The High Cost of Game Development

If you are wondering why major video game companies seem to be having trouble making a profit these days, this article should clear things up for you. It should be noted that these are just development costs, not marketing or production costs. Those costs can be double or triple the development cost, running the total budget for some of these games north of $200 million dollars. When you figure out that a publisher may make a profit of $20 per unit (if they're doing well), then you realize even selling 10 million units isn't enough to turn a healthy profit on the most expensive titles. And budgets don't seem to be decreasing.

I think the Hollywood model of megabudget "tentpole" titles doesn't necessarily translate all that well to videogames. Especially if you don't have a steady flow of low-budget, generally profitable titles to make up for the huge losses when a large budget title flops. The path to sane development budgets begins with reconceiving the design of the games into smaller, more manageable projects that can be completed in under a year, with the plan of generating Downloadable Content (DLC) in the form of levels, characters, weapons, scenarios, etc. that can be rolled out on a regular basis. If the game is a hit, you can do more... if it doesn't go well and you don't want to wait around to see if the market grows, then you can kill it with much less investment than the traditional model.

Some publishers are looking at an even more radical model: Free To Play, where the game is free and the publisher makes its money off of the 3% tp 5% of users that pay for digital content upgrades. Seems to work for social games...