Juggling Chainsaws: Original IP vs. Work for Hire

[Music] okay so hey everybody I want to thank you all so much for coming today it's really nice to see you here before we get started I've been asked to do a little housekeeping and remind you all to please mute your phones if you haven't already done that and also if you'd be so kind as to please fill out the survey at the end I'd be great on behalf of all the speakers at GGC we do take your feedback to heart so thank you in advance for that we really appreciate it so with all that out of the way I should take a minute to introduce myself my name is Amy Dallas I am one of the four cofounders of clutch play games out of Portland Oregon and I'm also on the board of directors of oh go which is the Oregon games organization so I got to say it's a really big honor to be here today representing both collect play and oh go on a subject that I think is becoming increasingly important especially for Indies in the mobile space and that's this question of how do we keep our businesses afloat given the volatility of the mobile games market at this point in time I don't think it's a big secret here when I say that it's

becoming a lot harder to make a living solely from game revenues as an indie developer at least it has been for the last couple of years so what do we do about that what are our options so one option is we just say screw it we know this is risky we're just gonna double down we're gonna make as many games as possible as efficiently as possible and hope that at least one or more of them is going to produce enough revenue to keep us going that's an option we can do that option two we can look for more predictable ways to bring in income such as contracting we can just turn our back on all that risk and just say all right we're going to become a contract studio and that's how we're going to make our money or option three is we do some combination of both we juggle the chainsaws when we find a way to make that work so I gotta say I've been on both sides of this equation I've been on all sides of it as a matter of fact and I don't think there are any right or wrong answers to be perfectly honest I think there are a lot of hard questions this is a hard question to answer and I

don't think there are any right or wrong answers here what essentially this boils down to is a math problem I have anxiety dry mouth here so essentially this is a math problem and because it's a math problem unfortunately for me that means I'm gonna have to do some math in front of a live studio audience which is a little bit horrifying for me I'm gonna be honest with you this is a little bit like one of those anxiety dreams like oh my gosh I'm back in high school and I forgot to wear clothes how did this happen this is mortifying but I'm actually I'm gonna throw myself in that grenade because I think it's really important so if nothing else at least you can hopefully find some amusement in my discomfort so there is that so anyway so let's get started to give you a little background on clutch play clutch play was founded back in the early 2012 and like a lot of Indies we do divide our time pretty evenly between doing work for hire and developing our own titles so again we're juggling the

chainsaws there and in terms of our clients we have a lot of really cool clients we work with all over the country some of them are actually down here in San Francisco in the Bay Area we've got kick side telltale we work with Intel and another number of other really cool companies has been a really great experience doing that kind of work and we've had a chance to work on a lot of really great products but our first love of course is doing our own games and as far as our own games go we have a couple that are out there and one in development our first one is a game called little chomp and I'm going to talk about that in a couple minutes in some detail because I think it's a great example of a critical success and a financial failure so I'm going to look at that in a little more detail our second game is a game called skulduggery and skullduggery actually did pretty well I've got to say I'm not at all unhappy with how it did I think by a lot of indie standards it would be considered a success because it was a really expensive game and we did make our money back but I think that that's a big problem with a lot of Indies is that

we often confuse breaking even with success and from a business standpoint that's just not the case if we're looking to be successful we're looking for at least a two to three time return on investment for our games so breakeven is not a great option but certainly given how expensive it was I can't complain about it so then we have another game that's coming out in the next year so we'll talk about that and another point so I want to start off by talking a little bit about little chomp because I think it's a really good case study as I mentioned before for what can happen when you don't have a success so normally I actually don't share specific information about game revenues I just don't but in this case I'm going to make an exception because so often in mobile when a team shares information about revenues it's usually a success story so it's really hard to gauge what is it

what is a typical kind of failure look like so let's look at that so here we go we're gonna do a little bit of math here so little charm was our first game and we wanted to keep our cost low so at the time we were team of four people so we try to keep our development amongst the four of us so that was four people working for about ten months so that comes out to forty weeks working about 40 hours a week usually more but for the sake of argument let's just actually say 40 so that comes down to about 1600 hours 40 hours a week times 40 weeks 1600 hours per developer times for developers that comes out to 6,400 hours total so that's not an insignificant amount of time so let's look at what that actually turned into in terms of revenue so our total revenue for that 6,400 hours turned out to be 10k so when

