It is common to hear about game companies having crushing financial woes in the games press.
It can be observed in companies of all sizes, from THQ going under to 38 Studios defaulting on millions of debts to the recent Yogsventure project fiasco.
I've seen the people behind these projects judged very harshly in comments from readers (I know, I know, I shouldn't read the comments) and usually, it seems to me that people grossly underestimate what it costs to run a game studio.
For about as long as I can remember, I've been planning on starting my own game studio. It's an ambition I nurtured throughout my youth. Game developers were my heroes and Squaresoft, Bioware and Blizzard were the embodiment of everything I wanted to create. Being naturally drawn toward game design, I oriented my education toward that field and at 20 years old I had scores my first gig in the video game industry as a tester for Activision.
People grossly underestimate what it costs to run a game studio
Meanwhile, I'd keep reading about the state of the game industry, a subject matter that has been as intriguing to me as the game themselves. I'd read and frequently discuss about the working conditions issues, about the realities of the market, about the success and failures of different companies, etc.
I was getting pretty comfortable, had a very nice team, my bosses were happy with my work and I was climbing up the ladder rapidly, although I was still in the field of QA rather than design. I was working on a side project with a few colleagues, until Activision said we had to stop due to our non-concurrence agreement. So for my 24th birthday, I went to my boss office and resigned in order to start my own business and do things my way. That was over three years ago.
I hope that by using my own company as an example, more people will come to understand the realities of this industry and help them better appreciate the complexity of managing a budget. Many factors change from one company to another depending on its geographic location, business model, level of ambitions, and so on. But this is a good place to start.
Breakdown of costs
- Incorporation: $500 (Varies by location, does not include attorney fee)
Equipment (per workstation)
- at least $800 per PC (that's not high-end stuff, just good enough for the job)
- $150 per monitor (you need 2 monitors per person)
- $20 per mouse
- $20 per keyboard
- $100 per desk
- $80 per chair
- roughly $1800 in software licenses
- Total: $3120 per person
Not to mention:
- $1,000 or more for a company laptop (You'll eventually need to be portable)
- $200 for a printer/scanner
- $80 for business cards
- $3000 for miscellaneous stuff (paper, ink, router, tools, air conditioner, gaming peripherals, etc)
- Rent/electricity: $776 per month
- Cellphone/internet access: $180 per month
- Bank fees: $20-40 per month
- Insurance: $250 per month
- Salaries: about $3250 per employee per month (includes taxes and other "hidden costs")
- Participation at PAX East: About $8,000 total
- Legal fees: About $3,000 per year
- Accountant fees: About $3,000 per year
- Music: About $150 per song, prices vary greatly
- Sound effects: $10 per sound effect, prices vary greatly
- PR Firms: $1000 per campaign, prices vary greatly
- Travel expenses (not counting PAX): About $2000 per trip, depends on location and timing
That's a very basic overview of the costs to start and run a studio. Obviously, there are ways to reduce these costs. Maybe you already have some computers and some software available to you, or you use open-source solutions. We use Blender for 3D instead of 3DS Max, for instance.
Many studios start with everyone working from their home, which saves a lot of cash on rent, insurances, hardware, etc. To be honest I would recommend for most studios to have the whole team work in the same physical space as much as possible, even if it means using someone's home as headquarters. When we started, we were five guys working in an 86 square-foot office at my apartment. It was cramped, but in the end we benefitted from improved communication, productivity and motivation. It helped to build a stronger studio culture.
What it "really" cost me to start my studio
All in all, when I started I had a little over $20,000 in savings. I already had access to three PCs and two other members of the team came with their own hardware when they joined in. So it didn't cost me as much to set up our workspace as it could have.
We were extremely fortunate to finish a $16,000 crowdfunding campaign, but that campaign had cost me $2000 out of pocket. It was a risky move that paid off, mostly due to being at the right place at the right time.
I still don't know if I'll be out of a job before the end of yearFor the first three years everyone on my team who worked full time did so with equipment purchased on their own expense. Meanwhile, the company itself ran on three things: my savings, the crowdfunding money and a bank loan. The totality of revenue we made from the sales of the first game, Brand, was redistributed among the members of the team who worked on it. It wasn't much.
After the first year, we expanded the team and needed a new office, so we moved the business out of my apartment and used that opportunity to gear up in a more appropriate manner. I got a 3-year loan to pay for the new equipment we needed, which allowed me to make sure I still had some cash on hand.
In three years, I personally went from having $20,000 in savings to $35,000 in debt. After two unsuccessful Kickstarter campaigns, I was on the verge of bankruptcy before signing a deal with Bandai Namco. After three years of work with no income, we finally could pay ourselves a salary.
Just to clarify: our deal with a publisher didn't make us millionaires. In fact, only the sales of our upcoming game, GoD Factory: Wingmen, will determine if we'll even be sustainable at this pace.
