COMPUTER GAMES AND ENTERTAINMENT
BUSINESS AND PRACTICE.
November 13th 2012
Prof William Latham Goldsmiths
Starting a Business.
Covering 3 weeks.
This week:-
Business Modelling / Rough Financials.
Different Types of Business.
ONLINE WEB BROWSER GAMES.
Humblebundle.Business / Charity Hybrids.
.
KickStarter.
Gambitious.
FourSquare.
Location Based Gaming. A Growing Area.
Hybrid Business models.
Webkinz.Cuddly Toy with BarCode. Popular
in USA
http://www.webkinz.com/us_en/
Barcoded Toys, access to Games LevelsCombined with Sims like game play.
Day One Royalty Model. Publisher Developer Boxed Product.
Publisher
Developer revenue.2.0m units sold
Game A Sales
5%10%
2m SALES.
TOTAL REVENUE At point that 0.5m units sold.
Publisher2m units sale X $9= $18m
$18m - $8m Costs = $10m Profit
Games Developer10% X $10 = $1 per unit$1 X 2m units = $2m $2m - 200K Concept costs = $1.8m profit.
2m Units sold
$10
NEW ONLINE BUSINESS MODELS COMING OUT OF KOREA AND THE FAR EAST,
For example: NEXON
King.com
Business is all about predicting the future!
Generalisations.
There are 2 types of business.
BIG VISION COMPANIES WITH EXITS.
Around technology, Including at times defining new things that people need! (That they do not know about even now).
But short term revenue generation can be hard!
SERVICE COMPANIES.
Companies that do useful tasks that need doing, where there is a known and existing demand.
The Aim to Simulate the operations of a business prior to it happening in reality
This also means de-risking the business.
Cheap to do on paper in planning, very expensive in reality.
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.
Go into Production / Start Sales.
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.
Go into Production / Start Sales.
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.At Any Point if it fails go back to start.
Ie. Loop can be gone round again and again.
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.
Go into Production / Start Sales.
ASSIGNMENT No.2
ASSIGNMENT 2.
PURPOSE OF THIS ASSIGMENT IS CREATE A COMPANY IN THE GAMES SECTOR FROM ZERO.
With a small bank loan, a small amount of Angel investment, run as a service company to get going for 2 years
and
Then pick up significant investment followed by an Exit. (Sale).
A MIXTURE OF BIG VISION PLUS SERVICE WORK!
Present in:-
Dragons Den
STARTING A NEW GAMES COMPANY ASSIGNMENT
DEADLINE:-
Delivery date:- TBA. Early Spring Term.
ASSIGNMENT 2.
Marking Weighting Breakdown.
-----------------------------------------
30% The vision, quality and strength of core business idea. Ie. Whether it will make
money.
25% Quality of Financial Spreadsheet.
25% Your explanation of core business ideas and logic, the quality of business model diagram and clarity and completeness of business assumptions including presentation power point.
20% the quality of the pitch presentation in the Dragons Den.
---------------
100% TOTAL
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.At Any Point if it fails go back to start.
Ie. Loop can be gone round again and again.
Initial Concept / Idea.Business Knowledge and expertise in field, plus insights and inspiration
The business can normally be defined as one sentence, possibly two:-
A distillation of the business idea. Often ends up being the “pitch line” to investors.
Examples:-
“We produce console games for games publishers to sell at retail and by digital download in return for a development advance and a royalty on units sold”.
“We provide consultancy at a high day rate centred a specialist knowledge area of games development and project finance working with known clients”.
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.At Any Point if it fails go back to start.
Ie. Loop can be gone round again and again.
Business Model. Define as Flow Diagram.
Costs.
Can be multiple
Revenue.
Can be multiple
Key Drivers.
Of Costs.
Fundamental to Business.
Company X
Key Drivers.
Of Revenue
Fundamental to Business.
Customersidentification / market size. Customer demand
Sales / MarketingHow company will reach customers. Sales / marketing.
Factors that will have a Radical Impact on business. Negative or Positive.
Competition.
What company does:-Product / Service / Offering.
Business Growth.
What this means
Traditional Games Development Model.
Costs.
40 employees at $10K per month X duration of project.
Developer X
Cost:-Carries development costs and responsibilities
retains tech.
