The game industry is moving toward greater and greater consolidation. Development costs are rising, marketing budgets are climbing, and games based on often-pricey IP (intellectual property) licenses are multiplying. Increasingly, an independent studio capable of turning a profit from the advances-against-royalties formula is the exception rather than the rule.

　　The evidence of consolidation is staggering. In just the past two years, almost 14 independent developers have sold out to publishers. The most visible deals include: Electronic Arts' purchase of Need for Speed developer Black Box in June 2002 for a rumored $14 million; Take-Two's purchase of Midnight Club developer Angel Studios in November 2002 for $26 million in cash and more than 235,000 shares of Take-Two stock; and Activision's purchase of Call of Duty developers Infinity Ward last October for an undisclosed amount. In the past 12 years, more than 60 independent developers have sold themselves to publishers, including some of the most well-known studios: Maxis, Neversoft, Bungie, and Naughty Dog.

　　Even if a developer doesn’t sell itself outright, the incentive to create closer and closer ties to a cash-rich publisher is all but irresistible. Just this week, VU Games and 12-year-old Radical Entertainment entered into an exclusive developer-publisher relationship. True, the deal didn’t result in an outright purchase (VUG retains the right to purchase, if it chooses to), but the once-independent studio responsible for the top-selling The Simpsons: Hit & Run can no longer call itself truly independent.

　　However, Radical's move may have merely been the best one available to it, says Dan Lee Rogers, president and CEO of BizDev, a business management firm that represents the interests of digital creators (and whose clients have included Sierra Online and IBM). "The transition period between one platform and the next is a time of uncertainty and significant risk for independent developers," Rogers said. Not surprisingly, those sentiments were echoed by VU Games executive Michael Pole, who told GameSpot that the dramatic leap in development costs is incentive for any developer to reconsider going it alone. "While there is still a lot that we don’t know about next-generation consoles, what we do know is that the developments costs will rise dramatically," Rogers added.

　　Yet bucking this trend of alliances and outright sales are a number of individuals who have chosen to brave the challenges of independent status. What's behind their strategy? Why do they think they can succeed where others have failed? Or is an eventual buyout part of their master plan?

　　We spoke with a number of developers about what keeps them independent. Former Blizzard bard Bill Roper, now cofounder of Flagship Studios; Obsidian Entertainment's Feargus Urquhart, formerly of Black Isle Studios; ex-Blizzard North staffer Michael Scandizzo, now head of Castaway Entertainment; and Brian Fargo, Interplay founder and now CEO of the fledgling InXile Entertainment. The comments of Dan Rogers close out this digital round table, which is one that captures the combined wisdom of deals closed well and deals gone very wrong.

　　GameSpot: Why choose to be an independent studio in these tough days and trying times--for any business enterprise--but especially one devoted to game design? What's behind your strategy?

　　Bill Roper: For us, the choice was in response to circumstance. As you know, we were looking for a higher level of involvement concerning the potential sale of the Vivendi Universal Games unit, and felt we had to go as far as tendering our resignations to try and open a direct line of communication with the decision makers in France. When they decided not to afford us that opportunity and chose instead to accept our resignations, we saw it as a chance for a new start. We are game developers by desire, as much as anything, so it only made sense that we would hit the ground running as best we could and start up a new studio.

　　In terms of where we see ourselves going, we intend to set up a computer games development studio composed of the very best individuals in the industry. We are dedicated to making products that set new standards in gaming through the fostering of a focused development group and by creating an immersive and compelling gameplay experience with single and multiplayer gamers in mind. We want to take what we’ve learned over the past 10 years in the industry and use that as a foundation for the next 10.

　　Feargus Urquhart: First, of all, I don't think there is a right or wrong time to start an independent studio. Over the course of the last six or seven years, people have asked me why I haven't started a company, while others have said pretty much in the same conversation that then was not the right time to start a company. I sort of look at it like babies and houses, there probably never is the perfect time to have a baby or buy a house. You just have to decide to do it and then do it. For us personally, we wanted to have more control over our own destiny and build the business as we see fit.

　　Michael Scandizzo: Our goal was to stay together as a team and develop our own product with our own ideas. Our best option was to do that as an independent studio. We believe that this is the first step toward any goals that we wish to pursue in the future.

　　Our approach is that developers and publishers have a symbiotic relationship and embrace a partnership that allows each of us to do what we do best: develop and publish.

　　Brian Fargo: I can’t speak for everyone as to why they want to run an independent studio, but for me, I felt like I could create the best game possible in a smaller environment. I try not to spend too much time worrying about an exit strategy, but instead, I concentrate on making a high quality game--and interesting opportunities will [then] reveal themselves.

　　GameSpot: What makes you believe you can succeed; can maintain cash flow; and can maintain an advantage in the area of technology--in an environment that almost begs for selling out to a monolithic publisher?

