourcing is a bit cheaper at most production run sizes. That's before factoring in the hassles of additional shipping, customs, transport, etc., which (along with a general preference for U.S. production) may well be enough to move me back to a U.S. printer. Regardless, I've compiled and graphed my various estimates for Diggity, a card game with 96 cards and a box. Some estimates are higher, and some are lower, but they generally fall along the curve I show here (click on all the graphs to see a larger version):
So, you can see there's a big economy of scale at work, with a run of 2000-3000 games being necessary to get to where the pricing is a good deal cheaper, and a run of 5000 or so to get down to about $2.50 a game.

Knowing how much you can make the games for is only half of the information you need to figure out if this is going to be a profitable venture. You also need to figure out how much you can sell them for. That's tricky - there are a lot of mass-produced card games that are somewhat like Diggity. The GameWright card games retail for about $8-$12. They have a big box, lots of art, and they obviously benefit from a big print run. They usually have fewer cards than my game. Set retails for $12-$14 - also a big, popular game. Fluxx, which is probably more parallel to what I'm doing, retails for more like $15-$16, although it now has a bigger box than I'm including in my estimates here. 

Even so, that sounds great - I can make the game for $3-$4, and then sell it for $12, or even $16! Profit! But that's not how it works. The $12 or $16 is the retail price, and other than customers to whom I sell directly, I'm not likely to get the retail price. If I sell directly to a game store, they're going to want to buy it at maybe half of retail, so that they can make a profit. Worse, if I sell through a distributor, the distributor is going to want to buy it from me for maybe 40% of the final retail price, since they need to mark up when they sell to retailers.

Let's make some conservative assumptions. Suppose I'm only able to get a retail price in line with my cheaper competitors, like the GameWright card games. Even if mine's better, and has more cards. Suppose I can get $10 retail for it. That means, if I'm going to sell through distributors, I need to assume I'm only going to get $4 a game for my product. That means I can modify my graph to show where I'm profitable and where I'm not as follows:
On the graph above, I'm only making money on my games if I can get them produced for less than $4, which is only true if I'm in the blue zone. Which means I need to print over 2,000 games just to get to the point where I could possibly make any money. And these are just the production costs - they don't count advertising, legwork, artwork, web design, office supplies, Internet costs, web hosting, shipping costs, transaction fees, returns, spoiled or damaged products, non-payment or outright theft, and on and on. 

The above also makes the rosy assumption that I'll sell all the games I make in a reasonable amount of time. It's possible that sales will go very slowly, and even if I'm potentially profitable long-run, I'll have to make a really big initial payment and then wait a long time (years) before I see any return on my investment. Worse, there may not be that many customers out there for my game (although my shareware experience has taught me that the web, and the world, are pretty dang huge). Suppose, though, that the limits of the exposure I can get and the interest of consumers are such that I can only ever expect to sell about 4,000 copies of my game. That's not a conservative estimate - lots of companies go with smaller print runs, and many many games sell less than that number. But even so, that limits my potential profits as shown below:

My blue field of happiness and profitability has gotten a lot smaller. Not looking too good.

Another concern is how big that initial investment has to be. As you can see above, the cost per game decreases significantly the more you buy. The counterpart to that, though, is that the amount you have to invest increases, because you have to buy each of those games to reduce the per-unit cost. The green line shows the total up-front manufacturing cost (marked on the right side of the graph) that I'd have to shell out to get the game printed.
To even get to the blue zone, I'm looking at a significant initial investment just to get started. Here's an example of how that can be pretty grim. Suppose I really want to publish my game, and I want to make a profit doing so. But I only have $9,000 to spare to get started (call that my Investment Limit). If I spend all of that on printing, at the prices above, I can only print about 2400 games (call that my Production Limit) at a cost of about $3.75 a game - barely below the $4 price I can get from the distributors. That's shown here:
My profitable zone has shrunk to a tiny triangle, almost definitely not enough to cover my other expenses, and my business is doomed before it starts.

