Does anybody have any knowledge of the financial aspects of videogaming?

[Hugo Rune]

I was wondering. I think that this game will be pretty huge. As in, it'll sell really well. It's my understanding that one of the most attractive aspects of crowdfunding for a developer is that, as long as you stay on budget and actually manage to create the thing you set out to create, it's pretty much impossible to fail in a conventional sense, i.e. to create a loss. You've been making the thing with other people's money that you never have to pay back, so every unit you sell is pure profit. Now, I think that Obsidian didn't stay entirely on budget. The game was delayed quite a bit and that costs money that had to come from somewhere. So I guess they either invested some of their own money or got some extra money from somewhere else. Maybe that's what the deal with Paradox was for.

 

Anyway, maybe someone with a little knowledge of these things wants to speculate a bit (or someone without knowledge wants to speculate regardless).

 

How much did Obsidian go over budget in your opinion?

How many units can a game like this be expected to sell?

Is Obsidian now filthy rich?

 

Unfortunately I couldn't even start speculating about that as my knowledge of videogame development and the finances of it is pretty much non existent.

[SgtSilock]

In the end they caved and went with a publisher, Paradox, so no they will not be filthy rich.

[danielkx]

If I were to make a complete guess I would say they went over budget around $500k-1 mil. I base that on no information at all though, just sounds about right.

 

As far as how many units it might sell...between 500k and 1 million. 

 

Obsidian is not filthy rich, but assuming this game is as successful as it is looking like it will be, they should be able to fund the expansion and probably the whole sequel without having to result to crowd funding.

[Tigranes]

In the end they caved and went with a publisher, Paradox, so no they will not be filthy rich.

 

Entirely incorrect. Paradox in POE acts purely as a distributor, and not as a traditional publisher, and so their 'cut' of the profits is severely limited, and they have zero say over the creative direction of the game or future uses of the IP. 

 

Kickstarter games have a huge boon in that the developer takes all profits; in typical contracts these days, developers take none of the sales, only earning bonuses (e.g. Obsidian was promised a substantial bonus by Bethesda for Fallout: New Vegas if metacritic scores went 85 or over. The score, famously, ended up at 84) and sometimes small royalties. Developers contend themselves that the publisher funded them for the entirety of the production process. In other words, in the publisher model, developers make a game in order to pay for themselves to make the game; they start with zero and end with zero, more or less. 

 

It is really with self-published games like KS games that devs can make a killing, and really build up funds to be able to afford future games. Divinity: OS has funded two separate games for Larian, for example. Now, even for a successful KS like Obsidian, the ~4 million they earned is nothing compared to AAA game budgets (Obsidian itself, at its max sizxe of 100+ people, spent about a million dollars a month; the KS team was around ten people). What this means is that much smaller sales numbers can still generate huge profits. For example, under a million copies of South Park or FNV would have been a disaster, but one can reasonably assume 500,000 non-KS copies would mean a big windfall for Obsidian. 

 

(Of course, one disadvantage is that Obsidian has already lost several tens of thousands of customers in terms of KS backers and their friends who get free keys.)

 

As to the specific breakdown of costs, Obsidian very probably spent a bit more than what they earned through Kickstarter. Obsidian is a larger company than the KS team so they may have used some of their internal funds from other projects, or have taken loans, etc. Even then, I should think that POE will make a profit for Obsidian. If it hits a million copies, it would probably be party time. 

 

Edit: By party time I don't mean they could then use that money to create an AAA game on their own, though. Again, AAA games these days take 40-100 people or even more, more expensive middleware, and all in all would burn through millions of dollars like hotcakes. What we could envision, however, is POE sales funding POE2 on its own. 

[Hugo Rune]

As I understand it, the deal with Paradox covers only very specific aspect of the actual publishing of the game. Shipping and such. I could imagine it freed up some of the money from the kickstarter that was budgeted for these things. Sure, Paradox will make money on this too but to me this doesn't look like the usual publisher deal as in "we finance the game and keep all the money and all you get is a lump sum and maybe a bonus if the reviews are good". Obsidian financed the game by themselves, through the kickstarter. So in this case I'd expect it to be the other way 'round. Obsidian gets to keep the money and Paradox is maybe getting a percentage or even a lump sum. 

