When Best Practices are worst practices
Let’s do some role-playing. Let’s call it Game Industry Tycoon. You’re the CEO of a $20 billion game publisher.
You’ve just sat down for a greenlight meeting. One of your top development teams is pitching what could be your next big game. On your left is your head of marketing. On your right, your CFO. Across the table: your head of studios. The dev team stands nervously at the front of the room. Over the next two hours, you’ll see early art, a list of comparable titles, a sizzle reel showing the game’s intended mood, and a glimpse of gameplay — all meant to convince you this $100 million, four-year bet is worth making.
You sit in silence, tasked with deciding whether to greenlight the project, based on a 90-minute pitch.
Here are some of the things going through your mind during the pitch:
Those of us who attended these meetings as observers at EA called them “beg for life.” It was gallows humor, but it said something real about how brutal and opaque the process felt for the developers, even 20 years ago.
The pressure doesn’t end after greenlight, it gets worse. The team marches through milestone reviews, where one thing is always clear: the costs are adding up. Your CFO reminds you of it constantly, and for good reason. Cost is easy to measure. But what you likely still don’t know, even deep into development, is whether the game is fun. The world gets built. The bugs get squashed. The art gets done. But nobody really knows if it’s working.
Now ramp up all the stakes and all the pressure when the game is late. You have a choice. You can agree to delay it. You can force your team to launch what they have. You can kill the game. It may be the right thing to give your team more time. But your credibility with the board is shot. They might ask if you can forecast. Or whether you are pushing the team enough? Missed deadlines eat trust.
Ramp it up one more time if the category gets hot and you have a lot of competition. You started out thinking you were one of the few games in this category and your team had a really good take on the genre. Turns out several other companies did too.
With so little information and such high stakes, the temptation to keep pouring money in to see how the game comes together is overwhelming. You keep funding the game, pushing your team to deliver, knowing that if you cut it off now (say $50, $100, $150 million in), you are assured of defeat, but if you continue to develop the game you have some hope for victory. Economists call this thinking the Sunk Cost Fallacy, and would tell you it is one of the most insidious traps in all of finance, the investment equivalent of the Sirens seducing Odysseus.
Although the details are always different, some derivation of the scenario above is how AAA games have been approved at big Western game companies for the last 30 years. The playbook has been handed down from a different era, largely unexamined as the cost went up by a factor of 10-100X. They are, in fact, considered “best practices”. As CEO, you will get asked about your greenlight process from time to time, from your board, the analysts that cover you, and the investors who buy your stock. Few will criticise you for having a standard process like the one above.
So, have some sympathy for the management teams of big companies. Under the current structure it’s a really hard job.
But not too much sympathy.
INVISIBLE DECISIONS MASQUERADING AS BEST PRACTICES
The point is not that the leaders of the major game companies are dummies. They are not. The problem with the above scenario is it is structurally broken. As all these decisions are going on at the surface, there are implicit mental models that are not being interrogated:
These are legacy beliefs that made a lot of sense when the numbers were a fraction of what they are now, graphics sold boxes, and all this was manageable. They no longer apply.
Without examining these mental models, the industry is structurally hampered from doing anything original. No sane capital allocator would dive into a creatively risky bet under these incentives. If it fails, you have to explain not only why you burned the money, but did so when there is no obvious market for the game. The structure rewards sameness.
What's left is to dominate Red Oceans by increasing development spending and marketing, and then hope to make it up by superior monetization. The euphemism that captured this is “fewer bigger bets”. This is a way to signal management and financial discipline while avoiding accountability for actual innovation.
WHY THIS IS A TERRIBLE BUSINESS
So why worry about making something original? Let’s start with the art reason: merely copying what everyone else is doing is a crummy way to go through life. We appreciate the great innovations around us, and the creators who have the courage and taste to bring them into the world, but then we’re going to make the same old thing? That’s not a recipe for self-respect.
But it’s also terrible business. Minimizing innovation inevitably leads to landing in a Red Ocean. If you make a game that looks like everyone else’s game, you have – by definition – a commodity. Commodities can be good businesses, but not if you have a non-commodity cost structure. And nothing about the process above has a good cost structure. The process aspires to industrialize game development to drive efficiencies, but it has only homogenized the product. This is the cost structure of building a Ferrari with the output of Detroit.
This unexamined structure is probably why so many big game companies have had such low ROI for investors. $10,000 put into a basket of the top 4 Western public AAA publishers five years ago would today be worth $12,200 – an anemic Compounded Annual Growth Rate of 4.1%. That same $10,000 would have gotten you over $20,000 (a respectable 15.5% CAGR) if you just bought a NASDAQ index fund. And it’s much worse for game developers: they’ve been laid off by the tens of thousands over the last few years. The layoff pattern is almost as bad as if those developers worked at investment banks, but with none of the financial upside during boom times.
Our industry is not short on talent or ambition. This isn’t a story of failure. It’s a story of legacy assumptions calcified into “best practices”. And those assumptions are killing our creativity and our investment returns.
The good news? The unspoken assumptions and mental models can be replaced. Every one of them.