XBLA Royalty Rate Changes - Closer To The Truth?
February 24, 2008 12:00 PM | Simon Carless
So, one of the big stories from earlier this week was Kotaku's one on Microsoft apparently 'cutting XBLA royalties in half', and it's one that has caused a lot of controversy, with plenty of predictable name-calling and insistence on the death of XBLA as a viable platform.
One of the problems here, of course, is that Kotaku's report only had one side of the story - and Microsoft isn't really in a position to refute the reports, because it will not discuss original or current royalty rates in public. Which leads us to a problem to be resolved - did Microsoft really cut its XBLA royalty rates in half without _ANY_ changes to the developer package?
The answer is no, of course. How Xbox Live Arcade works is badly understood by many, but let's try to split it up. Firstly, there are two different ways you can publish your game - either via Microsoft's own XBLA producers (let's call that 'first party'), or via an existing retail publishing partner such as Electronic Arts, Sierra, THQ, and so on (let's call that 'third party').
From what I understand, third-party royalty rates - which I believe were already less than 70% - are not affected at all by any of these new royalty changes. (Of course, if you're an indie and you have to go through a third-party, you will be getting a percentage of a percentage, because Microsoft takes a cut, and then your publisher, and then you. But you don't have to worry about testing, localization, getting ratings, and so on - it may be that Microsoft is keen for a greater percentage of games to run through those parties.)
So, it's the 'first-party' rates which are changing. And I didn't really have the specifics of how until an IndieGamer post by XBLA developer Paul Johnson helped fill in some of the blanks. As he explains:
"If you had a 70% deal... for a game, then you'll get your 70% for the life of the product. There is now a sliding scale in place for royalty payouts that is sure enough less than 70% at its best, but I've always thought that 70% to be unsustainably high from the get go, not that I was going to complain about it...
In return for the more realistic but still commercially viable lower rate, you get a variety of services for free that would've cost you plenty and would previously have presented a barrier to entry. Worldwide [game] ratings, localization, etc. It's a good deal. Unless you think saying M$ makes you clever, in which case I'm sure it will suck."
So basically - yes, the rumor is essentially correct, in that some royalty deals on first-party games may now be as low as 35%. But these lower royalty deals will now apparently include a lot of the 'grunt work' in localization that the developer had to pay up front - and sometimes perhaps couldn't afford.
In the N+ postmortem at the Indie Games Summit this week, it was noted that the minimum estimated cost to make an XBLA title was $125,000. It's possible (though it's unclear) that you can reduce that significantly with this new option - so you have to pay less up front, but you'll be making less on the back end.
There are still ramifications for many Xbox Live Arcade developers, of course - which is why I think it's even more important that XBLA pricing be reconsidered. Particularly, the traditional royalty rate if you 'roll your own' localization, etc and pay for it up front is now clearly less than 70% - but above 35%.
Which is a major shame - but paying for Microsoft's producers, game submissions, and so on _has_ to be self-sustaining, otherwise the XBLA ecosystem won't work. Overall, this _is_ a blow and a sign that the initial deals set up weren't at the correct level for sustainability. We'll see how this affects things for the indie going forward.
(As for what Sony and Nintendo are trying for - I'll be writing some pieces on the pros and cons of their approaches very soon, since they're equally interesting in different ways.)
[UPDATE: veteran programmer Jake Simpson also takes on the subject, suggesting "publishers still get the 70/30 split" and that "a rate of 35% going up to 45% based on sales [for first parties] has been put in place", particularly noting:
"MS is obviously attempting to steer indies to publishers, because then their certification requirements are considerably less (in so far as a publisher will do pre-cert to make sure you only need one certification submission, not many), and publishers deal with the indies instead of MS having to."
He also claimed of the changes: "So it's either go to a publisher and have to fight hugely to own your own IP, or take what little MS have and pray to god that you make enough to break even and fund the next game, not something particularly attractive to a small indie.
Whats really going to happen is that anyone who can create a decent product is going to run straight to Sony to do it, and have it released on their PlayStation Network instead. If they self fund they can retain the IP and the royalty rates are higher and best of all there are no publishers involved."]
[UPDATED UPDATE: Some particularly whiny but still smart correspondents of mine are complaining that I didn't run the numbers this time, as I did in my previous Xbox Live Arcade post. Mea culpa - it's true, and because I don't feel I have a full grasp of the facts on what is and isn't included.
Suffice to say - there's a real-world value (which I do not know!) for the 'extra things' Microsoft is doing. If it's $1, then this is a worse deal for XBLA developers. If it's $1 million, then this a great deal. Most correspondents so far - including several current XBLA developers in the comments - seem to think it tends towards a worse deal. Please do the math from there.]
Categories:








17 Comments
Obviously royalties won't change for existing contracts/games!
70% being "unsustainably high" is ridiculous -- aside from bandwidth/hosting and some organizational overhead, Microsoft's 30% is pure profit. 30% for doing very little, investing nothing, and taking no risk whatsoever sounds more than fair.
The number we quoted was probably lower than possible -- that was with paying yourself $0, which doesn't really work since realistically you need to eat. So it's going to be coming out of your pocket/savings even if it's not in the budget proper, which we learnt the hard way. So, that balances the $30-40k you might be able to cut by using your publisher's QA/localization/etc.
