To start the new season Alexander interviews Shawn Layden, former PlayStation Chairman and President of Sony Interactive Entertainment America. Shawn and Alexander share their insight on the real cost of game development, and how the next generation can bring quality games to fans around the world.
Disrupting the video games industry
Challenges indie developers face
Shawn's advice to developers
How gaming has changed with time
Should the price of games increase? And much more!
Alexander Fernandez 00:00:05 Hi everyone. It's Alexander Fernandez, Video Real Games Talk. I have a special guest as always cause that's what we do here at VGRT. Shawn Layden is back and he's here to talk with us all about the new stuff. Shawn, how you doing? What's going on?
Shawn Layden 00:00:20 Hey, Alexander. We're doing well. Thanks for that, I'm glad to be here on your second season of Video Games Real Talk.
Alexander Fernandez 00:00:26 Yeah. You know what? It's great to have you on here. Thank you. Thank you very much. And I guess I have to start saying that we're award-winning now because apparently, we won an award. We won the gold award from the.com and I want to thank all the viewers and I guess you could say listeners now viewers, cause we have video, uh, for supporting us on this journey and well for, you know, choosing to spend their time with us when they could spend it anywhere else, but they chose to spend it with us, which is always good.
Shawn Layden 00:00:47 Congratulations.
Alexander Fernandez 00:00:50 Thank you so much. So, Shawn, a lot of stuff's been going on now. There's a lot of stuff happening in the video games, industry, a lot of stuff happening with you. I think it's important to go ahead and bring people up to speed who maybe don't know or haven't been reading the news or have been reading the news, but didn't read this news. But why don't you take us through what's been going on with you since you were last on VGRT.
Shawn Layden 00:01:10 Well, I think, I think it, you know, in the, uh, in the spirit of full disclosure and transparency, I think we should issue the disclaimer right now that, um, as of last month, I guess I have taken the role of, um, advisor to your company Streamlined Media Group. We have, we have aligned our vision to, um, go out in the world and uh, and disruptive video game industry. Um, as we feel it needs to be disrupted and I'm happy to work with you and your team. It's a great group. And I think your company has already been kind of at the forefront of the idea of a distributed development, you know, remote, uh, contribution of bringing, creating teams, uh, virtually throughout the world to come together against the project. And I think that's, um, the future of video game development. And I think you guys have already started out there and it's great to be with you guys. So, I want to disclose that.
Alexander Fernandez 00:02:07 Yeah, no, honestly, thank you so much. And honestly like in full disclosure, as always, nothing we talk about is construed towards Streamline because we were talking about the video games industry, but it is good to know that Shawn and I have joined forces and we are working together to a greater vision that we believe the video industry video games industry can do. And obviously the bigger context of what the industry can mean for the future of business and entertainment and enterprise. So, we're going to have a pretty spirited conversation today. And I think it's something where yeah, I mean, listen, when we get together, we start talking, it always turns into a spirited conversation. So, it's going to be great to basically expose people towards, I guess you could say the, the ideas that come basically out as we start riffing and start kind of jamming through things. Um, so Shawn, you know, I think one of the main things here that came out with the news that seemed to shake the world when we announced that we were coming together was basically this idea that the video industry is ripe for disruption. You know, we talked about it, those are big words. Video games is ripe for disruption says Shawn Layden, Alexander Fernandez, you have the same time. People don't really know what that means. And it's because they think, oh, video games, innovation it's always disrupting. No, not really. So why don't we go in on this? What, what, what do we mean? What is right for disruption? Why is it
Shawn Layden 00:03:22 Let's look at just two, two elements of that question. One is, um, the means of production, how games are made. Does that structure need to be disrupted? The answer is yes. And we'll talk about that a little bit more in a moment. The second one is the business model. You know, how the games are brought to market is that model needing a revision. And I say yes to both. So going back to the first one, you know, the production games, quite Alexander, you've been in the, in the game business almost as long as I have, even though you're half my age.
Alexander Fernandez 00:03:56 You’re doing better than I do. Let's just be clear. I mean, you have better genes. I'm like, remember an Indiana Jones, they took out the wrong cup and I'm like, but thank you.
Shawn Layden 00:04:10 We have, as an industry, been making games pretty much the same way. The last 30 years there, hasn't been a lot of innovation in the production of the game itself. Now, granted, you know, we have, we have better workstations. We have, you know, Mocap doesn't require as much cleanup as it used to. Um, you know, performance captures become a thing. These innovations have occurred, but the actual creation of the game itself is pretty much the same for the last 30 years. You get a bunch of programs, you get a bunch of artists, you throw some designers on top of it. And as the games got bigger and the demands of the quality of the game got higher from, you know, HD gaming. Remember when that was a thing, then it became 4k and then we're, you know, we're going off the edge of the earth there. Um, we just threw more people at the problem. Now we started throwing people from, you know, we get adjunct groups in Southeast Asia. We get adjunct groups in Eastern Europe to try to compliment the game design and production teams, but the actual production of the game itself really hasn't changed. And I think, I think that's an area that requires greater innovation. We have to, you know, we are really smart technologists in the game business, but we need to lean into technology harder to get more technology, to do more of the heavy lifting of game production itself, whether that's through artificial intelligence or machine learning or a combination of the two, um, people shouldn't have to deploy hundreds of artists to create geometry, to design the desert level of a game that should almost be done, you know, procedurally by, by the game engine, if you can create it that way. I look at guys like no man's sky team, you know, hello games, what they did with that, with that, and how they were able to procedurally generate geometry and entire worlds with a team of seven people. I think that is the indicator that's like one of the way points to the future is to see how can we get the engine to do more work in the game creation instead of just throwing people at it. So that needs disruption. That's a place where I'm looking at some teams I'm working with, um, in an advisory capacity who are trying to solve for that problem. And I think that's going to be a, uh, a huge, a huge leap forward to us because at the current rate of things, if games cost, you know, $250 to $300 million to make, because the only cost associated with developing a game is really labor. It's not, you're spending tens of million dollars on a license, or you may be, but if you're doing anything, you do, you're doing it wrong.