Revenue Development Advance $7m Cleared then Royalties at eg. 20% of net receipts. Shared merchandising.
Factors that will have a Radical Impact
Change Orders. Risk of cancellation / Breach. Fixed Price Contract.
CustomersMajor Publishers. Eg. EA, Ubisoft.
Sales / MarketingMeetings GDC, E3, DICE. Press Coverage.
Key Drivers of Revenue
Maintaining good relationship with one publisher. Line up 2nd Publishers. IP Retention.
Business Growth.
Aim for acquisition of company.
Key Drivers of Costs.
High salary costs, duration of project. Concept work. Office rent costs.
What company does:-
AAA Console game production. 3D Person.
Competition.Leading 3rd
Person Games Developers.
Can be accompanied by:-
SWOTSTEPRisk Analysis.
Diagrams.
The key to a business plan is the “”Business Model.
The business model defines the key drivers and components. The logic of the business.
Initial Concept / Idea.
Produce Business Model.
Rough Financial Model. In Excel.
Produce Business Plan. 30 pages plus
Customer Evaluation. Under NDA.
Secure Investment / Loans.
Detailed Financials. Cash Flow. Tax. VAT.
Business Assumptions defined.
Produce Prototype / Define Offering.
Starting a Business.
The Process.
Accountants
Legal
Expertise.At Any Point if it fails go back to start.
Ie. Loop can be gone round again and again.
Starting your own business!
Industrial Lightt Wharehouses!
Serviced Offices.
Include Board Rooms / Meeting Rooms Hire by the hour
Short Leases 1 month rolling. Furniture / phone lines included. But can be expensive... .
MONTH 1
Cash Position. Actual
Invoice No 12 500
Invoice No 4 500
Invoice No. 8 1000
Revenue 2000
Salary PM 300
Rental Depsit 100
Office Stationary 100
Equipment Lease 100
Costs 600
Balance 1400
Small Business. Costs Break Down. For one month.
30 day payment terms mean payment should be this month.
MONTH 1 2 3
Carry Forward 1400 5600
Revenue 2000 5000 3000
Total 2000 6400 8600
Costs 600 800 4000
Balance 1400 5600 4600
Overdraft Facility £15,000
Small Business Financial Projections.
End of month balance is carried forward to start of next month.
Starting a new business with no investment, but have a £15K bank overdraft facility.
Time
MONTH 1 2 3
Carry Forward 1400 5600
Revenue 2000 5000 3000
Total 2000 6400 8600
Costs 600 800 4000
Balance 1400 5600 4600
Overdraft Facility £15,000
Small Business Financial Projections.
End of month balance is carried forward to start of next month.
Starting a new business with no investment, but have a £15K bank overdraft facility.
Time
Must not go over -£15,000 DR
MONTH 1 2 3
Carry Forward 1400 5600
Revenue 2000 5000 3000
Total 2000 6400 8600
Costs 600 800 4000
Balance 1400 5600 4600
Overdraft Facility £15,000
Small Business Financial Projections.
Doing okay, £4600 cash in hand and £15,000 still available.
Position at end of Month 3.
MONTH 1 2 3 4 5 6
Carry Forward 1400 5600 4600 -1400 -7400
Revenue 2000 5000 3000 1000 4000 3000
Total 2000 6400 8600 5600 2600 -4400
Costs 600 800 4000 7000 10000 11000
Balance 1400 5600 4600 -1400 -7400 -15400
Overdraft Facility £15,000
Small Business Financial Projections.
Bust, exceeded £15,000 overdraft!
Position at end of Month 6.
MONTH 1 2 3 4 5 6
Carry Forward 1400 5600 4600 -1400 -7400
Revenue 2000 5000 3000 1000 4000 3000
Total 2000 6400 8600 5600 2600 -4400
Costs 600 800 4000 7000 10000 11000
Balance 1400 5600 4600 -1400 -7400 -15400
Overdraft Facility £15,000
Small Business Financial Projections.
Position at end of Month 6.
PROBLEM CAUSED BY HIGH COSTS THAT OCCURRED MONTH 4 + 5 + 6.
INDICATION OF PROBLEM AT MONTH 3.
