Post Mortem Financials

I have to admit that it took me a little bit before I was comfortable releasing the financial numbers, mostly because I was embarrassed by them. I was also surprised how much I ended up paying in taxes despite earning so little. I think I’m paying something like 25%-30% of my income in taxes, which is surprising considering how little I earned. Here’s a writeup:

Post Mortem

This is the way the world ends: Not with a bang but a whimper. – T. S. Eliot

Well, this is it. The game isn’t bringing in enough money on a month-to-month basis to pay my bills. I’m also tens of thousands dollars in debt and I’ve burned through most of my savings. The game never came close to generating enough revenue to pay back my investment costs – despite my investment costs being super cheap: approximately $20,000/year to survive while I created the software. Sales peaked within the first two months of release, and have been declining ever since with occasional jumps due to a sale. November 2010 (the most recent month that I have numbers for) was the worst sales month on record – bringing in a scant $370 for the entire month. (Multiply that by 12 and it works out to only $4,400/year.) I don’t have any faith that I can or will ever recoup that development cost, and it’s better to cut myself loose rather than let myself be dragged down trying to beat a dead horse.

While I’m not happy about it, it’s a good thing to surrender to the inevitable. The past year has been tough. I intermittently suffered from too much stress, anxiety, and occasional depression caused by my financial problems. Because of this, on a few occasions, it was difficult to get anything done. Other times, I would defiantly work seven days a week.

What to say about Empires of Steel? Sales didn’t go nearly as well as we were hoping. The game took five and a half years of full time work by one person. It’s extremely rare to have a game created by a single person anymore. Assuming I worked 40 hours a week (I probably worked more than this, but I don’t track my hours), this adds up to 11,000 hours of work. When I had first talked to Battlefront, they had suggested that we might have revenue around $100,000. This would’ve averaged to around $9/hour, not very good from an hourly-pay standpoint. This is a bargain rate for a software programmer, and cheap for almost any work, considering that minimum wage is $7.25. But, it would be (just barely) enough to live on. After a year of sales, I haven’t earned close to that amount. I’ll post the actual numbers later, but I think it’s already obvious that I’ve earned less than half of minimum wage for my last 5+ years of work. Maybe I’m a cautionary tale for the game business.

I have to admit that it’s also been difficult seeing games like Minecraft, Angry Birds, and Plants vs Zombies catapult to fame and fortune while I crashed and burned. Like I’ve said before: it’s very feast or famine in the indie game business. Even the businesses that are big successes this year might be bankrupt five years from now — as illustrated by Introversion Software, who were the media’s favorite indie developer back in 2005 and 2006, only to lay off most of their employees and nearly go bankrupt in 2010.

Post Mortem

Thoughts on what went right and what went wrong with the game

* Part of me wonders if the game business isn’t conducive to being a lone developer. Certainly, single-developer games are extremely rare anymore. Back in the early 1980s, it wasn’t at all uncommon for single developers to make games. But multiple developers can accomplish more, and that raises the bar of what’s expected from games. In most cases I think the profit-work curve favors groups of developers over single developers. In other words, for many game genres, it’s difficult for one developer to put in enough man hours to move out of the “insufficient work” section and onto the top of the curve.

Obviously, this isn’t always true – since there have been some successful single-developer projects (Minecraft, or games on smart phones) – but it’s a matter of being able to successfully compete in the genre and accomplish what a game is supposed to do in that genre. One-developer games have to tackle small-projects that can be adequately reached without a ton of man-hours. These small games have to leave me thinking, “I’m not sure what else I could add to the game to really make it a much better game”, showing that they have largely fulfilled their niche. They also tend to have some innovative, creative gameplay that makes them quite a bit different from other games, resulting in less direct competition. In contrast, nation-building games, role-playing games, and first-person shooters have a problem in that there’s always something that can be added to the game – usually, this means better graphics or more game depth. In those cases, they favor large teams because a lot of work is needed to add those features, and any developer not adding those features get unfavorably compared to those larger projects.

In general, you can think of the game industry as a kind of ecology. The indie game developers are the mice and we can’t compete with the lions. But, that’s okay if we find our own ecological niche. Mice go after crumbs. Lions take down gazelle. We co-exist because we’re not going after the same food.