Alexander Fernandez 00:06:35 Yeah, let’s not forget though, the software licenses that we pay for like 3D studio max, which are like 5,500 us dollars per year per person. So I mean, Autodesk has got that on lockdown. They make money, no matter who's doing what so you know that they're doing it,
Shawn Layden 00:06:50 But in the pie of costs, you know, that's, that's a discrete slice and there's another slice for, you know, overhead and housing stuff. But the biggest piece, you know, 85% of the cost is just labor. And how do you get fewer? The same amount of people we do now to do these greater things in the future?
Alexander Fernandez 00:07:09 Oh, so let's unpack this for a second because you know, 20 years ago let's say you're, you're on PlayStation 1, PlayStation 2, you have teams that are maybe 40 people, if even right. So let's, let's, let's, let's look at the PlayStation 1 team probably less than 30 people. Actually, I would say that. And if you think about that from that stat standpoint, a PlayStation 1 game, let's say that it's 30 people, or even just basically a game at that time. And the labor costs would you think are they're about the same, just, just about with inflation and change, or do you think that those labor costs have gone up
Shawn Layden 00:07:48 Oh, the labor costs have definitely gone up
Alexander Fernandez 00:07:51 And the terms of the yes, go ahead.
Shawn Layden 00:07:53 The man-month run rate has gone up. Definitely.
Alexander Fernandez 00:07:56 Okay. So, when we talk about that for a second, and I think this is important to see, so basically 20 say 20 years ago at the time that I was starting up doing this in here, man-month rates were, you know, roughly anywhere between five to 7,000 is what the man-month rate was, right. That's where it used to be. And then effectively over time, we've gotten to a place where if you're in the state of California or any, any major metropolitan area, the costs are like anywhere between 15 to 20 and in some places as high as 22, because most of the cost of a video game is labor. As you said earlier today, or a few minutes ago, I should say, basically, you're sitting at the point that most games let's say roughly 80% of the cost of a video game development is pure labor. If we basically now have a team that let's say back when it was 30 people, let's say it was 5,000 a man-month, the development's 24 months, we could easily start to track north of a game costing anywhere between five to 7 million, maybe 10 million in development, right? That same game today made at today's numbers. Let's just take the simple 10,000 man-months with the bed it's even possible. And then apply that over the span of 24 months with a team that's probably about 150 to 200 people internally, at least then we start to basically go to those basically adjunct groups outside, where we add additional labor to it, probably about the same amount, 250, maybe 300 external hands. So, the total development size was about 600 people. And we run that base scenario. Now you start to see why the game is starting to base 30, 40, 50 million in terms of development costs. We haven't even touched marketing yet. Yet at the same time. And here's the one thing that I'm getting at is that at the same time, the one thing that hasn't changed really how much that costs, how much has passed the consumer,
Shawn Layden 00:09:57 What's the price tag?
Alexander Fernandez 00:09:59 What's the price tag? Yeah. And so, let's talk about that because literally we're sitting here and we just went through a labor exercise and we're sitting here saying, okay, I now have to make a game that costs $50 million in development. How the hell do I basically justify the price? The fact that the price has stayed relatively the same for 20 years? How does that
Shawn Layden 00:10:23 59.99.
Alexander Fernandez 00:10:25 The magic number. Yeah. Why, why by the way, why, why 59.99? Like why not 29.99? Like we thought of this number
Shawn Layden 00:10:34 Why not 79.99?
Alexander Fernandez 00:10:36 Right? Why not a hundred dollars?
Shawn Layden 00:10:38 With inflation. I mean, if you, if you, if you turn it the other way if you go back to the late nineties and the PS1 games we're doing that, we're hitting the market at 59.99 and you know, a game like a Twisted Metal or Wipe Out, or Parappa.
Alexander Fernandez 00:10:51 Great games.
Shawn Layden 00:10:53 All great games. Um, and they were, and the cost of development was an order of magnitude lower than making those games today. Except the price tag is the same virtually 59 99. Okay. Granted, there's some talk about some games coming out of 69, 99, but 10 that $10 Delta doesn't cover the rise of inflation now since, since the late nineties. And if you put those into today's dollars compared against actual earnings and, uh, the value of the money at the time, it would say that those games, the late nineties were actually selling for something like $99, a pop, or a hundred dollars a pop. Wow.
Alexander Fernandez 00:11:32 Yeah. That's the truth. Yeah. Yeah.
Shawn Layden 00:11:37 In today's dollar. So, um, that, that is, that is becoming the real squeeze point. I mean, you know, somebody said to me, uh, in a different context at another time, but yeah. That's why back in the PS1 days there were more Ferrari's in the parking lots of game studios than there are today.
Alexander Fernandez 00:11:53 Actually, that’s a very funny thing but that’s the truth. That's the truth, lower cost, same price, stronger currency. And at the end of the day, timelines not taking 36 months, not taking 600 bodies to imagine basically like this, like in your, in, during that time, say it's 2000, 2001, a group of like 20 people make a game that sells 2 million units, 3 million units for a cost that ended up costing, maybe the game cost two and a half million, 3 million to make. There you go, those are outsized returns that were happening at that time. And you're crushing it.
