Wednesday, 27 January 2010

The perception of $100 000

I read the other day that the US budget deficit is expected to be $1 300 billion for 2010. Which led me to say to Thomas that we should ask the US government (Yes, I know we are Swedes. Yes, I know it is wrong to expect Swedish game development support from the US government.) for $100 000... Who would notice?

Which led me to think about the perception of numbers, in particular when talking about money. Usually people (such as myself!) perceive money from an individual perspective, making sums like $100 000 appear very large. But, if one puts the same sum into the perspective of a group, the same amount of money is all of a sudden much less (really?!). For instance, 1 300 billion shared by a 300 million population adds up to $4 333.33 per individual. That's not so bad is it?

I'm not going to continue on the topic of the US budget, it only reminded me of a situation about a year ago which in turn will lead to the actual subject of this post.

I met a fellow that does not play games, know anything about the game industry or how you go about creating games. He curiously asked me a bunch of questions regarding these matters and I explained that in general it takes at least one year to create a game, more like two years. I talked a bit about how we worked (from home, with limited resources, etc) and what differs us from a "normal game company". He also asked how it generally works with the development process and how you fund it. I explained, in a simplified form, that you have two options: Either you have the money and you fund the whole development process yourself or, you lack the money and you make a deal with a publisher to fund the development. At the time we were quite close to settling a deal with a publisher, so I got the question: How much are they paying you to create Amnesia?

I hesitated a bit, it is not something that I normally tell people, so he started guessing some figures -What? $25 000? -Well, no. it is more than that... (I replied, thinking about what a good answer would be without giving any numbers) -OK, so it's like $100 000 then? -Uhm... (I didn't get a chance to reply) -Well, that's not so bad! He said cheerfully, reflecting over my previously mentioned "limited resources". To cut things short, we didn't talk much more about it after that as other topics were brought up, but this is basically what this post will be about - How much money is $100 000 when you run a company, in particular an independent game company? I would really like to go over it, because I am not sure how in general people reflect over these types of sums when talking about "Indie games". I have the impression that $100 000 is considered to be a lot of money, but I could be wrong. Is it?

As a starting point, I will summarize a couple of things:

-We are funding the development of Amnesia on our own. When the game is released we have been working on the game for about three (3!) years.

-Initially we had a publisher involved, but we had to terminate that contract and re-think how to create the project on our own.

-We are five full-time workers here at Frictional Games and we also have contractors that do varying amounts of work during periods of the development.

-Last year we had a very successful Steam weekend, followed by a successful Linux weekend and a period after that with better sales than normal due to the extra attention we got from those weekends. It gave us a total of about $80 000 in revenue for that month, 20 times as much as we have on average during a month.

-To keep it simple, let us assume the $80 000 actually were $100 000.

So how long can Frictional Games go on using these $100 000?
Well, lets take a look at how much it costs to pay ourselves a monthly salary of $1 500 each. Our salaries are less than that, they vary a bit too, but as with most things in this post I try to leave the details out of it. We also have to take into account all of the taxes and fees involved. In Sweden we have 30% income tax, but for small amounts such as $1500 it is more around 20%. We also have employer fees that are 32%, 16% if the employee is under the age of 26, these fees are added to the original amount. We also have 12% added for vacation salary, and another 32%/16% of fee added for that sum. That means:

$1 500 paid, gives the receiver $1200 to put in the pocket.
$480 in employer fees.
$180 for the vacation salary.
$58 for the employer fees on the vacation salary.
$2 218 total cost for the company to pay an employee $1500.

Let us round it down to $2 200, that means that for all five members of Frictional Games you get a monthly expense of $11 000. Making $100 000 a sum that would last for almost exactly 9 months. Which sounds really great! But... of course this did not include contractors or any other expenses (server, insurrance, legal advice etc). We could remove all of the contractors and do everything ourselves, but that would only extend the development time and increase the amount of money needed. We really must, and want to, work with the contractors that we do as they are great at their specialities - saving time and producing great content. As an estimate I would remove about 3 months of pay to cover the rest, which leaves us at a best case scenario of 6 months of living time. This too sounds pretty good, but then again a salary of $1 500 is at least $1 000 below an entry salary at a Swedish game company. It is not exactly a salary following the industry norm!

