Why sell your game studio? And why not?

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[The GameDiscoverCo game discovery newsletter is written by ‘how people find your game’ expert & GameDiscoverCo founder Simon Carless, and is a regular look at how people discover and buy video games in the 2020s.]

Welcome back, baby alligators, to the discovery swamp that is the GameDiscoverCo newsletter. While we paddle happily through its dark inlets of game players’ souls, we will reveal inexorable truths about how we buy games, in the form of alarm clocks buried deep within those same alligators’ gullets.

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Being acquired as a game studio: pros and cons?

[This first part of today’s newsletter is from Hinterland founder Raphael van Lierop, who is the head of the Vancouver-headquartered studio which created exploration & survival megahit The Long Dark - above. The piece is based on a Twitter thread he made a few days ago, musing on the acquisition and investment-happy game biz environment right now.

Sure, you might be like - is this about discovery?! But unsurprisingly, the question of who you’re owned by and how you get investment to make those ultra-discoverable games is... kinda relevant? Which is why we wanted to run it. Thanks to him for letting us reprint it here.]

It's always super exciting to see colleagues sell their studios. This is a crazy time in the industry with tons of money floating around & tons of well-financed companies looking to acquire teams and IP. We've been approached about acquisition 3+ times in the last 6 months alone!

I thought it might be interesting to consider the reasons why someone might sell a studio, and other reasons why they might not. The reasons might not be as obvious as they seem. What are some reasons why someone might sell their game studio?

Why would you sell your studio?

- They want to cash out (convert equity for $) and someone is willing to make a substantial offer. This can be "life-changing" money, and put people on track to never really need to worry about finances ever again. Not every studio owner was already wealthy when they started them; most people I know who run or own studios bootstrapped them so most aren't necessarily super well off, and many might have carried financial worries for years. Selling is their chance to finally change that.

- They want to or need to grow, and need a big capital injection to make this happen. A well-financed owner is more likely to be willing to invest a lot of resources in your growth b/c they fully benefit from it directly. This is especially true if a company is trying to transition from making smaller "indie" games that cost relatively little, to AA-AAA projects in the $30-40M+ range, which are very difficult to self-fund. I don't know many independent devs that can do that.

And sure, there are other ways to make games with those budgets, like doing publishing deals and whatnot. But for the most part those tend to be heavily weighted in the publisher's favour, and it can be dangerous to grow your studio around them, because then you may become dependent.

- For some devs who have bigger ambitions than what they can create and fund themselves, selling their studio to a well-funded partner who will inject resources to support their projects can be really beneficial - provided you don't mind not owning your own stuff anymore.

- Another reason you might sell your studio is that you have specialized in a particular type of game or experience that is very heavily focused on a particular platform, audience, or part of the world. That can put you in a pretty vulnerable position. So having a strategic owner with presence in those areas (platform, genre, territory, etc.) can remove a lot of risk. Or, put another way, selling to the right partner can have a lot of upside.

- And, of course, there can also be plain old "greed", although in my personal experience I don't think this has been a big motivator for most people I know. But sure, pocketing tens to hundreds of millions of dollars (or more) might be very hard to say no to, because... materialism.

Reliable game pipelines: powering acquisition!

Right now, since there are so many channels that need great content, it's definitely a "sellers' market", and that comes to another reason why studio owners might choose to sell now: the prices are very high. But they might not always be. In fact, they almost certainly won't.

Bigger platform owners like Xbox or PlayStation need great content to keep people buying and playing their consoles, or Netflix/Amazon/Google/etc. for their respective channels. Having developer capacity means they have a more guaranteed product pipeline, which is super important.

(Especially if you have a Netflix-style approach like Game Pass or... Netflix... where subscriber retention is dependent on refreshing regularly with great content. Having that internal studio pipeline is the only way to be 100% sure you can support it.)

Running an independent studio is really tough and stressful. So if you find a partner who shares your values, is willing to invest in your vision, wants you to succeed, and is strategically aligned with you, that can be a really strong recipe for success.

And as a studio owner, I can tell you -- knowing your employees will be well taken care of and won't have any long-term concerns about stability is a big draw to the idea of being acquired by a larger company. Safe harbour.

But why wouldn’t you do it?

