The Rationale and Challenges Behind the Production and Distribution of Freedom Force

Ken Levine - Irrational Games

Introduction
Founded in 1997, Irrational Games aims at bringing deep RPG and strategy games to both the PC and next-generation console markets. The company has studios in Boston and Canberra, Australia, and it has successful titles like System Shock II and Freedom Force in its oeuvre. This lecture will discuss the reasons why Irrational decided to produce Freedom Force, and some of the challenges encountered along the way – in terms of business, aesthetics, and production.

Challenges regarding Intellectual Property Rights for a Video Game
The first lesson learnt by Irrational was that intellectual property and copyright are crucial issues in the game industry. For System Shock II, the first game that the company developed, Electronic Arts owned the trademark, but a company called The Looking Glass owned the copyright. People constantly ask Irrational about the possibility of making System Shock III, but the scenario is that The Looking Glass is out of business currently, and EA doesn't care too much about System Shock, so the property, for all practical purposes is effectively dead, unless Irrational wants to stage a D-Day type of legal assault on the gaming world and get all the legal entities together to make it happen.

So Irrational soon realized, after the production of its very first game, that intellectual property ownership was critical for success in the game world. If you don't own the assets you are working with, the ability to split them in any meaningful way is extremely difficult. We decided to come up with interesting properties for which we would own the complete intellectual property rights.

The second challenge is contract negotiations with a publisher – to make sure that you do indeed own the property you develop. It is not surprising that publishers, who stand to make millions of dollars from the game, want to own as much of it as they possibly can.

The third challenge is actually making the game; coming up with a game that people want to play.

Freedom Force - The Concept and the Aesthetics
There are several things in the market that could be categorized under the term "free franchise". A free franchise is something that is completely recognizable by the audience – when they see it, they will know what it is; however the developer doesn't have to pay anything for it. Comic books are one example. World War II is a classic free franchise. When a Medal or Honor or Call of Duty kind of game is made, the players don't have to be explained the concept. Why all you have to do is shoot the guys in the grey suits and the weird helmets and not the ones in the green suits, for example – everyone gets that! A lot of developers make games from stories they wrote in the 7th grade, and while they may find their own stories compelling, nobody else really cares.

Irrational wanted to not only develop a game that we owned the intellectual property for, but also wanted the players to "get it" immediately. Freedom Force came from this motive. Thus all the characters are new characters and so the IPR lies with Irrational. At the same time, Irrational did not want to reinvent the wheel when it came to comic books. We chose to design characters that were iconic, that looked like they came from a period of comic books that people were familiar with. We chose the early 60s, a part of what is known as the 'silver age of comic books', for a variety of reasons.

The techniques for making comic books were much simpler then. Things like Photoshop and 4-color printing were not used at that time. In fact, these only began to get popular in the comic book industry in the 90s, much after their acceptance in the magazine industry. The traditional process of making comic books involved penciling, inking and then a colorist writing down the different colors in each panel and then finally a color veteran doing the coloring, with simple, bold colors. Video games face the same problems – we may talk about high-resolution video graphics, etc, but we are still working in a low-resolution medium. A character like Lara Croft is so effective because she is instantly recognizable – her body is broken up into three basic color blocks and a distinctive shape. A lot of video game artists try to draw in so much detail and texture into their characters that the medium just can't support it.

Irrational looked at the world of comic book artists like Steve Ditko and Jack Kirby and studied how they were able to draw their characters. Kirby was a strong influence, especially his early work with the Fantastic Four and the Avengers. Irrational's concept artist then drew some compelling characters that transferred well to the video game. It was decided that Freedom Force would be a blend of squad-based strategy and RPG set in a stylized version of New York City about forty years ago, using the coming book visual style of the 1960s.

The Marketing of Freedom Force
It must be noted that there is a vicious cycle between retail visibility and product sales. For examples in supermarkets, the 'end caps' in the aisles will have large Coke signage and Coke products, hence Coke is bought more because of this increased visibility, which in turn justifies their presence within the end caps. Likewise with games, as the industry is getting more sophisticated, there is a trend of high visibility and high display and consequently high sales figures for very popular game franchises like the Sims. What this does unfortunately is that it discourages innovation and competition and the ability to generate a new piece of intellectual property.

When Irrational went to the market to pitch their concept, every publisher asked us the same question – why didn't we do a game on existing characters, like Spider man or Captain America? Irrational didn't want to do this because with a licensed intellectual property, a large part of the game budget goes towards paying for the rights to the property and hence not enough can be devoted to the actual game development. This is one reason why so many licensed games aren't very compelling. There is a long approval process to get the rights of the characters, generally with a company and representatives who know nothing about video games. Their job is to make sure that the characters translate well across other properties like films. However a lot of times what works with the characters on film, may not work within a video game, and vice versa. Further, there are a lot of restrictions on what the licensed character can do and can't do.

