How to Survive in the Videogame Business By Brian Fargo CEO inXile Entertainment How to Survive in the Videogame Business By Brian Fargo CEO inXile Entertainment

25 Years of Survival 1976 Introduction to a video game 1982 Saber Software 1983 Interplay Productions 1985 Bard’s Tale 1988 Battle Chess 1991 Castles 1994 MCA buys minority investment 1995 Interplay buys Shiny Entertainment 1996 The good times are over! 1998 Interplay goes public 1999 Titus invests in Interplay (Beginning of the end) 2001 I resign from Interplay 2002 Play videogames for 3 months straight 2002 Forms inXile Entertainment

Retail Price $59.95 Wholesale Price $38.00($36-$40) Price Protection 10% $3.80 Cost of Goods $10.00 Net Receipts Per Unit $24.20 *Royalty to Developer of 25% $6.05 *Marketing of 10% $3.80 MDF of 5% $1.90 Shipping of 1% $0.38 Net Per Unit *Assumes Correct Forecast $12.07 Per Unit Economics

Game Development $10,000,000 (up to 30 million) Overhead for Producing $500,000 QA$350,000 Foreign Translation $350,000 Marketing$5,000,000 Initial Cost of Goods $10,000,000 Publisher Capital Risk $26,200,000 * Significantly more risk with a licensed property Publisher Costs

Developer Costs Personnel$7,000, People at 100k burdened cost over 2 years Audio$300,000 Motion Capture $200,000 Talent$300,000 Hardware$700,000 Outside contractors $500,000 Theoretical Profit $1,000,000 Total Costs $10,000,000 You can get rich in the videogame business but you can’t make a living!

Per Unit Economics Retail Price $59.95 Wholesale Price $38.00($36-$40) Price Protection 10% $3.80 Cost of Goods $10.00 Net Receipts Per Unit $24.20 *Royalty to Developer of 25% $6.05 *Marketing of 10% $3.80 MDF of 5% $1.90 Shipping of 1% $0.38 Net Per Unit $12.07 $10,000,000 at $6.05 per unit means the developer recoups at 1.6 million units! At 1.6 million units the Publisher has made 19 million dollars while the developer has just broken even. At 2 million units the Developer has earned $2.4 million dollars while the publisher has earned over 24 million. Where do the profits go? Or the rich get richer

How big is it? North America represented 7.5 billion in videogame sales in 2005 North America represented 7.5 billion in videogame sales in 2005 Europe brought in another 7 billion in sales Europe brought in another 7 billion in sales 634 Titles were released in Titles were released in % of all sales were accounted for by 50 games 50% of all sales were accounted for by 50 games 90% of these 50 were sequels, licenses or 1st party Nintendo 90% of these 50 were sequels, licenses or 1st party Nintendo

3 Surefire Ways to Make a Hit Game! Get the Star Wars license Get the Star Wars license Do a sequel to a huge hit Do a sequel to a huge hit Get Nintendo to publish it and spend 5 million on marketing Get Nintendo to publish it and spend 5 million on marketing

Financing A Startup 1) Venture Capital 2) Angel investors 3) Work in spare time 4) Publisher money

Good Ways To Break In 1) Xbox Live Arcade 2) Shareware 3) DS and PSP 4) Mobile Games