MONTH 1 2 3 4 5 6
Carry Forward 20000 21400 25600 24600 18600 12600
Revenue 2000 5000 3000 1000 4000 3000
Total 22000 26400 28600 25600 22600 15600
Costs 600 800 4000 7000 10000 11000
Balance 21400 25600 24600 18600 12600 4600
Overdraft Facility £15,000
£20,000 Investment at very start.
Used up nearly all investment, only £4600 cash in hand, but £15,000 overdraft still available.
Small Business Financial Projections.
MONTH 1
Cash Position. Actual
Online Sales
From Unit Sales 1000
Downloadable content 50000
subscriptions 20000
TOTAL 71000
Online Advertising.
Source A1 20000
TOTAL 20000
Consultancy.
Client A 20000
Client B 30000
TOTAL 50000
TOTAL REVENUE 141000
Costs
Salary PM 100
Rental Depsit 100
Office Stationary 100
Equipment Lease 50300
Balance
Multiple Revenue Sources Should be Grouped.
And Costs associated directly with those revenue sources if they can be.
Business Modelling.
Finances: Projected P&LAll figures US$ YR1 YR2 YR3 YR4 YR5 YR6 YR7
($000k) ($000k) ($000k) ($000k) ($000k) ($000k) ($000k)
Captial In 600 400
Revenue
Pro-version Sales 0 0 625 1562.5 3125 1875 937.5
Prosumer sales 0 0 125 312.5 625 375 187.5
Site advertising 0 1.5 30 75 150 90 45
Revit + Rhino sales 150 300 150 75 45 30 0
Game run-time Sales 0 0 200 400 800 800 1000
Total 150 302 1130 2425 4745 3170 2170
Costs
O/S development 331 331 248 248 248 166 83
Dev. Royalties 0 0 42 226 534 354 248
Service Hosting 0 5 5 5 5 5 5
Revenue sharing 0 10 121 303 606 364 182
Management 138 161 208 234 260 286 312
Marketing 58 115 130 65 130 65 65
Retail costs (on-line) 25 50 50 50 50 50 50
Total 552 672 805 1132 1834 1289 945
Profit -402 -371 325 1293 2911 1881 1225
Retained 198 228 552 1846 4757 6638 7863
Development Operational service
YEAR 1 2 3 4 5 6
Carry Forward 5000000 4000000 3000000 1000000 4000000 7000000
Revenue 0 0 0 4000000 4000000 9000000
Total 5000000 4000000 3000000 5000000 8000000 16000000
Costs 1000000 1000000 2000000 1000000 1000000 1000000
Balance 4000000 3000000 1000000 4000000 7000000 15000000
Overdraft Facility £100,000 Invest £5m
Balance £15m
Major Investment Scenario. Over 6 Years.
£5M Invested
£15m Cash in Hand
£10m Return on Investment + Opportunity of Sale to another company. An Exit.
Payment Terms on Invoices are key.
Then enforcing payment enforcement if payment is delayed.
Keeping Costs Down is key.
Business is about the key relationship between Costs Incurred and Revenue Received.
TIMING IS KEY!
Different Types of Business Models.
Basic Business Model of Film Special Effects.
Film is cut into Shots.(Length is defined by number of frames)
Shots. Shared amongst Special Effects Studios around world.
That is why the effects credits are so long on a movieO.
Industrial Light and Magic. Digital Domain Double NegativeFrame Store.
106 Frames200 Frames80 Frames 95 Frames
Pricing.
Paid to Post Production Company.
Eg. Double Negative, ILM
Cost:- $50 to $200 per frame depending on complexity.
Eg number of laters, quality of source data.
Eg. 100 frames X $200 = $20,000.
(Which at 25 frames per second is 4 seconds).
Recruitment Agency Business Model
Recruitment Agency Business Model.eg.OPM, Datascope.
Revenue
Charge:-15% to 25% of 1st Years Salary of placed individual at company.
.
Refund. But 66% refund to clients if they leave within 1st month,
50% if they leave after month2,
33% if they leave after month 3.
0% thereafter.
For each person employed by agency they aim to place 10 to 20 people each year to make profit. Risk if recruitment drops eg. Recession.
Costs. Agency. Maintains office cost, longer term employees to maintain contact base with clients.
To ensure return business.
Video Editing Services.
Eg. The Mill, Soho.
