How to start a video game business

It is no mystery that, nowadays, video games are the fastest-growing sector in both the technology and entertainment industries. The unique conditions presented by the COVID-19 pandemic lockdowns and the massification of electronic devices capable of running a video game made being part of this industry - and its audiences - as easy as breathing and socially acceptable as any other sport or hobby.

And there isn't a die-hard video game fan, a tech expert with a passion for game loops, or an entrepreneur with a respectable fortune and a keen nose for making money not asking the same question right now:

How do you start a video game studio or company?

While the answer might seem easy considering what popular culture and the current socio-economic climate seem to tell you, the truth is that dedicating yourself to this job is anything but easy. A long list of considerations makes running a video game company more complex and time-consuming than it appears at first glance, raising one question after another.

But that's what we're here for, right?

Tools of the trade

While it is an ideal market for passionate and self-driven individuals, the video games sector is one of changing fortunes, rapid evolution, and harsh competition. However, few people or obstacles can stand between someone and their dream, let alone when there is a radiant clarity about the resources and tools available to accomplish such a task.

Do you know the basics of programming? Are you an accomplished concept artist? Do you have a designer's mindset, constantly optimizing or thinking outside the box? Have you been a project manager? Do you excel at selling your ideas to big-money investors? If the answer to all of these questions is yes, congratulations: you have most of what you need to be a successful game developer.

But if the answer to some of them is no, you'll need to know what people to surround yourself with.

As we've seen before on our blog, it takes a particular set of skills (excuse us again, Liam Neeson) to produce a video game from scratch.

You or your team must have a designer or designers capable of conceiving the mechanics, interactions, accessibility, and expressions of your target player. Programmers and engineers capable of translating that interactivity into a fast, optimized, bug-free game engine that works against all odds are also paramount.

A game development team needs artists capable of creating a captivating front end for your engine, and that will be true whether we're talking about Elden Ring or Dwarf Fortress. It will also need a marketing and publicity team capable of positioning your game to its ideal audience and a PR team capable of handling the press, social media, and streaming sites to achieve the desired effect.

Depending on your game's graphical fidelity and performance, it may require you to pay a certain sum in the form of royalties or usage rights for an established game engine (Unreal Engine, Unity, or in-house solutions such as Decima Engine, Frostbite, and others). Advertising and time on platforms and networks will also require some budget.

Oh yes, did we already say those individuals mentioned above need computers, desks, chairs, stationery... probably an office? And that, even in a remote working scheme, you will likely have to allocate a budget to replenish or buy equipment for those team members who need it.

And we still don't ask the most crucial question:

What game do you plan to play?

Product, my friend, is all you need

To a large extent, the ambition, specifications, and gameplay of any given game define the size and talent needed to be delivered by its developers.

Games like Vampire Survivors, Stardew Valley, or the previous Dwarf Fortress could have been the work of teams of ten people or less - some of them have even been the work of one person. In times like these, though, any video game development involving large teams of fifty or more people is commonplace.

The game's features are of utmost importance in defining its business model, and target audience, and a good part of the development and publishing costs. Is it a AAA game capable of running on PC and next-generation consoles? Is it an indie game with 16-bit aesthetics that can run even on a toaster? Does it have such a touching story that anyone of any age can play it, or does it deal with mature and adult enough subjects to require censorship or prior warning?

Does the development model allow you to benefit from early access or crowdfunding sites? Have you always thought of a game-as-a-service model, where the first release is free or at a reduced price, and you monetize your game through expansions, skins, and other expressions of customization?

While all of these questions may seem premature, they are the very ones that shape your business and publishing model. With the physical distribution model for video games slowly falling into disuse and a significant increase in digital distribution - to the point where 90% of video game sales in 2022 were digital, according to the Entertainment Retail Association (ERA) - it is of absolute relevance to know how online retail platforms work.

In mobile, PC, and console online stores, the platform host usually charges a 30% commission on sales. Certain exceptions apply: the Apple App Store and the Google Play Store reduce the commission to 15% after one year of publishing the product on their platform. The Epic Games Store, on the other hand, has a commission of just 12%, which makes it especially advantageous for early access games or the first games of a newly founded studio.

According to The Verge, Steam offers a progressive commission scheme, with a 5% reduction when the game has exceeded $10M in sales and an additional 5% reduction when it has surpassed $50M. Itch.io, one of the gentlest and most supportive digital shops for young developers and small studios, suggests only a 10% commission by default; however, as part of their open commission policy, developers can choose to pay from 0% to 100% commission.

But what about physical sales? According to StepByStep Business, the profit developers make from each sale is around 40% - between commissions and production of each disc or cartridge, manufacturers and hardware companies take 60% in commissions. It is fortunate, perhaps, for developers that the digital format is currently well-positioned.

Oh, those small letters

Once you have a clear idea and a coherent business model, the hard part comes next: registering and setting up your company's legal apparatus. At the very least, every company must have a legal advisor and a tax and collection advisor, and a video game company is no exception. The former is essential to establish and preserve copyrights, as well as to safeguard against them; the latter is necessary to ensure that all financial and social obligations of the company are met.

And both will be decisive in guiding the funding you decide on for your project.

Unless you are fortunate enough to have a small fortune or substantial amount of savings, your fledgling video game company will require lines of credit, ongoing investment, and resources to purchase, maintain, and repair equipment and materials. Fortunately, we live in an age where several investment funds and projects have been established to support the creation of new video games. Since many of these institutions are staffed by advisors who have previously worked in the industry, it is easier to sell a winning idea and find people directly interested in it.

However, we're not going to lie to you: competition for this type of funding is tough, and the existence of investment funds that specialize in certain types of products - Animoca Brands, for example, is an investment fund focused on financing Web3, play-to-earn, and blockchain-based video game projects - makes it necessary for your idea to be both clear and specific.

As previously discussed, crowdfunding is also an excellent way to fund your project. It is worth reviewing, however, the unique conditions of each platform - Kickstarter, Indiegogo, and Gambitious being good examples - and how to structure your project goals and communicate the promise of your idea to attract as many backers as possible.

Once funding is complete and the project formally launched, the role of your legal advisors will become increasingly important. With competition for ideas fierce and the fine line between homage and plagiarism a reality of the industry, it will be in your interest to shield your intellectual property and the details of your project from any possible "overlap". Brace yourself for when the likely success of your video game generates an army of imitators or bootleg copies of dubious credibility.

You will also need to create a safe, conducive environment for your team of developers to work comfortably and fully dedicated to the project. The more supportive and detailed the benefits package you offer, and the more up-to-date you are with new trends in remote and hybrid working, the more likely you are to create a loyal, focused team capable of bringing the next classic to life.

If this article has satisfied your curiosity about how building a game studio works, we welcome your feedback via our LinkedIn profile or our contact email addresses: adam@hapticrecruit.com and india@hapticrecruit.com. If you'd like to read more, let us know - we're just scratching the surface of what such an ambitious undertaking as this entails!

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