I guess the lesson is: know how much work it’s going to take to adequately compete in a genre. There are some genres that are simply off-limits, and I sometimes see small-time amateur developers talk about some work they’re doing in this or that genre and I just can’t help but realize that there’s no way they can possibly compete in that field. (Case in point: a week ago, I heard some developer talking about a hobby project he had to develop an ambitious massively-multiplayer game.) It should also be taken into account that we (especially amateur game developers) have inflated opinions of our own capabilities.

* I think the game was released a little early and was priced too high. The original plan was to release the game for $25. Somehow, the price kept edging up. Sometime later, we were talking about a $35 price. Sometimes later, my publisher was suggesting a $45 price. I thought it should be priced lower, but was a little flattered that it could be priced at $45. Even though I still thought $35 was a better price, I decided to go with my publishers accumulated experience and accept a $45 price tag because I figured, based on their experience in the game industry, they must know pricing better than me. Besides, he argued, we could always lower the price later if that’s what we wanted to do, but we can’t raise it after the fact. I now disagree with this view because it’s important to get things right at release, while we still have a lot of media attention.

The higher price and early release of the game caused a number of not-great reviews. Most of them were mixed between good and bad, giving a middling or slightly positive review of the game. In some ways, I think the game was ready for release, but I also knew I’d be improving the game significantly over the coming months. At the same time, I didn’t want to say, “Hey, I’m still adding to the game – it’s still a work in progress” because I was afraid people would read that as “it’s not ready, don’t buy it” which would muddy the release sales. Most of the reviews you’ll find on the internet are from early versions of the game, now more than a year old. I feel like those reviews have dogged sales of the game, putting off people who considered buying it. I also don’t think those reviews do justice to the game anymore. Not only are they out-dated, harping on problems that have been long fixed, but they are also harping on the original $45 price, which is more than twice the current price. I was well aware that this could be a problem – I remember the example of “Masters of Orion 3”, which was barely playable at release. I heard that it improved in the coming months, but by that time, they had lost all the momentum provided by the release buzz. Heck, I bought Masters of Orion 3, and I haven’t even gotten the patches to see if the game has improved since release.

I think part of the problem here revolves around the long-memory of the internet and the fact that the game industry revolves around “game releases” – as if the game is complete at released, and never a work in progress. Hence, a game can be judged by it’s reviews at release. This is true for most games. Only the online roleplaying games really buck this trend. I think the way to truly shed the bad reviews that put-off the potential buyers is to release a whole new version.

Even worse, when I was filling out the application for Steam, they wanted links to reviews of the game. Steam includes a “metacritic” score alongside ever game they sell. As a buyer, I find this helpful for figuring out the quality of a game. At this point, most of those reviews I’d be passing to Steam will be old, outdated reviews which will be distilled down to a single metacritic score. There’s no space for some “wait, wait! Don’t take the metacritic score too seriously!” disclaimer on the Steam webpage. Again, the year-old reviews will be dogging the game.

Lesson: Come into the game’s release with some force. If the game isn’t hitting home runs and getting As with both game quality and price, you’ll will miss a critical window when the media is paying attention, and your bad or middling reviews will dog you.

* There’s a variety of things done right and wrong in the design of the game. I probably could’ve made the game more flashy, with better explosions and combat animations to draw in new gamers, and give it more visceral appeal. I think the AI should’ve definitely been better at release. I fixed a lot of problems with the AI after release, but there’s still reviews (done weeks after the game was released) knocking it for having an AI that’s too passive. I think the customizability of the game, with maps, scenarios, and rules along with the sharing system was good. I think the combat system should’ve been more straightforward.

