Commercial Indie Games & Risk

(There is a TL;DR at the bottom of the post, but I suggest you resist the urge.)

 

Indie? What does that mean?

I’m using it to mean “small”, as in numbers of people and budget. Commercial means that the game project is intended to generate a financial profit.

When people ask me if Steam Marines is a one man show, I say “no.” I contract out art, music, and sound to other people. My job is to wear all the leftover hats, e.g. programming, technical support, marketing, et cetera.

 

Finances, numbers, and expectations

Steam Marines was always slated as a commercial indie game. This means that I invest time, money, and effort and intend to come out with a profit. Without that intention it’s not a real commercial enterprise. But not all commercial enterprises turn a profit or break even.

I’m under non-disclosure agreements for the sales data of Steam Marines, so I can’t tell you much about that. There are some postmortems of other commercial indie games that can give you an idea of those numbers, although you should bear in mind that those in aggregate are skewed. There are not nearly as many postmortems for failed games even though they comprise the majority of projects.

What I can tell you about is my expenditures and projections. From that we can determine what my financial return expectations are. I feel that this is something too many indie game developers, and creative entrepreneurs in general, ignore.

 

Skills to pay the bills

I’m a programmer by training and trade. This is a big deal if you’re trying to create value that relies on programming. It means that I can afford to pay myself less than what I would need to pay someone else of equal skill and motivation.

Steam Marines is currently in alpha. It was originally slated to be a twelve month project, but due to art issues was extended. Then it made its way onto Greenlight then Steam where it’s being sold under Early Access. So the schedule was extended again to account for more features and polish.

My current projection is that it will fully release approximately twenty–four months since it first started development. Given current expenditures I project that by the time Steam Marines is finally released it will have cost me $160,000 USD.

 

Expected return from an external perspective

If someone invested $160k USD into a business venture, what should an appropriate return be after X months? It obviously depends on what the risks are. Game development, especially indie game development, is highly risky. Steam Marines has no value in terms of intellectual property. It has no previous user base or intangible goodwill from previous titles. The probability that it will not ever break even is high.

Depending on who you ask the internal rate of return for an angel investor is between 20-30% on the “low” end. That is aggregated over multi-year holding periods and multiple investments.

If you take a look at some sales metrics from 2009 (specifically slide 16) it shows that for PC downloadable games:

  • Low-end sales is 100-1,000 units.
  • Mid-end sales is 1,000-5,000 units.
  • High-end sales is 5,000-50,000 units

At the time of this post Steam Marines is on sale (10% off) on Steam for $7.19 USD. If an external investor were to expect a 30% return, per year, on an initial investment of $160k USD, Steam Marines would need to net $270k USD.

Forget that you’re not going to get all that money on day one of release which means that you may have a cash flow problem. Also remember that the $270k USD figure is net, not gross. If a platform or publisher takes a cut, you’ll need to factor that in, too. For example if the game needed to pay a 25% cut (pulled out of the air to make a nice round number) that figure becomes: $360k USD gross.

That turns out to be about 45,000 units at Steam Marines’ base price of $7.99 USD. Remember that the high end of the high end is 50,000 units.

If you think that’s harsh, remember that most games don’t even break even, meaning the investor would lose money after two years. This is also not including taxes which will differ from person to person depending on personal income, capital gains, tax bracket, geographical location, et cetera.

 

From the self-funded entrepreneur perspective

For Steam Marines I’m both parties in the investment scenario. I invested in my company to develop the game and sell it. This changes a few things.

The biggest is that I’m no longer some guy borrowing money from an outsider for base salary compensation. That means if Steam Marines takes off I get to partake in the profits. Risk equals reward, remember? Just also remember that it is statistically unlikely.

It means that I own my intellectual property and can expand and grow it for my own monetary gain. It means that I can have satisfaction knowing I did most of the work on my own capital.

These are all nice intangible benefits. Unfortunately if you’re relying on that income stream not only do you have a potential cash flow problem you also can’t parlay a lot of those intangible benefits into things like rent or food. Imagine if I was profit sharing between two or three other people like programmers, artists, composers, et cetera. Those people have to eat, too.

 

Just come out and say it!

I’m not trying to discourage anyone. I want more indie game developers. But I also want them to be financially savvy and understand what they’re getting into. There are a lot of starving artist types who don’t necessarily need to be. Be realistic and understand your circumstances.

