Why Is It So *&@#$% Hard To Finance Video Games?

Journalist Dean Takahashi recently gave a speech at the Video Game Investor Conference. Entitled "I Don't Get It: Why Is It So *&@#$% Hard To Finance Video Games?", the full text is available here. Admittedly providing more questions than answers, Takahashi looks at the tenuous relationship between venture capitalists and the games industry. He illustrates how difficult it is for game studios to secure independent funding when the existing publisher-developer relationship is so prevalent.

But the VCs have historically stayed away because putting money into development shops left them with no exit strategy. Game developers rarely go public, and when they are successful the typical fate is to be bought by a game publisher. Here the problem is a lot like the troubles facing the independent filmmakers in Hollywood. The developers can be very creative, but the publishers are conservative gatekeepers who only bet on sure things. At the moment, it's great if you're making a gritty street crime game. But if you're going out on a creative limb, you're out of luck. Since the best developers can hope for is to sell out to publishers for a pittance, the VCs might as well keep their money in the bank. One of the key pieces of advice that VCs offer these days is to offshore production to India or China. That can be done to some degree with game art assets, but the creation of games is such an iterative process, where you test a game to see if it is balanced every day, that it's best done under one roof.