Shawn Layden 00:12:32 Yeah. In the years of, you know PS1 PS2 um, my teams were delivering anywhere from 25 to 30 games a year. Across all the studios and across our second party partnerships and our external development deals, there were at least two games shipping every month.
Alexander Fernandez 00:12:55 Yeah. And what was your average, like if you thought about that for a second, if you're shipping, let's say you're shipping 25 games a year, say 30 games a year? How many of those games did you have to bank on that has to be a million-unit seller, has to be. Or was that not even something you guys thought about?
Shawn Layden 00:13:09 Uh, we didn't think about it necessarily in those terms, but we knew, you know, which were the bankers, which were the, which were the big tent poles that were going to, you know, make their nut back. And then some, um, and that also gave us a lot of room to experiment because if you had out of those 25 games, if 10 of them, you know, went into, um, you know, cost plus, earnings coming back, then you could have another 10 that, you know, just, just broke even. But they brought diversity and variety, uh, to the portfolio. Nowadays, the bets are so big. Um, the risk is so high that, the number of games being released a year has gone down dramatically. And that's true of every publisher. At the same time, you know, if you look at the other measurement though, hours of engagement are probably up, but people just stay more time in one game, whether it's FIFA or Fortnight or, or Apex or something like that. But the variety is dwindling. The different types of games are, are being absorbed into this need to provide the huge tentpole and the temple only. And that's kind of the challenge we find ourselves, uh, in-game development today, I think.
Alexander Fernandez 00:14:23 So, when we talk about this, like when we go back to your original point about innovation advancements in AI, procedural technology, things that basically enabled to create or to pack a punch, produce more with less people, what you're really saying. And it speaks to me as a business owner is like, what you're really talking about is a way to reduce the cost of development in order to get back to those glory days when 30 people could make millions. There's Ferrari's for, because in the end of the day, that actual cost of development is lower. The price remains the same in terms of selling, or hopefully it goes up a little bit because it needs to, and it creates a proper margin. Now on that standpoint, there's a lot in there because basically we've seen signs of basically the fact that the publisher developer relationship, which existed for the past 30, 40 years, which has never really been fair because it never was about fair. It was about making money and risk, and those who assigned and spent the money to make the money that's just life. Yet at the same time, there were times where people were selling their IPS that were getting basically shafted on, on, on sharing. You have right now, Epic taking Apple and Google on in order to basically, you know, free up the price that the stores to basically reduce the costs that people take. How do you feel about that? Knowing full well, basically, I mean, you were on the other side, you lived through that. I mean, I'm sure you did a couple of those deals, you know, what do you, what do you make of it? I mean, what do you, I mean, is this, would you talk about the business model being disrupted? So what does that mean?
Shawn Layden 00:16:00 Okay. So, setting aside point number one, which was, how do we disrupt the production model? And we do that through innovation and technology and, um, you know, finding better ways to, to diversify, uh, the output, uh, the business model has to change as well. Yes, absolutely. I think the, um, the world we live in today is much more about bringing creators and I hate the word consumer, but bring creators and fans yeah.
Alexander Fernandez 00:16:31 Yeah, yeah, I like fans.
Shawn Layden 00:16:35 You know, here's the idea, here's the fan that wants to experience it. How do we reduce that friction between, between these two points? I think, you know, some of the friction which we used to mean getting in a car and driving to the store and buying a disk, you know, that friction has been removed now from the comfort of your sofa, you can now purchase these games and download them to your console and play them. In the world of today, I mean, we saw this 10, 15 years ago, all of a sudden, the impact of, of television advertising, which is the most expensive advertising out there. We finally realize it's really doesn't pack much of a punch. I think it's great for brands, but it's not great for individual products because you're spouting that, that message across a huge demographic you don’t even know if these are people who are inclined to buy your thing or not buy your thing. So, um, digital advertising has become the key and now digital advertising, a lot of ways, you know, the cost structure around that is, is very favorable to companies versus like TV or, you know, remember newspapers? They used to be newspaper advertising, you know, print advertising. Um, so a lot of the benefits that the publisher was bringing to the developer, you know, we have power at retail and we have the ability to do television advertising. And we have trucks that are going to the stores that are taking your disk to put with our hardware. I think a lot of those benefits have gone away in the world of digital delivery, but yet the, uh, the business model hasn't changed. So, I think there's a disproportionate amount of the funding of that sale of the game, which, resides probably in excess to, to the publisher or the conglomerate that is, that is putting the game out, so to speak. And I think that's the, that's the essence of the epic apple claim, right?
Alexander Fernandez 00:18:35 So, you know, what's interesting about this is that if I just sit for, for a second, the publishing model, the way the splits were being dictated, they existed at a time when you needed to stamp CDs, distribute physical items to a store shelf, you had to basically get into the pockets of Walmart
Shawn Layden 00:18:54 Put a poster in the window, get a standee, you know, end cap.
