Category: business

GoG, of ‘good old games’ fame, are very very clever, in a way it took me AGES to discover. Like many indies, I have to go through a number of different reporting sites and tot up how much money my games have made on them all now and then, primarily so I can give myself huge endorphin rushes and waves of serotonin boosts that can only ever come from pie charts.

Anyway, something that I used to regularly roll my eyes at and go ‘for fucks sake’ to, was the way GoG report sales. They report the amount of money a game has made, and ALWAYS report it as if the game was sold at full price. This is infuriating, because you think you have made more than you have. The next column is called ‘marketing deductions’, and thats where you find out how much of that was ‘given away’ in discounts.

Thats fucking genius.

Because when you think about it, thats what a discount it. Its a marketing expense. You are forgoing some revenue in order to get more sales. What, in any real sense, is the difference? I guess its true to say there is ‘less risk’ to some extent, because you are not putting money up-front. You cannot come out of a sale with less money than you went in with, that is true, but psychologically it *is* a very interesting way to think about it.

Put it this way, assume a big sale on GoG or Humble, or Steam or your own site is about to start. You normally sell 100 copies a week at $20. You discount the game to $10, in the hope of selling more. That *may* work, and you may make more money overall. However, the alternative strategy is to keep the game at $20 that week, and instead of a sale, spend $1,000 on promoting the game. That $1,000 might be in online ads, it might be promoted tweets, it might be hiring someone to do some new art or add a new feature you release to the game ‘for free’ to get press…there are a lot of ways to spend $1,000. The thinking is, you sell more copies, and that compensates you for the $1,000. There really isn’t much difference.

Now the obvious flaws are firstly you need money up front this way, and secondly, you still are not able to reach customers that will only pay $10 for the game. Although the first point has clear merit, I’m not *that* sure the second one is as strong as it sounds. There are VERY few people who cannot, when they need to, find $20 for a PC game they *really want*. I’d love to know the percentage of steam gamers, for example who have *never* spent $20 or more on a single title.

Our way of capturing those sales is often to just cut our price, but the alternate strategy is to spend money to elevate your game into that niche of ‘games people *are* actually prepared to pay $20 for’.

In some ways, thats still marketing. And it makes for interesting maths. If you have sold 10,000 copies of your game at $5 which was 75% off, you just ‘spent’ $150,000 to get those sales. Imagine the PR campaign or huge free expansion you could have added to the game for that money :D

Food for thought maybe.

In a sudden fit of spreadsheet fun, I looked at steam spy data for 26 indie games that were released roughly a month ago. I then calculated their approximate revenue. Then, I looked at a recent game positech released (Big Pharma) and worked out what percentage of the last 7 months revenue was from month1. Using that, I extrapolated the final income for the first 6 months for each of those games. I assumed each game had cost $100,000 to make. (Possibly an over-reaction, but don’t forget the time involved). Anyway, the profits, and ROI are shown below…

So lets assume I was being crushingly silly here, and instead look at a very long tail of a game, such as Democracy 3, and use the stats from its month 1 vs total income and use that to calculate ‘lifetime’ income, assuming multiple patches, DLC releases, sales and so on, given month 1 income:

So what non-scientific stats can be drawn from this? well… even if you are prepared to wait for two and a half years to see the money come in, 69% of indie games are going to lose money. Looking at those stats, the overall income was 13 million dollars so the ‘average’ game made a half-million dollars profit. WAHEY! But obviously thats bollocks, because the median game made a 55% loss. Without any mitigating factors, you are statistically likely to make a loss.

Here is another way to look at it. Chop off the top 3 selling ‘hits’ and the ‘average earned by the remaining games is a profit of $40k over two years. Thats actually not that bad a ROI.

Another way to look at it: there is a 34% chance that you will lose 75% of your money if you make an indie game.

Figures are fun.

edit: Forgot to take off steams percentage soo…. assume the figures are even less optimistic, or that your game costs $70k to make :D

There is absolutely no guaranteed return on an indie game. You might lose literally everything. Some people obviously cannot afford to take that gamble, and I suspect a lot more people *can* but decide they do not want to risk it.

Would you risk $100,000 if I said you have a 25% chance of losing it all, 25% of getting it back, 40% chance of making a 30% ROI and 10% chance of making a 200% ROI? In theory the expected return for this is…

0.25 * -100k = -25k plus

0.25 * 0 = 0 plus

0.4 * 30k = 12k plus

0.1 * 200k = 20k.

Total expected outcome is $7k profit, 7%, so not bad, better than the banks. But would you risk it before you did the maths? I suspect not. I suspect most people would not. The big problem is the fact that most people do 1 game a year, or even every 2 years. Thus your ‘rolls of the dice’ are pretty limited. If you have 1 roll, and lose it all, you are fucked. If you have 1,000 rolls, the chances are high you will get your 7% return.

This is why publishers are a thing. They spread their bets, and reap the 7% premium. They get that 7% because they are able to risk $100k. The maths are not different for them, just the scale. The same thing applies to movie studios and record companies and TV networks.

Shadowhand or Democracy 3 or my top secret other thing may fail and lose me at least $100k. The chances of all three doing that are really slim, so I’m not worried. But if I was a new indie dev with one roll of the dice, I’d probably be pretty scared.If your $100k of kickstarter and friend-funding is your one chance, you are basically taking a 25% chance of your career imploding with that single dice roll.

BTW Those figures above are pure guesswork, and I suspect the real figures are MUCH more hit-skewed. I wonder if steam spy has the stats…

A short while ago, steam introduced refunds, with the somewhat bizarre idea that a legitimate reason for a discount is ‘its on sale cheaper now’. People rejoiced, but one side effect of this was to screw up the old system of one-day ‘flash’ sales. A lot of people get confused as to the real reason behind quick ‘one day’ and ‘flash’ sales. People sometimes think its purely to introduce a ‘false’ sense of urgency and encourage impulse buys, but the real reason is very different.

The holy grail of economics is per-user pricing. If you make a game, it has a different value for every potential customer, based on their fandom, their desire for new games, their income, their mood and so on. In an ideal world, the price always matches the value. Unfortunately, people get very upset when they discover that everyone has paid a different price, except in flights and hotel bookings where somehow we accept it.

Anyway… companies normally do their best to maximize income in this way by ‘market segmentation’. That basically means getting the rich to pay more and letting the poor pay less. This happens all the time. Movies are cheaper during the day (for retired people and students have less money and yet are free this time). Movies also offer ‘premier’ seats that cost 5% more to make but cost 40% more.  Restaurants sometimes have ‘meal deals’ with coupons in cheap magazines or on ‘discount coupon’ websites, so people who don’t care where they dine can get a better deal than the wealthier spur-of-the-moment diners.

Steam flash sales did this too. Some people are too busy (have jobs, just don’t care about discounts much) to check steam EVERY day during a sale to see what is cheap. They often miss one-day or flash sales, but they don’t care. A game is $5 instead of $7, who cares? On the other hand the super-time-rich and cash-poor students will happily check a website every day to save $2. Thus…everyone is a winner, the poor pay less, rich pay more, devs earn more.

The current steam refund system kills that. The flash sale now always lasts at least two weeks, meaning that level of price discrimination is unavailable. The existence of shady/illegal grey-market re-sellers has exactly the same impact. Refunds & grey market means less price-discrimination and less deep discounts.

So if you think the current steam discounts are less generous that’s why. Don’t blame us, its just economics and maths. And where steam leads, others follow, so I conclude that the days of deep discounts are over.