COMPUTER GAMES AND ENTERTAINMENT BUSINESS AND...

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.


The Process.

Accountants

Legal

Expertise.

Go into Production / Start Sales.











The Process.

Accountants

Legal

Expertise.At Any Point if it fails go back to start.

Ie. Loop can be gone round again and again.











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











The Process.

Accountants

Legal



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”.











The Process.

Accountants

Legal



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


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.











The Process.

Accountants

Legal



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


Revenue 2000 5000 3000

Total 2000 6400 8600

Costs 600 800 4000

Balance 1400 5600 4600



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


Revenue 2000 5000 3000

Total 2000 6400 8600

Costs 600 800 4000

Balance 1400 5600 4600



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



Bust, exceeded £15,000 overdraft!


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




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


£20,000 Investment at very start.

Used up nearly all investment, only £4600 cash in hand, but £15,000 overdraft still available.


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”.

Facebook

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.


150 Independent Game Devlopers.in Europe

Self Fund Games

Operators

Vodaphone

O2

Portals

Party Mob

End2End, Avator, 3United, QPass

.

Consumers.

Mobile Gaming


Big Publishers.


Content Aggregators

PlayerX

Selatra

Telcogames.



Self Fund Games

Operators

Vodaphone

O2

Portals

Party Mob


.

Consumers.

Pays £2.50

Pays £1.20

Pays £0.80

Mobile Gaming MONEY FLOW.


Big Publishers.


Content Aggregators

PlayerX

Selatra

Telcogames.



Self Fund Games

Operators

Vodaphone

O2

Portals

Party Mob


.

Consumers.

Pays £2.50Pays

£1.20

Pays £0.40

Pays £0.80

Mobile Gaming MONEY FLOW.


Big Publishers.


Content Aggregators

PlayerX

Selatra

Telcogames.



Self Fund Games

Operators

Vodaphone

O2

Portals

Party Mob


.

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.


Company X

Key Drivers.

Of Revenue


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.

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