* I’d like to find ways to avoid the complicated code. The pathfinding system was complicated and suffered from occasional glitches (this eats up code-fixing time and decreases the user experience). The combat system was surprisingly complicated because it handled a lot of different cases. The AI (artificial intelligence) was tremendously complicated. I rewrote the AI, the pathfinding system, and combat system multiple times to solve problems I was having with it. The AI also takes up large portions of the source code. I would’ve done better with the AI if I had some previous experience writing AI (this was actually my first project involving any AI). So, there’s a variety of potential lessons here (take your pick): (A) you should have some previous experience writing AI or allow yourself lots of extra time to learn how to do it, (B) try to stick to game rules that can be easily programmed with an AI – for example, it’s easy to write a very good AI to play something simple like tic-tac-toe. Also, the AI in old nintendo games – e.g. Super Mario Bros or Zelda – was very simple, the same is true of smartphone games, (C) avoid writing games with AI (stick with human-vs-human games or games with no intelligent enemies – like sudoku or tetris). Of course, this can cramp the types of games you can create. Looking back, it seems rather audacious that my attitude was “I’ve never programmed an AI before, but I’ll figure out how to make a competent AI for this strategy game”. I don’t regret it. I’m just saying that it exists on somewhere between self-assured and foolhardy.

* As far as the really successful indie games, there’s a certain self-reinforcing momentum that gets built to make them financially successful. The vast majority of indie games never achieve this, but a few do. Here’s what I mean: a game is created. If it gets good reviews, more websites start mentioning it. Sales are good. It financially successful enough that more game-distributors pick it up. For example, Steam won’t pickup Empires of Steel, but they pickup a lot of other games. This blunts our sales while further expanding the sales of other indie games. The game is financially successful enough that it makes sense to port it to other platforms. For example Plants vs Zombies was successful on the PC, then it was ported to the iPhone where it sold 300,000 copies in a single day (at $3 each) – again, reinforcing their financial success. They get into the top 10 or top 50 iPhone apps, which gets them more visibility, increasing sales even further. It’s a situation where most people lose, but the winner’s success gets turned into a cycle of more and more success. Just the other day, I saw three different references to Minecraft – one in PC Gamer magazine, one in on Penny-Arcade, and another reference on some other website. It was all free advertizing, and it was spinning Minecraft into an unbelievable success. By my estimates, the creator of Minecraft has earned $1,000-$2,000 an hour for his work.

* I really wish the multiplayer system worked better without requiring people mess with their router. There were some ways to do this – provided that I setup a dedicated server. I didn’t have a dedicated server and it would’ve been expensive to pay for one. A dedicated server wouldn’t solve all the problems, but it probably would’ve helped. (Admittedly, I probably would’ve had more security problems. People are always trying to hack into internet servers, so they have to be built very carefully.) Internet routers (those are the modems used by players) are just a pain to deal with. They’re all different makes and models and manufacturers setting them up however they want. So, methods to get computers to talk to each other might work fine 90% of the time, but then the other 10% will have problems — problems you can’t adequately diagnose or fix because you don’t have the same hardware that they do.

Things I’d do differently:

– On one hand, I think it was really useful to get feedback from users to make the game better. On the other hand, the majority of game reviews were based on the game as it was initially launched. The question is: how do you get feedback from users to improve the game, while holding off the reviews until after the game has been improved? Perhaps a longer beta or a beta with more people. I suppose it would be possible to do a “beta” version that users could buy (thus, they could provide feedback while helping fund the development), and then reviews might be more circumspect about their opinion or hold-off until the game comes out of beta. Essentially, that’s what minecraft did – start selling copies of the game while it was still in open beta.

– More fine-grained information on sales. There were times when I wanted to know whether my action (e.g. posting forums or releasing a new video) had any effect on sales or downloads. I couldn’t get any of that information from my publisher. Sales were only given to me on a monthly basis, which made it next to impossible to figure out whether a particular action had any effect.

– I don’t know that I should attempt large nation-building games. Perhaps they’re just off-limits to small developers at this point, unless the game can be simplified and well-defined while still being small and fun. If I make any games in the future, part of me thinks I should stick to smartphone games or something, because there’s no massive teams of programmers to compete against.

