Archive for the ‘Business’ Category

The economics of making indie games are wack

Friday, June 7th, 2019

I’m writing this from the perspective of being a full-time indie programmer/designer/producer. Basically, I run my own company and I make videogames with the help of contractors and various business partners.

In fact I’ve made 11 games so far and you can wishlist my 12th game, Ancient Enemy, on Steam here: http://bit.ly/AncientEnemy

I’ve been doing this since 2005, so 14 years, and I’d love to continue for a long time because I enjoy the lifestyle and I love making games, but… wow, it is hard to make a living from this.

So anyway, I wanted to explore some numbers so you can see why I think the economics of making indie games and selling them on Steam is wack.

Prerequisites

In order to make indie games full-time you need:

– To know how to program games. Maybe you were a hobbyist for many years (I did that), or learned in a previous job, or went to university to learn (costs money).

– A computer and some kind of programming language or engine, and probably other tools like Photoshop and Dropbox, which require a license fee.

– Somewhere to do the work. Maybe at your house. Some people hire an office (and employees) but I wouldn’t do that unless I had serious cash in the bank. It’s a fast track to disaster in my opinion.

– A company (probably). You can make games as a self-employed person but it’s easier to interact with the various distribution platforms if you own a company. Of course this means doing annual accounts and paying an accountant.

– Some business knowledge. You can’t just dive in and make whatever you want if you want to survive. You will have to analyse the market, come up with a design and a budget, find the right people, manage the project and your money, market the game, and then finally ship it.

– A lot of money in the bank to pay for your living expenses and for 3rd party contractors. OR super-low overheads like living at your parents or having a financially supportive partner or something. That was never really an option for me. Even if you have low overheads you will most likely still have to pay someone for graphics and audio and maybe marketing unless you find someone who will work for revenue share.

Some important formulas

Before we start it’s worth bearing in mind two important numbers:

1) If you multiply the number of prelaunch wishlists (on Steam) for your game by 0.5 this will be approximately the number of units you will sell during week 1. Bear in mind some games may do better but many also do worse. It’s still a useful ballpark for calculations.

2) If you multiply your week 1 gross sales revenue (on Steam) by 5, this will approximate to the gross revenue you will make in year 1. That’s assuming a) you keep putting your game on sale at a discount, and b) the game is good enough that the review score is OK and so people aren’t discouraged from buying it. There are other factors too and it’s possible that multiplying by 5 is too high in 2019 and it should be closer to 3. But for now let’s use 5.

Where do those numbers come from? I’ve blogged about them in the past after doing a couple of surveys of a wide range of developers. Also since then many devs have been using those numbers to help predict their sales and have reported back to me with their results, and the formulas seem to be reasonably accurate.

1000 wishlists for a $5 game

OK let’s dive into some numbers. I want to present several different scenarios to make my point.

First off, let’s say you want to make a small arcade/platform game with no external costs (you are using programmer art and free audio and coding the game yourself).

You want to spend two months making the game and sell it for $5 because it’s a small game and you can’t really justify a higher price point.

You manage to get 1000 wishlists for your game. This is actually not at all easy and many indies would struggle to get 100 if they are not already well-known or do not have an existing fanbase or are not amazing at marketing.

Using the formulas from above you could expect 500 sales in week 1 which is $2500 gross. If you can afford to sit around and wait for a whole year, that could be as high as $12,500 gross.

After Steam’s 30% cut and other deductions including refunds, you will probably get about 60% of that money, which is $12,500 x 0.6 = $7500 (~£5770).

So that’s about $3750 of revenue per month of work. Maybe that sounds OK to you but it’s not enough to cover my bills for my family of four.

Furthermore, in order to keep that going you’d have to put out a new game EVERY two months without a break and without going back to support the old games and without illness or vacations or family issues etc. Also every game would have to conform to my formula above and not flop. So, good luck with that…

Don’t forget 1000 wishlists is hard, especially or a small arcade/platform game with programmer art. What’s more likely is getting 100 wishlists and then your revenue for the whole year will be around $750. Can you live on that?

5000 wishlists for a $10 game

Let’s say you are more ambitious and want to make a bigger game and spend a year making it. You’ll also need to hire 3rd parties for the art and audio for about $30000. You have no marketing budget and will do that yourself, which will eat into your development time.

A bigger fancier looking/sounding game can hopefully command a higher price of $10.

Getting 5K wishlists is incredibly difficult. In fact I’ve never done it before launch for any of my games!

So 5K wishlists = 2500 unit sales in week 1 for $25,000 gross. That’s $15,000 net.

Over a year you could reach $125,000 gross which is $75,000 net.

Subtract your contractor costs of $30,000 and you are left with $45,000 for 12 months of work, or $3750 a month. Wow that’s the same as a $5 game with 1000 wishlists! It’s also a barely survivable amount for a full-time professional indie. You could easily earn more as a contractor.

