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Creating the Business Plan


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#1 kressilac   Members   -  Reputation: 110

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Posted 21 December 1999 - 08:54 AM

I have created a business plan for an online massively multiplayer game. What I now need to know concerns the financials of the business plan and how to present them to a VC.

How do I represent the sale of the boxed set in the projected cash flows statement. I figure I can do it one of three ways and am not sure which is the best to use. Should I figure all of the production costs for the materials of the game and then figure in the sales to work out what it will cost to fund the distribution of the game? Should I base sales off of projected royalties? Should I do some combination of the two above since an online game has a subscription part to it? I am assuming that the publisher has no rights to the subscription part of the game and plan on not giving them any of the revenue from it. Is this a safe assumption? Lastly if I project sales revenue based upon royalties, what is the typical royalty rate and amount for a completed game, that costs 44.95 on the shelves? Thanks for your input.

Kressilac

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Derek Licciardi


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#2 DavidRM   Members   -  Reputation: 270

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Posted 04 November 1999 - 10:17 AM

If you're going to have a revenue model that includes both off-the-shelf sales in addition to a per-month fee (such as UO or EQ), then you have 2 very important numbers:

1. How many off-the-shelf units do you expect to sell?
2. What percentage of off-the-shelf units sold do you expect to turn into regular subscribers and how does this compare to the initial off-the-shelf revenue?

And then there are the other questions...

-Are you going to provide any "free months" out of the box? I think EQ gives 2 free months with the initial purchase.
-What do you estimate is the average "player lifespan" once they become a paying subscriber? Remember: Any free months don't count towards subscription revenue, so if you estimate 4 months, that's only 2 months of subscription revenue.
-What are your expected infrastructure overhead costs? Massively multiplayer online games tend to require a pretty hefty infrastructure. You have to acquire servers and Internet connections, with the accompanying security and hardware maintenance issues.

And if you think the publisher isn't going to take a % of the subscription sales, you likely have another think coming.

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DavidRM
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#3 kressilac   Members   -  Reputation: 110

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Posted 04 November 1999 - 02:09 PM

Do you think the publisher would ask for a piece of the subscription if they did nothing but put the game in stores. I tend to think that I am bringing business to them with a completed game and all. I almost look at it as if it was a contracting agreement. I am paying a company(through a percentage of sales) to market and distribute my product. Any additional revenue I earn from that product once it is beyond their distribution network is mine to do with as I please. The involvement of the publisher does not need to go any further unless the publisher takes a substantially less percentage from boxed sales. Giving the publisher enough to recoup production plus a percentage beyond that is payment for what they do for a living. Giving them access to a constant revenue stream is something entirely different. In addition to the publishing there is advertising revenue from the games web site. The publisher gets none of this unless it helps to defray the costs of development of the game or the web site. In my eyes without the money from a publisher coming in during development, I don't believe they have any right to revenue streams outside the sale of the boxed set.

That being said what is a typical percentage that a publisher wants for a completed game. I need to work that into my model.

Thanks for your input. I would like to hear from others as well.

Kressilac

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Derek Licciardi


#4 logistix   Members   -  Reputation: 122

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Posted 04 November 1999 - 04:22 PM

There's another thread going on in this category called ROYALTIES that talks about royalties from publishers.

Are you going have the money to get a stable server set up that can handle some serious traffic? A server breaking down would kill an online game. If not, someone's going to take a cut.

If you're controlling the server, you might want to consider giving the game away. A one month $10 subscription is probably around what you'd get from the publisher for selling a game.

Since you don't have a brand name like Ultima or a track record, I think most people would be reluctant to spend $45 so they can spend another $10 a month on a game they basically know nothing about. If you give the game away, more people will probably give it a try than would buy a retail version. And as far as the cash flow goes, you'd probably get the $$$ quicker than any royalties above and beyond the advance.


