Anti Climactic: Part two

Anti Climactic: Part two

By Develop

January 7th 2009 at 9:00AM

Yesterday we heard how Climax restructured its business around outsourcing and flexibility.

If you missed part one of our interview, click here to read it in full.

Today Karl Jeffrey (CEO) and Simon Gardner (head of development) explain what that means for future projects at the studio, including self-funded IP, and discuss how it’s squeezing a little extra out of Wii and PSP…

Develop: You’ve explained things were tough for independent developers a few years ago, but you had that injection of cash when you sold Climax Racing. Did that cash exit the business?

Jeffrey: No, it’s available to the business but we’re very guarded about how we spend and invest it.  Over the years we’ve had a lot of money come into the company and we’ve spent a lot of money. We’re very conservative with what we invest in now.

You know we went around buying studious, and setting up an office in LA, and hiring a big central team, and investing a lot in promoting ourselves and original concepts, not all of which worked out. That’s literally millions of pounds that was made by Climax and reinvested with the best intent, that didn’t turn out to be good investments. So we’re more guarded now.

Develop: Whatever happened with the rumoured Climax IPO?

Jeffrey: The original company was a series of companies, and the only commonality was I was a shareholder in each of them. There wasn’t a Climax Group per se. We formed the Climax Group to do an IPO.

This was around 2000, when the city was hot for games companies, and developers specifically. Argonaut went out and did a good IPO – they were lining up one games company after another, and we were in the line. But in 2001 and 2002 everything fell of a cliff.

In hindsight, we had geared up a Group company and an infrastructure with a CFO and professional advisors and all the other gubbins that come with doing an IPO. We really should have immediately gone “Okay, that didn’t work” but we just carried on trying to do an IPO or do something with the company, and it didn’t work.

So then there was the slope we’ve already described - having a very big company with a huge overhead, you make decisions which aren’t conducive to making a great game, and no one wants to buy second rate games, whether it’s a consumer or a publisher. We probably should have moved faster a few years earlier to reorganise the companies.

Develop: It’s interesting that nearly all the big US independent developers from back then have been acquired now.

Jeffrey: If you look back at the history of the UK developers, the big guys that we had five or so years ago, we’re the only one left. There’s Kuju, but firstly they aren’t independent anymore, they’re owned by Germans – I don’t think they would be here if that transaction hadn’t happened. And secondly they are effectively doing a spin-off without selling the company, they’re rebranding the studios and putting them out there.

I think that’s a really good strategy. It’s something we considered and I think may well have worked. We had these five or six Climax Studios, and each originally had their own name. We probably should have let them retain their own names and let them plough their own course – if one doesn’t work you let it go, and if one succeeds you reinforce it and give it more resources.

Unfortunately when they’re all under one common brand you feel an obligation that you have to prop them up, however good or bad they are, and we had a mixed bag. We had some very good studios and some not so good.

I think that’s a lesson learned. Kuju are doing the right thing, probably. If they’re not going to spin off all their studios but instead stick with the multi-studio model, then they’ve definitely got to put a firebreak between them and be prepared to let studios succeed or fail.

Gardner: The side benefit of doing that is it files your studios from the client’s perception. So if one of your studios upsets a client for whatever reason, it doesn’t necessarily affect their view of all your other studios.

Jeffrey: I’m not saying that multi-studio independent developers can’t work – anything can be made to work, and I might be wrong. But for us, small is beautiful now.

Develop: Do you want to keep growing in some other way?

Jeffrey: It depends how you measure growth. We don’t want to grow in terms of doing more games. We don’t want to grow in terms of having more employees. We don’t want more locations, or more overheads or more costs. All that – all those tangible attributes of a business – is empire building.

We want to be as small and perfectly formed as possible. If we could find a way to do what we do here with half the people, we would do it. That’s a completely 180 degrees from where we were.

It’s in line with a company like Nintendo. They haven’t got that much bigger in terms of head count, or even what they spend on games, actually. They make up for their lack of scale perhaps over a Microsoft or a Sony with incredible innovation. I’m not saying we’re Nintendo, but that’s the sort of philosophy we want to follow.

We’d be quite happy to be this size in five years, if in those five years we delivered just one game of incredible world class standard that made a franchise. That would be sufficient. Just one.

Develop: How do you measure quality? Metacritic scores?

Jeffrey: There’s a whole debate about Metacritic scores. Industries tend to bake down to one measure of what success means. For the music industry it’s the Top 40, for fine wine they have the Parker rating. In movies it tends to be box office receipts. Our metric, for better or worse, is Metacritic.

It’s a double-edged sword. The industry is obsessed by it – and we are pursuing getting good review scores. But if you had to serve only one master, revenue or review scores, well publishers, ultimately they need revenue. There’s a lot of examples of games that don’t score well but which sell big numbers, and publishers like those equally.

Gardner: The easiest way to get new work is to be acknowledged as being good at what you do.

