The Expensive Video Game Problem

The other day I did the annual 'spring' clean of my house, after being prodded and nudged by my other half for last 8 months.

I managed half of it. I suddenly lost interest in my multi-purpose cleaning fluid when I unearthed my old Sega Dreamcast, along with a handful of games half-buried among old VHS tapes (remember those?) in a battered box up in my attic.

I hurried downstairs, brushed off the dust and popped in Sonic Adventures. 5 hours later, with aching eyes, I turned off my old pride and joy and had a realization: in the last 20 years, the rise of the gaming industry has been meteoric.

The 90s signalled a huge change in the way we consumed games. We went from arcade games the size of a small car, to devices like the GameBoy Color, which you could carry around in your pocket. Gaming visuals were transformed from 2d sprites to 3d graphics, and genres were born that are now mainstays of video gaming, like FPS, MMO and Survival Horror.

Since the turn of the millennium, however, the gaming landscape has changed beyond all recognition. The emergence of 3 main players (Sony, Nintendo and Microsoft) has forged a clear path that the industry is taking. Gone are the low-resolution polygons of Tomb Raider and the level-by-level structure of Spyro the Dragon. They’ve been replaced with high-definition visuals and a steer towards fully immersive and interactive environments, open world maps and online multiplayer sessions.

Love live streaming

In the UK there are now more female gamers than male, from all walks of life, of all ages. Many gamers are turning to the internet to broadcast their sessions, with some even making a career out of it.

In fact, the internet has been a huge driver of gaming's image-change. Along with the countless YouTube channels dedicated to video games, live streaming has taken off, big time. The real-time delivery of video over the internet has spawned the emergence of popular platforms. Twitch is the biggest live-streaming platform, accounting for around 43% of all live-streaming traffic. It boasts the fourth highest amount of traffic in the US, behind Google, Apple and Netflix. And YouTube and Twitch gamers are becoming the movie stars of today.

The problem of funding

Despite this massive progress, there's a fundamental problem impacting the industry: funding.

It’s easy to assume that a studio doesn’t need big budgets. Sure, it’s not on the same level as a blockbuster movie, but designing and developing a successful video game can easily cost upwards of £200,000, when you take into account the cost of equipment and software, premises, staff and promoting the game.

As with any other business, costs can mount up incredibly quickly. Compared to big-name studios with investment behind them, independent or new developers struggle to get that first cheque through the door.

Like many other SMEs, studios are suffering from a lack of finance from traditional lenders such as the high street banks. Some are willing to lend, but the reality is that unless you have successfully released and turned a profit on a couple of games already, unfortunately banks could be a dead end. Games studios and independent developers have realized this and are turning to two main methods to get their game off the ground - crowdfunding and alternative finance.

Alternative finance sources

If you’re not aux fait with the ins and outs of crowdfunding, it's essentially the process of funding a new project or idea by raising small amounts of money from a large numbers of people. Sites like Kickstarter and Indiegogo have brought this idea to the masses, and it’s had a significant impact on the gaming industry, funding independent games and projects left, right and centre. Friday the 13th: The Game is just one success.

Then there's altfi lenders - or alternative lenders - such as Fleximize. Or Funding Xchange provides a good platform to search for lenders in this space. Seen as a serious challenger to traditional bank loans, many developers are choosing the increased flexibility of altfi providers.

But if you prefer going for a grant as opposed to a loan, on October 12th the UK government announced a £4 million pot of cash. The Video Games Prototype Fund aims to support video games development across the country.

“We need to open people’s eyes to the talent that exists here and the investment opportunities that the UK’s games scene presents.” Jo Twist, CEO of UK Interactive Entertainment (Ukie)

For many new developers raising enough money to hit target is incredibly difficult. In an age where there is still financial uncertainty around the world, persuading people who don’t know you, to part with their hard-earned cash, in exchange for a product they probably won’t get for another 12 months is like trying to part a teenage girl with her phone.

There's also the demand and stress that comes with fulfilling your promises to all those people who donated to your project. Crowdfunding your next video game project can be incredibly successful. But it can be a challenge.

Prove you're worth it

Whichever route you choose, you can do things to improve your chances of getting funding for your next great project. It's generally accepted that, at the start, any good entrepreneur (or games developer in this case) must do as much as they can with as little as they can.

Whether you go down the crowdfunding or lender route, it gives the funder a great deal of trust that a) you know what you’re doing, and b) you’re determined to turned your idea into a successful product. Also, by developing a solid business plan, you'll have clear objectives in mind as to how you'll use the money/ resources, helping lenders see a vision for the future.

It may sound like long, hard road ahead, but it’s not like 20 years ago, when the likes of Sega relied on infinite pools of money to build enduring titles such as Sonic the Hedgehog and Nintendo, and poured endless resources into The Legend of Zelda. There are now so many options out there for games developers to turn their dreams and ideas into reality. To quote Starbucks CEO Howard Schultz: “In times of adversity and change, we discover who we really are and what we’re made of." And now I want a Starbucks...