The Publisher's Lie

If it's not publishers funding indie games, who is funding indie games? The answer is both incredibly boring, and incredibly important to properly understand: indies fund indie games. Let's talk about the 'how' and 'what' of this question, and why I think it's one of the most fundamental ideas to grasp in the business of independent game development.

When we talk about funding in games, we mean the act of moving risk from one party to the other. As a developer, taking the full risk of developing a game is often not viable, and even when it is viable, not desirable - our businesses often function by minimizing our risk, ensuring that in a hit-driven business, we can take multiple shots at making that game that'll fund our safety and security.

You could fund your game by taking out a loan - which does not move risk away since if the game fails, you're still the one taking on a debt. While technically you would be funding your game, in the industry we generally wouldn't call that "getting funding". We'd call that "taking a loan". So -even though it's a bit of a vague definition & honestly a bit of a colloquialism- the idea of funding meaning risk being moved away is generally understood.

When we move risk through funding, we're usually moving it to a party that is more equipped to take on the risk. That would be where publishers come in: publishers are effectively investment funds with additional developer support structures (sometimes internally, but often through external services), they are extremely well-equipped to take on the risk of several games in development. That tempo of releases then gives them distinct advantages against developers - they continuously have news, content, and the bulk effect of having multiple games in the works makes showing at events and talking to platforms and press more time- and cost-effective.

A transaction is defined as "an exchange or transfer of goods, services, or funds". When there's any transaction, I think it's good to take a step back and see what is actually being exchanged. In the case of a game getting funding, the publisher is offering money & services, but when you consider what they're actually buying, it becomes clear that they're not funding development: they're purchasing publishing rights.

This seems like an arbitrary distinction, but it really is not. The reason is because the distinction is important to a lot of nuance about the process, and the idea that publishers fund games makes all of those nuances move in their favour.

Say a developer and two of their friends are developing a little multiplayer game. Using the Budget Viability article from an earlier newsletter, we established three developers would take about 18 months to create this game. Assume a globally average $2,200 salary for independent developers that all own part of the company - so $6,600 per month, so $120,000 for the full project. If you add a 30% safety buffer, you end up at a $160,000 budget. A publisher might make a $140K offer, with a $50K marketing spend. They'll offer the additional $20K development costs in exchange for a better revenue share for them.

That's a rough offer, but it's fair, right?

Now let's say that the game they're developing is a multiplayer game about a bunch of cute astronauts with two legs, no arms, and a big visor backstabbing each other on a spaceship. It happens to be called Among Us. Would the publisher be able to say the same, knowing how the game would perform? Of course not: the publisher is paying for the publishing rights, and the publishing rights to most games are entirely speculative: a game has no value until people start paying for it. Now the offer would have to be in the millions to be realistic.

That should clue you in as to why this matters so much: you're never getting funded by a publisher. You're selling the publishing rights for a game that doesn't exist yet to a publisher, and using the money you make from that sale to fund the development of the title. It's a subtle difference, but it is important because it means your budget requirements are independent from your financial ask in any publisher conversation.

When publishers ask you for your budget, they do so (partially) because they can now offer that amount of money for your game & have that feel like a fair offer - but that system is effectively forcing developers to develop at cost-price while publishers are reaping the benefits of a revenue share that's anchored on the baseline expectation that the budget should equal the ask. Given that this understanding has taken a hold of the industry, the best we can do is be aware of it and adjust our strategy accordingly.

In short: the value of your game is primarily decided on the "opportunity" side of the equation, and evaluated against the "risk" side of the equation.  For most starting developers, this won't make a massive difference - the projected value of your game will rarely far exceed the budget that you're asking for - but understanding the distinction will save you from signing a bad deal in the future - and the surplus is effectively profit. As soon as you start being able to see the concept of your budget (and risk) and the concept of your ask (and opportunity) as separate problems, you'll have a much better time figuring out your business.

Actionables

• The best way to figure out the opportunity of your game remains the idea of a comparative analysis. If you haven't done one, check out the Budget Viability post and follow the instructions there.
• Do a true (internal) version of your budget: budget costs, time, margins, etc. Next, using the results from a comparative analysis, try and establish what your reasonable ask is given your games' opportunity. This might be the same, but if not, make a asking (external) budget by working your way backwards from the value of your game. Primarily consider using salary raises and more resources for contractors, freelancers, and external services to scale your budget - growing the team or scope come with inherent risks to your studio and project.