Hey, I've got a really awesome deal I'd like to offer to anybody who'll take it: If you will give me $20, I will happily pay you $12 in return. Sound like a great deal? No? It occurred to me this weekend that it's the kind of deal most independent video game developers keep making with publishers, again and again.
Part of this was brought about by a post Scorpia made this weekend about a number of studios closing up shop. I've begun taking a little bit more of an interest in investing lately, and I realized that based on very fundamental criteria, I'd never invest in a traditional independent game development studio. Because - the way royalties and advances are being handled nowadays, from the development studio's perspective at least - they are spending more to make a game than it has a reasonable chance of breaking even on. So they may spend $8 million on a game that will likely only make them $5 million.
But that's all to recoup the publisher's advance - which the publisher treats as "funding" the game with a zillion strings attached all the way up until the point where the game begins to sell. At that point it reverts to its legal status as an "advance towards royalties" at the developers pathetic royalty rate. Meanwhile, that $5 million really becomes $0, because it's an advance on royalties and - as it turns out - was the developer's money the whole time. And the publisher - who is raking in much more money on the game, is making a modest profit. Except in the rare instances where the game far outperforms expectations, in which case the publisher makes enough money to cover a ton of losses (which they also take, admittedly - particularly when they cancel contracts), and the developer actually sees back-end royalties for a change.
Sounds exactly like The Problem With Music.
And the solution is the same, too. Cut out the middle-man. Cut 'em out like cancer. Sell your product on the interwebs, directly to your customers. Valve is already doing it. The Penny Arcade guys are also doing it.