– The growing number of defiant pirates on the internet makes me think that I should avoid creating client-applications in general. This makes me concerned about where things will be in, say, five years. On the other hand, I’ve heard a lot of conflicting information about the decline of the PC market. While it’s clear that the console game market is growing much faster than the PC game market, I’m not sure if the PC market is shrinking. Part of the reason it’s so hard to get data is because of the shifts in the PC market. Sales of PC games in stores have been hitting a steep decline for five to ten years, but online sales are going up. Even better, game developers get about twice as much money from the sale of one digital download than from a game sold in stores because stores take such a large cut. There’s also been a shift towards in-game purchases and subscription services (like World of Warcraft), which are difficult to track but they’re still part of the PC game-market revenue. I don’t know what my conclusion is about this, but it might be safer to lean towards games that use more server code. Either that, or move towards consoles (which are harder to pirate) or smart phones (which generally have such cheap apps that most people don’t bother with piracy). Whatever the case, I feel like I should be ready to abandon ship with the PC market or find stronger ways to deal with pirates. (I don’t blame EOS’ poor sales in piracy, by the way. I’m just saying that it’s potentially an issue going into the future.)

What Next:

– I’m going to continue running the game server so players can play multiplayer games and upload/download maps, scenarios, and rules. I’ll also be putting out some occasional updates, but they’ll be less frequent and will focus more on bug fixes rather than improvements.

– Will I make more games? I’ve always enjoyed making games, but the revenue numbers seem to indicate that this is pretty much just a very expensive, time-consuming hobby. If I do take another swing at games, I’ll take a very different approach. I’ll do smaller games where I risk a lot less time and money. Maybe games for smart-phones or something. Either that, or find some compelling game ideas for the PC that can be done in less than a year. Angry Birds was done in less than a year (although it was more than one developer). Minecraft spent 1.5 years in development (one developer). Plants vs Zombies was two years (I think) using three people plus one musician. But, matching the success of those games is unlikely, so maybe I shouldn’t bother with the game industry anymore.

– Shortly before Empires of Steel was released, I had started thinking about what I was going to work on next. I had hoped to do a space game, and had gathered lots and lots of concept art. (If you want to see some of the concept artwork I’ve been looking at, visit and Based on my financial state and the fact that space-games are largely taken-over by the big companies, I’m doubtful that I can compete in this field. So, it’s rather unlikely I’ll ever create this game. Come to think of it, this should be under “what I thought might be next, but it won’t happen” category rather than the “what’s next” category.

Some of my concepts for the game involved some new types of warfare: genetically-engineered biological warfare, more interesting planetary warfare and invasions; political propaganda and culture – which would allow players to mold their population in various directions that have various positive and negative aspects. For example, turning your empire into a fascist, xenophobic, nationalist structure might make your population more industrious and willing to go to war, but also inspire more planetary revolts, spies willing to work for your enemies, and reduce technological breakthroughs and creativity (example: Hitler helped shut-down nuclear research, labelling it “jew science”; although, at the same time, the Germans made good tanks, the first assault rifle, and the first jet aircraft). Because he believed in his own superior “strategic intuition”, he forced his generals to make mistakes against their better judgment. Other gameplay aspects might involve revolutionaries (misguided or enlightened) from your own population working against your empire. Maybe your enemies (alien races) are helping to arm and support them in various ways. There might be ways to discredit them or hunt down these revolutionaries and reformers. If you are caught in too many lies or manipulations, then your population trusts you less, which causes various problems in trying to rule them.

Admittedly, part of the reason I wanted to focus on the politics is because I want people to understand the types of manipulations that governments and corporations can use on the common people to manipulate them for their own ends. I think those are enlightening concepts that are applicable to the real-world, but I don’t know yet if it would make for good gameplay. I wanted to add artificially-intelligent advisers that could help guide new players in their decisions. I also wanted an interesting technology system which changes each time you play, and different empires would have different options. For example, the idea of nuclear-weapons wasn’t an option until Einstein formulated a theory of mass-energy equivalence. In gameplay terms, maybe certain technologies would not be an option unless some scientist happened to formulate a theory about it. And, maybe empires pursue dead-end technologies and bad theories (for example: Lysenkoism). I also wanted to portray a universe that was vast, empty, and beautiful. I don’t think most space games do a good job of portraying that. With any luck, I could find a way to add some science and education in there, but again, I’m not sure if I can do that while providing compelling gameplay.

Uh oh, Sales are down

I recently got my sales numbers for the month of October and they weren’t good. To make matters worse, my publisher told me they miscalculated my sales revenue for the month of September – actual revenue was 40% lower than they had originally reported last month.