you break that down this is the sad math here when you break that down per partner so that's $2,500 per person and when you divide that by 1,600 hours the revenue comes out to about a dollar 56 per hour so just out of just sheer perverse interest I actually did a Google search on what was minimum wage in Oregon in 2012 and as you can see minimum wage was 880 so unfortunately we made seven dollars and 24 cents less than we would have if we were working a minimum-wage job so there's there's a there's failure and then there's poverty level failure so given that most of us aren't in a position to live on poverty level wages that brings us to the big question you know what do you do with those circumstances and this is actually how we found ourselves going down the contracting route so at a larger level let's talk about why it's so hard to make a living on mobile right

now so last year I did a talk here at GDC called free-to-play versus premium the good the bad and the ugly where I looked at some of the pros and cons of both free-to-play and premium and I think some of those conversations points are really relevant here today let's talk about premium first so I think there are a lot of people who think that premium is dead it's just not a good model is being choked to death by free-to-play and I understand where everybody's coming from I actually think that premium is really a viable option for a lot of Indies as I said we did reasonably well with that on skullduggery but there are some obvious downsides it's an inherently smaller market and as an industry we've kind of trained our players do not want to pay us for the entertainment that we make for them upfront and there are so many free-to-play options most people feel like they don't have to pay up front for something when they can just get something else for free so there's

inherently a smaller number of people who are willing to do that and then there's the fact that there's also a smaller potential of revenue so one of the great things about free-to-play is over the lifespan of your game you have the potential to make tens hundreds thousands of dollars off a single player over the span of your game with premium not so much so of the people who are willing to spend money on premium generally they do so because they like the fact that they've paid once and you're not bugging them constantly to give them more money so if you're charging for example $5 for a game then your ability to make money is limited by the number of people who will actually give you $5 another challenge of premium is that the longtail is really not so long so if you think of premium like a Hollywood movie that's I think a very good analogy in Hollywood I think they often consider success a great opening weekend because they understand that after the hype of that opening weekend the sales are going

to taper off so if you don't come out of the gate pretty strong with premium it's very unlikely that you're gonna have some huge spike of sales later on it's possible but not too likely and it's usually coincides with you releasing more content which is expensive so you may make more money but you obviously have to spend more money to get it and then of course there's the issue of piracy so piracy is a big problem obviously in premium for our first game little chomp we ran some numbers last year and we found that of every for every one person who would pay us a dollar over a hundred and fifty people would just pirate the game and so you'd think okay well iOS that's going to be a lot better it's a closed system much harder to pirate and yet we found on skullduggery that at least a third of our players that were playing the game were actually also pirating so out of $5 a copy that's a pretty significant loss so that certainly makes free-to-play a lot more

attractive right everybody's heard all the the great things about free-to-play but the realities of free-to-play is that it's a market dominated by large companies with deep pockets so in my talk last year I cited a research paper that was actually done by a company called midia and in it they looked at 700 apps that on the app store top grossing on App Store and Google Play and of those 700 apps they found that 81% were produced by the same 50 companies and this graphic is actually a perfect representation of the fact that this is this is still happening so on the left you have app store top grossing from March of last year and on the right you have apps are top grossing for March of this year as you can see it's mostly the same titles or as different titles by the same companies so clearly that is still the case so some other challenges that Indies have in mobile is obviously a discoverability we're all competing for the same set of eyeballs but we

don't have the deep pockets that larger companies have and success is often dependent on factors that are completely outside of our control and I do a lot of work with other indie studios and there's one example recently of some people I know who did an amazing job they made a really great game it was really quirky and funny and weird and they got some amazing press it really captured the imagination not only of the game's press but of the mainstream press and yet unfortunately that didn't actually translate to dollars so you can do everything right and things may still not quite work out for you so where does that leave us we've just spent a lot of time talking about how risky it is as a studio to put all your eggs in the original IP basket so as Indies how do we get out in front of that what do we do and I've got to say the only way that I know how to get out in front of that is with quantifiable data and that means we have to start asking ourselves some pretty hard questions so I think most of

these are pretty self-explanatory but to just kind of spin through these you need to figure out how much you need is an individual to keep going in your indie studio how much your other employees need or co-founders so what are the overall company financial needs how much money do you need to actually complete the product that you want to make how much potential is there once you've completed it in terms of sales like how big is your market and then of course how much money is available that I have right now to actually make the game that I want to make so as you start to answer all these questions it begins to form a picture that essentially turns into a projected P&L and this is a profit and loss statement of course I'm sure most of you know what that is and that's going to allow you to track how much money you're actually making or losing at any given time on any of your projects and this is a really critical step to understanding your ability to