Alexander Fernandez 00:18:58 Real work, real, real, real labor, real marketing, real activity, real value creation was being done. But over time with the way everything got digital, that value creation supposedly shifted. But yet at the same time, as we just went through a second ago, the cost of labor increased the number of people on a team, increased the cost of the budget increased yet the cost of marketing they've increased as well, but the term of the value creation responsibility for the publisher, whoever else is basically doing this has not necessarily remained the same. It's, it's become disproportionately less in terms of value creation yet the margin stays the same. So, I guess my question or more my comment is, do you believe that that is just an easy way or even a lazy way of not having to solve a fundamental issue with the business model? Because honestly, what the issue comes back to is too big, almost too big to fail yet at the same time, no one really looking for innovation to find a way to rectify what really is a problem. It's like, you're not fixing we're, we're literally assuming that what worked for the past 40 years must work for the next 80 we're in technology. We're an entertainment. Please show me how that makes any sense?
Shawn Layden 00:20:28 I don't know if this model works in your favor, why would you change it?
Alexander Fernandez 00:20:32 Yeah, I know right? It's like, we're playing monopoly, please pass, go and collect two hundred dollars. Well, you're right. And, you know, look, I mean, obviously for the listeners out there, we're not saying publishers are bad. We're not saying that we're just no fundamental reality here about the business model, cost of product is high and the value that needs to be created to sell that product and a clever base in which everyone is fighting for the attention they're fighting for the people. There should be the incentive and economic incentive to even do the product. But here's the one thing that I find fascinating about what we've been talking about amongst other things, but here's the one thing that's hilarious. Back in the day when you were releasing 25 to 30 games a year, you were making and taking creative and innovative bets, those bets were possible because the cost of product was less because you could turn them around quickly as it became winner-takes-all innovation took a back seat to true blue predictive. I know we can make, you know, never going to lose, but making a sequel, you're going to keep going, keep going. And then we have a publishing empire or empires that aren't exactly incentivized to do anything outside of the mold because the bets are too big. Is it fair to say that we basically created a situation through our, our business model, that effect we said, you know what? We can't afford to innovate. We just have to be happy with what we created and go, what do you think?
Shawn Layden 00:22:02 I think that's a bit unfair because I think even in the creation of sequels or similar genre type titles, there's a huge amount of innovation being done at the, at, at the engineering level, at the art level. You know, it's not that we're still shipping 16 bit games, uh, with no innovation at all. You know, we have, we have found ways to create...
Alexander Fernandez 00:22:27 Hair color and the Iris that's a feature.
Shawn Layden 00:22:32 We have created super immersive worlds in the games of this, this past generation and the current generation. And they're phenomenal. But to your point, yes, because the bets are bigger. You take fewer bets, that's just the logic of math. And, um, since the buckets of development money, haven't increased proportionately to the cost of development. You just do fewer games. Uh, the market has shown that it can’t absorb 25 games a month because all the games that come out now are angling to be forever games with, um, additional content and, um, user generated content and persistent worlds and all these different elements to it. You know, players are spending more time gaming against fewer games. And that's just, that's just a fact. So, um, I think, I think innovation still continues, but it is in a very narrow niche of how do we innovate against the things we know against the thing we can do or the thing we understand? And we don't have a lot of risk-taking in completely, you know, out of the realm, kind of, kind of new games that we saw perhaps in the past.
Alexander Fernandez 00:23:45 So, we have a lot of listeners that work at platforms work at publishers, they're analysts. There are in all levels, a lot of executives listen to our show. So, they're like, wow, Shawn, that makes a lot of sense. If I could get five minutes with you, what would you tell me? What should I do? You know, I'm hot shit, publisher X, Y, Z. Help me. What, what, what do I gotta do? How do I remain viable in this game?
Shawn Layden 00:24:14 Plastics, Benjamin plastics, um...
Alexander Fernandez 00:24:17 It's gold Jerry.
Shawn Layden 00:24:22 I think what we need to do is we need to, we need to be, um, intentional in looking at what our portfolio is, what we're trying to do in the world. If we're just in this business to make money, then continue as current. Cause that's what you're doing, you know, year on year during the pandemic, what video game revenues went up 20 to 24%. Something like that.
Alexander Fernandez 00:24:46 Yeah, absolutely. It's shot through the roof. We're almost 2 billion now. It's insane. You know, we ended up like 183 billion, I think last year.
Shawn Layden 00:24:54 Yeah. And it's going in one direction, you know, it's, it's one of those businesses where every time we do a budget presentation, all the arrows are going in the right direction. It's all going up. So that would lead people to think that what we're doing is right. What we're doing is, is appropriate sufficient. I'm achieving my business goals. We're making the money. We're doing that. My concern is that it's, it's not, future-proof, it's not, it's not getting ready for the inevitable, which is just making more money off of the same people we've been appealing to for the last 20 years. Eventually times itself out, we're not doing enough work to bring new players into the world of, um, certainly console gaming. I can't speak to mobile because that's not really my, my, my gig. And one thing we'll say about mobile, it didn't turn out to be the gateway drug that many people thought it would be, get them on mobile and they'll come to console that doesn't seem to work. But in the console space, you know, we're kind of at the same 240, 250 million users, uh, worldwide, whether it's PlayStation 1 generation or PlayStation 5 generation, and how do we bring new players in? I don't think you bring new players in, by doing sequels to the old stuff you've been building. You know, those people who aren't here have voted, they're saying we don't want first person shooter nine, and we don't want RPG 8 and we don't want Battle Arena 7. So if we just continue to make the same games with innovation, better graphics, more intuitive controls, whatever, but are functionally the same entertainment experience. We will not bring new people in.