While 6 months is a good time to last, it is only 1/6 of the time needed for the whole Amnesia project. It was 6 months that were given to us from all those that made the two sale weekends so great, but it is not possible to have that type of success all of the time. In particular when the games you have to sell gets older and older, even if you can always reach new customers it is very rare to have those high spikes of revenue.

I hope that this post can give a bit of insight into the needs you have when running an indie game company and trying to make it your full-time job. To show that a sum of $100 000, that I think can be looked upon as a large sum, might not be so large after all when you are a group of people that are sharing it and all the taxes and fees are applied. I would never complain about our situation (it's definitely a good time), but I would not consider it to be a "successful living" just yet, we have a bit to go before we can make a proper living and not constantly having worry about "what happens next month?".


25 comments:

  1. Very interesting post. So where do you guys get money from, only the sales of your older games? Have you taken loans, etc?

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  2. Great and insightful post.

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  3. Paul
    Mainly from sales of the games. We have also applied for game support funding a couple of times and we got it one time, we got it at a time when we really needed it!

    We have not taken any loans, we have talked to the bank a couple of times discussing it but it has always ended with not possible due to the lack of securities. It feels really good not to take any loans though, because as long as we don't we can pretty much close down and day we like and not worry about debts.

    When we did Penumbra Overture we had saved money to do it and we also studied at the same time, so we got by until release.

    For Black Plague and Requiem we had publisher support to fund the development of the games. That worked well, we got by and could continue working on games, if we had not done that we would not be here today I am very certain.

    After Requiem we were back to not having a publisher, so been using money we managed to save during the years (spring 2007 we release Overture) and what we can get from the sales of the games since then.

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  4. Jens; Didn't you guys get a grant of some kind?

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  5. I know a nurse who's patient once told them: "I'm glad they don't pay you very much, otherwise *anybody* would do it!"

    A bit of a double-edged compliment there: the same applies to indie games - there are no mercenaries, only people in it for the love, but the reason for this is that it *really* doesn't pay well.
    Then again I'd like nothing more than to be in your shoes, making games 24/7 and living off breadcrmubs instead of being "sensible", going to university and living off breadcrumbs. There will also be pros and cons to every descision, but you spend most of your life working, so you might as well being doing something you enjoy.

    Conclusion? What conclusion?

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  6. windex:
    Yes that's correct! I called it game support funding in my reply to Paul. It was about $55 000 we got from them Nordic Game Program for our application "Lux Tenebras" (later Amnesia, but you know that ;))

    wilbefast:
    True, there is a lot of value in what you get to do for a living. Well phrased

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  7. That's what I love about independent game companies. You share such a useful and interesting knowledge - how big your profits and expenses are. Did you work any useful method to solve problems you encounter much faster? Maybe on your next post you can write about problems in the independent game companies...

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  8. To be honest, as long as you aren't in the streets rooting through restaurant garbage bins for a meal you should be able to call yourselves successful.

    Unless of course you really would rather work for the big studios where that fat salary turns into $10 per hour because of the lack of overtime and your 80+ hour mandatory work week.

    Success is all in how you look at it.

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  9. anonymous
    Problems can often be solved by removing what causes the problem, instead of trying to fix it! Good suggestion, there are always problems and sharing the experiences of them could be useful.

    bob
    I could try to discuss, but I'm not sure where to begin on the topic of eating from garbage bins to the evil empires of big studios. I have been blessed with no experience of any of it, I am guessing that either you have been unfortunate with both or only throwing some potential flame bait on the fire?

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  10. Is it asking too much what part of the money goes to you and what part goes to the publishers, for Black Plague and Requiem?

    Why do you want to hide the real numbers anyway? I thought "never talk about your salary" was something only us (French people) were so keen on.

    Anyway - the real shame for me here is piracy. I have actually found links to free download copies of the game on a famous site that I am not going to name.
    That was during the steam sale.

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  11. >Is it asking too much what part of the money goes to you and what part goes to the publishers, for Black Plague and Requiem?

    Sorry I mean: each time anybody buys a copy of any of the two games.

    (am I able to edit posts if I register somewhere?)

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  12. Ness:
    Exact numbers are something that might be under non-disclosure so that is why we and many others never say specific numbers.

    For Black Plague and Requiem most money goes to the publisher, for the correct reason that they paid for the development. This does not include the Mac & Linux versions, where we are happy receivers of the largest chunk.

