Excellent video. But seeing as studios have generally failed at budgeting for games it comes as no surprise that they don't understand how to profit from a more niche market. They're still stuck in the rut of spending millions of dollars above an appropriate budget and producing games that just barely break even. So if they made a horror game they'd blow AAA budgets on it and make niche money. So they'll fulfill their own prophecy by being idiots rather than their statement being true.
There is clearly a demand for it. You figure out what kind of demand there is using the same product forecasting businesses use and then you budget according to that. You don't say, "I want to make COD money" and then budget for that on a niche game. Yet these big studios are doing that and wondering why they're failing. What's worse is you have studios like Square Enix who are going so wildly over budget that even games selling multiple millions of copies give them a loss. As long as these producers keep doing this crap, niche genres like horror will be avoided by big companies because they have a fundamental misunderstanding of budgeting and applying their current practices to horror would be catastrophic. Those who can do it right stand to progress here and they'll continue to do it until the big boys figure it out, if they do, and then it'll just be even ground in a party that smaller studios already have viable IPs in because they developed according to what they should make, not what they wanted.
As I've said all along, this is what ever CEO should be forced to read a basic summary on product budgeting:
1. Forecast reasonable revenue expectations based on what real data you have. If data is lacking, be as conservative as possible and put money into getting data before going wildly in.
2. Budget based on that forecast to create a game that meets the criteria of the product that was forecasted for (e.g., don't budget for a horror game based on the IP's former performance and then make it into an action game). Make sure you can make a viable game and have enough revenue left over to make up for project extensions and the profit you want to make on your investment.
3. Stick to the budget. Don't over spend in marketing or anything else beyond what you've already set aside and accounted for. Have safeguards in-place to shine a light on any component of production that is lagging and deal with it aggressively.
How these companies are budgeting:
1. They forecast terribly high numbers that put them into COD ranges for some reason. I still think nepotism must play a strong role in hiring practices for this department.
2. They budget for these terribly high numbers that are not now nor will ever be realistic.
3. They then go over budget, thinking that marketing the game even harder will expand the market beyond what's really there.
This is how those two styles play out:
Correct budgeting:
1. Game is a failure= You lose money. Not the whole bank but you didn't make cost.
2. Game sells a reasonable amount = You make the projected ROI. Breaking even at worst while successfully establishing an IP.
3. Game sells well = you make a good profit.
4. Game is very popular = astronomical return on investment.
Current and incorrect budgeting:
1. Game is a failure = you lose tens or hundreds of millions of dollars potentially.
2. Game sells a reasonable amount = you lost a lot of money.
3. Game sells well = you may break even, you may make a tiny return on investment.
4. Game is very popular = you make a small profit unless you over budgeted even for this (Square Enix, I'm looking at you and your Tomb Raider, Hitman, Sleeping Dogs debacles that each sold millions of copies)
It should all be about the return you get per dollar spent. Horror games are cheaper to make just like horror films are. You should get a better return on investment per dollar than contributing to a game with 100+ million dollar budget. Would you rather make three $25 million horror games that each triple return or 1 $100 million game that makes you $50 million in profit? Right now, these dumb companies are dismissing the smaller numbers for some reason despite the value per dollar being higher. In business school, this is what's called a bad decision.
There is clearly a demand for it. You figure out what kind of demand there is using the same product forecasting businesses use and then you budget according to that. You don't say, "I want to make COD money" and then budget for that on a niche game. Yet these big studios are doing that and wondering why they're failing. What's worse is you have studios like Square Enix who are going so wildly over budget that even games selling multiple millions of copies give them a loss. As long as these producers keep doing this crap, niche genres like horror will be avoided by big companies because they have a fundamental misunderstanding of budgeting and applying their current practices to horror would be catastrophic. Those who can do it right stand to progress here and they'll continue to do it until the big boys figure it out, if they do, and then it'll just be even ground in a party that smaller studios already have viable IPs in because they developed according to what they should make, not what they wanted.
As I've said all along, this is what ever CEO should be forced to read a basic summary on product budgeting:
1. Forecast reasonable revenue expectations based on what real data you have. If data is lacking, be as conservative as possible and put money into getting data before going wildly in.
2. Budget based on that forecast to create a game that meets the criteria of the product that was forecasted for (e.g., don't budget for a horror game based on the IP's former performance and then make it into an action game). Make sure you can make a viable game and have enough revenue left over to make up for project extensions and the profit you want to make on your investment.
3. Stick to the budget. Don't over spend in marketing or anything else beyond what you've already set aside and accounted for. Have safeguards in-place to shine a light on any component of production that is lagging and deal with it aggressively.
How these companies are budgeting:
1. They forecast terribly high numbers that put them into COD ranges for some reason. I still think nepotism must play a strong role in hiring practices for this department.
2. They budget for these terribly high numbers that are not now nor will ever be realistic.
3. They then go over budget, thinking that marketing the game even harder will expand the market beyond what's really there.
This is how those two styles play out:
Correct budgeting:
1. Game is a failure= You lose money. Not the whole bank but you didn't make cost.
2. Game sells a reasonable amount = You make the projected ROI. Breaking even at worst while successfully establishing an IP.
3. Game sells well = you make a good profit.
4. Game is very popular = astronomical return on investment.
Current and incorrect budgeting:
1. Game is a failure = you lose tens or hundreds of millions of dollars potentially.
2. Game sells a reasonable amount = you lost a lot of money.
3. Game sells well = you may break even, you may make a tiny return on investment.
4. Game is very popular = you make a small profit unless you over budgeted even for this (Square Enix, I'm looking at you and your Tomb Raider, Hitman, Sleeping Dogs debacles that each sold millions of copies)
It should all be about the return you get per dollar spent. Horror games are cheaper to make just like horror films are. You should get a better return on investment per dollar than contributing to a game with 100+ million dollar budget. Would you rather make three $25 million horror games that each triple return or 1 $100 million game that makes you $50 million in profit? Right now, these dumb companies are dismissing the smaller numbers for some reason despite the value per dollar being higher. In business school, this is what's called a bad decision.
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