Industry structure – The key businesses within the industry are publishing, development, distribution and hardware manufacturers (console makers Sony, Nintendo, Microsoft). The key issue to be aware of when looking at the industry is the complex interactions of the various companies. A company focused on one of these areas may also be active in others. Publishers often own all or part of a development or distribution company and the hardware manufacterers all act as publishers for their own 1st party products. This means that an independent development company seeking to do business with a publisher may actually be approaching the owner of one of their main competitors.
In addition the international nature of the industry means two publishers who compete in one territory can end up working together (one may distribute the others games) in another territory. Because of this it is very important to understand the existing global relationships when doing business within the games industry.
Computer Game Publishers – The companies responsible for bringing the games to market. They effectively control what type of product reach the market as the majority of commercial software is commissioned, funded, published or distributed by the major publishers. In addition to funding (and managing) the development of computer games they are responsible for marketing, PR, sales and manufacturing of the game.
Companies such as Electronic Arts, Blizzard Activision, Sony, Codemasters etc usually fund the game’s development process by paying the developers an advance against future royalties to cover the cost of development. Often this money is paid on the developer achieving set milestone in the development process. Once completed the game will then be sold by the publisher and the money received will go back to the publisher until they have recouped the money advanced to the developer. If the game is successful and the publisher recoups this investment then the developer will earn additional royalty payments.
Computer Game Developers – These are the programmers, artists, designers, sound engineers, musicians, producers, writers and others; who develop the games. Development companies can be independent, part owned or wholly owned by a Publisher, distributor or hardware manufacturer. More often than not the developers are funded by a Publisher to produce a game. The developer pitches their game idea to a publisher who agrees to fund the development work through an advance against future royalties. The developer then proceeds with development of the game, receiving regular payments on achieving pre-set milestones. A few developers do fund development themselves or raise venture capital funding for their business, but publisher funding is still the major method of bringing a product to market.
Distributors – These are the companies that are responsible for getting the finished (manufactured) games from the publisher to the shops. Publishers do not deal directly with the shops but sell to the distributors who in turn sell the game on to the various shops they deal with.
Once the games have been manufactured they are stored by a distributor (often referred to as a primary distributor) on behalf of the publisher. Then when the publisher receives orders from the other distributors they will inform the primary distribution company who ship the product out. From these (secondary) distributors the product is then shipped on to the retailers. Some publishers opperate through exclusive distributors. In this case their products are sold by just one distributor and retailers need an account with this particular distributor if they wish to carry the particular publisher’s products.
The introduction of Digital Distribution has seen the start of a shift in way publishers and developers bring products to market. Although retail will continue to be the major source of sales (and thus Distribution will remain a strong business) the gradual shift towards digital methods will see a major change in the industry. Sony (PSN), Microsoft (XBLA) and Nintendo (Wiiware) all support digital distribution of games to their consoles. This means that, as they own the distribution channel, they are now taking the place of those companies that distributed physical products to retail stores.
Hardware manufacturers – From a gaming perspective there are two main types of hardware, personal computers (PC/Mac) and consoles. The key difference is that personal computers are generally open access (anyone with the money can develop or publish games for these formats) while the consoles created by Sony, MIcrosoft and Nintendo are closed systems (only companies licensed by the console manufacturer may develop or publish).
While the open access nature of personal computers means that more companies can bring games to market it also causes a large number of problems. Owners can add or remove hardware and software to their machines, which means in effect that there are thousands of different machine configurations. Conflicts between the various pieces or hardware and software can make the computers unstable and it is impossible to ensure that games will work properly on all these thousands of configurations. This is the reason why so many PC games have a patch (bug fix code) released after the game has been on the market for a few days or weeks.
Consoles on the other hand are closed systems. Users can do very little to alter the configuration of the machine (apart from the notorious process of “chipping”) which means that they are a much more stable platform to develop for. The console manufacturers (Sony, Nintendo and Microsoft) also insist that all products are submitted to their internal test departments to help ensure that software works properly on their systems.