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  13. You guys deliver every time you write a post, keep it up. Regarding the money, most people that don't have any insight in anything technical at all, gasps every time when they get the "numbers". Most of the time it is because they think we press the "make a big explosion button" and suddenly a big explosion shows on the screen. What I mean is, that they don't realise the effort behind creating the titles and because of that they think it is easy to create and thus cheap.

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  14. Speaking of effort:
    What's more time consuming and hence more expensive to do?
    Upgrading the "engine" (which I suppose you did for amnesia) or creating the content: the story, the models, the textures and so on?

    I'm asking because I wonder if you couldn't, once the new game is done, just create a second part, same engine but new levels, new story new content - to save money.
    But I guess that's what you already did with the penumbra series, right? :-)

    Thanks for the great games and really interesting blog posts!
    Cheers,
    Thomas

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  15. Making a second part using the completed tools, engine and graphics (as not all new graphics is needed) is a cheaper and simpler. That said, for the kinds of games that we are making, having unique graphics, story etc is crucial and it is not as easy to slap something together as for example in a shooter.

    Whether there will be any sequal or not, I'm afraid I cannot say at this point. In any case, this game will be stand alone and not have any cliffhanger ending or that sort of thing.

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  16. Well, of course nobody wants the same stories again :-P

    What I'm trying to say is:
    Do a sequel, a new story, maybe in the old setting so you can save money which you can use for the next title. That way you have more money (=more time) for it.

    I'm sure all of your fans (including me) want you to never stop making those great games! So be sure to stay alive! :-D

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  17. $100k may sound like a lot of money to each individually, but in the context of running a company and developing a game, it's peanuts. Big AAA titles' development costs run anywhere from $5M to $25M these days, and that's not including marketing. As a small indy studio you've got a major leg up over the big ones here, because you're able to produce at much smaller expense.

    The problem with any funding is, is the investor going to be able to break even or make a profit? In order to get funding from a publisher or even individual investors, you'll have to convince them that they'll get their money back, and then some. The sales of the game will have to make that happen. It's a bit of an insecure business, but if you're producing quality (and you guys are), things have a good chance of turning out OK.
    As much of a pain in the but as it is, don't forget about marketing, though. People need to find out about your game and what it's about, before they can make a decision to buy. Luckily, the internet and social networking in particular have made grass roots marketing a bit easier - create facebook and myspace fan pages for your game, try to get as many people of the community that builds around the game involved, and create good word-of-mouth PR. It's not easy being independent, but it can work out just fine - good luck to you guys, and keep producing quality as you have been!

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  18. @ Anon: Actually I'd say the AAA game development costs - in the U.S. at least - are more in the $10-100 million range (granted, with only a handful hitting $100M, but not a lot at $10M, either, these days). The last company I worked for spent more than $100K just on software tools and middleware (and it was a small company). $100K isn't that much for an individual game developer for one project, much less a group; not sure how anyone could think otherwise. Perhaps someone thinking of book and music publishing, where the money up front is just an advance on sales which are expected, usually erroneously, to bring in much more money (of course, musicians can end up losing money, and writers often end up writing for much less than minimum wages).
    The sad thing about marketing games is that there's a direct correlation between the amount of money spent on marketing and the amount of money the game makes.

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  19. Was thinking about picking the game up soon. What method of me purchasing Amnesia results in the most cashmoneydollars going back to you guys (the developers)? (i.e. does buying it off the Frictional Games online store vs buying off of Steam give you guys a higher profit margin?)

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  20. Hi,
    I bought the collection and I _really_ appreciate the style and work put into it. This is a complete tangent to what you do, but... what do you think about making a game that was less scary and more ... thriller-esque? Same mechanics, just brighter and more about not getting seen/caught. I'm just not a scare person for some reason, but I know I'll play them someday.

    Good luck with the economics of it, y'all are really talented at working with what you have.

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  21. Guys.. you really need to port this game to the console.. I see no reason why this game wouldn't be a gem on the xbox360 or ps3 .. any thoughts on that?

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  22. Hi,

    I just wanted to say that I bought all your games and I LOVE them. Thanks for all your hard work :)

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  23. Great Article, real eye opener to the Indie industry. Thanks!

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  24. It would be a shame if frictional games had to close their studio for lack of funds. Amnesia is (one of) the best horror game I have ever seen and you guys deserve a bigger cut for your development since you guys are making REAL games these days. I hope EA dies in the Dead Space they created.

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