A large number of people ask which is the best method of funding entertainment software development. As is so often the case all the possibilities are equally valid and only you can actually decide which is best for your project/company. The following is an overview of the pros and cons of each method of funding.
Budget/Indie or full price (aka AAA games).
Budget game and indie game are generally self funded as Publishers wont pay up front development fees for these titles. If you are looking at full price, AAA PC or Console games or digitally distributed (Xbox Live Arcade/Playstation Network) then publisher funding is an option, provided that you have a proven industry track record.
Games cost a lot to develop. If you have the money, and the guts to risk it, then the rewards can be much greater. If you fund/develop a game which turns out to be great then publishers will queue up to sign it and the financial returns will be greater because you took all the risk. Of course if the game isn’t great then you may end up with a finished product that no one will sign.
An alternative to risking everything on a big game is to develop a smaller indie game. In most cases indie developers start off working on games in their spare time (while working a day job). This eliminates the financial risk but does mean you game will take longer to make.
Most indie games are zero budget/self funded. That means the developer works on the game in their spare time (no wages to pay) while working a day job. If the first title makes money they can then use that to go full time and fund their next title. If the first game doesn’t sell then they continue on part time developing their next game.
While most indie games are self funded there are a few sources of funding available such as The Indie Fund, which is a funding source for independent developers, created by a group of successful indies.- Indie Fund and Kickstarter, a innovative “crowd funding” system for creative projects – Kickstarter.
If you can’t (or won’t) fund it yourself then publisher funding is an option for larger games. If you have a good demo, good team and a good presentation in place there is a chance that a publisher may sign you. That chance is dramatically reduced if you do not have industry experience. Publisher’s hate to take any risks so they often only sign teams with an industry track record.
The pros of publisher funding are that they take the financial risk. The cons are that they almost certainly own your game and maybe even part of your company in return for the cash. They will also take the lions share of the profits. That funding will most likely depend on you meeting agreed milestones and failure to do so may result in them witholding payment and your company going bust.
Very difficult to come by. This is basically a more professionally arranged and more time consuming version of publisher funding.
The pros are that you have agreed funding up front (or possibly just funding to get to an agreed demo stage). This allows you to keep greater creative control of the game and get a better deal when you sign with a publisher. The cons are that it is even more time consuming to get VC funding agreed than publisher funding. They may also take a large slice of the company, may retain the rights to kick you out of your company if things go wrong, will require you to pay them interest (so you have to borrow more money from them to pay back to them as interest), you have to pay their legal fees and a host of other possible restrictions and conditions.
In either of the last two cases you will need a really good demo and a fair amount of paperwork before you even start talking to them. You will need (or must have someone in your team that has) industry experience and in the case of VCs will need to show proven company/management skills. You will need to fund the development of the demo and the preparation of paper work because you wont even be able to start talking to a publisher or VC without them. Once these items are complete you will then need to survive and keep working for anything from three months to whenever while they decide.
Grants and Tax Breaks
Funding may also be possible via local grants or tax breaks. These are usually limited to specific regions and many won’t be available for creative projects. You will need to research locally available grants/tax breaks (unless you want to move to Canada) to find those that are applicable.
Completion Bond funding
This is a funding model that is used in the film industry, which a number of publishers investigated as a possible method of funding entertainment software development. To date it hasn’t really taken off in the main because the game development process is very different from the film production process.
Completion Bonds allows the publisher to defer their financial risk, the developer to secure funding for a project and the CB company to make a profit via a return on investment plus an agreed amount when the game is completed.
A publisher interested in an entertainment software title will sign a deal stating that they will publish or distribute the product on completion. With this guarantee that the product will get to market the developer secures a completion bond which will allow them to fund the development to completion. In some cases the deal give the CB finance company the rights (or obligation) to take over the project if it does not meet required deadlines in order to ensure it is completed. On completion the publisher pays the CB company back their investment, plus an agreed profit.
The pros are that the publisher has no financial exposure until the project is completed, the developer has a secure source of funding and the CB company gets a guaranteed return on their investment. Of course all of this is subject to the projects being successfully completed. The cons are that it is very difficult and time consuming to secure CB funding. The funding model is also rather inflexible, which can have a serious (negative) impact on development if design or technology changes become necessary during development. Unlike the film industry the entertainment software industry is still in a state of rapid technology development. This makes even the best planned project subject to alteration, which in turn requires a very flexible and quick reacting funding model.
Additional links: If you are considering the publisher funding route check out the following…..