Alexander Fernandez 00:26:36 No, you're right. I mean, the thing is the nostalgia play isn't necessarily. Yeah. Okay. There's always a desire to make the game we grew up playing or to be like, oh, wouldn't it be great if, but the reality is it's like, I can't sell to the same, you know, 40-year-old dude who basically games when he wants When I basically also know there's generations of people who truly want to experience something new yet at the same time, I'm constrained because my budgets to make these products are so high. So what it sounds like is am I, am I, am I hearing this right? If you know, I'm sitting here being like, wow, Shawn, you just told me something. And I think maybe just, maybe I should take some smaller bets. It funds some innovation, try something new, knowing full well, the risk of it getting no traction and failing is quite high, but it's better off than basically saying I'm a one-trick pony and there's been 18 of them being it's like, how, how do I, you know what I mean? Cause that is that, is that what you're saying? I mean, cause you know, again, I want to be clear for the listener. Are you saying that I need to basically roll the dice on maybe five, $5 million project?
Shawn Layden 00:27:47 We need to find a way to, um, you know, now granted there is a vibrant indie space in gaming, a lot of independent developers trying to get a leg up, trying to get into the industry, making their product and they're doing it at, you know, 5 million, 6 million, $10 million bets. Um, I think there's a lot of quality in there, but they're having trouble getting discovered. And as industry, we're not doing anything to help them surface. And I think as an industry, we need to find a way to support that next generation of developers. You know, we're off there marching doing our big 300 member teams, doing our huge AAA games that cost $150 million. That's not forever. And if the industry itself doesn't start to create innovation or support innovation or look for new voices and gather new players, it'll collapse under its own weight. So, I think there are good $5 million ideas out there that require developers and big developers and publishers, uh, to look to help that up or as an industry, we need to find a way that these people can get noticed and get some recognition and get some, uh, get some attention. Through perhaps creating some sort of open-source platform that they can build upon. And then, and then have it, a favorable, not a 70/30 kind of split, but you know, 88, 12, right? Yeah. 12%, 12% is kind of the magic number. It's, you know, 10 is probably too low and 15 is kind of painful, but 12 kind of sits in the place where people can say, I can give that away from my, to have some sort of support structure.
Alexander Fernandez 00:29:44 No, absolutely. So like, listen, I'm sitting here listening to this and I'm thinking like, I'm one of these feign cup companies, Facebook, apple, Netflix, Google that is sitting here looking and listening, or I'm a tech company that we don't even know that's monitoring the space. Here's what we're saying. It says, wait a second. So what you're saying is that there's this huge, vibrant scene of people that are undiscovered, that all they need is money. I have money. And yet at the same time, I don't need to go spend $150 million trying to compete with a platform when I can take $150 million and basically create 3000 bets and basically go out there and take them. And what I have because of this massive company with eyeballs is I already have my audience. I'm just now going to basically solve discovery. And there we go. And effectively what happens is I've just disrupted the hell out of everyone in games. And it's as simple as that, you know? Yes. So there'll be people that go, it's not so easy because what we do is magic because we live in Moredoor and like, okay. Yeah,
Shawn Layden 00:30:45 But it is magic. There’s a lot of magicians out there.
Alexander Fernandez 00:30:47 There. Exactly. And you know what? There's a lot of rich magicians out there. And I think what we always forget is that, you know what, we can laugh. It's like, uh haha, there's another big company failing and video games. How many times can they keep trying? Because as long as the money's there and the will is there, they will crack the code. There is nothing that we do that cannot be replicated. There is nothing that if you're not dedicated towards making with the proper focus and capital that you cannot achieve yet at the same time, we'd much rather go make $150-$200 million product because we think that's what people want. Well, is it? Or is it really that we gave them no choice. And is it because the fact that we're so fixated? Yeah. We're fixated. Like we're basically, it's almost, we're bending on the need to do something so amazing. It's almost like a confidence crisis. We need to do bigger, better, amazing. Because we can't possibly do something that just might just be average, but gives us those returns that creates those jobs. That creates that next level of talent. Because I mean, let's be, let's face it. We're strangled. We're basically, uh, strangulating ourselves based on do it just literally pull, pull, pull, pull.
Shawn Layden 00:32:03 If we consider the AAA development is in triple digit millions, which since it is.
Alexander Fernandez 00:32:09 It is very much so.
Shawn Layden 00:32:11 And if you do the math from strictly an Excel, PowerPoint, Excel spreadsheet kind of perspective that you go, I want to make one triple million dollar bet and sell 20 million units. I don't want to make five double digit million dollar bets and make 1 million units each. Right? If you think you can, you can hit for the fences. You're going to do that. The problem with that is, um, you just scare everybody out. They like, okay, you want to be baseball player. You have to hit home runs only home runs, always home runs. It's going to take a lot of talent out of the field. They're going to say, I'm just a single guy. I hit singles all the time. Which as a sports metaphor, isn't a bad thing. But uh, in business it doesn't seem to work that way. And how do we get, how do we get more, more ideas into the room? How do we get them to be heard and discovered? I mean, you talked about the failures of the big tech guys coming into the space and yeah, we see that. And we look at that and we go, yeah, because video games is hard. Um, but I don't see them as failures. I see them as learning, right? It's like Skynet roll. We're just learning. We didn't fail. We learned, we learned and that learning is going to stack up to a point where they'll have figured it out.
Alexander Fernandez 00:33:33 That's the, but isn't that what games teach you?
Shawn Layden 00:33:37 Well, exactly, persistence.
Alexander Fernandez 00:33:38 Persistence and the original game is finance. The original game of it, all
Shawn Layden 00:33:45 The big tech and all these people are trying to get into this space. They're learning. They're not failing. They're learning,
Alexander Fernandez 00:33:49 They're learning. No, you're totally right. And you know, I did the math real quick. You mean at 69.99, if you sell 2 million units, you generate 139 million. Okay. And imagine that you made a game that costs and 125 billion, and let's be clear at a 69.99 price point. You don't take all that money, home.
