There are three primary roles in the game development pipeline: developers, publishers, and merchants. Today we will take a look at an overview of what each of these roles does in the pipeline from game conception to its ultimate sale to the consumer. In future articles, we will be discussing typical contract issues between these primary industry players in bringing a computer game or video game to market.
We start with the game developer. These are the people who actually think up and create computer and video games. A typical game development company consists of game designers and programmers and can include artists and writers on the creative side and physics and artificial intelligence simulators on the technical end. Typical business roles within a development company will often include a producer, who is responsible for managing the development process and keeping all of the various parts working in harmony.
Some of the implementation details in game development may be contracted out to third parties. This can include a broad range of services such as art, animation, and music. In such situations, the developer’s producer has the additional task of coordinating resources both inside and outside the company to come up with the final product.
Development companies can be either independent companies or subsidiaries of publishers. A typical independent development company will contract and work with a publisher. The publisher will pay the developer advances as the developer reaches target milestones in developing a game, and in addition, pay a royalty based on units sold once the game gets to market. Usually the advances help the developer meet cash flow needs while getting the game out the door, but do not usually include substantial profit. Instead, the developer will usually have to rely on the royalties for profit. However, the royalties are only paid to the developer after the publisher has recouped the development advances.
The leading trade organization for game developers is the International Game Developers Association (IGDA).
Publishers are at the center of the game pipeline. Publishers tie the game developer at the beginning to the merchant selling the finished product to the consumer at the end. Typically, a publisher will contract with an independent game developer to make the game and will contract with merchants to sell the game to consumers. In general, publishers exercise the most control over the game development pipeline.
On the development end, the publisher will manage the process, providing the funds for the developer to make the game and setting deadlines for its completion. The publisher typically provides most of the financing for the game development.
On the sales end, the publisher handles the marketing and promotion of the game. The publisher will also typically handle any licensing arrangements with platform owners, such as for game consoles or mobile devices. Publishers usually handle the physical manufacturing of the game and its packaging, and arrange for its shipment to distributors and retailers. A publisher will contract with merchants, both distributors and retail companies, to sell the games to consumers.
Various of the functions performed by a publisher can be contracted out. Some areas commonly done by outside companies include marketing by advertising agencies and quality assurance by testing companies.
In exchange for their ubiquitous role in the development pipeline, publishers typically receive a substantial percentage of the revenue from the games that are sold. Merchants pay the publisher for the games they sell and the publisher pays advances and royalties to the developer. The publisher keeps the amounts over and above its expenses and what it pays the developer. However, the publisher also is the one that disproportionately bears the risk of loss. If the game does not sell, the publisher typically eats the advances it has made to the developer, as well as all of the distribution, marketing, and sales costs.
Publishers vary from large international companies such as Electronic Arts and Activision down to small regional organizations focusing only on certain categories of games.
Game platform holders often act as exclusive publishers for their platform. Platform holders are companies that exercise strict licensing controls over their hardware platform, such as most video game console manufacturers. Game developers must pay licensing fees to the hardware manufacturer, as well as paying fees upfront for development kits. Effectively, the proprietary platform holders control whether or not any particular game appears on their hardware. This is in sharp contrast to the PC computer game market, where the platforms are open to all.
The leading trade organization for game publishers is the Entertainment Software Association (ESA).
Merchants are the companies that get the final game product into the hands of consumers. They can take the form of large national retail chains down to small, local or regional game shops. Typically, publishers deal directly with the large retail chains, while distributors are often intermediaries between publishers and small retailers.
For brick and mortar stores, the available shelf space is a valuable commodity. A retailer must pick and chose among the games available for the limited space. Only the best selling games have a chance. In contrast, for the emerging online retail market, shelf space is virtually unlimited, allowing a broader range of games with lesser sales to be stocked.
For national retail chains, the publisher often has a very interactive role, providing the retailer with in-store advertising and posters and often even providing staff that go from store to store stocking and organizing the games on the shelf and setting up any in-store displays.
The retailer is compensated by taking a large percentage of the sale price right up front, often close to a third. In addition, the retailer only pays the publisher for the games actually sold. Unsold games are shipped back at the publisher’s expense.
The leading trade organization for game merchants is the Entertainment Merchants Association (EMA).