This article is part of our “Starting Business” series, an in-depth look at how to start a company in a particular niche or industry.
Forget barbecues and ballgames. Arguably, this generation's favourite pastime is to grab a two-litre bottle of Coca-Cola, a bag of potato chips, insert a video game into the Xbox, PlayStation or Wii and isolate yourself from the rest of the world for a couple of hours. Skip a vacation to the Bahamas; it is all about bingeing Mortal Kombat.
Gone, too, however, are the days of video games representing a niche industry. As highlighted by Sony's recent unveiling of the fifth iteration of its iconic PlayStation console, the global video game industry is seriously big business – and there is no slowdown in sight. With industry valuation estimates around the $300bn mark by 2025, it's fair to say that the overall sector is doing well.
Given the some 2.5bn estimated gamers around the world, so too are the studios that create and publish the games themselves. These profits are not necessarily restricted to large-scale industry behemoths such as Electronic Arts or Ubisoft, either; smaller, independent studios have also seen success, with many of the world's most critically acclaimed titles produced by smaller organisations.
With that in mind, we have compiled a breakdown of how to start a video game company, so that you can combine your creative nous and technical know-how with the right business acumen to succeed.
It is time to hit the play button.
Step 1: Market Research
Before you go any further on your startup journey, you need to assess the market and determine if there is enough room to grow your business. You may have a great concept and design team, but if there is a paucity of demand, then it can be hard to break through the glass ceiling.
Thankfully for smaller studios, the video game industry is enormous, while there is another rapidly growing segment of the global market: mobile phone gaming. Soon, this niche will reach similar levels of market significance as the traditional console sector, in much the same way that PC gaming captured much of the market share in the 1990s. In the US, for example, 73% of mobile users are mobile phone gamers, and this demographic is anticipated to rise by 9% annually. This might explain why nearly 40% of developers say they are manufacturing games for smartphones and tablets.
To put it simply, there is no other better time to launch a video game enterprise – whether for PC, console, or mobile – than right now.
Step 2: Company Research
Following your in-depth review of the market, it is essential to start looking inward and determining what is needed to establish your company. You can begin by assessing these critical elements:
A lot of independent studios can turn to conventional forms of funding, such as through a venture capitalist firm or publisher funding. However, many of these developers can utilise crowdfunding since these companies can generate capital from dedicated fans. Alternatively, many entrepreneurs collaborate in open-source style environments where creating games is a labour of love, and where you may be able to secure donations to get started.
It is crucial to have a passion for video games, of course, but you also need the technical knowledge to design, build and programme your projects. Much of this knowledge can be obtained through formal education, but many video game entrepreneurs start out by honing their skills in their spare time before deciding to launch a studio.
Depending on the scale of the projects that you are working on, it's possible to restrict the majority of the work to a single person. However, it's more than likely that you will need to recruit expertise in concept design, animation, scripting and programming, either on a freelance or permanent basis.
Depending on where you want to publish your games – mobile phone, desktop computer or console – you may or may not need to start out with a wealth of contacts. Typically, if you are producing a game for the iPhone or a Dell computer, you can utilise the catalogue of websites online to host your games. Should you want to design a game for the PS4, for instance, you can take advantage of Dreams which democratises the creation process.
If you have prior experience of working in the video games industry, especially in a development or design capacity, then this could be beneficial, too. Make the most of any contacts you have and, if possible, attend industry events and conferences to make your brand known and secure support.
Being active in online "modding" communities can also work in your favour, especially if you are a regular contributor with a strong portfolio of work to fall back on.
As long as you have a powerful computing system, the necessary development platforms and expertise in the technical aspects of creating games, then you do not require the traditional resources that other startups may need, such as an office setting or warehouse. If you are working in a small team, however, then it can be beneficial – though by no means compulsory – to operate from the same physical location.
Licensing / Legal
While it is best to have conventional licensing and legal apparatuses for your business, it is just as imperative to license your video games. There are several categories of licensing, and in this case, in-licensing. You have three options: in-licensing where the licensor provides the licensee with a game to distribute, in-licensing where the licensee develops the game using intellectual property and in-licensing where both parties produce the game. You also need to consider other IP and licensing issues in the design aspect, such as any music that you use, any likenesses to real people or locations, or any other possible use of a creative or intellectual property that is not yours.
Step 3: Business Documentation
Like any other corporate venture, a firm that specialises in video games needs one main thing when starting out: a business plan. This is a critical business document that will serve as a blueprint for your company's present and future – and as a possible reference manual for any potential investors.
Here are the key tips for developing a business plan:
- Ensure that all critical information, strategies and predictions are clear, concise and to the point.
- Conduct and include a SWOT analysis (strengths, weaknesses, opportunities and threats).
- List the qualities that every founding member brings to the table.
- Calculate a cash flow forecast by predicting sales and anticipating costs.
- Determine the corporate structure (sole proprietor, limited or partnership).