I had really hoped that sales would stay stable or increase as I added more and more to the game. I was hoping to buck the typical game trend where sales peak on release and then follows a month-to-month decline every month thereafter (with occasional upticks due to sales).

I left off the actual dollar amounts, but this is what the domestic sales revenue looks like for the past year (we have foreign contracts, too, but I left them off since they are short-term income). Hopefully, sales will pickup in the coming Christmas season.

PC Gaming: Oh, How You Have Fallen

I was just wandering around a local GameStop. It took me a minute to find their PC Gaming section – and it was tiny. They had a 3 foot x 3 foot section for PC games priced at $20 or less (apparently inventory they’re trying to clear-out), and an even smaller section for regular-priced PC games. It was literally about one foot of shelf space for all their PC games selling for $30 or more.

I asked a salesman about this, and he said that between piracy and download services like Steam, there just wasn’t much of a market for selling PC Games.

Charging for Demos?

I just thought this was pretty ridiculous. It would’ve made a lot more sense if this story came out on April 1st:

Crytek co-founder Cevat Yerli tells Develop that you might be paying money just for the privilege of trying Crysis 2 before it comes out. Yerli calls free game demos an antiquated “luxury” that have become “prohibitively expensive” to produce. The result: many studios will either stop releasing them or try to charge for an early test of the game. EA has already brought this idea up as “pre-launch DLC,”

Yerli says his company hasn’t yet decided whether there will be a demo for Crysis 2 or not, though he thankfully admits that a paid demo should be “something more than a small demo released for free.” Takeaway is the same, regardless: because of the development cost of building a giveaway level or two before launch, Yerli says the days of free demos are numbered. (Source: Joystiq)

Graphic: How Much Do Music Artists Earn Online?

InformationIsBeautiful has another interesting graph up. It compiles information about how much musicians earn through various music sales. I had no idea CDBaby was paying so much to the musician. Another interesting detail: musicians earn about 9% from each sale on iTunes or Amazon, and on the sale of retail CDs, labels earn 20% while musicians earn between 3% and 10% depending on the royalty deal. I assume this means that big-name artists can negotiate bigger percentages because they have more negotiating power. While some people get angry that the labels earn so much compared to the musician, I’m always hesitant to share their view because I don’t know enough details about the situation. For example, if a musician is earning $30,000 a year, and then he signs with a label so that they earn 100% of the music sales, but make him famous by pouring money into marketing, and the musician ends up making 10x as much money because his fame has increased his concert sales dramatically, then is earning a no money from each sale bad (assuming it comes with a dramatic rise in ticket sales)?

The other surprising thing about the chart is how little money anyone makes from streaming music services. In order for a musician (and this is a *single* musician, not a band) to make the equivalent of minimum wage by having his/her music on Rhapsody,, or Spotify, they have to get between 850,000 to 4.5 million plays per month – which is shockingly high. And, it’s not because the record labels are taking it. It’s because there’s so little money flowing to the record company or musician.

Click the image to see the full chart.

On a related note, one of the members of OK Go was on yesterday’s “Planet Money” podcast, commenting on a recent Op-Ed piece he wrote in the New York Times. He had mixed feelings about the record industry, but he said one good thing about the record companies is that they fund a lot of bands. 19 out of every 20 bands who get signed go nowhere. So, when 1 out of 20 make it big and earn money, the record companies take a lot of the sales revenue. Given the economics of the situation, they have to. Kulash argues that record companies are “risk aggregators” (or, at least, they used to be until they started losing so much money over the past ten years). What is a “risk aggregator”? It means that they spread-out the risks that bands take over lots of bands. It’s kind of like insurance. The bands who get rich pay money to support the less successful bands, except that it happens through the balance-sheet of a record company who only accepts bands into the group if they think they might be successful.

…It’s decisions like these that have earned record companies a reputation for being greedy and short-sighted. And by and large they deserve it. But before we cheer for the demise of the big bad machine, it’s important to remember that record companies provide the music industry with a vital service: they’re risk aggregators. Or at least, they used to be.