Jeffrey: We want that kudos, so in that respect we have to be judged on the quality of the games. There are always examples of studios that make games that are critically acclaimed but that don’t sell who can still choose their next gig. You can explain away the lack of sales, saying it was marketed at the wrong time or whatever, as long as everyone loved the game and it had a good rating.

Develop: You’ve spoken in the past when the studio was much bigger about chasing critical acclaim, so is this new lean model the new way to get it?

Jeffrey: I’ve got to be totally honest, I don’t think we were chasing it before – I think we paid lip service to it. The organisation wasn’t arranged around that singular objective, but now it is.

Let’s say we took the capital value of the company and divided it per capita – it’s hundreds of times what it was before. Then we had a very small capital base and a massive company. Now we have a very small company on a decent capital base. That gives you options. We have incredible flexibility and the freedom to make what we believe will be the right decisions to deliver incredible high quality over a small number of very high quality games.

That’s what we’re sincerely trying to do. We’re not doing a lot of marketing efforts, PR and bragging. We’re really sincerely trying to say we’re doing everything we can and organizing everything we have to deliver the best quality games, and let the market judge, both the press and, ultimately, sales. If we do our job right and keep our nose clean, we don’t need to do PR or brag or pursue scale or any of the other things we used to pursue, because that should be enough.

Develop: On the subject of games, which formats are you seeing as having the most potential for indie developers at the moment?

Gardner: We are having a lot of success working on Wii and PSP, and have invested a lot of effort in wringing out the maximum performance from the systems.

There seems to be reluctance from some developers, especially internal teams, to support these formats. With the experience and tools we’ve now developed, we are finding them very rewarding and the quality of the games we’re making speaks for itself. We’re also just starting out on the PSN and XBLA and I see these as offering some unique opportunities to develop new IP, as well as ‘rediscovering’ publishers old IP and bringing it up-to-date. The market for these games is maturing and the expectations of the customers are higher. The budgets are also rising to a level where we can realistically produce titles we can be proud of, using our existing skill base.

Develop: What about the other formats?

Gardner: We have developed for PS3 and 360 ‘standalone’ games using Epic’s Unreal 3 engine, but it's clear that the publishers are starting to be very careful with what they green light now as the cost to market of these titles is so large. That said, I think we are starting to see a swing back to the independent studios from large, expensive, internal teams that constantly burn publishers’ money, regardless of if they are actually working on a live project.

Develop: Did you learn anything interesting about PSP during the development of Silent Hill Origins?

Gardner: The PSP is a pretty powerful piece of kit and the work we did on Silent Hill Origins, especially the lighting, projected shadows and dynamic fogging, demonstrated that.

Our engineers genuinely seem to like PSP as a development platform. It's slower than the PS2 and the fixed function transform and lighting system is less flexible, but the graphics architecture is far more robust and advanced. It doesn't have a programmable vector unit, but does have a much better rasterizer – stencil, full set of blend modes, best texture projection hardware in the last gen. It also has good bus architecture, with the ability to read vertex and texture data from both Video Ram and System memory.

Develop: What do you make of the PSP 3000?

Gardner: It's pretty much a consumer upgrade and hasn't affected our development process. The PSP seems to be more of a personal media player in the West and I think it’s still waiting for it's killer application. The piracy problems must also be sorted and hopefully a switch to a slick digital distribution model will help that. A direct link with tangible benefits to a must-have PS3 game would also extend its reach

Develop: How long do you think the PSP will remain a viable platform for?

Gardner: I guess its life is totally dependant on what other manufacturers do. It's still a capable platform, with the right brand and wide-ranging capabilities. If Sony continues to support it and invest in applications for it, then it can probably retain the consumers’ interest. My daughter was asking for an MP4 player, so I started looking into prices and came to the conclusion a PSP wasn't that much more expensive and did an awful lot more.

Develop: On the Wii front, you're getting pretty good notices for the graphics for Overlord Dark Legends. Do you think too many other developers are just lazily aiming for PS2-level graphics?

Gardner: We didn't set out to make Overlord Dark Legends the best looking Wii game, but as ever our team set their own bar extremely high. It's a combination of extending our existing technology to support new features, such as the projected shadows, and the skill of the artists.

We did a comparison one day with the publisher of some other Wii titles and it became clear we had something special. The feedback we started getting from Codemasters’ marketing and sales teams – they had to be shown the Wii kit it was running on – and then the press reaction at Leipzig was just amazing. To Codemasters’ credit, they extended the budget of the title to enable us to reach that quality across the whole game, and we are very pleased with the results.

On our unannounced title for Konami, we’ve extended the technology even further and the results are stunning on the Wii. We have advanced shadows, projected dynamic lighting, environment streaming, advanced dynamic particle systems and real-time environment morphing. I think maybe it starts with the publishers on the budgets they set, the ambition they have for the game, and the experience of the teams they pick. You combine those and certainly over the past few years you probably could only do a PS2 graphics port. That has changed now, at least with our clients, and we are getting the budgets, time and experience to really push the system.