become a remain profitable as a company but it's kind of amazing to me how many Indies don't actually do that they just gloss right over this so I want to talk a little bit about anti budgeting 101 one of the big fallacies of indie budgeting is that budgets consists almost entirely of external costs so I find I've had this conversation about 12 times since I've been here at GDC and I haven't even been here that long asking people what are your budgets and they're like well my my engineers cost this or my artists cost that and that's the extent of what they think their budget is and and it's very much the opposite of that so if there's nothing you take away from this talk let it be this the bulk of your internal dev costs that is essentially most of your budget which means you have to figure out what your time is actually worth that's a really big issue so again I do a lot of mentoring with indie Studios and I get asked a lot well how do you figure out

what your baseline indie hourly rate should be and there's a couple ways that you can go about this you can actually go to the low end and ask yourself okay well what is the minimum amount we need to get by to pay ourselves for the duration of the project or for a given year and we plug that number in your budget and you say okay well that's that's my budget plus whatever external costs I have but that's not necessarily the best indicator because again you're kind of living in that world of the lowest common denominator what is the minimum amount I can get so there are other ways you can look at this a different way you can cut it is looking at the top end how much money can I potentially make given my skills and experience so in other words if I decide to give up my indie dreams and go back to being a producer at EA which I once was I know how much I can make doing that it's probably at least a six-figure well it's definitely at least a six-figure job so if I know I can make six figures elsewhere I can say well okay then my potential worth is is

$100,000 so my budget is my time plus everybody else's time plus external costs at a rate of $100,000 per year so the problem there is it's going to make your budget look enormous it's going to be it's going to make it look like you can't afford to make your own game so there's a third option and that is taking that high end here's how much I'm able to make and subtracting the amount that you're willing to invest for doing something you love with a potential upside so for example if I can make a hundred thousand a DA and I maybe need 30,000 or 50,000 to live as an indie the middle ground maybe is I my my rate is seventy five thousand because there's twenty five thousand dollars worth of value and actually being able to do the kind of work I love and make a game that potentially could make some additional money so once you figured all that out your value isn't in you studio and you

figured out your budget what then what happens if you figure out okay well I know how much money I need but I don't have that what do I do so there are a couple of options looking for investment is one that can take the form of either an angel investor a family member crowdfunding all of these things are options you can look for a publisher but I got a say options one and two are a little thin on the ground at the moment if you're looking for an actual company to invest in you or a publisher right now given the state of mobile as we just talked about it's a little bit up and down so there's a lot less of those opportunities so a really good option as I mentioned and has been for us is doing work for hire so let's talk about the benefits of work for hire and I'm not necessarily talking about individual work for hire I'm talking about hiring out your entire studio as a development team to work with an external company so a lot of the good things about that is it's a predictable

source of income unless something goes horribly wrong you're going to get paid regardless of whether or not the project is a huge success because you're working on an hourly basis or per project basis another benefit is you have the potential to pay yourself which are actually worth so you can go on the high end of your scale generally speaking in our case we do tend to pay ourselves more when we're doing work for hire because we're not doing the kind of work that we we do necessarily want to do all the time so again we're removing that that that value of that middle step so there's also learning opportunities and a lot of opportunities for growth as a company so on a lot of the projects that we've worked on we learned things that have helped us in our own development so that's actually been incredibly valuable to us that's also allowed us to grow as a company bring on more people and of course as you bring on more people that means more profit and it enables you to put more money away towards doing your own development we started late so I'm about

to get the hook here so the downsides of work for hire is obviously it's less creative control you've got a lower ceiling of return you're gonna make the money that you were promised but you're not going to necessarily make a huge amount more because it's not your project and it actually might take more money than you realize so let's run some numbers let's say our team of four does want to make $100,000 because we're doing contract work so I actually had this argument with someone on my team not too long ago he was saying well okay well all we need to do is make if we want to pay ourselves you know $100,000 there's four of us let's just make four hundred thousand dollars in contract work and we're good right so that makes sense except it's not that simple because there are other factors to be to be factored in so you've got payroll taxes as you can see that's about ten percent you've got benefits that's another 10% so attack on twenty percent your four hundred grand that puts you up to five hundred and there's actually even more so generally speaking you've got a lot