To go from playing at a local club once a month to actually supporting yourself with music requires big investments in touring, recording and promotion — investments young musicians can’t afford. My band didn’t sign a contract with EMI because we believed labels magically created stars. We signed because no banker in his right mind would give a band the startup capital it needs.

Record companies, on the other hand, didn’t used to expect that all their advances would be repaid. They spread the risk by betting on hundreds of artists at once, and they recouped their investments by taking the lion’s share of the profits on the few acts that succeeded.

At least, this was all true when we signed our deal in 2000. Today, as the record industry’s revenue model has collapsed with the digitization of its biggest commodities, companies are cutting back spending on all but their biggest stars, and not signing nearly as many new acts. If record companies can’t adapt to this new world, they will die out; and without advances, so will the futures of many talented bands.

In these tight times, it’s no surprise that EMI is trying to wring revenue out of everything we make, including our videos. But it needs to recognize the basic mechanics of the Internet. Curbing the viral spread of videos isn’t benefiting the company’s bottom line, or the music it’s there to support. The sooner record companies realize this, the better — though I fear it may already be too late.

Most people complain that the record companies are taking too much from the musician – but they’re only looking at how much they take from the successful bands, without looking at the full economic picture. I’m not really trying to be an apologist for the record companies. For all I know, they’re like ticketmaster – who unfairly harvests way too much money from ticket sales and does it’s best to drive competitors out of business or buys them to preserve the monopoly. I’m just a little skeptical about the whole narrative that gets passed around the internet. It’s also interesting to hear OK Go express the opinion about record companies that, while not all good, aren’t all bad, either.

Zappos’ Approach to Business

I really like Tony Hsieh’s approach to business. Here’s an mp3 to his talk at the Web 2.0 conference:

In this presentation at the Web 2.0 Conference, CEO Tony Hsieh talks about his first business selling pizza in college, starting Link Exchange after college, and how he eventually ended up leading Zappos as the CEO. Tony discusses how his experience at Link Exchange influenced him to focus on corporate culture as a top priority, and why he thinks culture is so important to a company’s future growth and success.

Tony talks about the internal vision of Zappos not just to be an Internet footware merchant, but to be a brand that is known for an excellent customer experience. He goes on to list a number of specific techniques that the company uses to enhance customer service, and explains why he thinks that the telephone is still one of the best branding devices available.

[via IT Conversations]

Hollywood, Box Office Numbers, and Piracy

This article came up on Slashdot today.

“Claims by the MPAA that illegal downloads are killing the industry and causing billions in losses are once again being shredded. In 2009, the leading Hollywood studios made more films and generated more revenue than ever before, and for the first time in history the domestic box office grosses will surpass $10 billion. … [N]either the ever-increasing piracy rates nor the global recession could prevent Hollywood having its best year ever in 2009. With an estimated $10.6 billion in consumer spending at the US and Canadian box office, the movie industry will break the 2008 record by nearly a billion dollars.”

They reference a TorrentFreak article claiming that domestic box office numbers are higher than ever — and, therefore, movie piracy isn’t having any effect:

Claims by the MPAA that illegal downloads are killing the industry and causing billions in losses are once again being shredded. In 2009, the leading Hollywood studios made more films and generated more revenue than ever before, and for the first time in history the domestic box office grosses will surpass $10 billion.

Those despicable Hollywood liars. Additionally, these kinds of stories seem to be an annual occurrence (What piracy crisis? MPAA touts record box office for 2007, What piracy? Movie biz sees record box office in 2008).

But, I don’t consider TorrentFreak to be a reliable source, and expect a big dose of spin coming from them. Too bad they didn’t provide any statistics so that we could see the trends. That’s okay. I will. Shown on the right are the total domestic (US and Canada) box office numbers, according to BoxOfficeMojo. The dollar amounts are in millions. (Hollywood Box Office, the original source for the $10.6 billion estimate has adjusted their estimate downward to $10.5 billion.)

Okay, you might see some trends here. There’s some pretty strong growth from 1980 until around 2002. Then, after 2002, the box office revenues hover between $9 billion and $10 billion a year.

Let’s take a look at those numbers in chart form. Strong growth up until around 2002, then some leveling off. But, the movie industry is still growing, right?