Why might people choose not to sell their companies? Well, there are also lots of reasons. They might really prefer to be independent, and money is maybe not a driver for them. They might feel that their greatest value still lies in the future, so the timing isn't right.

They might find that their suitors aren't in alignment with them regarding culture or values, and they worry about post-acquisition synergy. They might worry that acquisition will lock them to particular genres or a tight product focus that they'd prefer not to have.

They might be biding their time to see how things shake out in the industry. They may be happy to stay the size they are and live with the risk of continuing to be independent. They may know their teams wouldn't be happy to work at an owned studio.

(Another reason someone might sell their studio is that they know or fear they will go out of business otherwise. That happens too - I omitted that in my original list of "why sell?" I think this tends to be one of the bigger drivers of acquisition, actually.)

In any case, selling is not necessarily a bad thing at all. It's not necessarily a sign that a company is doing super well, and it's not necessarily a sign that they are failing. In the end, it can be very lucrative and positive for both parties - as long as their values are aligned.

There's a ton of industry growth right now, and more stable studios means more great games for everyone to play. And that's a good thing for all of us. Founders who sell may also then in 2-3 years be able to turn around and start new things, which helps drive further innovation. This is part of the life cycle of the industry.

So if a studio who makes the games you like announces they have sold, feel happy for them! It's a great thing for them and their teams, and will mean they can keep making games into the future, which is all any of us want in the end.

Some people who make games and end up running/owning studios end up selling them and making nice money from it. But I don't know a single developer who specifically got into this industry to try to get rich. (Not saying those people don't exist - but I don't know them.)

Refunds on DLC - they’re different?

Thanks, Raphael! And back to the numbers, hehe. After the release of House Flipper’s Luxury DLC on Steam a few days ago, the folks at Playway & Frozen District were kind enough to release a bunch of specific information about its performance to the Polish stock market.

Along the way, the following interesting facts were revealed. We wanted to highlight them, since DLC is often underdiscussed in terms of sales:

• The House Flipper Luxury DLC briefly hit 4th place in Steam’s global bestsellers by SKU. (Not bad for a $14.99 DLC, which requires the original game to play!) Total DLC sales in the first day or so were 54,000 units.

• The DLC itself had 181,000 Steam wishlists outstanding after the first day on sale, and 37,000 of the 54,000 Steam purchases were directly from the DLC’s wishlist during the first day. (This is a very strong wishlist conversion, if you compare to regular games. But wishlist actions on DLC are generally made by people already sold on the original game. So it makes sense that they’d convert well.)

• Most intriguing, the refunds were just 200 units out of the 54,000 units sold at that point - just 0.4%. (Obviously, you’re given more time to refund if you need to, so more might have come in. Nonetheless, if you compare to our previous refund ‘normal range’ estimates for full Steam games of 5% to 8% by unit and 6.5% to 11% by revenue, it’s way lower.)

There are a few reasons for lower refund rates, abstractly - quality being one of them. House Flipper’s Luxury DLC is rated Very Positive on Steam, which helps. But I was able to look at data from some other Steam DLC, and confirmed it had 2% to 3.5% refunds rate by unit, still more than 50% less than ‘normal’ rate for full games.

So you can expect DLC to be refunded at a lower rate in general! There’s other specific reasons, we reckon: many Steam players don’t remember/think that DLC can be refunded, you need to refund each piece of DLC individually, and DLC can only be refunded “if the underlying title has been played for less than two hours since the DLC was purchased so long as the DLC has not been consumed, modified or transferred”.

Finally, in doing research for this article, we also found some other interesting data. The full House Flipper game boasts an impressive 44,000 Steam reviews. And we discovered that Frozen District revealed back in May 2021 that the game had total of 2.1 million units sold on PC - so perhaps it’s closer to 2.5 million units now?

Bonus data: for House Flipper, as of May 2021, there were 140,000 units sold on Xbox One (+ 10.5k Garden Flipper DLC copies), 190,000 on PlayStation 4 (+ 13.5k Garden Flipper DLC copies), and 100,000 on Switch. This certainly shows why the PC-first approach is becoming popular for certain genres and styles of game, although those numbers are nothing to sneeze at.

Sure, the title has had less time to sell on consoles. But it’s almost certainly selling less copies per month on each console than it is on PC. The base House Flipper game has 1,100 reviews in the last month on Steam, which is likely 50,000 copies or more. PC rules, consoles drool, etcetera.

