Surviving the Next Generation Console

1. Surviving the Next Generation Console Presented by Adam Lancman AGDC 2004

2. Overview of Presentation • Platform changes and what they mean • Key challenges for game industry • Resourcing projects • Skills and Training • Financing projects • Winning new contracts • Original IP vs. Work for Hire • Q&A

3. Platform changes and what they mean • Video Game Hardware Timeline • Early ’80’s 8 bit home computers, Atari 2600 • Mid ’80’s, NES, Master System • Late ’80’s/early ’90’s, SNES, Mega Drive, 3D graphics and CD Rom hardware for PC’s • Mid ’90’s PS1, Dreamcast, N64, online PC games • Late ’90’s to present, PS2, Xbox, Gamecube, MMOG’s • Mid 2000’s PS3, Xbox 2, Gamecube 2, Broadband PC

4. Platform changes and what they mean • Each new platformups the ante on technology and content • More technology + more content = more people in the project team = higher costs • 1980, 1-2 people needed to make a game; 2004, 50 - 60 people needed to create a competitive game on current platforms • The next generation of hardware will see teams of over 100 people

5. Key Challenges for Game Industry • Looking ahead to the new platforms, developers will need to work out how they will meet the inherent demands of developing on them. • Where will talent come from to make these games? • How will these 100+ sized project teams be managed? • How do we upgrade the current skill base and train new developers to supply the resource demands of these projects?

6. Key Challenges for Game Industry • What will the business model look like for these mega projects? • Who is going to finance the huge budgets likely to be needed? • Will the traditional Development contract still apply?

7. Resourcing projects • Historically developers have preferred to resource project teams internally. • The business cycle can make this very expensive. • With the best intentions it is rare for an independent developer to have his next project lined up ahead of completing his current project. • financing this gap in timing has been the cause of the demise of many developers. • How much greater is the financial pressure if you have a team of over 100 salaried staff who have just finished a project and you don’t have another paying project for them to move onto.

8. Resourcing projects • Some developers who have sufficient financial resources may be able to manage this risk. • An alternative to staffing internally is to outsource elements of the project to other independent content companies. • This would require a paradigm shift in the thinking and the development approach of many developers.

9. Resourcing projects • The future development model will probably resemble the film production model i.e. resources are brought together and then are disbanded on completion of the project. • A developer would retain a core team of say 50 – 60 staff and supplement these with outsourced resources to make up the additional staff needed. • Outsourced content can include: • Pre-rendered cinema sequences • Animation • Sound production • Specialized programming such as physics or AI. • Project Management

10. Resourcing projects • Even were a developer prepared to outsource, the challenge is to find suitable companies to outsource to. • Because the content needed is very specialized, content providers with the specialized knowledge needed to produce this content are few and far between. • The way forward is complex, as I see it, it will have to include closer collaboration between developers and content providers. • Strategic relationships from developer to developer and developer to content provider can pave the way for establishing sustainable development studios.

11. Skills and Training • As with many other “smart” industries the Game Development industry internationally is suffering from a skills shortage • In Australia our talent base has been built up mainly from home grown passionate professionals who want to make great games supplemented by importing talent from more mature game development markets like the UK and the US. • To resource the next gen projects the talent pool needs to expand much more quickly than it has in the past. • If we can’t resource the projects then we of course will not get the development contracts but if we don’t have the contracts we can’t support a larger skills base. Classic Catch 22.

12. Skills and Training • The GDAA is working with educators to provide guidance as to the specific skills we look for in graduates who want to become game developers. This will provide dividends in the years to come. • We must continue to encourage oversees talent to immigrate to Australia. We can especially take advantage of the downturn in the UK development industry and import more experienced developers who see the opportunity of working in Australia as a great adventure. • We also need to be working with content companies helping them to re-skill/skill up to the requirements of our industry.

13. Financing projects • Having identified how we can resource these large scale projects the question still stands as to how we are going to finance them. • We are already seeing that as the cost of development goes up Publishers are commissioning fewer projects. • This means that there will be more competition between developers to win development contracts with Publishers. • Australian developers will also find it more difficult as the issues we have always been dealing with, namely the additional perceived risk of working over great distances, will be exacerbated by the larger budgets and the Publishers natural tendency to minimize risk.

14. Financing projects • It certainly is possible that Australian developers may be able to enter into a traditional development contract however we may have to be more creative. • Other options include either fully funding a game or partially funding a game • Fully funding games of this magnitude implies that there are investors willing to put up the money and take the risk. Again this may be possible but not very likely.

15. Financing projects • A number of factors would have to change to make fully financing a game here in Australia viable from an investment perspective. The GDAA has launched a number of initiatives to attract this type of investment: • Extending sec. 10BA of the Income Tax Assessment Act to include games • Promoting the establishing of a Game Investment Fund similar in structure to the IIF funds available to other sectors of IT. • Establish the viability of the film financing model to fund games. • Work with government to provide prototype funding.

16. Winning new contracts • Were the investment conditions to be improved it would still be difficult to expect many large scale projects to be fully funded in Australia. • Part funding would be more likely to succeed. • Investors are more likely to feel comfortable with sharing the risk on a title with a Publisher, and • All things being equal, an Australian developer who is able to share the financial risk with a Publisher is likely to have a better chance of negotiating a deal than a developer who cannot offer such a financial incentive.

17. Original IP vs. Work for Hire • The future is all about owning and controlling your own IP • Not every project can be original. • Most Developers will need to accept work for hire projects to pay the bills. • Original IP is the elusive dream, no one has the formula that will predict the success or failure of new IP. • It is almost a given that a developer has to invest a significant amount of his own time and resources in developing his original concept to a level that will convince a Publisher of its value. • To do this on the next gen of game platforms will be very expensive.

18. In Conclusion • The rising complexity and cost associated with game development on the next generation of game platforms requires: • the Australian industry to achieve greater scale in operations; growth in service and outsourcing. • developing and retaining skilled talent including continuing importing new talent and cultivating fresh talent through cooperation with the tertiary education sector and the specialist private educators. • access to an optimally functioning private capital market for game investment; private/public models; 10BA and other concessions

19. Question and Answers Thankyou for your time