Cold Equations: The Death of a Game Company

(Author’s note: The story you’re about to read is real; only the names have been changed.)

I stared the Cold Equations in the eye and survived, though I was not unscarred. Yet the true hero in this story was a man named Jim.

When I started working for Erudite Software Consulting in 1994, I was excited about finally getting out of school and into the software industry. Though primarily a software consulting company, Erudite also sported a games division, which was working on a game based on the board game The Great Battles of Alexander.

Three years passed before Alexander finally saw the light of day. It was a complex, historically accurate, turn-based strategy game made during the time of the RTS. Despite this, the only truly negative review I read about it was in USA Today, which said that its – obviously casual – players couldn’t figure out the game. But magazine critics, who were hardcore gamers, raved about Alexander! At last their favorite niche was being filled.

Then, one of Erudite’s owners, Jim, approached me about managing the game division on their follow-up titles. I was nervous about this, because the game division wasn’t popular with the other company owners. But seeing an opportunity to help turn the division around, I eventually decided to help out part time. Besides, how hard could game development be?

How hard indeed!

Although managing artists was a new experience, it turned out to be pretty much like managing programmers. But there was one huge difference between the two groups: The game programmers made between $30,000 and $50,000 per year, whereas the artists were lucky to break $19,000. So, why would highly skilled, highly trained, college-educated artists make less than equally skilled and trained programmers? When I asked Jim, he responded, “It’s the price the market will bear.” This was my first brush with the Cold Equations of economics.

Though not well paid, the artists were still passionate. Making money as an artist is, for them, like jocks making money playing sports. Unfortunately, artists “over supply” the market compared to its demand, which means lower salaries.

Soon, I realized the game programmers were underpaid, as well. By far the most technically adept programmers in the company, these game programmers made 30 to 50 percent less than equivalently skilled software consultants – not counting overtime! I supposed this was the price you paid to make games for a living. Like Jim, the programmers and artists had real passion for what they did. Making money at making games allowed them to do what they enjoyed and still pay the bills.

The effects of supply and demand on game division salaries reminded me of Tom Godwin’s classic story, “Cold Equations.” A spaceship captain was to deliver time-sensitive vaccines to the dying inhabitants of a far-off planet. According to physics laws, the ship’s mass and fuel must be carefully calculated to insure an exact arrival time. But after discovering a stowaway, and realizing her added mass will endanger the mission, he sacrifices her life to save millions of others. Little did I know that supply and demand would soon create my own “Cold Equation.” I found myself confronting immutable economic laws that coldly took their victims, regardless of the best human intentions.

The first game I worked on, The Great Battles of Hannibal, was only a six-month project. It was little more than a re-skin of Alexander with a few new rules, so I was confident of its schedule. We produced it almost exactly to schedule and made a 20 percent profit. Though relieved, one thing still bothered me: If I had deployed these same resources on a consulting project, Erudite could have easily brought in a 50 percent gross profit. In fact, if our software consulting arm only made 20 percent profit, we’d go out of business.

Though we talked big about making additional royalties if the game sold better, this proved a pipe dream. Alexander had sold to all of the approximately 30,000 people in the world that liked that sort of game. And they didn’t just like it, they loved it. They loved it so much that almost all of them returned to buy Hannibal. Besides, as is typical in the developer/publisher world, we only made a few dollars on each game sold. We had found a niche and captured it. It wasn’t possible to sell more units.

Concerned about the game’s profit margin, I asked Jim what the original game had cost compared to its against royalties. Jim had to pick me up off the floor. It had cost nearly 10 times the amount of the royalty advance! I ran the numbers, taking into consideration the capitalization of the game engine, and found we’d have to publish 20 games as profitable as Hannibal before we’d break even! What had I gotten myself into?

Undaunted, the passionate people of our little game division moved on to The Great Battles of Caesar. Although we made our schedule and were profitable again, I still worried about how easy it would be to fail. Even a one-month slip would wipe out our profit margin. Our software consulting arm would walk away from such business, because, in software, a single unforeseeable problem can easily lead to such a delay. I was beginning to understand why the other company owners disliked the game division so much.

Jim’s passion was the sole force allowing us to exist. A man with a mission, Jim was fulfilling a dream to bring these board games to videogame fans worldwide. So I knew we were in trouble when Jim announced he was leaving. He left saying, “I’m coming back for the game division. I’m going to convince my new company to buy it. Keep it in good shape.” I saluted smartly and reassured the team that Jim would return for them.

We started work on what would be our final game using the Alexander engine. This Civil War game, North vs. South, was a departure from the previous games. Many on the team started to worry. They had grown tired of being the “ugly duckling” at a successful company. Would it be any different at Jim’s new company? Some approached Jim with their concerns. He reassuringly said he’d find other types of games for them – perhaps web-based Java applets – if the new company wasn’t interested in their current work. This revelation didn’t sit well with many team members, who saw Java applets as featherweight programming.

Fearing the worst, some programmers departed for greener pastures. One of them was going through a divorce partly caused by the job pressure, and he just couldn’t take anymore. One of Erudite’s game-division-hating owners offered him $80,000 to work as a software trainer. It was three times what he used to make. Passion? Ha! What had it gotten him? He quickly left and others soon followed.

Then, my worst fears were realized. Near the end of the NvS schedule, we ran into a problem: The new unit types (like cannons) were too big for the engine to properly display inside a single hex. In some circumstances, this caused the large units to turn invisible. We did not have time in the schedule to resolve this unforeseeable glitch. Working through the issue required all of our rapidly shrinking resources. Pouring salt on the wound, our financially struggling publisher canceled our follow-up project. Our future vanished before our eyes. By the time we finished NvS, there was exactly one programmer left, and all the artists had been laid off.

Joe, the remaining programmer, had a lot of talent and was passionate about games, but even he needed to feed his family. I helped him find a job in the game industry with a friend of mine. He alone stayed in the game industry. With the publisher’s help, we figured out a way he could finish off NvS. We completed the game two months late and lost money in the process. Not long after NvS, they went out of business.

The sad truth is that we never had a shot at success. We were driven by Jim’s passion to make computer games. From an economic standpoint, it is simply not worth making a game for the 30,000 “historically accurate turn-based” enthusiasts in the world. We were victims of the Cold Equation of supply and demand.

My perspective on computer games has changed forever. Soulless companies that don’t take chances, show little originality, work their people to the point of lawsuits and let the accountants run the company may not be popular with hardcore gamers, but they do understand what it really takes to wrestle with the cold equations of our over-supplied industry and still stay in business.

The only real cure to this problem is worse than the disease: Remove the passion from the industry. But do we really want the entire industry to be like Electronic Arts? What a shame it would be to not have people like Jim, who have a driving passion in the industry and who take chances that were logically never worth taking. There are no villains in this story. Just a group of passionate people that believed they could defy the Cold Equations of economics.

Bruce Nielson’s short experience as a game producer left him cold and he’d rather be a game consumer anyhow. If you’re stupid enough to want to hire him anyhow, please offer a very large salary. He can be reached via The Online Roleplayer, which he runs.