Corporations Exist to Make Money…But That Isn’t Really the Point

Free-Money-2013-edition

Corporations exist to make money. It’s becoming a well worn phrase. Cliff Bleszinski employs it defensively. Jim Sterling rages when the concept is used to excuse consumer-unfriendly practices. But it’s really a meaningless notion. Of course corporations exist to make money. EVERYBODY working in a capitalist society exists to make money. It’s much like when the anti-vaccination movement attempts to offset accusations of scientific ignorance by saying that they do support vaccines that aren’t dangerous. No shit, huh? Thanks for clearing that up. What separates corporations is not that they exist to make money, but how much money they require to exist, or more specifically, how much more money they require to exist than an independent developer.

Let’s take an, admittedly, simplistic example. Three developers start an indie studio called Fun Pants Games, and spend 6 months eating ramen, living rent free with their significant others, and making a game, Zombie Cocoa Pants Party, which they then release on the App Store. This game goes on to make $600,000 dollars in revenue and, after Apple’s cut, $400,000 in gross profit. At that rate, they could each take a $75,000 cut and Fun Pants Games would have a net income of $175,000. That’s a pretty good take for a start-up indie studio.

Big Faceless Publisher can offer all the muscle of a major commercial firm. But, what they can’t do is release a game that will only generate $400,000 of revenue.

Now, let’s splice the example a little differently: all of the factors are the same in terms of dev time and revenue, except that, in this case, Fun Pants Games has signed a one game publishing deal with Big Faceless Publisher, who can offer more security and all the marketing muscle of a major commercial firm. But, what they can’t do is release a game that will only generate $400,000 of revenue.

Here’s why: unlike in the first scenario, there are more than 3 people making Zombie Cocoa Pants Party. Way more. A third party relations team needs to vet the proposed game and make a recommendation to its publishing group, then the marketing department needs to do a P&L analysis on the title and project revenue over some period of months, then an executive team needs to meet to green-light the project and negotiate a deal with Fun Pants Games. Assuming Zombie Cocoa Pants Party gets green-lit, the Big Faceless legal department needs to draw up a contract for the project.

And the overhead doesn’t stop there. Once the project is in motion, Big Faceless will assign a producer, art director, and technical director (minimum) to oversee the project and represent the publisher’s interests. Once Zombie Cocoa Pants Party gets close to release, marketing will step back in to plan publicity, QA will ramp up to verify the project, a first party representative will work with Fun Pants to ensure a smooth deployment to the App Store, and legal will do another review to ensure nothing in the game represents a corporate liability.

The revenue generated has to cover all of this…and provide value to Big Faceless shareholders.

The revenue generated by Zombie Cocoa Pants Party has to cover all of this. It has to generate enough money to pay the salaries of the various people involved for the amount of their bandwidth it consumed. It has to pay some portion of Big Faceless’ CEO’s salary, and the CFO’s, and the CTO’s, etc., etc. It has to recoup milestone payments to Fun Pants Games. And, after all of those expenses, it still has to provide enough income to Big Faceless to improve its balance sheet and provide value to its stockholders. If it cannot produce enough revenue to do all of those things, then it is, quite literally, not worth Big Faceless’ time to publish Zombie Cocoa Pants Party – unless they know they can make up the difference on, and commit to investing in, a sequel in the near future.

So, the fact that corporations exist to make money is not the issue. The issue is that a corporation needs to sustain a certain profit margin to justify its own existence. This priority, this essential need, is why you see so much emphasis on sequels, so many focus groups, so much genre consolidation, so much risk aversion, and so many attempts to pass expenses to the consumer. Quite simply, publishers carry a massive amount of overhead, and need to hedge their bets on several fronts to make ends meet and maintain investor confidence. And they’ll do whatever the have to to stay alive.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s