Improving the Middleware Licensing Model

[Before I get into the specifics of what I’m talking about, I’d like to preface all this by saying that I am not a business analyst, nor an economist. I don’t know the realities of how feasible this is, as I have not run any numbers to check that feasibility. More than anything, I am putting this out there as an idea, in the hopes that someone with the requisite expertise can actually run the numbers and (hopefully) put them into practice. — Nabil]

As I’m sure most of you are already aware, games are generally no longer made in someone’s basement on a shoestring budget. They are developed by teams ranging in size but rarely under a dozen at this point, and for budgets that are quickly rivalling the most expensive Hollywood blockbusters. While the size and scope of game development is now on par with that of movie development, we haven’t bothered to adopt many of the business models that are used within this sister entertainment industry, and not because they couldn’t be successful, but simply because those holding the purse strings are leery of trying something new on a $20 million game. This is only going to become worse as budgets continue to escalate into the $100 million and even $200 million game. Put simply, the financiers of the industry are becoming more risk-averse, and are going to become more conservative as time continues. If we’re going to find alternative models for game development, it needs to be done now if at all. Personally, one avenue I’d like to see pursued is a royalties-based licensing model.

The reasoning behind a royalties-based licensing model stems from the trend towards using third party technology solutions, rather than creating their own for each game. This category of technology is called “middleware” and ranges the gamut of uses: physics, sound handling, and graphics engines all have some very popular available options for use in development projects. These systems are usually available for a moderate to large one-time fee paid up-front, like other traditional software applications. This means that in order to use these increasingly sophisticated and pivotal development tools, there is an initial financial barrier of entry that often excludes smaller development studios.

But what if there wasn’t that initial fee? What about a solution where the middleware is provided to small developers for no or a minimal fee in exchange for a contractual promise of a percentage of profits (gross or net)? That’s what a royalties-based license would be: hedging the initial cost of the middleware for the potentially larger revenues down the line. Let’s say that you take 10% of $20 — that’s $2. The Unreal 3 Engine is running roughly $250,000 currently. It would take 125,000 units sold to gain those fees. While there will be a share of games that do pull these numbers, generally shareware sells units under the 100,000 unit mark, but by lowering the barrier of entry, more games are made. Ten games selling 20,000 units each will generate more revenue for the middleware company than the one game with an up front licensing fee.

This would also open up the potential for game hobbyists, academics, and part-time developers to use professional grade tools, and explore potential ludological and narratological avenues that might never be pursued otherwise. It would open up paths of development significantly, by allowing people to pursue personal projects without investing significant (and often non-existent) capital into the project. The trick, of course, will be convincing the companies in question that this is a viable option worth trying. There’s not much more I can do but write about the idea, unfortunately, and simply hope that the idea might germinate and spread in others… which is exactly what I’ve just done.

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