There are a lot more words I could write but it would tie into cost of living, politics, healthcare, and so on and so forth. Again, not within scope of this post. I will say that for me to feel comfortable hiring an entry level programmer full time (fair wage, benefits, et cetera) in the state of Connecticut I would need to gross about $100k USD on top of what I needThe obvious result is that the programmer needs to generate more than that in value for my company to be worth hiring.

The simple reality of the situation is that (commercial) games are expensive to make, high risk, and generally do not support their creators well. Please be aware of these facts.

Still stuck on how you think $160k USD is a lot of money?

  • Braid apparently cost $200k USD to develop over a three year period. I don’t know how Jonathan Blow valued his time and effort, although he does mention that most of the money was spent on hiring an artist, and he didn’t live in a shack. Clearly if you do live in a shack and eat instant noodles you can make a game for less, too.
  • The N+ postmortem estimates that it takes about $125k USD minimum to develop an Xbox Live Arcade game. I wish this had gone into more detail, but the end result is the same – it costs more than you might think at first blush.
  • Dustforce developers won $100k USD from a competition that allowed them to bring their prototype to full release. “So if it cost us almost $100k to work for a year and a half, we’d have to make around $67k for every year until we release our next game. However, it would be nice to live a less frugal lifestyle than before, so ideally that figure would be around twice as much. With a rough estimate of three years for our next project, plus a bit of a buffer, we were looking at around $300-400k USD as our final goal. Was that realistic? We had no idea.” – Dustforce developers.

In any case you’re not making Steam Marines or Braid or N+ or Dustforce, so you’ll have to adjust your costs and expectations accordingly.

 

Well, fine! Then what was I supposed to get out of this?!

  1. Calculate the cost of making your game.
  2. Determine how much profit you wish to make.
  3. Calculate how much gross/net/unit sales at what price point(s) are required.

This can help you determine what work is most valuable, what can be cut or edited, and give you a better framework for understanding how to be a successful indie game developer on your own terms.

 

The obvious question!

Will Steam Marines be profitable to me? Is my expectation really 30% on my expended time, effort, and capital? My expectation is tempered by the numbers I gave above. I am cautiously optimistic.

The response to Steam Marines has been pretty strong – lots of die hard, permadeath, turn-based strategy fans out there! I think it’s a real possibility. Allow me to take this opportunity to thank all supporters of me and my game! Beyond purchase there is definitely intangible value there – moral support when I doubt myself.

 

TL;DR

For an initial $160k USD investment over twenty-four months, an expected return of 30% per year, and a 25% share with a distributor/publisher, Steam Marines would need to gross $360k USD, or about 45,000 units at Steam Marines’ current base price of $7.99 USD. This is not including taxes.

If you want to assume 30% over both years, or over two years of development and another twelve months of sales, it would be reduced to $208k USD, or $277k USD including the 25% share. That also brings the required number of unit sales down to just under 35,000.

Other games have cost roughly that amount – it’s not an obscenely high number. Cash flow (related to the game not receiving all revenue in one shot on day one release) is not considered. In general the longer time for earnings means you’d need to gross more. On the other hand your development costs were most likely not accrued in one fat capital infusion of $160k USD, either. Understand the concepts, don’t harp on the exact numbers; the numbers will differ from case to case.

I live in Connecticut, U.S.A. Your cost of living, and that of those you hire, can greatly influence your financial costs and requirements.

Don’t be discouraged, instead be thoughtful.

 

Thanks for reading,
Mister Bums

You can contact me at yjseow@worthlessbums.comTwitter, or leave a comment below!

  • Sick Flowin’

    Good write up! Mr. Bums.

    • James Seow

      Glad to write… it up 😛

  • fued

    just played/bought steam marines, great idea… seems to lack a lot of polish at the moment tho, you updating it more to add that? or did i just not give it enough time yet?

    • Sick Flowin’

      It’s in early access. So it’s an ongoing process. (it’s still being made.)

    • James Seow

      What Sick Flowin’ said, it’s still in alpha/Early Access. I’m working on a roadmap to beta/release I’ll be sharing soon 🙂 Thanks for playing!

      • fued

        ah that explains a lot 😛

        thought it was a finished release when i bought it… i should really read a bit better haha

      • Mikołaj Witkowski

        That would be great! Too many early access projects are keeping customers in the dark… sure, it is alpha, but we paid for it, so knowing at least what’s the plan would be grand!

  • Mikołaj Witkowski

    While you cannot give exact figure could you at least compare how well the game is selling through its initial days on early access to your expectations?