Shawn Layden 00:34:07 No, no, there’s dealer margin there. There are all kinds of things in there. Yeah.
Alexander Fernandez 00:34:12 The bottom line is, and that's your development budget, which, you know, we already know is in the hundred plus. And then you add a marketing budget that is lightly at the, I have no money, 12% to, I have one money and I want to guarantee it one-to-one then we're basically talking about 200, 220. I mean, there you go.
Shawn Layden 00:34:34 It's so many games. The breakeven point on unit sales is three, four, 5 million just to break even.
Alexander Fernandez 00:34:42 And then at the same time we sit around and we go look at these guys, look at the fangs, look at them, coming in, look at the buckets of cash. And it's just, it's learning, it's learning. It is Skynet. It's, it's effectively realizing at one point I will be, I will beat it and I will break my way in. And the persistence is something that I find to be it's shocking. And yet at the same time I admire it because that's what it means to win in business.
Shawn Layden 00:35:07 And it's totally predictable.
Alexander Fernandez 00:35:10 So let me ask you something, like, if you think about this, like, you know, in the past 30 years, 30 years of publishing 20 years, while you were doing your doing your gig, how much do you think we just cruised on the fact that, oh, it's passion, they'll do it for passion. Let the passion govern them because passion, passion, it's all about the passion was used as a smokescreen for, well, we don't really need to fix it because we're making all the money. So, let's rinse it. I mean like how much of that do you think was there versus just plain naivete?
Shawn Layden 00:35:45 Uh, I think, you know, video gaming is, is still a nascent entertainment. I mean, you know, it doesn't have the long legs of music or film or theater or, or even television. I think many of us got into video gaming because it was a way that our passion for technology and programming came together with, um, how to have fun. How to do something interesting. I mean, first time I touched a computer was a PDP eight, which there are very few people listening to this podcast who are gonna know even what that is. Um, but it was a timeshare. Tell it, you know, like a teletype terminal we had to dial in with a, you know, audio co-ax sort of coupler and dial into a mainframe and write lines of code in basic and have it spit out two numbers or something. But, um, after the first time we coded something to do an arithmetic solution. We're busy trying to work on a star Trek game, a text-based Star Trek game, because that's all we wanted to do was just to have, just to have fun with this technology. I think video gaming grew out of that, that origin story into world, where we were making these amazing worlds. And you know, those of us that were just as dumbfounded as anybody else, that people wanted to spend money to enjoy those worlds with us. And we created more of those and those experiences and people said they wanted to buy into that. So, I think, we didn't really think about whether this was a passion thing. It was more, we were just enjoying ourselves and actually getting paid to do so, which we thought was kind of phenomenal instead of just like being data entry, people working at the, uh, working at a bank. So, then it turned into a big business entry and entertainment. One day we woke up and we were the biggest thing in the world and we're still coming to grips with what that means. And we're trying not to kill the goose that lays the golden eggs, but we don't really know how to get more geese. We don't know how to; we just keep executing along the same trajectory that we started out in 30 years ago. But now has come the time we need to sit back and review that and determine what is we're going to do, or just going to continue to build the same games at higher resolution at a faster frame rate at a bigger number of multiplayer worlds, or we're going to sit back and go, what can this technology unleash? What sorts of other kinds of experiences can we, can we deliver? Um, I guess the movie industry was in a similar rut back in the forties, in the fifties, you know, we have westerns, we have the musical, we have the romcom, we have the other thing. And then in the sixties, all this avante garde film started, you know, coming out and stories that were grim and stories that didn't have a solution or didn't have an ending or left you wondering what the hell is going on? Um, we tried to experiment and I think gaming is entering that world of experimentation in order to grow the audience.
Alexander Fernandez 00:38:52 So, you know, you look at this and it's interesting that you talk about when it started and the fact that a lot of the contemporaries, a lot of the guys and a lot of the gals that started this industry, the first gen, gen one. They're sunsetting on their way out, left us this amazing industry. Yet it's an industry that requires introspection and needs to basically understand where does it go now? And from the standpoint, because the models being what they have been, they're a great to grow, but in order for it to be sustainable at the level of which we've been talking and just by doing basic math, you can see there's issues. It sounds like, you know, this is basically a gen two and that gen three issue that needs to be resolved. And yet at the same time, I don't know how many people really fully understand just how much, how much we're bursting at the seams, right? Where we're bursting with inefficiencies, we're bursting with, you know, viability, we're bursting with attention. We're bursting with massively well-healed companies coming in saying, hey, I want this to, and what we ended up seeing what the pandemic was, how other industries said, we need to transform as industry. And the only technology that can do that is video game technology, video game competencies, video game understanding. And that is coming in full force. So, you know, as, as a person, who's, you know, you grew up, you mean you build this, you built this industry. I grew up in this industry and then created it on my own with my own team. When I look at that and I look around, I'm always like, okay, so what happens now? Other than what we create, where's the conversation piece. Where's the, the thoughtfulness of, you know, if this is 1960s film, Avant Garde and all these rebel kids come out and start making all these, like, you know, everybody dies because it's a French movie and it's like, here we go. You know? I mean, it's like, we're where is that? Because honestly, like there seems to be no voice, no conversation. It seems to be, if I open the newspaper, it's all the, really, all the garbage that our industry produces of poor labor practices, poor behavior. Bro-ing out, it's like we celebrate poor behavior. And this is, this is literally the games industry on a week-to-week basis. Horrible thing happens at company X, a hundred million dollars raised horrible thing happens at company X tied to company Y but we've known that for years, another a hundred million raised nothing else. So basically it's and money. Where's the vision. Where's the direction. Where's the, the conversation of the art, where is the, we are a serious medium that has, is making and pushing the boundaries of culture. Where is it? I don't understand.