Develop: Are you no longer interested in self-funding your own IP?

Jeffrey: Of course all else being equal, it would be desirable to own and control the hit IP you’ve created. But it’s not the primary thing. For example, Harmonix, the guys who made Guitar Hero, didn’t own the IP, yet went on to sell the company for a decent sum, and have gone on to make Rock Band. So commercial success is no longer determined by that old chestnut of you having to own the IP. Now, finally, the team that created the IP is as valuable as the IP. That’s healthy and how it should be – of course, the talent should have some innate value in itself.

A good example is our Racing Studio sale. One of the big attractions that Disney were buying, apart from a great studio, was some ideas we had for a new ATV game. We never owned the ATV game, but they knew that we’d created three great million plus selling ATV games for Sony, with Sony’s IP. We didn’t own any of that IP, but Disney built that into the valuation – that the studio would go on to create another great ATV game, Pure as it turned out.

Develop: Surely though, the ultimate goal of your new model must be to own your IP, to maximize the leverage of that smaller core?

Jeffrey: I think you’ve got to be pragmatic. If you get to a point where someone says we want to do this with you but we have to own the IP, that’s a debate to be had. Because it’s very rare now to own your IP – unless you fund the entire thing, and you’re talking a considerable gamble there with a decent budget game, £15-20 million on a one bet gamble.

For us that’s too much. You do that a couple of times and you blow yourselves up. The fantasy of saying you’re going to find someone to pay for everything and you’re going to own the IP – I know it has happened, but it’s the exception, not the rule. Walk up to any sane publisher or investor and say “we’re going to keep the IP and you’re going to pour money into it” and you’ll be shown the door.

Develop: What about smaller investments? Handheld or iPhone?

Jeffrey: I’m not ruling out investing and owning our own IP, we just have to be very realistic about it.

Gardner: I think the fact that we’re pioneering amazing games on Wii and PSP does actually give us that opportunity, should we wish to pursue it.

Jeffrey: What we used to do is greenlight a self-invested game almost over a good lunch – we’d have a good team, a bit of downtime, and got it started. A million pounds later we’d find there was no market for it. Oh dear, that’s a million pound investment decision gone like that.

I don’t want to come across saying we’re against it, but we’ll put in more thought and less action. We used to be very bull out of the gate – we ended up with nine technology platforms! We had the MMO platform, we had two different platforms in Brighton – we had one for MotoGP and one for the ATV game, in one studio. A mad investment.

We’re not saying we won’t do it – we have the money to do it, and the will to do it – but we’re saying let’s be more Warren Buffet about it and really think things through.

Gardner: At this moment in time we’re doing things we enjoy doing and that we think are going to get critical acclaim. We are constantly dabbling with ideas and concepts, and absolutely, if we get the right concept and we’re happy with it and the opportunity arises to exploit that, I think we will. We always talk about it.

Jeffrey: If it’s ‘almost right’, we’re not going to invest in it. It’s got to be so right the investment decision is staring you in the face. It’s got to be ‘Try and stop me investing in it!’

Gardner: There’s also the size of the gamble, the money you need to spend in order to realize that –

Jeffrey: – I don’t think we’ve got the stomach for a £10 million gamble.

Gardner: It won’t be PS3 or 360 stuff, it might be PSN. We have got a couple of little concepts that we’ve worked up to a small level we sometimes talk about.

Jeffrey: It’s not even about the money. If someone said, “Let’s do a PSN game”, we could do PSN game, it’s not going to kill us. It’s about the wasted opportunity cost. If you don’t know that game is going to be something special and unique and that the market will say ‘that’s the one!’, why waste your peoples’ time on it?

You only need the one, that’s what we’re saying. If in the rest of our careers until we don’t do this anymore for whatever reason, if we just find the one – that’s fine. You don’t need a hundred, you don’t need ten, you just need one. We’ll look at a thousand and pick one, when we feel right, and then we’ll go for it.

Just statistically – and it’s imperfect because people don’t share their internal company information – we can all see that most game investments don’t work out. So it’s a fool’s investment, mostly.

Develop: How will you realize value without own IP? You can surely only do that by selling company or charging more, and you’re not going to be able to, say, double the amount you charge.

Jeffrey: Well both are good, and they’re not mutually exclusive. But there is a limit to the cut of the pie, whether it’s on a royalty model or an advance, there’s a limit to what you can get out of a game.

Having a decent game that sells well and you make a decent cut off as you go along, even if it’s ultimately limited, actually supports the sale of the company. When they come to value the company, that’s going to be a factor.

Develop: Keeping cash in reserve! That really is a rewriting of the traditional game developer model…

Jeffrey: We are doing that going forward. We’re making a profit but we’re not spending it, we’re putting it away. Not big money, but normally a game studio just absorbs capital. A company that consistently over the medium term absorbs capital is, in simple parlance, a loss-making venture that should be killed.