Revenue. Editors, Expensive Machines and Studios Time Rented by the hour. Off Line and Online. 20% to 25% Profit.
Costs:-
Cost of machinery.
Maintenance.
Editors and Support. (May be freelance, only get paid when they work).
Revenue 40% “Mark Up”
on:-
Tapes / Media.
Food / Drink.
Rates Dependent
on Time of day.
Art /. Animation.OUTSOURCHING BUSINESS.
Mainly the production of 3D “in-game” assets. Eg. Cars, Buildings, race tracks.
Little coding or game design layout outsourced.
Cost based on delivery of number of items to be produced
Eg:-
10 cars of (5000 polys) based on 10 concept drawings at $100 each = $1000.
Deadline 5 days time.
Zynga a San Francisco Company www.zynga.com “Freemium Model”.
MySpace,
Bebo
Friendster.
other social networking
sites
Games
Mafia Wars
Dope Wars
Farmvile
60 million active users.
iPhone games also.
Freemium Model.
Players play for free
Some revenue advertising revenues.
Acquire Extra Items or play longer, by:-
Purchased by consumers. (Direct Revenue
Stream)
In return for signing up with one of Zynga’s partners. eg. Netflix, sign up 30 day trial period.
SERIOUS GAMES.
Training / Education /
Medical.
Serious Game Development Company Client.
Eg.
1) School,
2) Company needing safety training scheme
3) Company needing a customer facing training scheme. Eg. In Call Centre.
Client supplies content
(Client will often be local to Serious Games Development Company).
Business Parameters.
Specification + Delivery Dates.
1- 3 milestones
(start, mid, end) Duration 3 months
Payment on milestones.
£20K - £150K budgets.
No royalties.
Accounts Manager
Eg. Academy Internet in Brighton.
Serious Games. Business Model
Serious Gaming Financing and returns
Serious gaming development tends to be fixed-price.
With the developer retaining rights to core proprietary IP & Technology.
The developer is building a bespoke application for a client and, hence, therefore no royalties
This suggests a more traditional consultancy-type approach where staff can be provided for development on a cost plus basis.
MIDDLEWARE.
Eg. Bink, Firelight FMOD, Havok, and Scaleform
Development cost of tool $400K to $1m.
Revenue from:-
1) Licensing or cost per seat. (eg. $3K X 20 seats per annum = $60K PA)
2) Technical Support. (eg. $50K PA)
3) Release Fees.
4) Royalties (Unreal is $500K up front then backend royalties).
5) Sale of plugins online eg. $300K eg. Max plugins.
+
High Server Costs
High Cost of Game Production
New Content
+
Game Management.
Cost = $50m to $70m
ButO High Revenue:- $15m PM X 3m = $45m
Mobile Gaming GAME SUPPLY
Mobiles Development Companies
Big Publishers.
EA, THQ Mobile, Glum Gameloft, Vivendi
Produce 80% of games
Content Aggregators
PlayerX
Selatra
Telcogames.
Mobiles Development Companies
150 Independent Game Devlopers.in Europe
Self Fund Games
Operators
Vodaphone
O2
Portals
Party Mob
End2End, Avator, 3United, QPass
.
Consumers.
Mobile Gaming
Mobiles Development Companies
Big Publishers.
EA, THQ Mobile, Glum Gameloft, Vivendi
Content Aggregators
PlayerX
Selatra
Telcogames.
Mobiles Development Companies
150 Independent Game Devlopers.in Europe
Self Fund Games
Operators
Vodaphone
O2
Portals
Party Mob
End2End, Avator, 3United, QPass
.
Consumers.
Pays £2.50
Pays £1.20
Pays £0.80
Mobile Gaming MONEY FLOW.
Mobiles Development Companies
Big Publishers.
EA, THQ Mobile, Glum Gameloft, Vivendi
Content Aggregators
PlayerX
Selatra
Telcogames.
Mobiles Development Companies
150 Independent Game Devlopers.in Europe
Self Fund Games
Operators
Vodaphone
O2
Portals
Party Mob
End2End, Avator, 3United, QPass
.
Consumers.
Pays £2.50Pays
£1.20
Pays £0.40
Pays £0.80
Mobile Gaming MONEY FLOW.
Mobiles Development Companies
Big Publishers.