　　Bill Roper: That all depends on how you view what being an independent studio really means. There is no reason that you can’t maintain the desired level of control and creative vision while still working closely with a publishing partner. There are a lot of ways in which an independent developer can use technology already created by the publisher, such as engine-based tools, if you are licensing existing 3D technology, installers, billing systems, and so forth. This also holds true for personnel-intensive areas, such customer service, technical support, and QA testing. And there is also a lot to be said for the exchange of experience and design thoughts. Having other developers to bounce ideas off of and get feedback from can be an invaluable asset, especially if they have an expertise in an area where your company is not as experienced. The best case scenario for any independent studio is to find a publisher that shares your vision, is willing to support it, and offers expertise and assets in areas [where] you need them.

　　Feargus Urquhart: For us, I believe it's our experience in creating games both with third-party tools and engines and without. As a group, we've pretty much done every type of technology creation and reuse-scenario out there. Plus, we spend a lot of time scheduling not only our projects but our finances. I think many developers run into problems because they have not adequately budgeted their products. I sometimes feel like a greedy little b****** asking for $6 or $7 million for a project, but if that is what your spreadsheets say that you need to be a successful business, taking into account the costs, buffer, and profit, then that is what you have to ask for. If the publisher turns it down, then you have to work with them to come up with a budget that makes them happy but still works for your business in the short and long term.

　　Michael Scandizzo: At Castaway, we embrace the spirit of collaboration and partnership rather than fighting it. Whether the new, closer relationship with publishers is a passing trend or the natural evolution, due to the maturing of our industry, it is a market reality today, and we must respond accordingly. While finding the right publishing partner will greatly impact the scale of our success, ultimately what’s important is the quality of our product. Being a small independent developer allows us to develop games the best way we know how--creatively.

　　Brian Fargo: Well, I do feel I have some advantage in the fact that I’ve been a publisher, and I know what it takes to finish a game without assistance. But ultimately, I will have alliances with publishers that will take many different forms, from distribution deals to joint ventures. If a publisher thinks you are capable of generating hits and having the proper sensibilities, then financing can be had to pay for the expensive things you mention. Using film and TV as an analogy, the studios create internal content, and they make deals with talented outside producers who they feel can create a quality project within a budget.

　　GameSpot: Many industry vets say the advance-against-return formula is dead (from the POV of the developer). Reason: Costs to create competitive products are too great. What's your opinion?

　　Bill Roper: The costs for creating what we all think of as “AAA titles” are certainly large, and you have to be thinking in terms of selling at least 500,000 copies for the advance-against-royalty structure to make sense. The sliders that developers can push in their favor, in this regard, are finding ways to spend less on the game (so you have less to pay back) and trying to have a more favorable payback schedule, often expressed in a higher royalty rate from the publisher. The biggest factors that publishers look at are total project cost, how many units they have to sell to make back the investment, and the possibility of the game being a top-seller. Obviously, some of these factors are easier to determine (budget) than others (gamer tastes), and this is where a solid track record from the independent developer can be exceptionally important. I also think this is why a lot of the publishers look to grow internal teams that they can compensate and bill in different ways than external studios. Advance-against-royalty is a model that we may see change over the next few years, perhaps going more toward joint ventures or cofunding with more successful independent developers, but as of today, its how the majority of third-party games see funding.

　　Feargus Urquhart: That is my opinion as well. However, it's not cheap to publish games, and a publisher should have the right to make back all of the costs that are associated with putting the product on the shelf (development budget, marketing, PR, MDF, COGs, etc.) before the developer starts making money. In other words, I think a system should be developed where the developer and the publisher both start making a profit/royalty at the same point in time. As for how much the developer should make at that point, and off of which definition of net receipts (or gross--we can always hope), that's all based on negotiations.

　　Michael Scandizzo: We believe that only top-notch products and developers will be able to survive this formula. Despite growth in both sales and the number of products in the industry, shelf space and customer awareness have not grown in step. Products have become highly competitive, with greater development costs than ever before. Advance-against-return can still work under these conditions, though it requires higher quality and greater sales than the past has seen.

　　Brian Fargo: I do agree that the cost of development has risen greatly, which puts the developer further in the hole to recoup. The odds have decreased to make real wealth, but it’s not impossible. Having your own development studio is not for everyone.

　　GameSpot: What are the three biggest challenges and the three most obvious benefits of being an independent shop?

　　Bill Roper: Challenges: Establishing all-new working relationships with a publisher, PR, marketing and sales teams; meeting the expectations of the fans of our previous games (and our own) for our new game; [and] balancing all the responsibilities and time requirements of starting up a new company with actually working on the game. Benefits: A small, focused team with a singular vision of purpose (we’re making one game); the excitement and challenge of creating a new company; [and] more ownership of your project and direct benefit from its success.

　　Feargus Urquhart: The biggest challenges for any developer all revolve around funding. The toughest thing to do is to secure funding or get signed by a publisher to a deal that gives you the time and money you need to make a product successfully and that is in line with the longer-range plans for your company. The hardest thing for any developer to do is to turn down a contract while facing an empty bank account. That's something that you have to do sometimes, since, while some contracts will feed you for a while, you might end up in an even worse financial situation at the end of that contract.

　　The benefits are that you can do things your way; you reap the rewards of your own success, and you get to build something that is yours. It's weird to think, in some ways, that the stories you create, the models you make, and the code that gets written is owned by you.

