Game developers ride the digital revolution

Fruits of their labour ... Half Brick Studios’ wildly popular Fruit Ninja has been downloaded for iPhone and iPad more than 300 million times. Source: Half Brick Studios

When the global financial crisis hit in 2008, Half Brick Studios was ready for it.

Like most of its competitors in the Australian games development industry, the Brisbane-based company had previously focused on developing games on a work-for-hire basis for big United States-based games publishers such as Electronic Arts, Activision and THQ.

But in late 2007, Half Brick decided to focus on developing games based on its own intellectual property – a decision that has been a smashing success.

“We could see the writing on the wall for work for hire, so we made that transition early, whereas a lot of other companies ran into tough times when the global financial crisis hit,” says Half Brick chief executive Shainiel Deo.

Most of Half Brick’s contract work was developing for hand-held touch-screen devices such as the Nintendo DS, leaving the studio perfectly positioned to ride the wave when Apple’s iPhone and iPad shot to popularity.

Half Brick’s most popular game, Fruit Ninja for the iPhone and iPad, has been downloaded more than 300 million times so far. That includes both paid and free downloads, with Half Brick earning revenue from advertising and in-game purchases of virtual goods as well as app sales.

Video games are bigger business than ever before – the Australian games market is on track to break past the $2 billion mark in retail sales for the first time this year, according to PwC.

The figures would be even more impressive if you consider the staggering rise of digital distribution – downloaded directly to a PC, console or smartphone. Figures are hard to come by but the Game Developers Association of Australia (GDAA) says most forecasts suggest that digital would account for 26 per cent of the industry by 2014-15.

Yet most of the $2 billion flows back to big game publishers based offshore, while a perfect storm of economic pressures has made it harder for local developers to make money.

(Times are also tough for game retailers as shown last month when retail chain GAME went into administration).

Australia became an uncompetitive market for multinationals after 2008 due to the high Australian dollar and because countries such as Canada provide aggressive tax incentives to nurture their games development industries.

The GDAA has been lobbying successive Australian governments to extend the film industry’s tax breaks to game developers for almost a decade, but so far the pleas have fallen on deaf ears.

As Europe and North America plunged into recession, foreign game publishers started closing Australian development subsidiaries and cancelling work-for-hire contracts with third parties, sometimes mid-stream.

Among the big-name closures were THQ Studio Australia in Brisbane; Krome Studios in Adelaide, Melbourne and Brisbane; and the Melbourne studio of Electronic Arts’ Visceral Games.

These days, some of the biggest names in the industry are those that, like Half Brick, focused on developing their own games. Firemint and Iron Monkey, both based in Melbourne, are two other notable Australian success stories with their own intellectual property.

“Having your own IP means that you are the master of your own destiny, and not subject to the vagaries of publishers,” says John de Margheriti, a veteran of the games industry for a quarter of a century and chief executive of games developer Micro Forté.

In his case, the intellectual property was technology rather than a game franchise – Micro Forté’s BigWorld Technology platform underpins many of China’s massive multi-player online games and the successful World of Tanks franchise.

Melbourne-based Tantalus has been operating since 1994 and while contract work is still a large part of its business the company has been trying to diversify.

Tantalus chief executive and owner Tom Crago says the company has set up a division called Straight Right to focus on the new opportunities opened up by digital distribution.

“We’ve traditionally done a lot of licensed games for kids and we wanted to keep that but also focus more on digitally distributed games for core gamers – people who play a lot of games,” Crago says.

GDAA chief executive Antony Reed says the Australian games development industry now looks very different to five years ago.

“The decline in work-for-hire opportunities had a detrimental effect on the larger, console game-oriented businesses, but saw a rise in the establishment of smaller, more agile game developers,” Reed says.

The GDAA estimates the games development industry in Australia currently employs about 800 people across 160 companies. In 2007 the industry employed almost twice as many people but had only a third as many companies.

Convict Interactive is an example of the new breed. The games development studio is based in Wollongong with four full-time staff who are all working for free in exchange for company and project equity.

Convict Interactive recently raised $2336 on Australian crowd-funding site Pozible to develop Triangle Man, a PC game in development. Co-founder Rebecca Fernandez says the company has spent less than $5000 in total – the game has been largely funded through sweat equity or in-kind subsidies through start-up programs such as Startpad and Microsoft Bizspark.

“Initially the Pozible campaign was just to raise money as we had a few expenses come through at one time, which would have put a bit of strain on the wallets of the company directors,” Fernandez says. “However it generated a large amount of buzz for the game and the company, which was a nice side effect.”

Most developers operate with much bigger budgets than Convict Interactive – Deo says you need a minimum of $50,000 to develop an iPhone game and $150,000 for it to be competitive.

But either way, digital distribution has meant that the start-up costs have fallen dramatically – industry insiders estimate that in the past it would have taken a bare minimum of $500,000 to develop a boxed console title.

However, Bill McIntosh, owner and founder of Torus Games in Melbourne, cautions that there is risk along with reward for developers betting on their own intellectual property.

“There are hundreds and thousands trying to get the next big hit but the average developer makes $26,000 a year and the average return from an iPhone game is $500,” McIntosh says. “It’s a hits-driven business.”

Torus was founded in 1994, so is an example of a business with rare longevity in a volatile industry. McIntosh says winning contracts with big foreign publishers is still the mainstay of his business and he rode out the tough times on the strength of his relationships and reputation.

“We’ve been around long enough that we know pretty much everyone and a lot of these relationships are what allowed us to get through the whole GFC crunch,” he says. “I do five game shows a year – I show up everywhere and meet everybody because if you don’t show up they think you’re dead and you fall off their radar.”

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