of business expenses you've got contract labor legal marketing in some cases when you're actually doing work for hire you might have corporate insurance that you have to pay for like errors and omissions insurance so all of these things there's a whole bunch of cost associated with that that you have to actually add on top of that and then you also have taxes so to pay yourself a salary of $100,000 you're really looking at having to make almost double that maybe a little more than that so obviously that is a big factor Arni so where does that leave us so I'm sure a lot of you guys have seen this it's Maslow's hierarchy of needs it was put out there by Abraham Maslow in a paper in the 1940s called the theory of human motivation and in it he establishes that as human beings we all have these these these essential needs and at the bottom we have our foundational needs of physiological

which is food water shelter breathing everything it takes to just stay alive then on top of that we have safety and security so do we actually feel safe enough to to be creative for example it's hard to be creative when you're afraid that you're going to lose your home or not have enough food to eat so the idea here is that you have to actually meet all of your needs of these lower levels of the pyramid in order to achieve the higher levels such as creativity and self-actualization and fear of not meeting those basic needs can actually really hamper your creativity so again this goes back to the question of how do we ensure our basic needs are met while still doing the work we love and do we contract or do we not and I think in our case we've decided to do both and it's worked out really well for us so I probably don't have a lot of time does anybody have any questions I can maybe take one Hey originals AP oh there we go

for quite a while I wanted to know if you have any suggestions like we'll be doing work for hire like freelancing websites and they tend to be like really small or only like for a program or two programmers and we we have had a chance to get like the whole studio working in work for hire you have any suggestions how do you can make that transition or yeah that's a good question um well it sort of depends on what your pipeline is for sales we specifically go after jobs that we know are larger because we don't want a piecemeal our team out and that's one of the biggest challenges of actually being a work-for-hire team is that we want to keep our team all together because you do run the risk of if you if you have a few people hired out in there then you your team isn't really your team anymore it's just a stable of contractors that you're you're sort of

hiring out and so it's really going after the the size of jobs you said you're doing actually web development or game noel games games but we use like up work and freelancer and there's only like smaller jobs yeah yeah I think that's actually not always a good way to get contract work you really want to get into larger companies and find the people who are actually doing outsourcing and put together a pitch deck with all of your information all the information about your team what you can do as a team what your team capabilities are and there are a lot of companies right now looking for really good outsourcing so that is really the way to get your whole team together is pitching yourself as a team to companies directly okay can you tell me a company stuff sir well can you tell me some of the companies up there yeah we'll talk I'll give you my card any other questions when you're

doing work for hire what kind of margins do you shoot for what do you decide is is worth your time and what isn't oh that's what they are that's a really good question so like I said we do tend to go towards the higher end of our scale so we have a scale that we pay ourselves or we budget ourselves for when we're doing work for hire that's on the lower end on the higher end we do want to take on jobs that will allow us not only to pay ourselves at a pretty high rates but also put some money aside so at a minimum thirty percent is the minimum and going up from there and what kind of domains are you working in like is it always in games or do you do like weed banks or marketing or yeah we do a little bit of both well so we do primarily work in games we have done some app development as well and in some cases we've done marketing and things of that nature some PR it's really it depends on what's going on obviously with your sales cycle you want to make

sure that everybody is working so if maybe you see somebody is you know not everybody is working at the same rate all the time on all projects so for example if there's somebody on the team who is not as busy and they can actually pick up a small project then we would actually put them on a smaller project for a short period of time one other thing I want to mention about work for hire is that when you're figuring out what your costs are and work for hire what you're gonna charge it really depends on the kind of work that you're actually doing so for example we do everything from creative development from scratch to firefighting and short-term firefighting is always going to be our highest rate because it's it's intense you have to run and hit the ground running really fast and it's usually short-term so if there's if there's a heavy ramp it requires a high skill set and it's a short duration of time you're going to want to get as much from that as you can if it's a longer project that's creative and it has a really long runway you can actually

afford to charge a little bit less so we sort of scale that way as well and does that require full-time biz dev like a full-time business person or do you have a network where work sort of comes to you a little bit of bull so I'm the full-time dev biz dev person but I'm full-time I say that kind of somewhat tongue-in-cheek because I also do work along with the team so really I think one of the best things to do when you're one of the best ways to get work once you actually get in and start working with larger companies and people see that you do good work you know as we all know we move around quite a lot in the games industry and so we found that one of the ways we've gotten repeat clients is has people we've worked with have gone to other companies they will call us and say oh those guys are great bring them and and so really your own good work is the best way to to put your name out there and market yourself and that's certainly been our experience but yes I do a lot of business my plate is very full here at GDC doing just that so if you're looking to do

business this is you're at the right place certainly so thanks yeah thank you anything else I think we're good I'm getting there getting the hook alright thank you you [Applause]