Edited March 26, 2015 by Hugo Rune

[Diamonds0a]

Hi, fellow game dev here (not at Obsidian). I have no insider knowledge, so I'm guessing on all of this, but there are a lot of parallels between game companies.

 

The amount of money Obsidian made from the kickstarter was not enough to develop this game. If it was, it would have been a smaller scoped game (ie: no voiceover, less content).

 

The publishing deal with Paradox was to cover the rest of the development cost, distribution and marketing costs.

 

Development costs are pretty self explainatory, and probably require an extra $1 to 1.5 million.

Distribution costs include boxes, translations and customer service. $500k - $1 million. You don't have to have all of this up front because stores pay $$ for the inventory of the boxes ahead of time.

Marketing costs $1 to $2 million. Not really sure, though, some AAA games go up to $10 - $100 million marketing budgets.

 

 

Obsidian is 'filthy rich' as in they are over the hurdle. Every development studio has the same problem, which is, they aren't able to fund their own IP. So they make games for IP that someone else owns. If you look at Obsidian, you are talking about 7 titles that belonged to someone else. All those titles and they STILL couldn't fund their own game. Kickstarter changed that.

 

Also they are rich in value, not in $$. The deal with Paradox certainly entitles Paradox some of the $$ from the sales of PoE. However, the IP still belongs to Obsidian. This is the hurtle that I was talking about, owning the IP. Obisidian will get a majority of the money from the sales and Paradox will get a minority. Before Kickstarter the opposite was true. IP is most important because it means future $$.

 

For a showcase about just HOW HARD it is to make your own IP. Here's a list of games by Obsidian.

https://www.obsidian.net/games

Kotor2 launched in 2004.....

 

Grats to Obsidian and all their hard work!

Edited March 26, 2015 by Diamonds0a

[Tigranes]

To avoid misunderstanding: as Diamonds says, Paradox certainly will take some share of the profits. But where a normal publisher would take most/all of it to recoup their investment in making the game, Obsidian is here entitled to a huge chunk of it. 

[Diamonds0a]

To avoid misunderstanding: as Diamonds says, Paradox certainly will take some share of the profits. But where a normal publisher would take most/all of it to recoup their investment in making the game, Obsidian is here entitled to a huge chunk of it. 

 

Double emphasis on my earlier statement "IP is most important because it means future $$." I mean this literally. The IP is worth more than the actual cash from game sales.

[Hugo Rune]

Strange, forum won't let me edit my post. Anyway...

 

@danielkx

"Filthy rich" was tongue in cheek. I don't think they'll be filthy rich. But if they'll sell ~1mil, I think that would be a pretty huge deal. It's more than enough for a spectacular sequel and it could be tha basis for them to really go independent and make the games they want.

 

@Tigranes

I agree that you have to take into account the several tens of thousands of their most hardcore following who are willing to give them money for a game that they haven't even begun working at. But those are only a fraction of the people who would like to play and buy such a game once it's finished and what's more, you have to keep up with those things at least a little bit to notice that a kickstarter campaign is even going on. Most people don't, I think. I personally know lots of people who I expect will buy the game but haven't pledged.

 

@diamonds0a

Thank you! That's pretty much what I thought. I'm really happy that they have their own IP now as that will hopefully mean that we'll see many more of this kind of game from them in future. Actually, I'd wish that they take some of that money and try to create another new IP. Something that's really out of the box and goes beyond the typical high fantasy/space opera/post apocalyptic setting. I'd like them to give Josh free hand to create the game he'd like to make without any constraints. I've really been impressed with all that he's come up with and he seems to be big on history. An rpg in a really historical setting has long been a dream of mine. It's probably too risky but a guy can dream...

Edited March 26, 2015 by Hugo Rune