　　Michael Scandizzo: It can be challenging to be a small independent studio and yet remain financially viable. Building a new company and new culture from the ground up, and maintaining a relationship with a publisher, can also be difficult but are also among the rewards of starting an independent studio. In addition, creative control and self-determination strongly motivate us to remain independent in the future.

　　Brian Fargo: The biggest challenges have to be financing and self-discipline. The best source of financing is through publishers, so you need to find a champion within those companies to bring financing to you. And if you want to be successful and valued, you better learn to self-police yourself without the publisher doing your job for you. So many developers seem unable to keep an objective perspective on what they are doing.

　　GameSpot: Is an eventual purchase by an outside company part of your long-term strategy? Are you actively doing anything to prepare for that future?

　　Bill Roper: We have worked hard to try and keep our options open for the future. We have no idea now if we will want to sell our company in five or 10 years--or ever, for that matter. What we do want to do is be able to make that decision in [the most] unfettered environment as possible. Everyone at Flagship loves playing and making games, so if we ever decide to sell our company as an eventual business decision, we want that to happen when we want it to happen.

　　Feargus Urquhart: Yes and no. It is not something we are against at a later date, but it is not why we are in business today. We are trying to build a company that can stand on its own and is seen by publishers as a company that is great to work with and that delivers quality games on-time. As for growing our business, we are developing our own technology and IP that will not only help us be a more successful independent company but will also make us a more attractive purchase.

　　Michael Scandizzo: For the time being, we have no plans to be purchased. We didn’t enter this industry for its stability. We entered it because we wanted to create great games. For now, we will ride the roller coaster that is the life of being an independent developer.

　　Brian Fargo: I don’t focus on a purchase as a strategy. Make great games… opportunity will follow. All the things that would make a developer valuable, like organization of the company, creating valuable intellectual property, hiring talented people, making a positive working environment, are all things you have to do no matter what.

　　GameSpot: Brian, the endgame you eventually played at Interplay was to be bought by a publisher. Was that part of the plan when you started Interplay? Any regrets?

　　Brian Fargo: I don’t have regrets so much as disappointments with Interplay. It was not part of the initial plan to sell the company, but as the cost of being a publisher rose so markedly, it became apparent that we needed to align ourselves with a company with better financing. Unfortunately, our biggest shareholder was not as convinced until it was too late, and I was not able to close the deals I had lined up. It would have been nice to have many of my people end up in a safe place together, but I’m certainly proud of so many of the games.

　　Dan Rogers checked in the following perspective.

　　GameSpot: What can be learned from observing the recent alliance between Radical and VU Games?

　　Dan Lee Rogers: Publishers are rewarded by stockholders when they secure tangible assets. Development expertise is one such asset, and so this shouldn’t be a surprise to anyone. What is interesting is that VU has signaled that they are in an investment mode rather than a selling mode. I would speculate that they were finding business life progressively more difficult due to the uncertainty of their future. This should help to reassure their business partners that they are in it for the long haul. In terms of the deal itself, what we are really talking about are option rights. Without knowing the terms of the deal, my initial reaction is that Radical could have done better. Promised cash isn’t nearly as interesting as cash in hand. Just ask the boys over at Rare.

　　GameSpot: What's more powerful: a good idea or a ton of cash? In other words: A publisher with access to cash or a developer with a killer demo?

　　Dan Lee Rogers: I’ve always been a firm believer in the notion that a good idea without cash isn’t nearly as secure as an average idea with a lot of money behind it. Unfortunately, our industry’s current fixation with IP attachment feeds this animal and makes your killer demo even less meaningful. It’s better to have great technology that a publisher can envision as “the engine” behind their next game than to try to convince them that you’ve just created tomorrow’s Crash Bandicoot.

　　GameSpot: The question of "to sell my studio" or "stay independent" seems to be as a much a personal decision as one based on economics. What is it about today's economic climate that might tip the scales in one way or another for a solvent, independent development studio today?

　　Dan Lee Rogers: As I mentioned earlier, the transition period between one platform and the next is a time of uncertainty and significant risk for independent developers, and costs will rise dramatically. Independent developers will need to make a significant investment in their core technology in order to maintain their competitive edge. It also means that there will be new opportunities for unknown developers. If you’re at the top of your game now, and you’re facing a huge investment in technology in order to stay there, a publisher alliance might be timely and wise.

　　GameSpot: What would you advise Blizzard to do to halt the outflow of talent? What does the exodus tell you about that operation?

　　Dan Lee Rogers: I can’t speak to this specifically. Generally though--and this applies to our entire industry--this is inevitable and natural. It’s very difficult to maintain morale in an industry that requires 60-plus-hour work weeks when you’re the guy parking your 1973 VW between a Hummer and a Ferrari. The founders of successful studios deserve every penny they’ve earned, and the talented individuals who helped them get there deserve to either share in that wealth or [deserve] to have an opportunity to take their own risks and reap similar rewards. I applaud anyone who has the fortitude to strike out on their own and make their mark, provided that that they are doing it with integrity and honesty.