December 7, 2006

Media Rambling Rant

The RIAA is trying to reduce the amount of royalties being paid to songwriters.

This is a difficult topic to talk about. On one side, the RIAA member companies are doing exactly what their stockholders expect them to do...find a way to increase the amount of money coming in so that they can maintain or increase their stock price.

On the flipside, because of the sheer number of exemptions and chargebacks in the music industry, artists rarely see dime one beyond their advances until they've sold over three million units.

In the middle is the public domain. Labels and artists both want to increase the maximum length of copyright protection because both want to make more money (or in the case of most artists, some money) off of the same item, but at the same time, the most recent increase in copyright protection combined with the sheer quantity of samples being used in media is increasing costs for artists and accounting complexity for labels.

This issue is beginning to creep into game development as game costs increase. Namco has said that it will take an average sell-through of 500,000 units for a next-generation title to break even, in part because of increased development costs (estimated to be approximately $5 million). Compare that to the last generation, where 350,000 to 400,000 units was generally required to recoup publisher development costs of $2 million.

More costs are getting pushed back to the developer as well. Every time you contact publisher technical support, it takes away the royalties on as many as seven copies from the developer. Staff used to fill in holes are being charged back against royalties at rates as high as $60 an hour. If you fail certification more than twice, the cost for further certifications is getting charged back.

With the percentage of games breaking even per year decreasing slowly over the last few years, you're going to start seeing some fairly interesting shifts in the industry in an effort to control costs. I'm actually expecting a lot of the majors to gradually shift to a hub-and-spoke model over a studio model so that certain departments (audio, animation, etc.) can benefit from economies of scale. We're already seeing the rise of the designer again (Wright, Jaffe, etc.), where the designer is being pushed more than the team itself.

Moves like this are beginning to simulate a shift to more of a movie industry model. As technology and formats begin to stabilize, it is very possible that the shift will become even more dramatic. Outsourcing for asset production is already at record highs in this industry, with some designers going all out in support of outsourcing.

So the question is fairly simple. When the industry restructures, will we be looking at several ILM's, or several BMG's? It's unfortunate that the answer is not as simple...

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