Oh, and there were some PC DLC unit totals for the other House Flipper DLCs, as follows: Garden Flipper had sold 570,000 units as of May - and has 636 Mixed reviews on its Steam DLC page now, and HGTV Flipper had sold 340,000 units, and has 328 Very Positive reviews now. (This also underlines that you can’t use ‘reviews/sales’ estimation for DLC, haha - those may roughly be 1 review per 1,000 units sold.)

Finally, we’d like to refer you back to our ‘DLC is really good actually’ newsletter from last year. Reminder: fans definitely buy your DLC at launch. But for most games, you get most of your upside on Steam from bundling the DLC with the base game, and selling the entire package at a discount! It’s great - we recommend it.

The game discovery news round-up..

It’s your last call for news! Last call for news, over here. You don’t have to go home, but you can’t stay here. We’ll be back on Friday for Plus subscribers - and for them, we’ll be looking at why Poppy Playtime is a breakout hit, we have a new PlayStation chart, and all kinds of other fun things. But here’s what we have now - shot, no chaser:

• How did Pico Park become a viral worldwide smash? It’s got to do with adding online multiplayer, and those darn streamers getting hold of it. Automaton has an article about it blowing up which includes “a Let’s Play video uploaded to the Chinese video sharing site bilibili” and “gameplay by eight popular [North American] streamers, including Sykkuno and Valkyrae”.

• Over on Twitter, Erik E. Johnson points out: “Apparently Steam no longer shows the Weeklong Deals banner in the Special Offers section of the front page. It used to be a standard feature on Mondays, but in July Valve shifted "Midweek Madness" promos from starting Tuesday to starting Monday, and then dropped Weeklong Deals.” It’s still a thing, and listed somewhat prominently, but maybe less good than it used to be?

• It’s a shame that Google Stadia is warming up the good platform features, just as people become less interested in the platform: “We’re excited to celebrate the more than 20 games available on the Stadia store that have integrated Stadia platform features like State Share, Stream Connect, Crowd Play and Crowd Choice.” All those things are pretty cool - take some time to investigate them.

• So, this academic paper pre-print [.PDF] looks at a whole bunch of ‘beyond me’ detailed statistical evaluations of Steam. The one bit I did understand was this: “Releasing a game around January is associated with the highest increase in the mean [success?] parameter, whereas releasing it around July is associated with the highest decrease.” Please tell me if you can extract more practicalities from the smart math(s).

• Yep, Nintendo’s Expansion Pack subscription - emulated N64 and Genesis games, access to the upcoming Animal Crossing expansion - is out now. And no, Nintendo is probably not happy with the reaction to the quality of the Nintendo 64 emulation. It just seems like… a muddled start to what could be a positive long-term subscription concept, given the amount of IP Nintendo has to play with?

• Those wizards at third-party service SteamDB have added an ‘all currently activated sale/event pages’ section - above - to their front page, which is handy if you just want to keep up with the size/type of publisher and promotion that gets an event page! (It doesn’t try to evaluate what kind of front-page featuring they get, of course.)

• Microlinks: the originally Sony-funded Death Stranding is maybe blocked from cloud streaming to Xbox via Nvidia GeForce Now; here’s a longer and better ‘Q3 in game streaming’ report from Streamlabs & Stream Hatchet; going by Eurogamer recommendations, there are too many good games coming out; integrated Twitch streaming on Xbox is now - or imminently - a thing, and don’t mention ‘the M word’.

Finally, Microsoft’s latst financial results are out. And, as graphically charted by this WorkingCasual report, you can see that game hardware and (especially!) content & services revenue has been boosted significantly, of recent:

I wonder if part of this impressive bost is that Microsoft now collects direct revenue (from Game Pass subscriptions) and then funds devs to be part of Game Pass, as opposed to taking a smaller 30% cut of a larger ecosystem?

Or maybe the larger ecosystem for AAA titles is intact, with Game Pass layered on top of it? We’ve just got two bar colors to play with here, so your guess is as good as mine. Happy Wednesday!

[We’re GameDiscoverCo, a new agency based around one simple issue: how do players find, buy and enjoy your premium PC or console game? We run the newsletter you’re reading, and provide consulting services for publishers, funds, and other smart game industry folks.]