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Sage13

Completion Bonding: Film-style financing for Games

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I just wanted to get some feedback from some of you. What do you think about Completion Bonding? The recent Film-Style Financing for games. Do you see any major ups or downs that may not be highlighted in these arctiles: http://www.gignews.com/gamesbiz1201.htm http://www.gignews.com/filmstylefinance.htm I''d like to hear your opinions -Sage13

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I think completion bonding makes a hell of a lot of sense for funding game projects, and I've talked to film industry VCs who look at it as a possible 'better' model for the games industry. It works out best for the developer and the publisher, because it mitigates risk on the publisher's side and gives the developer more leverage in the whole process. In a sense, the third-party funder becomes a kind of 'watch-dog' for the project, making sure neither the developer or publisher are screwing up the scheduling or generally risking the project. But, the downside is you need to find a third-party that's willing to take on the risk associated with funding a project, and for that you can bet it only really works for well established teams with solid track records.

I believe www.gamesbiz.net has some good articles on this type of funding as well. It seems to be more popular in Europe than in NA...

[edited by - Tacit on April 20, 2002 10:58:50 AM]

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Yeah that''s what I was thinking, you''d have to have some sort of track record to enter into this kind of deal.
Thanx for the FB.

peace

-Sage13

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From the developer and publisher''s points of view this is a great idea. From the point of view of the people funding the bond it is a mistake waiting to happen (in fact it already has).

The completion bond process as used in movies means that if the production company fails to deliver the movie the bond company steps in, takes over, gets the film finished and passes it to the distributors as agreed. This could mean organising additional shooting or just some re-editing. Of course the nature of film production makes this possible because they may lose the producer and director but they can still re-hire all the other staff (cameramen, lighting tallent) as the crew as a whole is made up of freelancers. In some cases they can even bring in new people without it impacting the quality.

However the production process for films and games are not the same. To start with the development team functions as a whole and it is virtually impossible to take an unfinished game, give it to another team and get them to finish it. It takes several months for the new team to understand the code and that is if it is properly and clearly documented. Given that the original team couldn''t make the game happen it is likely that the code is not in a very good shape so a new team would have real trouble. The only viable option may be to scrape large amounts and start again. During this time the existing code is going past its sell by date. Movies are created using virtually static technolgy. Games are created for hardware that is in a constant state of flux. A delayed product starts to fall behind the technology curve so even if it does get finished it may not be good enough from a technology stand point to compete in the market place.

I know that EA did a completion bonding deal with a developer and the company closed down when the deal went sour.

Dan Marchant
Obscure Productions

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Dan, as I understand it this is not the fundamental basis of the completion bond, but I might be confused.

As I understand it, the completion bond model adds a third-party to the publisher/developer relationship. This third party puts up the money, insured, at the request of the publisher, who at the successful completion of the title will pay back the bond plus interest (interest is how the third party makes a profit). This means the publisher doesn''t have to put up the money in advance, but is in a sense taking a loan which is insured.

The developer is getting paid not from the publisher but from the company who put up the bond (bank or whatever). This means they don''t have to worry about a publisher pulling the plug part way through development, and adds a lot of stability to the whole project. If either the developer or publisher tries to speed up or slow down the development process by adding or chopping features, for example, the third party has a say in what goes on so that they can protect their investment. In this sense the developer is also sheltered somewhat from any kind of last-minute shenanigans publishers get blamed for all the time (''instead of a FPS I want an RTS, and do it in 6 months'').

It''s perhaps a less dynamic funding arrangement but is inherently more stable than the current model, which is why I think it makes a lot of sense. But of course, for a third-party to be willing to put up some serious cash to fund a development, the dev team had better be very competent and professional. The bond company will never take the risk otherwise. They''d certainly never do it for an untried team.

Anyways, this is how I understood the model. If I''m wrong please tell me how and why.

R.

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Tacit,
You are correct. The bond process should work as you describe. My comments were focused on what happens when a project goes wrong, which happens to some degree more often than not.

It is indeed a less dynamic funding model, which is a problem in itself. I strongly believe in design and planning for a project but even I admit that a design will most certainly change during development and the funding model will need to be flexible enough to handle this. It is hard enough convincing publishers when flexibilty is required, let alone a third party financial company with no understanding of either publishing or development.


quote:
But of course, for a third-party to be willing to put up some serious cash to fund a development, the dev team had better be very competent and professional. The bond company will never take the risk otherwise. They''d certainly never do it for an untried team.


As I mentioned in my previous message the entertainment software industry is unlike the film industry because it is constantly changing. Hardware is changing dramatically even during the development life-cycle of a single project. The industry is inherently risky and as such most Bond companies would be unlikely to want to invest.

I agree that developers need a more stable form of funding but in some cases Bond funding might even damage the development process. It is entirely possible to design a level on paper that sound great, implement it as per the design and then find it is rubbish (been there, done that). How are you then going to convince the Bond company that this game level that they can see is completed and which matches the design to the letter must be taken out and binned and a replacement created at additional cost.


Dan Marchant
Obscure Productions

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I guess this is why the proven track record is so important. They want to be more sure of the developers ability to complete the project.

peace

-Sage13

P.S. Obscure I read your whole site last night, great information and insight, expecially about publishers. One thing though. If you ever had the time could you maybe add a little about some of the business specific aspects that start-up developers (and for the heck of it publishers) will need before they jump into their industry to face the over populated market.
You touched on it abit with the Exp of the Management and so fourth. -kool

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There was a session on venture capitalization for game startups at GDC2002 this year, presented by Mark Long.

There was some discussion of Completion Bonding, I think during the question and answer session. The gist of the speakers response to the question was that every couple of years, people try doing CB in the games industry, then it quickly dissipates without becoming commonplace. I'm sure they also provided some further comments, for example why . You may want to keep a look out on www.gamasutra.com. Eventually, they should have that lecture posted. Or if you have money to blow you could purchase the audio of the lecture from The Sound of Knowledge here:

http://www.tsok.net/home.tpl

The powerpoint presentation is available here:

http://www.gdconf.com/archives/proceedings/2002/mark_long.ppt

Graham Rhodes
Senior Scientist
Applied Research Associates, Inc.

[edited by - grhodes_at_work on April 22, 2002 2:28:50 PM]

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It''s possible that publishers don''t love this model, because while it reduces their financial risk, it gives them a bit less control over the development team.

It''s probably also very difficult to find third parties willing to put up $3-5 million US for such a risky proposition. But, it could be an interesting alternative for smaller projects perhaps.

Basically, it''d be like you getting a loan from a bank using a large corporation (publisher) as your co-signer.

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