And if you only get 1000 wishlists, then you are in trouble…

10,000 wishlists for a $15 game

OK, so you setup a studio, you hire an office for $1000 a month all in and you get in a team of four. That’s you and two artists and someone to handle the biz dev and marketing. You contract in the audio for $10000. You also spend $20000 on marketing, adverts and shows (this isn’t much, trust me). We won’t ask where you got all that upfront money from in the first place.

You pay the three team members $10K a month for two years. That $10K includes extra stuff like taxes that the company has to pay, medical, pension etc. Also don’t forget those staff will want to take vacations and may not always be 100% productive.

So that’s a total budget of:

– $10K x 3 staff x 24 months = $720K

– $10K audio

– $20K marketing

– $12K office

– TOTAL: $762K

You get 10,000 wishlists and sell 5000 units for $75,000 in week 1, and make $375,000 gross in year 1. That’s $225,000 net.

Subtract your costs of $762,000 and congratulations your business has gone bust and you never saw a penny in profit personally! In fact you lost over $500k :-O

If you got 20,000 wishlists that equates to $450,000 net in year 1, which is still a loss. In fact you’d need about 34,000 wishlists to break even and 35,000 wishlists to see a tiny profit: 35,000 x 0.5 = 17,500 units in week 1 @ $15 each = $262,500. Year 1 = $262,500 x 5 = $1,312,500 gross or $787,500 net, which is $25,500 profit.

Spread over two years that earns you (the business owner) $1062 a month. Was it worth it? Also how are you going to fund your next game?

Conclusion

I’ve presented three scenarios above of different sized games and teams. I wouldn’t call any of them particularly successful and yet only a few devs will be able to even achieve that level of “success”. The sad reality is that most indies will come nowhere near.

Of course if you manage to get the numbers *just right* and your game does unusually well, then maybe you can generate a workable profit and live to fight on, you might even make it really big and get to talk at GDC.
 

This is the hope I cling onto anyway – perhaps foolishly – but I will keep trying for as long as I can.

I still like Steam

I’ve said it before and I’ll say it again. I’ve done OK from Steam over the years and I appreciate that they have decent tools and a giant customer base for me to sell my games to. Also they have nice people there who listen to devs and they are constantly upgrading their platform. I will continue to sell games on Steam for the foreseeable future.

However, all that doesn’t change the reality that it is still very hard to make money from selling games on Steam.

Steam’s discovery algorithm killed my sales

Monday, December 3rd, 2018

Firstly I want to be clear that I have had some measure of success on Steam and I’ve enjoyed going to Steam Dev Days and other events and talking to their reps who seem to be genuinely interested supporting indie developers. So this blog post is not about me hating on Steam, rather it’s to discuss a recent issue that has impacted my sales and the sales of many other indies too.

Here’s a huge Steamworks forum post about the issue (you have to be logged on as a developer to read it).

The October Discovery Bug

In early October Valve changed something in their discovery algorithm and introduced a bad bug which meant that Steam was only recommending some big name games instead of relevant games, oops!

Ongoing Discovery Issues

Valve fixed the October discovery bug quickly (within a week I think) but since then many indies have seen a big dip in their traffic from “Other Product Pages” and “Home Page”. Other product pages includes a sub-category of “Discovery Queue” and traffic from that source appears to have decreased significantly for me if I compare before and after the October bug.

Here’s a good week (click to enlarge the image):

And here’s a bad week (click to enlarge the image):

You can see that Other Product Pages has gone from being my top traffic source with 305 visits to a mediocre traffic source with only 91 visits.

This effect can also be seen on the traffic graphs in Steamworks (click image below to enlarge it). The orange line is “Other Product Pages”. I ran a weeklong sale at the start of Oct but straight after the sale finished the traffic from other product pages dropped and stayed low. The other two peaks are the Steam Halloween and Thanksgiving sales.

I can see the same drop in traffic for two of my other games and some devs have showed me charts with an even more severe drop.

Impact on Sales

I compared full price sales before and after the October bug (being careful to avoid weeklong sales and Steam sales) and my total units sold have halved. Revenue has dipped even more because our most expensive game has dropped to 36% of previous unit sales.

I’m not sure if this issue also affects traffic during a) discount sales and b) game launches because those are a lot harder to analyse like for like, but based on some data I’ve seen from other developers I’m suspicious that those things may also be impacted.

Has this issue affected all indies?

I’ve heard in private that some games are either not affected by this issue or have actually benefited from it with increased traffic! It stands to reason that if many devs are losing traffic, then that traffic must be going elsewhere. That said, a huge number of smaller indies have been hit hard by this issue, harder than me, with traffic and sales dropping to near zero in many cases.

Have I told Valve about it?

Like many indies who added games to Steam since Steam Greenlight I don’t have an official rep. However I did email a couple of reps who I got business cards from and they said they would look into it, but I haven’t heard from them since then.