For all these reasons we decided to create our own new characters, but because of this decision, a lot of publishers were just not interested in the game. Also, there was a notion in the game industry that a video game that dealt with comic book characters was cursed. There were a few high profile games that went into production but were never released (for example, The Indestructibles), but the publishers seemed to think that they had released and flopped, and so were very averse to the concept of a new superhero game.

Eventually, it was decided that publisher of the game would be a company called Crave, but Crave went through financial difficulties before the release of the game and this led to Freedom Force being taken over by EA for distribution. Since it was an innovative product with no pre-assured market, it wasn't marketed with a huge budget of millions of dollars behind it.

The success of Freedom Force
The challenge for a game developer is – how do you circumvent all the obstacles that are in the way of bringing a truly innovative game to the market?

For Irrational, we did not try and reinvent the wheel. We decided to take comic books as a concept – around which, prior to Freedom Force, there had been no good quality video game yet. We knew that there was a market for superhero games out there, and we decided to tap into it.

Secondly, Freedom Force had a story that, while, was not entirely original in the world of comic books, was very new in the world of video games. It was heavily inspired by the stories of comic masters like Stan Lee, for example, and the stories he wrote 40 years ago; but these kinds of stories were stories that the game world still hadn't encountered. TV shows like Buffy too are heavily inspired by Stan Lee – in terms of being "super-hero soap operas", and that was the kind of effect Freedom Force wanted to have.

Story telling is always a problem in games as you have a limited time to get your point across. A lot of developers make the mistake of trying to tell a lot of story within the game structure and this complicated things. With Freedom Force, whenever a character wanted to say something, it was very natural for the character to just say it, which is very true to the comic book medium. We could also use a narrator to say things in voice-over mode and so essentially, the comic book feel of the game allowed Irrational to circumvent the subtleties involved in adding emotion to the game. We were freed from the challenge of making the story as "real" as possible.

It's enough of a challenge to make a good video game in the first place – a game that is fun and that people would want to buy, and to bring it to production from its initial concept stage. The likelihood of failure is extremely high, and there is also the issue of critical success besides the desired commercial success. Freedom Force managed to pass all these tests but it is usually typical for a game to fall short in some of these areas. It managed to sell 400,000 copies, despite having very little publicity and marketing push and support.

Challenges for the Future of Small Game Development
Publishers are becoming more risk averse and less supportive of innovation, as the game industry goes through a process of consolidation. It is very expensive to take risks in the industry – a prototype for a large game for instance, costs US $ 600,000 to make and there are very few players in the industry with that kind of money to spare. In the film industry, one could make ten scripts, outlines and film treatments within the same budget and the ratio between products that are conceptualized and those that are actually made would be something like 30:1. For games the stakes are a lot higher. So one of the challenges for Irrational in the future would be how to prototype games without actually having to make them.

The game industry is highly stratified – on the one hand you have budgets of half a million dollars, on the other hand are the 10-20 million dollar games. Games that aim at the middle end of this spectrum (the 6-8 million dollar game budgets) are shrinking. Game marketers are much more safe backing huge products based on existing franchises that show a high return on investment than something new.

Irrational is now planning a sequel to Freedom Force – called Freedom Force vs. The Third Reich, (combining both the popular free franchises – comics and world war II), and we will be focusing our marketing on our core fan base, instead of trying to broadly market the game. We will be funding the sequel ourselves, and have decided to conserve our resources and target the existing audience of the first Freedom Force game – most of our money will be spent on PR and on retaining their core audience. We are also looking at a comic book deal – and in a way coming back full circle – its not very clear how that will look or feel, as well as a novelization of the second game. All of these will expand the brand and the challenge lies in making them compelling.

Distribution Models for Game Developers
In terms of the distribution breakup, there are two different models development companies use while negotiating with distribution companies – advance and back-end. The economics of the business are not good for a small game development company. For example, a game development company that works on an advance model with a 20% revenue sharing agreement would need the game to earn back 5 times the amount of the advance before it even begins to start partaking its percentage share of the revenue!

Irrational is going to adopt the back-end model for the Freedom Force sequel, where we can get the majority of the back-end revenues and be in a stronger position. For a small game development company, if the game sells, say 300,000 units, and you get to keep a significant portion of the back end, you can have a strong business model, but large publishers may not be that interested in seeing sales of only 300,000 units. So we see Irrational turning in to a barbell shaped business – on one side we have PC games where we are focusing on the core audience and experimenting with ideas like direct distribution over the internet, and on the other side, big 10 million dollar budget games. But we don't know if the experimental space in the middle could continue to exist any longer, and that's a shame because the middle ground was a wonderful space for experimentation.

Lessons learnt from Freedom Force
With the first Freedom Force, we went in for a low-risk, low reward model. Now that the Freedom Force brand is established, we at Irrational are willing to take on more risk, to self publish and experiment with distribution options. For a small time game development company, these are huge issues that must be considered carefully.