Depressing, eh? Well, you have to be realistic. But what are some ways that I could push against this inconvenient truth, and actually make a self-publishing or indie company economically viable? Here are a few:
  • Put in a lot of money - Suppose you can put in more personal funds, or you can raise money from investors. If you make a bigger initial investment, you'll have lower costs of production, and you'll make more money with every sale. You'll have a lot of products to sell, so you'll want to do a lot of advertising and promoting to get your game noticed by potential customers. But if your game is just not that good, or not that marketable, and you do run into a finite market for your game, you'll just have spent (and lost) more money, and you'll have a lot of sad stacks of little cardboard boxes in your basement.
  • Charge a higher price - if you can get people to pay a higher price for your game, then you move the red 40% of retail bar in my graphs upward, and your profitability increases a lot. Given the way the production line is curved, you'll also be able to stay profitable at smaller print runs. Having a higher price than competing games will of course lose you some purchases, but if your game is good enough, and especially if it has some kind of draw, interest, or unique feature that others don't have, you can still sell out. Remember, the benefit of indie publishing is that you need to sell out, but your print runs are pretty small. It's a lot easier to get rid of a couple thousand games than it is to get rid of 10,000 or 20,000.
  • Sell direct - This is a big one, and maybe the best option here. If you can sell your games direct to consumers, then you don't have to weather the discounts that distributors and retailers expect - you get the full purchase price, which means your margin is a lot higher. There are a bunch of easy-access ways to do this - through your own website, through eBay, through Amazon - but the challenge is getting noticed. If your game is sold only on the Internet, you've got to be visible to lots of people in places they go to look for games. That's a big challenge. It's possible that you can sell in a variety of ways, too - get your games out to distributors and retailers as best you can, but also sell in person, over the web, at conventions, by the side of the road - anywhere you can find where people are willing to buy.
There are some other ways I think you can get around this perplexing economic model, and I'll discuss them in future posts. But, like any business venture, self-publishing a game or starting a small indie game company is a big gamble, and not a particularly good one. You shouldn't do it with money you can't afford to lose, and you shouldn't stake your career (or your family's future) on succeeding.

17 comments:

  1. Wow! I like all of the various graphics. This is a great post. The bottom line is that you probably need to find a way to get the cost of production down. Good luck on that end. I also know from experience that the various non-production costs work out to be higher than you might think.

    I also did not notice a cost for artwork factored in.

    Michael Mindes, Founder
    Tasty Minstrel Games

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  2. Hi, Michael -
    Thanks for the kind words. As far as I've been able to get quotes, I'm not going to be able to reduce the costs much, especially if I want to get something better than a tuckbox. So, I'll have to either try to hit a higher price point or find some other way to make the economics work.

    I haven't decided what to do yet with the art - I have functional but not awesome art already in place for my pre-release POD version. If I go for a full print run as I've described above, I'll definitely need some new art, although I might be able to get by with just a few artist-drawn pictures, since the game is somewhat abstract in its design. Otherwise, I'm probably in for another couple thousand dollars up front, which makes the numbers above even worse.

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  3. Great post. I, too, love all chart graphics. Really helps to conceptualize all the factors and give a clear picture of where the profit zone lies.

    Obviously we all know that if you can keep the costs and investments low and sell for maximum profit and market share; but seeing the curves really shows where the sweet spot is for production.

    Seems like with the Internet, one should be able to do small investments/print runs and find enough direct and retail customers to make it work as long as you keep costs to a minimum, quality as high as possible and of course --- have a great game.

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  4. Artists-
    Have you thought of hiring any high-school or college students to do some of that art work? Can pay reasonable rate and they would love the exposure. Some of these "kids" are really talented. Just a thought.
    Great Article. Wonderful use of graphs to visualize the analysis.
    Thank you again for sharing.
    Bill

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  5. Nice analysis. You need to add the interest you would have being making with your money in the bank as an opportunity cost. You will get the profits of your game likely one year after you start selling, so that a whole year worth of interest on your money.

    On the other hand, you didn't explore enought into the investors part. If you can get your governor, or local big enterprise to pre-order some hundred copies of your game, well, you are in business! I know this only work with educational type of games, but then again, you'll be gaining know-how and market presence doing a sponsored first release.

    Keep thinking!

