How the Gaming Business Operates

Video games are big business.  These “kids passtimes” are worth billions annually and it’s a business that operates world wide with studios and development houses creating games on almost every continent and in nearly every major city.  Hundreds of thousands of people are employed by the video game industry in various roles ranging from corporate boards of directors to programmers and developers to distribution channels and store clerks. There are even writers who hang on the fringes and pen articles about the industry.

Despite it’s size and scope, the gaming industry is often blown off as something insignificant or as just child’s play.  Business people and investors believe this to their own detriment.

Consider this: in 2010, when Harry Potter and the Deathly Hallows released to theaters, it grossed $169 million on its first release weekend.  At about the same time, Call of Duty: Black Ops hit store shelves and grossed $650 million in its first five days of release.  When Modern Warfare 3 released the following year, it pulled $750 million in its first five days.  The entire video game market in 2010 was about $56 billion according to Price Waterhouse Coopers.  By comparison, the American film industry ticket sales for 2010 were a mere $10.8 billion that same year.

In short: video games are big business.  Scratch that.. they’re huge business.

Before a gamer plays a game, before it ever hits store shelves or is offered in free to play (F2P) download, it goes through several steps to become a product.  In the early days of gaming, most computer games were “garage and basement” productions made by one or two people in their spare time, usually for fun and little profit.  Today, the industry is a professionalized, well-financed business.  Yet the basic steps towards building a game haven’t changed much in that transition.

To look at the steps, let’s use the ultra-popular time management game “Diner Dash” as our example.  This garage-cum-high dollar production franchise is a perfect candidate for looking at a game that was made both as a side project in someone’s spare time and (now) as a full on multi-million dollar franchise of games made by professional studios.

Step 1: Pre-Production

At this point, the game is just a concept.  A basic idea.  Right now, it’s just the idea of having Flo chase tables, taking orders and serving food.  The concept is simple: players are challenged by ever-increasing customer demands in a diner setting where a quasi 2D-3D setup has them clicking to assign tasks to the waitress as she seats customers, takes orders, serves food, and buses tables.

The genre is set as “time management” and the style will be “Manga meets Mario”.  Game play will take place on a non-moving screen.  A production plan is drawn up and a graphical storyboard-style prototype is created.

Step 2: Financing

Now that the basic idea is down and a plan for its execution is set up, it’s time to figure out how to pay for the production of the game itself.  How will it be bankrolled for development, production, and finally for distribution and marketing?  In our example, it’s a spare time project, so the financing will largely be through the game’s makers themselves as well as possible investment from friends and family.

A budget is drawn up and worked out.

In the case of a more professional game, such as Diner Dash XXVIXIX, financing will likely be through the publisher, private investors affiliated with the publisher, or similar.  This type of financing may be done through the publisher who owns the game and its rights or independently where the publisher finances a game it doesn’t own in return for some of the rights to the final product.

A new type of financing emerging now is crowd finance or crowd investment.  These are facilitated through websites like Kickstarter where a game developer puts the pre-production idea in front of the world and asks for funding from individuals or groups.  Financing can be via donation (crowd finance) or with investment options (crowd investment).  Often, hundreds or even thousands of individuals are a part of the game’s financing by donating a few hundred or even thousands of dollars.

Step 3: Production

In this phase, financing and the general idea for the game are settled upon.  Now actual game development starts.  This takes on several phases, the details of which will depend on the game in question.  With Diner Dash, for instance, production likely commenced through several graphic design phases along with core game engine building.

The game engine starts with basic controls and modules for the diner and its various elements.  Things to control Flo’s movements and work are added along with ever-increasingly complex elements.  Eventually, the whole diner, with tables, the cook, counter space, the front door, queue line, patrons, food, dish washer, and Flo herself are present.  In the beginning, they will be rough graphic representations and will not have much (or any) animation.

Over time, these will be refined and perfected to become more like the game we’re familiar with.  Controls and game play will be honed and modified to meet player expectations.

Towards the end of production, play testing will take place.  In the beginning, this will be done by developers as they perfect the game, but eventually it will involve outside players who’ve never seen the game before in order to get a fresh perspective.  Often called “beta testers” or “play testers,” these are people who enjoy games and some will be professional game players or testers.

Sometimes games go “live” to the public for alpha and beta testing.  This is especially common with massive multi-player online (MMO) games.

Step 4: Post-Production

This phase often coincides with testing.  At this point, the game has basically finalized its graphics, game play, and look/feel.  Marketing will begin promoting the game.  Many games today, especially in the MMO and MMORPG genres, use beta testing as a marketing phase to get initial players into the game so they can talk about it with their friends online and off.

Other marketing includes standard fare Hollywood promotion such as billboards, magazine ads, paid inclusion in television or movies (“product placement”), and so on.  Press and media will be shown pre-release versions of the game and promotional videos and media will be produced to promote the game.

Once the game is ready for release, it will be distributed via retail and/or online channels.  Some games are released both to retail “box” sale and to digital download sales while others are only released to one or the other.

Step 5: Post-Release

After release, the game goes into maintenance phase.  This includes maintaining and bug-fixing the current game and working on updates and upgrades for the game to keep it fresh.  Box-only games rarely see much more than bug fix patches while Internet-based MMO and MMORPG productions will see continual updates and patch releases for months or years after its initial release.

With Diner Dash, the former is the norm.  New versions of the game are released as separate games and while the game engine is shared along the franchise, each game released is considered another game entirely, standing alone from its brethren.

The Money in Gaming

As we began, so we will end.  The money in gaming is huge.  Some games have development budgets of only a few thousand dollars.  Others have millions.  Some developers and financiers will recoup their investments within a few days or weeks of game release.  Others may never see a return on investment.

Whatever the case, gaming is a huge industry with a lot of money flowing around.  While it’s ever-changing and always in flux, with some games that did well in the beginning now failing miserably while others that were expected to flop are soaring high, the basic premise that gaming makes money is always there.  While individuals and businesses struggle to be the ones making a profit, as a whole, the industry is profitable and will likely always be so.