#5 kressilac   Members   -  Reputation: 110

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Posted 05 November 1999 - 11:24 AM

I plan on running the server(s) myself. Since I am going to bear the cost of the infrastructure, I figured the publishers involvement is only there to get a boxed game out to the public. Putting a boxed game on the shelves of major stores is advertising. I am not sure that I could generate the kind of advertising that I would need through a web site only. That being said we are seriously thinking of giving away the client despite the loss in revenues that it means. Publishing the game in a box provides a good way to recoup the upfront investment cost so that a years worth of subscriptions doesn't go back to the angel that has funded us.

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Derek Licciardi


#6 logistix   Members   -  Reputation: 122

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Posted 05 November 1999 - 02:47 PM

Glad to see you're considering giving the client away.

I honestly don't think you'll be able to find a publisher who would be willing to go hands off on the online revenue(whether it's fair or not) for a couple reasons:

(1) As far as they're concerned, they're taking the biggest risk by laying out all this money ($2 -4 million dollars is alot, even for big publishers, EA grossed over a billion dollars last year and still posted a loss) and therefore entitled to share in all profits.

(2) The quality of the online service is directly tied to how well the game will sell. If you screw up ( I'm talking from the company's exposure analysis, not trying to slam you) on the server side, and people know it, they won't buy the game.
Worst case scenario, the site goes dead after three months, everyone grabs their already opened boxes, and takes them back to Electronics Botique and demands a refund. Electronics Botique gives them store credit and demands credit from the publisher. Now the publisher ends up taking a hit on something that they thought was closed out and profitable. Gamers will also hold the publisher responsible for years to come even if they had nothing to do with it. I know at least Activision's SEC filings lists returned products/retailer relations as one of the risks of the industry right up there with missing the Christmas window.


Back to the client. I don't think that a website is the only way to get copies out. One is OEM channels. A hardware company comes out with a new product and tries to manufacture a market for it, and bundles software to show it off. One of the ways companies are trying to sell DSL(which I just got, downloaded the Kingpin demo in 25 minutes) and other broadband services is Online Gaming. If you get US Robotics to throw the game in with their DSL modem, it'll get delivered straight to people who want to see what this puppy can do. You might even be able to get a few bucks.

Does anyone out there know how the deals go for the Demo CD's that get thrown in with Game Mags? Are publishers paying for the privilage, or do the Mags negociate for exclusive rights? I imagine a little bit of everything goes on but what is more prevelant?


#7 ghowland   Members   -  Reputation: 134

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Posted 07 November 1999 - 07:03 AM

Ive yet to do demo CD for mags, but Ive been asked a couple of times (normally just bad timing). They didnt ask for any kind of exclusivity or money for it. I didnt talk to PC Gamer or some of the other bigger ones though, they might...

-Geoff


#8 Anonymous Poster_Anonymous Poster_*   Guests   -  Reputation:

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Posted 09 November 1999 - 07:33 AM

If a publisher was going to front several million on an online game it would be the developer who would be scrounging for a share of the online biz. The publisher would grab almost all of it. There is no publisher in this universe who would do otherwise. To think otherwise is to simply dream.

#9 kressilac   Members   -  Reputation: 110

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Posted 09 November 1999 - 02:25 PM

While I would agree with you, that if the publisher funded the development of the game they would want the online business. Seeing that I am only going to use a publisher to put boxes on shelves and to market the game, I figure the profits earned from the boxes should be enough to satisfy a publishing agreement. Since single player games have no online revenue, I have to assume that the profits off boxed sales have been enough in the past.

I plan on approaching the publisher with a completed game. This should eliminate all other revenue streams the game might bring in as accessible to the publisher. Beliefs aside, should a car manufacturer get a piece of my pizza delivery revenue because I used the car to do it. No. Same principle here. If they don't pay for it, they don't get access to the profits from it.

If the publishers are as powerful as you say they are, then I can get the software out to the players over the internet and skip them all together. The project is not dependant upon boxed sales royalties.

Kressilac

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Derek Licciardi


#10 ghowland   Members   -  Reputation: 134

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Posted 09 November 1999 - 05:58 PM

I wouldnt believe any publisher would go into an online game without getting their normal take (most of it) on the online revenue as well. Otherwise they will tell you to do it yourself.

