How Companies are Funded and Make Money

Crowd Funding

Kickstarter

https://www.kickstarter.com

Kickstarter is a website in which a business or individual/s sets up a “kickstarter” page and people from the public can back the project and pledge money in support, often receiving rewards in relation to how much you put forward.

When the funding goal has been reached the backers bank accounts will be charged when the time on the page has expired. However, if the project does not reach the goal no one is charged.

Stretch goals often a allow additional content to be added even after the project has reached its original goal. As a result, another method to get more funds.

Successful Kickstarters

  • Double Fine – Psychonauts 2 – Goal of $3.3million reached $3,829,024
  • Gun Media – Friday the 13th – Had a goal of £700,000 and Raised $929,513.70

Another example of a crowdfunding website is the incredibly successful Patreon.

https://www.patreon.com/

 

 

Creative England

Green Shoots

http://www.creativeengland.co.uk/games/greenshoots

Creative England partnered with Microsoft to develop Green Shoots, a programme of financial and business support in aid of development and growth of the games industry in England.

The incentive provides investments of between £25,000 and £50,000 to games companies that demonstrate great potential. In addition to the funding, companies selected for Green Shoots will receive the following benefits:

  • Access to Greenshoots mentors and associates
  • Enrollment on the ID@Xbox programme for Xbox One Development Kits
  • Access to Windows 10 devices for testing purposes (subject to availability and at the sole discretion of Microsoft)
  • Bespoke technical guidance and support directly from Microsoft
  • Access to select Microsoft tools and services for free,  through the Bizspark Microsoft programme
  • Introductions to investors and publishers

To be eligible to apply to Green Shoots for funding, companies must be:

  • Be a games company based in any of the English regions outside of Greater London
  • Have previous, demonstrable game development experience
  • Qualify as an SME and be registered at Companies House
  • Be able to provide £1 for £1 match funding to any investment awarded by Creative England
  • Have an idea for an innovative new entertainment game that can be available for commercial release no later than January 31st 2017

 

Creative England Game Development Fund

cedev.png

http://www.creativeengland.co.uk/games/games-development-fund

The CE Game Development Fund is much like the Green Shoots programme, helping by providing investments of between £50,000 and £150,000 to game studios that can demonstrate potential for growth.

Through this fund the investments will be used for the development and commercial release of new game IP.

To be eligible to apply to this fund companies must be:

  • Be based in any of the English regions outside of Greater London (Please refer to this map)
  • Have previous, demonstrable game development experience
  • Qualify as an SME and be registered at Companies House
  • Have been trading for a minimum of 3 years and be able to show a minimum of £100,000 revenue in their most recent company accounts
  • Be able to provide a minimum of £1 of private match funding for every £1 Creative England invests

 

Publishers

A Publisher is the company with the financial risk, meaning if a product fails to make a profit they are the ones responsible for the debt.

In relation to the games industry, when a development team want to make a game to release they would provide a pitch of the project to the Publisher, if accepted, a budget will be provided the company to produce game.

Once the game is nearing completion, the Publishers will be responsible for the commercial side of the product,  including any advertising to help sell the game. Publishers also are known to pay game / retail shops to clear out a dedicated section and fill it with with the product, along with additional merchandise and items to help improve sales revenue.

 

Grants

Grant is an amount of money provided by the government, local councils and charities to an individual / business for a project or purpose.

Whilst you do not need to pay a grant back, they are often difficult to have accepted as there is a lot of competition.

Advantages

  • Do not have to pay a grant back or pay interest on it
  • Do not lose any control over your business

Disadvantages

  • Locating  a grant that suits your specific project
  • There is lot of competition for grants
  • The applicant often is expected to match the funds you’re awarded
  • Grants are usually awarded for proposed projects, not ones that have already started
  • Application process is potentially time-consuming

 

Tax Relief

taxrel

In the creative sector within UK a Tax Relief program of tax incentives were implemented which encompass new incentives aimed at supporting the animation, high-end television and video games industries.

Production companies in all three industries are able to claim an additional deduction worth 100 per cent of UK qualifying production expenditure (where qualifying expenditure is a maximum of 80 per cent of total production expenditure).

If they are loss-making, they will be able to surrender such losses for a payable tax credit worth 25 per cent of UK qualifying production expenditure (IE. effectively a payable credit of a maximum 20 per cent of total production expenditure).

Productions must prove they are culturally British in order to be eligible for relief by completing relevant tests.

Private Funding

Private funding is usually from a particular company or individual/s who have decided to fund a project.  Not to be mistaken with Public Funding, which within the UK is funding received from the government.

Credit Cards / Loans

The use of credit cards serves as a useful function, with the ability to pay for purchases when you don’t have cash on hand or readily available. The credit card issuer essentially loans you the money to make the purchase, and you will be able to repay that loan at a later date, while usually being charged a certain interest rate.

Sales (Games, Receipts, Merchandise etc.)

A company will spend a certain amount of money developing and advertising a product, with an end aim of making profit.

Within the games industry, the majority of AAA titles reach their goal and will earn a healthy profit, some bigger names like Call of Duty and Grand Theft Auto can surpass their aim by a long margin, receiving much more income than forecasted.

Along with the main product, many companies sell merchandise such as clothing, stickers, posters, special editions, etc. Often these large companies have their own dedicated stores to sell merchandise because this way they can decide the retail price and the overall amount of stock.  However, the company often signs contracts with external retailers and websites to reduce the workload, whilst also making stock available to a wider audience.

Contracts (Fixed Cost)

Occasionally, a business / individual will offer a contract that sets a price prior to a project which is usually NOT subject to change unless necessary.  With the payment being agreed at the beginning, elements such as the project specifications and costs have to estimated and agreed with the client.

The payment amount agreed in the contract does not depend on the resources used or the amount of time needed.

Early Access

Within the games industry Early Access is used as a funding model which allows customers to purchase a game or project in its early stages of development and obtain access to playable, albeit unfinished versions of the game.  This method allows the developer to continuously acquire funds to further develop the game. Early access is common amongst indie games and game studios to obtain the extra funding to finish or polish those games.

Examples of Steam Early Access Games:

  • DayZ – A multi-player zombie based game gained more than 400,000 sales within one week of being in Early Access
  • Kerbal Space Program –  this followed similar model to Minecraft and eventually moved onto the Steam early access program where it sold millions of copies
  • Prison Architect – this game has been able to raise about $8 million in revenue from more than 250,000 sales in early access

Advertising and Sponsorship

Advertising is one of the main methods of raising funds within the games, animation and VFX industries.

In relation to the games industry, below suggests  3 ways a company may use advertising in aid of making money:

In-Product Advertising

This is where they will advertise products within final product, whether it be in game-play or cut-scenes. This technique is often applied in a subtle way with the product logo often appearing throughout the product or through player interaction.  This is also known as product placement.

Advergames

This is where a games company will be paid to create a small game that will advertise the company, these games are generally small mini games on a company’s website, often accessible on social media sites in order to reach a wide audience.

Through the Line Advertising (TTL)

This is an uncommon form of advertising, where there will be links within games that will take you to the company’s product and website.  This method is regularly seen video-sharing websites such as YouTube.

It is common for projects and companies to be sponsored by another business for additional funding in return for advertising time within the final product.

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