While we didn't make money off the first Freedom Force, we learnt valuable lessons and got an active audience for the sequel, which we hope to make money on as we are self publishing it. One of the other important things we learnt is that 80 percent of our buyers were from north America – that would normally be disappointing as you would want your game to do well worldwide, but for it, since we are self publishing the sequel it is great news. We can now focus all our media buys and publicity on North America. If we can do this successfully, then our next goal would be to expand the brand internationally.

The most important thing for a game developer is the time spent on the game. The reason why so many games don't do well is that there isn't adequate time spent – the publisher is always trying to push for you to complete the game early and so many game developers land up delivering games that could have been much better had they spent a few more months on them.

Developing Console games vs. PC Games
There are pros and cons to designing for both platforms. PC games are easy to self-publish for a game developer. It is impossible to self publish a console game. The console business differs in several ways from the PC business – the primary reason for this is that the console business is like a gatekeeper. For example, if you want to design a game for the PlayStation, Sony will have to buy into the game, which means that the game has to be proven to work well on the platform. Their interest lies in the game being as good as it can be when it is released on their platform, but they are not paying the development cost for this – you are, as a game developer.

For the console manufacturer, it is a risk, because the company puts in a lot of money into developing the hardware, into R and D and the manufacture of new technology, often at a loss in the hardware cycle, and also spends millions of dollars in marketing the hardware. In return for all this investment, the console company receives money from not just consumers, but also game manufacturers – every company that makes a game for a particular console pays the console manufacturer a fee.

There is also an approval process that every console manufacturer undertakes before letting the game developer manufacture a game for its platform. In terms of revenues, the partnership with the console manufacturer would mean a split in the revenues and the console manufacturer usually takes a 7-9 dollar piece of every unit that is sold.

Another point to be noted is that console manufacturers are also game developers and publishers, so if you develop a game that is in direct conflict with a title they are developing, they are very unlikely to approve it for their platform. They also have stringent standards for how the game is presented on the screen and to the players and seek consistency across all levels. So it is a tricky process for a game developer to negotiate with the console manufacturers with regard to a variety of issues.

In terms of barriers of entry, the cost of buying a console is much less than the cost of buying a high end PC with a good video card, etc. It is also much harder to install the PC games and configure the PC to run it than it is to install a console game. Console games are sold more than PC games. Then again, PC games can have patches released for them and this is now a big trend.

So there are pros and cons for developing games for both platforms – console games are obviously more profitable, but more of a risk and as a game developer, you are less in charge of your own destiny than with PC games.

Retailing in the Game Industry
As a game development company, you design the game, put it on the discs, and even design the boxes for the game. But what you cannot do, because you don't have the relationship with retailers, is negotiate for shelf space, which is at a premium as there are so many more products than available shelf space. What a big publisher like Electronic Arts (EA) can do is negotiate for the premium shelf space, so that if the customer enters a store, he/she will see rows and rows of EA games, but have to hunt in the corners for games by other publishers. What a big publisher like EA can do, is leverage its equity because of its size, and tie-in its hugely popular commercial games along with its new titles from its library in terms of access to the premium shelf space. And of course, retailers have the acumen and the know how to get the product moving off the shelves and into the homes of the customers.

There are two things that are critical in the retail space – price protection and returns. By price protection, it means that the retailer wants to retroactively pay the distributor a lower wholesale price for the game if the game doesn't move well. Thus when the game gets marked down, the wholesaler doesn't lose money, it is the publisher who does, and this is often decided after lots of negotiations. Again, big companies like EA are much tougher on price protection – they will not give as much ground to retailers as smaller companies may be forced to give.

By returns, one refers to the unsold games from the retailers. This is another huge problem if the game doesn't do well. Small publishers and distributors may be forced to accept the retailers' terms of returns, while larger ones can negotiate better positions on this issue.

It's a tough call to make as a developer – you are at the mercy of the console manufacturers on one side and retailers on the other. Once again, you don't need to go this route if you want to make a game that is targeting only 100 or 200 thousand units, but if you want to make a game that will sell a million units, these are compromises you will have to make. The console manufactures-retailers model is successful, but it is becoming larger and larger. If your target audience is not the mass market, there are ways of circumventing this, as Irrational is trying to do with Freedom Force 2.

Online distribution is another option. At this point the companies in the field are expensive – some of them want 55% of the revenue earnt through online distribution in return for offering their technology – which doesn't work out for most game developers. The model will have to be more equitable in order to work, but it is an area of promise. The potential of doing micro content is also immense. For example, instead of waiting a long time to release the next Freedom Force, we could do a small package of two new missions, 3 new superheroes and 10 new powers and charge 5 dollars for this online. This would also help to monetize the downtime of the game development workforce – which normally lies idle between games. There are huge disagreements between the major players as well regarding this issue. For example Microsoft wants to push X box live, but it isn't sharing its revenues with companies like EA for this. So none of EA's games that are playable over the internet can be played on X Box live. They can however be played on the PS2. All these conflicts will need to be ironed out in the immediate future.