Shawn Layden 00:41:50 I don't think as an industry, we've really learned how to talk about ourselves. As an industry, we don't seem to have a voice in the world about what is we are and what is we’re doing. There are so many people, certainly from my generation who have, um, who have helped build this to what it has become and have grown the industry and have made huge strides over the last 20, 30 years. And then when they move on or retire or, you know, go work in their garden, uh, they become incredibly silent. They stop talking about it, they stop addressing it. Um, it's a really interesting phenomenon in this industry that so many leaders have it at their time in this space. Once they move on, they just don't talk about it anymore. And I don't know how to explain that phenomenon. I just can see it. And that's why I think those of us who are willing to go out and take a view to have an opinion, to make a statement about where we think this thing should go, should have the courage to stand up and do that. And, you know, I look forward to having those conversations with other people. People want to come in and say, Layden, you're just full of it. Um, this is how it works, and this is how it's always going to work. This is where it's gonna go. I'm, I'm happy to enjoin that debate because I think we are on a parallel course to some kind of entropy spiral. If we just continued only talking to ourselves about ourselves, about the things we've always done, um, that's no way to grow up, to grow a business.
Alexander Fernandez 00:43:23 Well, it's funny because when you look at the headlines and you look at basically what, what, what other people say about the industry. If you're the state of California, you have a very specific perspective on what this industry means. If you basically look at the press, you see very clearly that we'd rather complain about, well, I don't know why this feature wasn't made versus the jobs it's created, or basically how much money I raised, but yet I didn't execute properly because, you know, I'm always, I always laugh when I read the hundred million, blah, blah, blah, this and that, because I'm like, that's cool. You raised money, but can you deliver a product? We'll find out, we'll find out in three years, but we don't talk about that. And it's not to be a negative, but it's for us to basically realize that being part of an industry, being part of an ecosystem means understanding how to communicate and how to create those pathways that create new products that employ more people that make it accessible. You know, like what a mature industry usually does. It takes itself seriously, but not serious to the point where we basically, you know, say my life is Twilight, but really it's the, we're serious about the fact that we want to have our own control over our destiny and not get disrupted by super wealthy companies that literally have the people and they have the cash and what they want is what we know. And I think that is a part where we get very, like, if we don't watch it, that's exactly what's going to happen. You know, you told that story about basically the music industry. I find it fascinating, uh, the one that basically about how these executives fly over and say, hey, we're going to go ahead from Silicon valley. We're going to go ahead and tell you what music is going to be for the masses. That's a pretty phenomenal thing if you think about it. So, basically a bunch of tech guys get together and say, hey, you know what? We're going to take apart the album and sell songs
Shawn Layden 00:45:11 99 cents a song. Yep.
Alexander Fernandez 00:45:13 And 99 cents though. That's, that's, that's a whole lot of song. And in the end of the day now, what is the one thing we got about it? We get to see a lot of our favorite bands live now after they desperately try to make money through merchandise in live performances.
Shawn Layden 00:45:31 Yep. What iTunes did to music? What Netflix did to film, you know, these are non-endemic players who, when they come in to disrupt an industry, there's a legacy. There's no tradition. There's no anything to worry about, but how do I flip this opportunity into making money for me, uh, in a different delivery of the product. And, um, whereas it's happened to movies and having the music by outsiders, really as a video game industry, I hope that we can, this is why I talk about it. I want us to disrupt ourselves. Do it from the inside. You know, as the saying goes, you have to murder your darlings. Or as Akio Morita used to say, if you don't obsolete your product, someone else obsolete it for you. And we need to be cognizant of that as an industry that the next innovation in gaming needs to come from the gaming industry itself.
Alexander Fernandez 00:46:28 Yeah, very well said. And let me just ask the most controversial question ever, depending on which side of the fence you're on. Does the price, does the price of games need to go up to, should it be a hundred dollars? Let's be honest. Do we push this up or is this like, at what point does the consumer feel the pain or do they not? Curious what you think on that?