It's so stupid that publishers were allowed to horn in on this market, aren't they the ones that made retail such a crap-shoot? I thought the whole idea behind XBLA was to avoid the "99% of games are crap" retail situation..
raigan | February 24, 2008 1:37 PM
Change is always hard, but I'm glad that they're balancing it out with something instead of just cutting royalties and telling people to suck it up, which they could easily have done.
oakling | February 24, 2008 3:02 PM
Time for indies to look to other platforms.
meh | February 24, 2008 3:10 PM
Yeah, umm... I don't know if I would consider targeting Live with my next game, given these royalty rates. It is very unappealing.
The idea that testing/internationalization/etc somehow balances this out is a red herring. It doesn't.
Jonathan Blow | February 24, 2008 6:47 PM
I meant that around $100k is going to be as cheap as it gets, with or without a publisher, since even if you knock $40k off of the budget (due to publisher handling some things), the $100k is with paying yourself _nothing_, which isn't really feasible. So, $100k is still a good low-end figure..
raigan | February 24, 2008 8:29 PM
"Time for indies to look to other..." publishers.
I think 90% of this was small shops looking to make big bucks by avoiding publishers, but because of there inexperience and typical lack of QA they were probably taking up a huge amount of cert resources that could be going onto other games.
With the announcement of Community games, those developers can now self publish.
Doobi | February 25, 2008 2:38 AM
"70% being "unsustainably high" is ridiculous -- aside from bandwidth/hosting and some organizational overhead, Microsoft's 30% is pure profit. 30% for doing very little, investing nothing, and taking no risk whatsoever sounds more than fair."
I'm pretty sure MSFT has spent a considerable amount on the development, production and marketing of the platform in the first place.
ScottG13 | February 25, 2008 5:34 AM
The only way these rates could reasonably be conceived as acceptable is if Microsoft acts as the publisher and funds development directly either as advances on royalties or by straight up cash monies.
They have mentioned that this is on the cards; we'll have to see where it goes from there. Until they start fronting cash for this stuff, these rates are nothing but laughable.
haowan | February 25, 2008 6:09 AM
Most casual game distribution deals have royalty rates at about 40%, Haowan. Not defending that in the _slightest_, but I'm not sure you realize that this royalty rate is already considered acceptable by the PC casual game market.
simonc | February 25, 2008 6:24 AM
This is what I was told when I first looked into XBLA development. If you chose to self publish and only had Microsoft involved to do the cert testing you got the 70% rate. You had to pay for testing which is usually around $15K. Often though they would waive that fee, at least in the early days. Now it seems they are lumping that in and cutting the rate. If Microsoft chose to publish your game then all extras would be handled by them and the royalty rate went down to about 50% I think. Mind you, this was at the start of 2007 when I spoke with Ross Erickson and no doubt things have change. All in all it is a lower rate and you are going to have to either cut costs or sell a lot more to make the same profit.
Davec | February 25, 2008 1:07 PM
Giles from Llamasoft (co-creator of Space Giraffe with Mr. Minter) comments on the possible changes on the YakYak forums, I note:
http://www.yakyak.org/viewtopic.php?f=2&t=70667&start=30#p1261733
simonc | February 25, 2008 2:44 PM
Whoever said MS's 30% is pure profit is very unaware of the amount of time and money MS has invested into VS.net, C# in particular, XNA, and its partners in bring forth the XBLA platform.
Its obvious to me they deserved more than %30 in my opinion.
You mention the traffic the leaderboards alone must create! All of the online content for Live Arcade must be hosted on a quite robust network.
Kyle Ivan Blake | February 25, 2008 4:34 PM
"Whoever said MS's 30% is pure profit is very unaware of the amount of time and money MS has invested into VS.net, C# in particular, XNA, and its partners in bring forth the XBLA platform."
That was raigan, who is one of the developers behind N+ for XBLA. C#, XNA, etc is not required to develop XBLA games, and I doubt were used to develop N+.
"You mention the traffic the leaderboards alone must create! All of the online content for Live Arcade must be hosted on a quite robust network."
Surely this cost would be covered by the Xbox Live Gold subscription fee and the 30% MS already takes - money that MS could lose if developers shun the service.
Aloosh | February 25, 2008 8:27 PM
Just because certain things don't require it doesn't mean others can't. They clearly need to spread these costs out more or they'll be insurmountable for anyone.
Tony | February 26, 2008 11:30 AM
"It's so stupid that publishers were allowed to horn in on this market, aren't they the ones that made retail such a crap-shoot? I thought the whole idea behind XBLA was to avoid the "99% of games are crap" retail situation.."
That went out the window as soon as pubs noticed all the money that they weren't earning by not being a part of this unexpectedly profitable side stream. And then (I suspect) came the behind-the-scenes bizno-politicking to ensure that big name publishers get a bite of the revenue stream. Still want that platform exclusive? Sure! You can still have it... as long as we get to earn money off our dated/dead IP.
"XBLA will be to games what Sundance is to Movies" - Peter Moore. If only, Pete, if only. Still, CC may fill that role. There's still some hope in all this.
Mister | March 1, 2008 5:23 PM
I think this is actually a QA move. Think about it. If the game won't sell this royalty talk is just bull... This move actually force publishers/developers to make sure the final product is good. If everyone just play the demo it doesn't do anyone any favor...
AT8 | March 4, 2008 5:45 PM
Nice post,good inormation.
wholesalebeads | February 21, 2011 11:07 PM