1. Yes, business loans are different from personal loans. It is very hard to get business loans for video games (or any other type of risky business). If just getting a business loan instead of getting funding through a publisher or a venture capitalist was such a good path to take why doesn't it happen? Because banks are very reluctant to give out business loans for those types of projects because they are not as reliable as other business ventures. You seem to be of the opinion that banks would not have much of an issue giving out such loans... So I ask again. Why doesn't that happen? Has no one thought up the idea. Hey I can just go to a bank and get a loan to make this video game. Maybe I will put up my house as collateral so they know I am serious.
2. Businesses are able to get better deals on business loans because they can put concrete plans down for how they intend to use the money to make more money. When they can do that they can show the bank that the risk is reduced for that loan. Businesses also have more assets than just a house that the bank can get if they default on the loan. Getting a business loan to start a business is much harder to get(and the interest rates aren't as good) than an established business getting a loan.
3. Of course publishers don't give loans. They fund a project and the relationship between them is as someone who contracts labor and someone who provides contracted labor. Not master and slave. That is useless hyperbole. And it certainly isn't comparable to loan sharking. I'm well aware of what loan sharking is btw. Are you? The publisher is taking all of the risk in the development of a Video Game. The developer is paid whether the game sells well or not. They sometimes get bonuses if certain conditions are reached. If the game doesn't sell well the publisher is out cash. Unless the developer is throwing some of their own money into the project why would they expect any ownership of it? Whether labor is skilled or manual labor is irrelevant to the contractor relationship. Since you seem to want to take a lecturing tone you know that manual labor and skilled labor aren't mutually exclusive, right? Plumbers are skilled laborers.
4. Writers do get better deals with their publishers(they are usually able to retain IP and get royalties) but the amount of money that a book publisher has to risk is a lot less than the money it takes to make a video game. Authors are paid exclusively in royalties, usually with a modest advance. If developers were paid exclusively in royalties they would probably be able to get better deals from publishers but taking only royalties for developers would be a very bad business model for them. Very small indie developers(like one man) can sometimes swing that but most developement studios can't.
5. Video Games are very risky business. The majority of games don't make money. The majority of games with established experienced teams don't make money. One of the traps that publishers have gotten into with their business models is that the games that do make money have to be megahits to cover the losses for all the games that lose money.
6. How risky an investment is has a direct correlation to how much the investor needs to receive in return. If the return is to little the investment is not worth making since the investor will most likely just end up losing money. While it isn't an exact science, market mechanisms establish the basic exchange rates between risk and reward. It certainly isn't something that is based on personal preference. Financial Risk, basically defined, is how likely is money to be lost and how much money is likely to be lost(when compared to the initial investment). People that are very good at determining financial risks do well investing and those that aren't get broke. A good deal of economic science is based around how you can determine financial risk. I really don't comprehend how you can feel that banks and investors determine financial risk based on personal preference and whimsy.
7. I know I have mentioned this point before but I want to drive home the point again.
1. I never hear that someone even tried... There may be at least 4 possible reasons for not getting a loan.
a) Devs didn't try.
b) They tried, but didn't get one, because banks don't like gaming business.
c) They don't want to risk their personal wealth.
d) They tried, but their plan was shit.
2. That's a revolutionary idea. We borrow amount X to make a game. When we sell the get revenue of Y and after repaying the loan we will have a profit of Z . Now if you will add some things target audience, previous sales figures to the target audience and marketing plan with a budget, the company should look valid. I don't know, but it sounds pretty solid to me.
3. You are stating the obvious here again and again while trying to prove your point without any arguments. Why would they expect any ownership? Because in other lines of business you retain your ownership if you repay the amount you have borrowed. Don't go again repeating the shit that publishers don't give out loans, because banks do and that's why I would rather deal with one.
The publisher works as a bank until a certain point.
a) Person goes to the bank with his business idea and a plan for financing a project. I) Developers go to publishers with their idea of the game and convince them to finance a game.
b) Bank gives a loan. II) Developers finance a game.
c) Once you repay the loan you are free from obligations and can continue your business. III) Once you get the royalties that financed the production you are broke and have no right to the IP even if it was a hit.
If the project fails, the banks is also out of cash, right? But then if you succeed you don't get the bonus you get everything, amirite? Banks just get their interest as a compensation for the risk. What you are referring to is a simple contract job that can be done by a trained monkey, that usually goes by the name of Joe the Plumber. While in this case the developers create a franchise and only then go to the publisher to finance it. Then devs don't get a penny if their metacritic score is lower than in the contract. While the publisher can technically gain hundreds million dollars of
profit! Do you see a problem here?
Plumbers... You can train a man in a month to be a plumber, trying doing that to a surgeon, M.d., programmer, architect, engineer, lawyer or a professor.
4. Why would they need a royalty? If you can sell your game, why not take all the profit?
5. Source of this bullshit. If you sustain a massive army of employees that generate no revenue, like most publishers do what can you expect?
FYI:
http://investor.ea.com/results.cfm
1Q13 of Electronic Arts, our beloved company
Revenue $ 955 million
Cost of revenue $ 205 million consists of: amortization
of acquisition-related intangible costs (Tortanic and friends), content licensors (my guess is Face FX, speed tree and etc.) , independent software developers (The royalties to the devs), co-publishing and distribution affiliates (gamestop and etc.), losses determined post-launch are charged to cost of revenue and $ 73 million goes to service (my guess it's Origin).
R&D $ 290 million (payment for the game) consists of: hedging of cash flow activities (whatever is that supposed to mean),
any impairments or losses determined before the launch and you know the old fashioned stuff like paying for the fucking game.
Even with all of this shit it's 52% of the whole fucking revenue. Now I can't be bothered to do an industry based analysis but here are some companies of 2007/04 to 2008/03. Remember that there was a financial meltdown in 2007 and in such years leisure products suffer the most. I have omitted Sony, Microsoft and Nintendo, because they are also hardware developers and in the beginning they were selling their consoles at loss. I have also omitted Disney, because I have why it's a game publisher. And also Midway, due to it's bankruptcy as it distorts the data.
http://img.gawkerassets.com/img/17mzng8j9a8smjpg/original.jpg
http://img.gawkerassets.com/img/17mzng8j7sv6mjpg/original.jpg
Company Percentage of profit to revenue
EA -12.4%
Activision 11.9%
Konami 19.7%
Vivendi 13.1%
Namco 10.1%
Ubisoft 11.8%
Sega -4.2%
Take 2 -0.4%
THQ -3.4%
SQ-enix 27.6%
Capcom 22.5%
Atari -17.6%
Codemasters 10.1%
D3 2.1%
Industry average 6.5%
6. Kudos to Pearson education. You are citing the first pages without even thinking what the hell are you talking about. It is based on
CAPM. There multiple problems associated with the model, that can be explained through behavioral psychology rather than through the model. Asymetric information, homogenous expectations, risk aversion as constant. These are just a few of them.
7. Start refuting my points one by one and stop repeating shit all over again in a form of an essay. I heard you the first time and it does not matter how many times you repeat the same sentence, it does nothing to prove that you are right. Although some may be fascinated by it.