Well, if you consider that inflation is around 4%, you start to wonder if the movie industry is keeping up with inflation. What happens if we take a look at these same numbers and adjust for inflation using the Inflation Calculator?

This chart shows the inflation adjustment in the third column and the Inflation-Adjusted (2008) domestic Box Office numbers in column four. Once you take the inflation adjustments into account, you can see that 2009 wasn’t the best year ever. The best year ever for the movie industry was 2002. If box office revenue reaches $10.5 billion this year, after adjusting for inflation, it will be the fifth highest year, behind years 2001-2004. Here’s a chart of these numbers:

Once inflation is taken into account, the 2009 box office numbers are about 9% lower (or $0.8 billion) than 2002 numbers. (Hm, that’s a few years after music industry revenues also peaked*.) On average, movie box office revenue increased by $177 million/year between 1980 and 2002. Then, on average between 2002 and 2009, it has declined by $114 million/year. Yes, this could be a short term dip in revenue (like the slump in the early 1990s), but had revenue grown at the same rate between 2002-2009 as it had between 1980-2002, revenues would be $2.0 billion (20%) higher in 2009.

If we wanted to go one step further, we could also point out that the US and Canadian populations have grown from 227 million and 24.5 million in 1980 to 305.5 million and 33.9 million in 2009, an increase of 35%. Based on that, we can see that the movie industry’s growth in the past 30 years has been based on population growth. Per-capita spending has fluctuated a bit, and has declined by 14% since 2002.

Per-capita inflation-adjusted domestic box office:

It’s not a horrible downturn, and it is similar to the decline seen in the early 1990s, but it’s also not an argument that piracy isn’t hurting the movie industry, nor is it “shredding” the claims that movie piracy is “causing billions in losses”.

I should also point out another interesting bit of spin. The Ars Technica article linked at the top says: What piracy? Movie biz sees record box office in 2008. Looking at that headline, it looks all wonderful for the movie business, doesn’t it? But, once you look at the inflation-adjusted numbers, you can see that 2008 numbers ($9.63 billion) were the worst numbers since 2000, and per-capita spending was the worst since 1997. Funny the tricks you can play when you don’t adjust for inflation.

* Graph of the music industry downturn since 1999:

Battlefield Heros Free-to-Play/Pay-to-Play

I remembered hearing about Battlefield Heroes a while ago. It was an interesting idea: they were making a decent-looking first person shooter, and it was free to play. You could buy stuff in-game, but it was just avatar customization stuff that had no effect on the gameplay. The question I wondered back then was: would avatar customization make enough money for them to pay salaries? It seemed unlikely. One possibility is that they’d get millions of players, but keep their servers load lightweight (people would play peer-to-peer, which would cost them nothing). Then, even if a few percentage paid for avatar customization, they might do okay. But, it would require phenomenal success (in terms of the number of players). I thought I’d keep an eye on them, just to see what happened.

Well, recently, they announced some changes in their system. You can still play for free, but the changes make it harder to do well in the game unless you’re paying for in-game upgrades. The game has two ways to get upgraded weapons: Valor Points, which you earn by playing; and Battle Funds, which is what you get when you pay real-world money. The new update effectively reduces the value of Valor Points and increases the value of BattleFunds.

I’m going to give them the benefit of the doubt here, and say that they thought their business model would work, but after a while, decided they needed to boost their revenue. It didn’t really seem possible for them to survive on just avatar-customization alone. The whole “pay real-money for in-game upgrades” is quite a balancing act. On one extreme, players pay money for purely aesthetic changes (avatar customization). You get lots of players, people are happy, but the company is earning very little money per player. On the other extreme is a system where you can’t be an effective player in the game without paying money — the game is really a demo unless you pay some real-world money. You get fewer players, and people get more resentful over the bait-and-switch of “free to play, oh wait – you’re nerfed unless you pay” which harms the company/game reputation, but the company earns more money per player. Then there’s the balancing act of staying in the middle ground – trying to earn enough to survive and pay employees, but avoiding guilt and negative stigma of the bait-and-switch. I guess I’m not that surprised to see them shift towards a stronger pay-model, since their initial business-model seemed overly optimistic.

Link: EA restructures Battlefied: Heroes pricing; fans enraged