Answering my own questions since 2001

Making Money in the New Economy

The Internet, as you know, changed everything. Well, not everything, but it sure disrupted the way we make and distribute art. Ever since I saw geeks posting encoded files to Usenet, I’ve been curious to watch how the web has turned content creation (an awful, generic term) on its head.

One truth of the web in 2008 is that it is a much flatter playing field for creators. If you made an independent film in 1993, and you didn’t get backing from a studio, you couldn’t imagine how, say, 100,000 people would ever see it. YouTube makes that quite achievable in 2008.

But that flatter playing field isn’t necessarily accompanied by a lot of money-wielding players. And an artist has gotta eat. YouTube and other video sites have revenue sharing programs, but I doubt even 100,000 views would generate much money. I did a few quick searches on this, but couldn’t find any sample numbers.

Email Lists and True Fans

In a lot of cases, the old economic models are shot, or in sharp decline, and we haven’t figured out new ones yet. A recent guest columnist–a musician–on the Telegraph’s blog shed some light on how his band has survived in a post-Napster world:

When we left EMI in 1995, our most recent album had sold over 300,000 units. While we were still contracted for more, EMI decided to drop us. We were no longer commercial.

Today, after the internet boom, that level of sales would get us a deal with any of the major labels. After three more badly-marketed albums with an independent label we were down to 100,000 units.

In 1999 we released our final contracted album for Castle Records and, in anticipation of the way we planned to do business in the future, called it Marillion.com. We had already collected the email addresses of more than 20,000 fans through free CDs, downloads, etc. and by asking these fans to order and pay for the upcoming CD in advance, we were able to finance the writing and recording.

The precious email list reminded me of Kevin Kelly’s excellent essay 1000 True Fans.

Indie Games Come of Age?

The video game industry has, by comparison, remained unhindered by piracy. I’m not sure why this is. I assume that the industry’s explosive growth over the last decade has more than compensated for the revenue lost to pirated games. Plus, of course, I suspect that relatively few console players have the skills or inclination to play pirated games.

In any case, I’ve seen the video game industry as kind of like Hollywood’s studio system. There are a few big publishers, and they buy development studios or license their content. Even a ‘small’ development studio would, I think, have dozens of employees.

The revolution in casual gaming, however, enables smaller teams and individuals to earn more attention. There’s a ton of free casual game sites on the web now. I don’t know how much revenue a given game creator sees from advertising, but I do know that their games are constantly copied and posted on new sites with advertising wrapped around them.

Still, I recently read about a success in the relatively new world of casual gaming on the consoles. Jonathan Blow developed a reportedly excellent game called Braid. He released it on XBox Live Arcade, an in-game system where players buy and download (I gather) generally cheap games. Braid had no in-store distribution–you can only get it through your XBox 360. It cost $15 to download the game. Via Silicon Alley Insider, I read Blow’s blog post about his first week of sales:

As I write this, there are 62,242 entries on the main leaderboards. I don’t have official sales numbers for the full week, but I would guess about 55,000 people have bought the game so far.

That works out to $825,000 in the first week. Microsoft takes a cut–possibly 33%–but that’s still terrific revenue for an independent game developer. Wikipedia provides a little information about the development process, but I’m unsure of what the budget for such a game would be, and how many people contributed to it. It’s enough, apparently, so that Blog can build another game without a day job.

I’m not sure, but I guess XBox Live Arcade and its competitors casual gaming portals can (have?) become the iTunes and YouTubes of the gaming industry, enabling the little guys to get greater distribution and, hopefully, revenue. Will indie game developers be as, on average, penniless as documentary film makers, despite their new-found distribution? Or will Johnathan Blow’s experience be repeated a thousand times over?

Clearly there are more questions than answers about the new economics of content. I mostly wrote this post to point to these two developments, and two industries at, seemingly, different stages of their evolution. For anybody interested in the background or context of these shifting tides, check out John Perry Barlow’s The Economy of Ideas and The Next Economy of Ideas.

UPDATE: Speaking of casual games, Andy points to a clever game called Coign of Vantage.

5 Responses to “Making Money in the New Economy”

  1. Norlinda

    Wow, Coign of Vantage is more addictive than Tetris! I love the classical piano music playing in the background.

  2. Parveen Kaler

    “The video game industry has, by comparison, remained unhindered by piracy.”

    Not true. The traditional PC video game market has been obliterated. The successes have had to move to the World of Warcraft model where they charge for a service. Other successes have had to resort to advertising.

    The console business is still viable in its current state because it is a closed platform with very strict gatekeepers.

    I have a blog post brewing about successful independent stories like Jonathan Blow’s Braid and not so successful stories like Jeff Minter’s Space Giraffe.

    Microsoft probably took a 40% cut. I have more details on revenue split here:
    http://parveenkaler.com/2008/03/08/iphone-app-store-revenue-split/

    And “casual” is considered a dirty word in the gaming industry. I wouldn’t call Braid a casual game. Jonathan Blow calls it an arthouse game.

  3. Dustin

    Microsoft XBLA used to take a 35% cut, now they take a fat 70% slice. Figures subject to change if you happen to be a huge publisher with bargaining power (not for indies).

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