Admittedly I should chase them up but I was waiting to see if the problem resolved itself, but it’s been ongoing for two months now. Other indies I know have emailed their reps but I haven’t heard anything positive yet.

Here’s the data I sent to Valve (click to enlarge) along with screenshots of the traffic graphs.

Theories

Fellow indie dev Danny Day has suggested that the discovery algorithm may have a historical data component to it and after the initial October bug the historical data got trashed and so the algorithm is not giving the same results as before.

October/November is also AAA release season and includes two Steam sales so it’s possible that our sales are impacted slightly, but that doesn’t explain the sudden huge drop off in discovery traffic that many indies are seeing.

Another possibility is just that Valve changed the algorithm to highlight different games and some devs have benefited and others have not.

It’s even possible that Valve shifted some kind of slider from “show a variety of indie games” further towards “show popular games that earn more money”. They are a corporation after all and corporations like to make money and they don’t have any real obligation to help out smaller indie teams. This particular point seems evident when taking into account the recent news that games grossing over $10M will receive a greater share of the revenue but struggling indies will not.

Also I’ve heard Valve say multiple times that they put the customer first (understandably) and so they probably believe whatever changes they make improve the experience for customers.

But I must stress that the above points are just theories, we haven’t heard anything official from Valve yet.

Selling Direct and Itch.io

So, should I double down on selling direct or use itch.io?

Well I’ve been selling direct since 2006, but sadly my direct sales are about 1% of my total revenue. I need distributors like Steam to survive. I wish it wasn’t that way, but it is.

Btw, you can buy all my games direct from me here. I get 100% of the revenue minus a small processing fee, so it’s amazing and the best way you can support indies is to buy direct.

The second best way is to buy through itch.io because they only take a small fee (in fact developers can set it at a rate they think is fair). I haven’t put my games on itch.io yet because I’ve heard that sales on there are very low and I’ve been busy with potentially higher value tasks. However, I will try out Regency Solitaire on there soon and see how it gets on as I’d like to support the platform now more than ever.

More discussion

Check out these Twitter threads for more discussion with other devs who have also shared their data.

Conclusion

In the past I have felt positive about Steam, but these discovery changes and the recent revenue share changes that are only relevant to hugely successful games don’t make me feel particularly positive about the future of selling games on Steam. In fact I’d go as far as to say I’m worried.

Making indie games is my full time job and I’d really like it to continue for many years. I’ve had to adapt a lot over the years and it feels like another phase of adaption is fast approaching…

Did the last game you shipped cover its costs?

Sunday, November 25th, 2018

I recently ran a poll on Twitter asking game devs if their last game covered its costs including a nominal salary for themselves, and you can see the results in the above image. You might want to click on the link and read the Twitter thread because there were some interesting replies.

I then asked a follow up question to find out what people thought the main reason was that they didn’t make a profit, with examples such as:
– Spent too much
– Spent too long
– Platform crowded
– No one wanted game
– Game was bad
– Marketing failed

Flaws in the poll

The poll was just meant to be a casual poll for fun and so it may be flawed in the following ways, so please take it with a pinch of salt:
1) I should have added a “Just show me the results” option so that people didn’t pick something random just to see the results.
2) I could have requested that only full-time devs answer because many hobbyists answered and I suspect the results are likely to be different for hobbyists due to their potentially low costs. Still, the combined result is interesting.
3) I’m suspicious that many devs don’t really calculate their costs properly including a nominal salary for themselves and so may have chosen “break even” or “profit” when that’s not really true.
4) No time scales were specified such as launch month, or first year, or lifetime etc. I personally know that over many years a game can move from a loss into a decent profit.

Observations

Despite the possible flaws in the poll, it looks like just over a third (38%) of devs broke even or made a profit. This is actually WAY higher than I was expecting because – based on various discussions I’ve had with people over the years – I had a figure in mind of maybe 10% making a profit, and then only a much smaller percentage making a significant profit. Though admittedly the figure of 10% I had in mind was for full-time devs, so it’s possible that hobbyists are skewing the poll towards profit, or just that I was too pessimistic!

New indie devs might find the results shocking (62% of games making a loss) but I actually found them to be positive because I believe that I can make games that break even or make a profit in the future as I’ve done it many times before. Although my last game, Shadowhand, is the one that has made the biggest loss so far, simply because it took too long to make and therefore my nominal salary is huge. My current game, Ancient Enemy has a much more ambitious schedule and lower budget in an effort to break even sooner. We’ll find out if that worked in early 2019!

I also suspect that ongoing overcrowding of the market will contribute towards more games making a loss in the coming years unless more devs switch to lower budgets, faster dev cycles and maybe even higher prices! The race to the bottom of indie game prices has been a big concern of mine for years ever since I saw it happen to the casual download market in the late 2000s.

Anyway, I hope you enjoyed the poll. Let me know what you’d have chosen in the comments.