You should also include mission and vision statements that act as a roadmap to where you want to be in one, five or ten years. A video game studio's mission is obviously to make its games as fun as possible, but its vision, however, may be slightly different. You may want your brand to be known for its core values, positive reputation or stellar customer service. Whatever the case, it is imperative to pronounce your mission and vision.
Step 4: Branding
In the US alone, there are more than 2,300 video game developers and roughly 500 publishers. Suffice it to say, it is a tight market to crack, especially when new startups are forming all the time. Therefore, it is essential to home in on a branding strategy, something that can take your company to the next level and appeal to gamers who want to be on the ground floor of a video game revolution.
The initial steps that you'll need to take in this regard are the business name (be careful with this because something too crazy may put off potential investors), a website and a social media presence. After that, the branding tactics that you need to incorporate into your overall marketing strategy must evolve.
For example, a popular modern-day branding measure is tapping into nostalgia. Indeed, millennials are now old enough to feel nostalgic about their childhood, so this might include selling pixelated games or mirroring the iconic music of the classic games. Alternatively, you might utilise Twitch to stream your games and host contests to players who can finish levels at maximum difficulty.
Whatever you choose to do, it is crucial to be unique about it and to ensure that your proposed projects reflect that identity.
Step 5: The Legal Bit
We previously mentioned the need to incorporate your business, raise money and establish an agreement if there is a partnership. However, there is another more pressing matter for video game developers in today's environment: intellectual property and copyright.
There are generally three types of IP that game developers should be aware of:
- Patent: A form of IP that allows the owner to exclude others from making, using, selling or importing your product.
- Copyright: The exclusive legal right to your video games that are prohibited from being duplicated.
- Trademark: IP that identifies and protects your design, expression or sign from others.
With video games easily pirated in today's environment, IP theft is the biggest threat to studios.
Then there are other aspects to consider, including General Data Protection Regulation (GDPR), video game tax relief, protecting game concepts, overall licensing and publisher agreements.
This last component is particularly important. If you wish to sell your games on a sizeable scale, then you will need to secure the services of a publisher. This can create multiple problems in itself, as learning to navigate and negotiate commercial agreements will likely be alien to you as a designer or a programmer.
Therefore, it is imperative to retain a legal professional who can guide you through this potential minefield. You should identify a suitable IP lawyer, although, depending on your location, some lawyers may specialise specifically in gaming and entertainment law.
Step 6: Attracting Customers
A vital function of owning and operating any business is to attract customers, which is achieved by creating a marketing plan. Here are some suggestions on where to start:
- Blog about the development of your projects on related industry forums and discussion spaces.
- Optimise your visibility on app stores and online gaming sections.
- Appear on video game podcasts to promote your company and its products.
- Reach out to video game journalists and columnists to write or review your games.
- Contact influencers to find out if they would want to work with you.
- Consider guerilla marketing stunts that can generate buzz around your brand or product.
There is also conventional digital marketing, such as search engine optimisation (SEO), mobile advertisements and product placement, and social media campaigns.
Remember, if you build it, they won't necessarily come, but you should be sure to let as many people as possible know anyway.
The video game industry has a treasure trove of opportunities resting at its feet. There are so many technological developments occurring right now – or right around the corner – that it can be overwhelming for any video game studio to take full advantage. Therefore, perhaps it is best to specialise in one and move on from there; an example of this is CastAR.
A video game startup project that utilises augmented reality through AR glasses and 3D holograms (it does have virtual reality capabilities, too), CastAR aims to change significantly the way video games are experienced. What makes the seven-year-old startup truly interesting, though, is that it raised initial capital through crowdfunding (Kickstarter).
This could be a company to emulate since it adopts many of the recommendations put forward: a unique product, a small team of experts, an alternative form of fundraising and an appreciation of the correct legal protocol to protect its output.
It's worth remembering, though, that if you have a good idea for a game, then you don't need to implement mindbending cocktails of high-end technology to stand out. Many small, independent studios have found success by focusing on creating high-quality titles, such as CD Projekt Red, which began life by localising foreign games into the post-Communist Polish market before developing the hugely successful Witcher series. Numerous indie studios have produced critically acclaimed cult classics, too, such as Galactic Cafe's The Stanley Parable (which was initially a mod of the shooter classic Half-Life 2), and Papers, Please, which was self-built by developer Lucas Pope.
If you are a competent developer, artist or designer, then you may be interested in working on your own projects, either alone or in collaboration with colleagues or freelancers. However, if you have a mind for business, too, then there is no reason why you cannot translate this creative and technical passion into a thriving commercial venture.
The competition will be fierce, of course, but well-designed and intuitive games will always find an audience – and there are plenty of ways to market yourself, especially if you possess a shrewd mind.
Do you have any experience in this field? What problems did you encounter, and what lessons did you learn? Share your knowledge and your views in the comment section below!