Shawn Layden 00:46:53 If you look at, um, you know, metrics around, what is the lifetime value of the consumer, you know, companies make those calculations about how much money do I get into one person over time? Um, you know, the annual, per user per buyer, intake for, for game comes is, is more than 59.99, right? Because you upsell them on DLC or you upsell them on different micro-transactions or you buy, you know, a game bucks of one kind or the other. So, the companies have found a way to kind of fill that gap by these like small ball sort of, add on contingencies. Do I think the price of games needs to go up actually? Yes. Yes they do. It's unreasonable. I think, I think only games and eggs haven't changed price in 20 years. All right. You know, everything else has gone up. People would say, well, some prices have gone down in 20 years. Well, that's true. But you know, looking at a 1999 DVD of a movie that came out eight years ago, that's not really the price coming down. That's just trying to, you know, sell out inventory kind of pricing in the digital world. There's no idea of inventory. So, the product is the product that has the value at the, at, at the time of delivery, um, is $60 a game...Yeah. I think these to go up, I think, but actually going to 70 doesn't solve the problem either. I mean, that's just like a very small band aid on a very large wound. I think more important from the industry standard is how do we contain the cost of developing the game? How do we, how do we manage that piece of it rather than seeing if we can just charge more for this, you know, this runaway trajectory on, on game costs. And, you know, personally, as we see the average game of age of the gamer, we used to be in the late teens when I started this business. And that was in the mid-thirties. Um, I've said this before. I'll say it again. I will be happy to get back to the 12 to 15-hour game, a game that if I started up, I figure in the next three or four days, I can see the ending. I can see what happens to this character, how this resolves. When I was a PlayStation, you know, we've looked at a lot of data. You, you wouldn't be surprised cause you're in the game business, such a small percentage of people actually finish the game, all that money you put into the last boss, less than 60% of the people who bought the game, sees the last boss. Yeah. Um, and that would be thinking about it. If you were screening a movie and 60% of the movie, like over half, the audience has walked out, that would be weird. Right? Um, I guess games like books, you know, all of us have unfinished books in our house, but that is something we need to, we need to confront. We did need to feel certainly as a creator, how do I make sure that people see my entire Opus? How do I make sure that, you know, people enjoy the totality of my story? And if I stress that story over 40 hours, maybe I'm going to lose a lot of people in that transfer. But maybe if I get it cut, cut, and tight, you know, who is going to be the Hemingway of gaming, I guess is the question.
Alexander Fernandez 00:50:18 I mean, that's, that's a good question. I wonder, because in the end of the day, like I think obviously we're always a fan of the short declarative sentence, but I think the reality here is that, you know, we do need to get the cost under control because I mean, if I look at it right now, I mean, as much as I'd love to say that, basically we, we can share the pain. The reality is we can, the consumer, the player, the gamer wants to enjoy what that is presented to them. The expectations are just completely wild at the same time. I mean, basically going back down to the basic loop, we literally just went through the loop of what's causing the vicious cycle. It's literally a price point and insatiable need for better, bigger, faster, a business model that hasn't been innovated in the past, I don't know, 15 to 20 years costs spiraling out of control. And so that, that circling of more of like the drain as it goes this way is what it seems to do now. It doesn't mean that it's over, but what it does mean is that there's a real conversation to be had where the 10 to 15-hour game, the 12 to 15-hour game, the 5 million bet, the 7 million bet. These are really, these are realistic conversations. These are things that should be looked at. And then at the same time, what is shocking to me, and this is always going to be something I always found fascinating is that on one end, we basically see the grind of what it takes to produce this products say in the west. And then we totally don't see what it takes in everywhere else, where our products touch, where the thousands of workers, the thousands of what they call below the line in film. All those people that no one ever wonders about, except for when there's a weird story about exploitation, you know, every couple of years. And yet those people as well, basically are part of these massive projects. So, I just find it fascinating that, you know, people talk without knowing, I guess that's just humanity, you know, at the same time when we get down to the, yeah, it happens every day. Right. You know, what was it? Uh, uh, today I'm a virologist tomorrow I'm an expert in Afghanistan. I mean, it's like, you know, like apparently, you know, you didn't know this, but you know, just so you know, but it's this thing. But I, I do, and I will get over to this, this final thing. And I really want to ask your opinion on this. And that's when you look and, you know, you did your calculus and we talk how we came together and started working. You, we make a comment about breaking the wheel, breaking the wheel. Yep. Not just Streamline, but as an industry, how can we break the wheel? How can we do that?
Shawn Layden 00:53:05 I think it begins by recognizing that we're trapped in this cycle, you know, in order to recognize that you've got to kind of take two steps back, I'll be honest with you, Alexander. When I was in the mall of all of that, it was very hard for me to see it. And it wasn't until I decided to, you know, step back from my day-to-day engagement in the industry and approach it as a fan, as a, uh, as a devotee and to look at it from the outside and to see what can I do to continue to contribute to this industry that, um, I'd grown to love so much over the last 25 years. That's when these things became apparent to me. So, I think it's difficult. It's difficult to see it when you're in it, which is so, so true of so many things. But now that we're a bit removed from it, um, which is why I say again, we need the leaders of this industry who have graduated or retired, or have, you know, moved on to continue to be engaged because those are the eyes that need to look at this problem and find ways to solve for it. Cause you can't really solve it from the insight per se, um, without a bit of an arm’s length distance from it. And so, what we need to do in order to solve for this is just to start to enumerate what these challenges are and to elucidate what we feel are the, are the big hurdles for me to get across. There's the method of production. There is the business model around it. There is the cost structure that goes into both of the business model and the production and sit back and just ask the, the age-old question that humans always do. How do I make this better? How do I improve this? And I don't think we're asking that question enough, but start with the questioning and then we'll, and then the solutions will present themselves.
Alexander Fernandez 00:54:59 Very true. Very true. Well, Shawn has always, it was a pleasure having you on the show, having this discussion is, you know, we go in and we can riff. Uh, and so I'm very much looking forward to having you on in the future. And obviously having this conversation further with you, other guests, as we go into basically season two of Video Games Real Talk. I want to thank all of our viewers and listeners out there again for supporting the show it's been overwhelming. Very positive. Please check out the new website, VideoGamesRealTalk.com. You can find us on our social channels. VGRT on Twitter at Starveup where you can hit me up. We will be bringing back in a huge variety of voices. This season, some of the great things we'll be covering will be from the metaverse onto basically how you actually make money in video games to basically, how do you build a career in video games, all of this and the season of Video Games Real Talk. Looking forward to hearing you all and speaking and talking to you. Take care and thanks for listening.