You may be better off giving the client for free, and just charging for the subscription if you want to retain your control.

-Geoff


#11 logistix   Members   -  Reputation: 122

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Posted 10 November 1999 - 05:56 AM

Assuming your getting this business plan togeather for investors, it's possible they'll want a bigger cut than a publisher. A Venture Capitalist is going to want equity in the company, and even a 'Rich Doctor/Lawyer' expects +20/30 from the relatively risk-free stockmarket, so they have very high expectations for something they can actually lose all their money on.

An actual Venture Capitalist (simplistically) invests in 10 high risk companies fully expecting 9 to go belly up. So the company that does succeed needs to return at least 10x the original investment to break even. At that point they still haven't seen a profit. The only way they'll get that kind of payback is stock or other ownership. (It's alot like investing in Junk Bonds.)

Investors are still reasonably warm on Internet, so I'd push that (there's a running joke that Amazon isn't losing enough per quarter to invest in.)


#12 kressilac   Members   -  Reputation: 110

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Posted 11 November 1999 - 03:04 AM

True, True, True. The largest challenge in developing an online game aside from managing it effectively, is going to be obtaining funding without having to give up everything and your left leg. In chasing venture capital to fund the development, I am most assuredly telling the VC that I am going to give him a large percentage of equity. The difference in giving equity and giving profits is very large. VCs as you said have a vested interest in making the companies they invest in succeed. Publishers just need to recoup costs + profits and move on to the next game. Since a VC needs the company to survive for a potential buyout or IPO, then the risk to us as a company is smaller since it is in the VCs interest to leave the company alone to grow. Publisher on the otherhand will suck the life out of the company in order to recoup costs + profits with no regard to allowing the company to succeed. In this regard I view VCs in a much more favorable light. Besides, I am beginning to think publishers are worse than Bill Gates when it come to raping hard work after reading the forums here. The whole idea on the two pronged effort to develop the game was to get a VC with experience managing and funding online services(business or otherwise) and then minimize the publisher greed by reducing them to a contractor that is begging to publish a fantastic game.

Kressilac
ps The latter half of the last sentence is less reality then it is goal but hey if I can do it, maybe we can break the reigns of publishers within the industry. (at least for this up and coming genre)


#13 logistix   Members   -  Reputation: 122

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Posted 11 November 1999 - 04:00 AM

BTW, if you didn't already notice, the In The News! section points to a really good article on GA-SOURCE about distibuting a game yourself that gives some pretty serious numbers.

That one got printed out and thrown in the permanant files.


#14 Afantana   Members   -  Reputation: 122

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Posted 28 November 1999 - 03:29 AM

I don't know much about those things, i'm quite new in game management (few hours) but i know some about the demo CD's as former editor of one - there is no fee to pay to the publisher or to the developer for the demo - there are cases when the publisher/developer ask for NOT publishing the demo until #date# - for exclusivity reasons.
The deal with the exclusivities concerns mostly the magazines - against their competitors.
You can contact the magazines of each country and offer exclusive demo (client) - in this way they are doing a BIG promo just to slam the other mag's.
Once again... i don't know if the PC Gamer has the same policy!

#15 Chaster   Members   -  Reputation: 122

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Posted 21 December 1999 - 08:54 AM

Just my 2 cents:

Someone previously said that the publisher is entitled to a cut of all the profits since they are sinking 2-4 million into it. I don't think that is the case for this project. The developer says he is presenting the publisher with a completed game, so all the publisher needs to do is publish it - not pay for development. The cost of publishing a game with a typical initial run of a 100,000 copies at about $7/copy is NOT 2-4 million dollars... And if the developer is ALSO paying for the server infrastructure, then the publisher really has no justification for garnishing that income source... Of course, they will TRY to, but I really don't see any justifiable reason they can present. Really, if you can self-fund your development, it is a HUGE advantage (IMHO).

Chaster





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