    Pastor_Mora

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  6. I'm not sure how I get Bev Perdue to buy my guame, but yeah, some pre-orders would be nice, and would go a long way to make this more of a planned endeavor and less of a big gamble.

    The opportunity cost would be good to include for a complete picture, too, but tricky - some years, I'd have done better in CDs, some in stocks, some in my mattress - a game company might actually be better than a traditional investment, at least in the last ten years.

    So, I think if I limit it to actual dollars going in and out, that might be more manageable and less speculative. But yeah, it's good to think about what else I could be doing with my time and money.

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  7. Just wanted to say your analysis is good and we have gone through much of this ourselves. We have a simular production for our NILE game which is in a double tuck box and we are making only 1500. We are working with a China company and our costs per unit to print are $1.53 for 93 cards. But actual costs after setup and shipping to USA work out to about $4 per unit. We'll be able to sell it at a good price of $16.99 - we also use a consolidator who helps get the products into distribution but takes 10% of what the Distributor pays.

    You also left out visiting conventions and all that jazz... we have a full convention schedule and even did the GTS trade show. Response is very good so far.

    Best of luck and feel free to contact me if you'd like us to consider your game.

    James
    http://www.MinionGames.com

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  8. Thanks - I've been checking your site for a few months now, and it looks like you're going through many of the same steps.

    I've been leaving the advertising and such out of it for now - that definitely goes into the overall cost analysis, but I'm just worried about the manufacturing costs for now.

    If you read this and don't mind telling me, what consolidator are you using? I'll likely need to look into that as well.

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  9. We use Impressions Advertising http://www.impressionsadv.net - the idea is they'll sell 10% more product by listing us at all the distributors (even overseas) and the distributors more regularly order from them (weekly) where they may only order from you once a month. One of the biggest problems in our industry right now is the short-level of product the distributors carry - so it's easy to get your product listed as TOS for weeks when you're sitting on hundreds of units.

    But working with a consolidator has fees/setup costs involved. Also producing just one game is not something the distributors like to see - plus then there is con attendance and all that... thus usually better to team up with another company.

    James
    P.S. I also own 2 game stores in the Milwaukee area so I know the workings of the industry.

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  10. Great post! I was just wondering what the costs were to producing a card game. A couple of minutes with google and bam! I get the info. :)

    The indie games market seems very similar to the independent book publishing market.

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  11. Thanks - glad it was useful. I have several other posts on the topic - see the links at the upper right.

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  12. what a clear way of look at it.
    great for us visual types.
    thanks dave

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  13. This is a very insightful article and I definitely appreciated the effort you put into analyzing your business as well as sharing it with us.

    My only question is on your graph with a total investment line(green). The numbers don't match up? It seems to be about $500 off. For example, at 2000 copies for $4 each, your investment would be $8000. The graph seems to be showing $8500. For 9000 copies at $2 a pop, you'd be looking at an $18k investment. This is where the green line should go off the chart instead of at 8500 copies.

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  14. Standing ovation, man. Thanks for this. Now I can link folks here whenever they start asking me questions about the same stuff. :)

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  15. Great summary of the issues facing the small market press Dave!

    We went through the same agonizing calculations at Tactical Assault Games and decided to go the DIY-Download/POD route - in part to relieve some of the stress derived from the time vs. sales portion of the equation.

    With the lower initial investment, there isn't quite the same pressure to generate sales, and thus return on investment, as quickly. It has worked OK so far for us, with the added benefit of allowing us to grow organically along the lines of our original plan rather than being driven solely by the anticipated profitability of any given project.

    It sure seems like there are a lot of hard choices to be made for the hobby we love...

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  16. Great post!
    I second your analysis and possible solutions. I think the price (retail) of indie games will go up, by about 20% in the coming year as we all face the same issues.
    Crowdfunding also helps, especially as it allows you to better gauge the market size beforehand.

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  17. HI dave,
    I agree with you and for this reason I'm trying to make a crowdfunding website...not as usually website of crowdfunding but a place where you can post your idea, develop a project, collect a fund, test the game, produce the game and also sell it online...
    ony with a simply registration to the website.
    I hope my project will run asap
    Stefano

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