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Bootstrapping it: Startup game developers self-finance releases

Last March, Tony Walsh was down in San Francisco at the Game Developers Conference trying to sell game publishers on his new video game. It's a unique concept, a cross between a classic pinball arcade game and a fantasy role playing game. Each ball is its own character complete with special abilities and individual moves. It was an idea, industry professionals told him, unlike anything they'd seen before. There was just one problem. No one wanted to fund its development.
"They said financing is your problem. Come to us when the game is just about done and then we'll get involved exclusively as marketers and distributors," Walsh says from his office at Ryerson's Digital Media Zone, where his company Phantom Compass has been developing Rollers of the Realm
Walsh's situation is not unique. It used to be that developers would pitch game ideas to publishers who would in turn pay upwards of millions of dollars to fund the development, distribution and marketing of the games. These games were typically made for consoles and PCs. They required expensive equipment and certification by Microsoft or Sony. Publishers owned the rights.
"The world has changed a lot in the past 5-7 years, which has made it much easier for people to make their own content," says Donald Henderson, president and CEO of Interactive Ontario, a not-for-profit that aims to help digital companies expand through networking opportunities, government advocacy, and funding support. 
"You could have a great game, but now there's millions of great games," Henderson says. 
The advent of digital distribution platforms such as the App store and Steam transformed the gaming industry. Now publishers are risk-adverse. As a result, development companies are turning to alternative methods to finance their projects. Most rely on a combination of savings, contract work, government grants, private investments and loans. Many end up distributing the games independently. 
"That's a pretty big shift," Walsh says. He's speaking on the issue today at the GameON: Finance conference at the Bram and Bluma Appel Salon in the Toronto Reference Library. It's a two-day conference exploring the business of the digital gaming industry. 
After Walsh couldn't secure what's called completion funding, he went back home to Toronto and began applying for grants. He was able to secure a grant through the Canadian Media Fund's experimental stream. This money allowed Walsh and his team to re-attack their plan. They redeveloped the game in 3D and now have several polished levels.
In March, they'll head back down to the Game Developers Conference to give it another shot.   
"We're going to reconnect with all the publishers we met the first time as well as some new ones, and will now be in a position where we're able to negotiate a deal," Walsh says. 
One of the ways Interactive Ontario aims to help its members is by connecting them with potential contract opportunities, which often involve creating interactive elements for web and television. 
"A lot of companies start out that way," Henderson says. He'll also be speaking at today's conference. "They take some jobs to pay the bills and keep the lights on while they work on their own intellectual property (IP). Eventually they get to the stage where they've created their own IP and now they own it."
Toronto studio Little Guy Games is one of those companies. In addition to contract work, they secured funding through an angel investor, which allowed them to build their company. They were then able to further support the development of their own games through various grants.  
"The biggest challenge is the [grant] application," technical director/co-founder Bill Kouretsos says. His entire team has to get involved, from the artists to the technical designers, from planning the budget to presenting the market research in an easy to understand way.  "Those documents can be over 100 pages in some cases. It's very labour intensive. It would probably take four to five people the better part of a month to put together a proper application."
Another challenge is trying to determine which fund a developer or concept is eligible for. 
"The Canada Media Fund, Telefilm, the Ontario Media Development Corporation fund for interactive digital media, they have programs of various types including grant programs you can apply to get funding to create video games," Walsh says. "They also have programs to support export and marketing efforts. Those are programs that are unique to Ontario and Canada." 
Developers with existing fan bases have been able to leverage fans through crowdfunding. Some, like Montreal's Infinite Game Publishing have had major success with these campaigns. They were able to secure $5 million, but this is not typical in the gaming world.
The most successful campaigns use crowdfunding platforms such as Kickstarter, but these have complicated rules for Canadians and require U.S. bank accounts or addresses. There's also the aspect of time.
"It's a huge amount of work to do a successful [campaign]. There's one to three months of setting up a media campaign to promote the Kickstarter page so that hopefully you get the money so you can make the game. Unless you're making a big game, there's no point in doing that because in three months you could actually make a game," says Miguel Sternberg of Toronto's Spooky Squid Games.
He's taken a different approach to fund and self-distribute his game They Bleed Pixels. "With a mix of savings, filling up credit cards, some borrowed money from family, the standard independent artist way of funding things," he says over the phone from his home office. "Then, near the end, two more-successful indie developers gave us a loan."

They Bleed Pixels is about a young girl who is sent to a boarding school. While there, she comes across a mysterious book that haunts her nightmares and transforms her into a demon. Originally the game had been created for a platform that turned out to be unsuccessful. When word got out that Sternberg and his business partner were looking for funding to repurpose their game without losing their rights to a publisher, the loaners, who asked to remain anonymous, reached out and made it possible for the company to continue. Provincial loan opportunities also exist and are available through funding programs such as ideaBOOST, but in Sternberg's case fellow gamers stepped in.

"It was around that time that the money came in that allowed us to switch over to Steam," Sternberg says. Selling the game through Steam then allowed Spooky Squid to pay off the loan. 
"My favourite part about this industry is that the attitude other gamers have towards each other is super friendly," Kouretsos says. "No one is in competition. Everyone just wants to help each other and have fun. Even with people who should be our competitors we're constantly trying to align our strategies and work together."
Digital distribution may have changed the game, but independent game makers have always existed, Walsh says. To flourish and even survive, today's game developers need to think and act quick. The most common method is to release what's called a shareware, or demo, version and then offer additional features such as levels and characters at a cost. This isn't new. Science fiction game Doom first released a shareware version back in 1993. It is estimated that 10 million people played the game within two years of its release.
This was unusual then as Blockbuster games were the staple. As soon as the game was on the shelf, the developer's job was essentially done. Now, shareware versions are the norm. Game developers continue to work on them well after they're released and use the revenue from those ad-ons to finance additional development. In February 2012, Canadians purchased 143 per cent more ad-on and downloaded content than six months before. Revenue for this content increased by 46 per cent.
The Entertainment Software Association of Canada released a report last year stating that Canada's video game industry is the third largest in the world after Japan and the US. In Canada, it directly employed nearly 16,000 people and contributed approximately $1.7 billion to the economy in 2011. It's one of the fastest growing industries in the world, and has an expectant growth rate of 17 percent over the next year in Canada alone. 
Sternberg hopes this will lead to additional government funding opportunities, so Canada can create more jobs and Canadians can enjoy more games.
Sheena Lyonnais is Yonge Street's managing editor. You can follow her on Twitter @SheenaLyonnais.

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