EA, THQ Mobile, Glum Gameloft, Vivendi
Content Aggregators
PlayerX
Selatra
Telcogames.
Mobiles Development Companies
150 Independent Game Devlopers.in Europe
Self Fund Games
Operators
Vodaphone
O2
Portals
Party Mob
End2End, Avator, 3United, QPass
.
Consumers.
Pays £2.50
Pays £1.20
Pays £0.40
Pays £0.80
Casual Games Developer
Online server costs
Casual Games cost $10K to $300K to produce (fairly cheap). Upfront Cost.
Consumer PC
FREE
With
ADVERTISING
Casual Games FREEEg. Revenue from Google AdSense.
cost-per-impression (CPM) or cost-per-click (CPC)
Casual Games Developer
Online server costs
Skills Gaming.
Consumer PC
Pays $1 per download
Pays $10If Win
Skills Gaming
Artist Record Label
Masters
ManufacturingCD / Vinyl
Physical Distributor
Supplies Shops / retail.
Retail
Chains / Independents
The Music “Mechanicals” Process
Label does Marketing & Press.
May use external agencies to help
Consumer
Mastering House
Royalties / Profits
Stock
Artwork
Digital Store
iTunes, specialist sites
Digital Aggregator
(Optional – may go direct)
Artist
Mechanical Royalties
Record Sales, Advances
Merchandising
T-shirts, endorsementsPerformances
Concerts, Sync
Writer
Publishing Royalties
Writer Publisher
Assigns Copyright
The Music “Publishing” Process
Publisher also (hopefully) tries to place songs with artists / record labels
Publishing Royalties
Mechanicals Collection Agency
MCPS
Record Label
Performance Collection Agency
PRS
Broadcasters
Radio / TV
Venues
Clubs / Pubs / Concerts
Licence Fees
Receipts
£
Supply Chain (Understanding it)
Company B Company I
Company C Company A
Company G
Company H
Company A
Company E
Company F
Company D
Company J
Your Company
BIG PROBLEM
What is the business model of:-
A Small Town Hairdresser?
LAB TASK
Re. Investment Attractiveness.
Look at:-
NOAH Conference in the UK Website.
Index Ventures Website.
HacKFWD Website.
Cambridge Angel Networks.
Oxford Angel Networks.
Silicon Valley Investment Groups.
Look at what they are investing inOO..
Business Model. Define as Flow Diagram.
Costs.
Can be multiple
Revenue.
Can be multiple
Key Drivers.
Of Costs.
Fundamental to Business.
Company X
Key Drivers.
Of Revenue
Fundamental to Business.
Customersidentification / market size. Customer demand
Sales / MarketingHow company will reach customers. Sales / marketing.
Factors that will have a Radical Impact on business. Negative or Positive.
Competition.
What company does:-Product / Service / Offering.
Business Growth.
What this means
Traditional Games Development Model.
Costs.
40 employees at $10K per month X duration of project.
Developer X
Cost:-Carries development costs and responsibilities
retains tech.
Revenue Development Advance $7m Cleared then Royalties at eg. 20% of net receipts. Shared merchandising.
Factors that will have a Radical Impact
Change Orders. Risk of cancellation / Breach. Fixed Price Contract.
CustomersMajor Publishers. Eg. EA, Ubisoft.
Sales / MarketingMeetings GDC, E3, DICE. Press Coverage.
Key Drivers of Revenue
Maintaining good relationship with one publisher. Line up 2nd Publishers. IP Retention.
Business Growth.
Aim for acquisition of company.
Key Drivers of Costs.
High salary costs, duration of project. Concept work. Office rent costs.
What company does:-
AAA Console game production. 3D Person.
Competition.Leading 3rd
Person Games Developers.
LAB TASK. Working Solo. Using online research build Business Models in PP for these companies:-
King.comMindcaft Developer Mojang.Zynga.Webkinz.Bigpoint. Rebellion.Valve (incl Steam).Epic.Onlive. Kickstarter. Virtuous. (Art Outsourcing)Occulus. VR Headset. An established independent Mobile Games Developer (Android) of your choice.An established Games Developer reliant on using Kickstarter of your choice
An established Games Developer using Humble Bundle.
Note:- Use small font size and attach 2 frames of bullet point notes backing up main frame.
END