    • James Seow

      Steam Marines has been out less than a week on Steam Early Access. What I can say is that sales on Steam are very good compared to Desura/Humble Widget/Indie Game Stand Store. Steam also exceeded my personal expectations for Steam Marines given it’s Early Access and pretty niche in my estimation.

      • Mikołaj Witkowski

        Great to hear that! I hope, in time, when the games gets more complete it will sell even better!

  • Your sales metrics are way outdated, so don’t get pessimistic. These days high numbers are 100K+ and middle is 30-100K 🙂

    • James Seow

      Hey, Sergey, that’d be quite encouraging for me and other devs! Do you have any links for those sources? I’d love to take a look and maybe update my post 🙂

      • i don’t have links, sorry, but I have data from our own games on GOG and Steam and from my friends, that released games on Steam as well – through Greenlight and directly.

        Steam is really good for indies if you know how to reach your audience. Press was really rough on Prime World: Defenders (our game), Eador and Legends of Eisenwald, but all three of them did quite well.

        • James Seow

          Hum! Like I mentioned in the article that type of data might be skewed. Fast litmus test would be to see what percentage of your friends’ projects at least broke even. If most of them did, it’d definitely skewed higher than the greater indie game population.

          But now I want to find more recent metrics!

          • Well, Defenders not there yet (but close), Eador broke even I think in Summer and Legends aren’t released yet, but they’re in black already I think – thanks to Early Access Sales.

            Early Access is a great instrument, btw – Defenders got around 40% of money during Early Access.

    • Mikołaj Witkowski

      Generally indie games do not generate such high sales, but I think Braid did go over 100K.

      • James Seow

        Certainly there are indie games that go far over 100k, even before 2009 which was the date of the source I referenced. I suspect that is the 1%, though. If the lower band metrics have gone (that much) higher in the last 3-4 years that’d be really encouraging, though!

        • Mikołaj Witkowski
          • James Seow

            I have, but thanks for linking it anyway 🙂

            It’s unfortunate that Derek limited it to games that did well and had postmortems. Unfortunately (again) average/median data can’t be harvested from that alone, although you can see more game costs and high end sales figures.

          • Mikołaj Witkowski

            Well, not many devs want to publish their sales figures, Jeff Vogel did it once, but before coming to steam and one more dev whose name I cannot recall at the moment…

          • James Seow

            True, the problem is it can be misleading, too. Anodyne, for example, has its price listed at $10 and sold 40k units, but a lot were likely at a discounted price. I know their Pirate Bay Promo average was like $1.74 per unit sold and $2.76 per bundle: http://seagaia.wordpress.com/2013/02/18/anodyne-pirate-bay-promo-post-mortem/

            So it would not be accurate to say they grossed $400k USD.

          • Mikołaj Witkowski

            It’s hard for me to understand why keeping sales secret is the de facto standard in the industry, movie business discloses how much a film has made with no problems… I see no reasons why gaming companies could not do the same. Then it would be much easier to assess risks and chances for success.

          • James Seow

            The data is valuable and gives a competitive edge. Same reason people don’t spill all their ideas, code, et cetera.

          • Mikołaj Witkowski

            Don’t want to sound like a broken record, by why isn’t it so with music, books and film? In what way are games different from a business perspective? I think it’s just a mantra people repeat without ever testing whether being secretive is beneficial for them or not.

          • James Seow

            I think it’s actually the same. Excluding rough numbers for best sellers, do you know the publisher cuts or the sales numbers for lesser selling media? Unless the company is public they have no (public) financial reporting obligation.

          • Mikołaj Witkowski

            No, but I don’t mean that – films in particular give you overall profit and all of the 3 give the number of copies sold. You can take any album ever published and if you look hard enough you will know how many copies were sold. Most big publishers do not make this public, and many indies follow suit. For many games we know absolutely nothing when it comes to sales.

          • James Seow

            Well that’s kind of my point, most of the time you -don’t- know about profits, even for big ticket films. You can find info on box office gross but not net revenue, profit, etc. In fact I think LoTR trilogy still has lawsuits over division of profits.

            There’s a lot of info that’s just not ever made public.

          • Mikołaj Witkowski

            Yes, but little info is better than no info at all surely. With films/music knowing how many people bought the cd/dvd you can at least arrive at some estimate. With games you usually no nothing. Unless it’s a German game cofinanced by their government, as more and more are, they are legally obliged to make such info public.

          • James Seow

            Yep, I prefer to be more open than not about my game development.

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