Every month scares me as I watch our funds melt at an alarming rate.
Cost in opportunity, cost in security, cost in time
Today my team makes a salary. Our operational costs are somewhere around $40,000 per month for a team of 7 salaried developers. But looking back, it's important to think about what it took to get there.
I had to spend roughly $80,000 over three years to get the business going until its first significant source of income. Had I been able to pay for salaries during the first three years, it would have cost me about $700,000 more.
But cash was far from being the only cost in this venture.
There is something called the opportunity cost, which is the difference between the choice you made and your second best choice. In my case, I already had a job in the industry with a comfortable income. My second best choice would have been to stay where I was instead of quitting. While I can't disclose the exact salary I made, I don't think Activision would sue me for stating that I was making more than $30,000 a year. My opportunity cost was at least the $90,000 I would have made by now if I had not started my business.
For all the (very valid) complaints about job security in the video game industry, I am pretty confident that, had I wished for it, I could still be working at Activision. It was a stable job and I could make plans. In fact, I was on the fence between starting either a family or a business.
Cost in security means postponing other plans. It means not buying a house or having a family. It means not having confidence in your ability to spend money. These are all sacrifices you have to make when you have no job security.
Even to this day, I still don't know if I'll be out of a job before the end of year, and I won't have any idea before the launch of our next game.
Having your life in a purgatory state for three years is a very long time, especially considering all the hours put into such a project. I've been told that any entrepreneur should expect to spend anywhere between 2 and 5 years before knowing if your business will really take off and I do believe it's true.
Investing an unknown amount of years into something is not for the faint of heart and that stress needs to have a value attached to it. Whenever someone accuses independent developers of being greedy, they should stop to take into account what that developer is going through, about why they would even think about making all these sacrifices in order to try and turn them into something that ultimately pays off.
Being at the helm of a game company is exhilarating. It is also nerve wracking. Given the very high attachment a developer has to his project, the emotional roller coaster can be nearly unbearable at times. The pressure makes you feel like glass about to crack at any moment.
Good news makes you jump up in ecstatic enthusiasm and bad news makes you feel doomed to fail. You feel these extreme highs and lows sometimes multiple times in a single day. This intensity is difficult to bear and you need extra care to ensure people close to you don't become victims of your mood swings.
I've been extremely fortunate to have a supporting girlfriend, family and friends to help me go through this. Without them lending me their strength I wouldn't have been able to hold on. To be honest, there have been a few times when I could tell I was on the verge of burning out.
Leading a company is a very isolating experience. First, as an entrepreneur you must show confidence at all times. Expressing your doubts can lead to a contagion of pessimism that you may not be able to curb before getting back to the highly enthusiastic stage of your mood swing cycle.
Secondly, people will just not understand what you are going through unless they are also starting out their own company. It's not a matter of snobbery, but just like when a parent tells you "you'll understand when you have kids," it simply is true. There is also a part of you that just stays in PR mode whenever you get to talk about your business. It makes you feel like you're trying to sell yourself rather than just enjoying the conversation.
People will often ask you questions about it and you'll make it your mission to always say something positive, even though internally you might be extremely scared of an upcoming launch or you might be preoccupied by an unforeseen development issue.
There have been times I could tell I was on the verge of burning out
Another obstacle to social life is simply not having money. When you can't afford to buy a drink, there are only so many times that you'll let a friend pay for you before you start feeling embarrassed about it. You won't be able to afford the new game they are playing, or maybe you just can't afford buying more bus tickets to reach your friends. Everything is invested in the business.
Obviously, some days are so draining that you just don't want to do anything but crash on your couch. Eventually, it adds up to many missed opportunities to see your friends, especially when you're crunching for a few months.
Some of those friends will move on and take for granted that you are too busy for them.
At first, when I was running the business from the office, it meant that I had 5 people in my home at least 40 hours a week. Their constant presence in my home lead to a craving for intimacy that was harder to satisfy for both me and my girlfriend.
Living in my office made it harder to disconnect from my work even when my "working hours" were over.
There you have it, a breakdown of all the costs I can think of related to starting your game studio.
Far be it from me to dissuade anyone from reaching for the stars and trying to contribute to the video game industry. For all it has cost me so far, I wouldn't be doing it anymore if I didn't feel like I was gaining even more out of it. I learn a lot and I am part of an incredible community. I've had musicians, a lawyer, a mentor and many more lending their help for free because they believe in us. This is priceless.
However, no matter the takeaway, the process itself is intense. The pressure is constant and the internet is ready to pounce on you as soon as one misstep is made in public. So while it's quite okay to be demanding toward game developers (I'd be quite a hypocrite to say otherwise), please be supportive, because happier developers make better games.
Next time you read about a studio failing, keep in mind that they've probably been doing their best and what they went through wasn't easy. It's just not possible for everyone to succeed.