2017 insights - External Development Summit

2017 INSIGHTS on External Development for the Video Game Industry

advancing external development for the games industry

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TABLE OF CONTENTS

04 06 07 11 14 15 16 21 23 26

WHO PARTICIPATED IN THE SURVEY QUICK STATS 2017 EXTERNAL DEVELOPMENT INDUSTRY OBSERVATIONS FINDING AND SELECTING PARTNERS/CLIENTS TOP ISSUES IN ENGAGEMENTS EXTERNAL DEVELOPMENT TOOLS AND TECH RESOURCES PROJECT DISCIPLINES AND PLATFORMS SERVICE PROVIDER AVERAGE RATES BY COUNTRY THE FUTURE OF EXTERNAL DEVELOPMENT GLOSSARY OF TERMS

ABOUT

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What’s Inside? External development refers to the practice of video game developers and publishers (buyers) leveraging service providers (sellers) in any aspect of development including but not limited to art, animation, cinematics, audio, server-side/front-end engineering, porting, game development, UX-UI, motion capture QA, localization, and VFX. This report is intended to provide insights in to the changing trends in external development that have occurred in recent years as it becomes an increasingly integral part of game development. The statistics in this report were derived from over 150 service providers worldwide, and over 55 industry professionals from leading game developers and publishers. Data was anonymously contributed to provide insights on engagements. The research and data gathered to establish this report was collected by the organizers of the External Development Summit, with contributions from the XDS Advisory Committee. Permission must be requested if you would like to use this information in articles or industry presentations.

Who We Are External Development Summit (XDS) is the only annual, international games industry event held in Canada, with a primary focus on external development for art, animation, audio, engineering, QA and localization. Each year, a broad community of game developers and publishers, service providers, and middleware providers meet in Vancouver to contribute to the advancement of the video game industry through collaboration, sharing of best practices, networking and the delivery of a high-caliber, educational program. XDS 2017 will take place on September 6-8, 2017 in Vancouver, Canada.

Guest Authors

Jason Harris

Dilber Mann

Andrea Wood

Senior Director, Worldwide External Development, EA

Senior Producer, The Coalition, Microsoft

Telfer School of Management Graduate

WHO PARTICIPATED

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SERVICE PROVIDER OVERVIEW Service Offerings Service providers participating in the report represent a range of different disciplines

Art

32%

Animation

21%

Engineering

14%

Cinematics/VFX

9%

UX-UI

9%

QA

7%

Localization

4%

Audio

4%

Client Make-up Multinational Games Developer / Publisher

34%

Mobile Game-Focused Developer

20%

Small Independent Console Game Developer

16%

MMO Game-Focused Developer

8%

TV/Media Company

7%

Motion Picture Company

6%

Online Casino / Gambling

5%

Online Social Game-Focused Developer

3%

MOBA 2% ESports 0%

55%

50%

85%

of service providers surveyed have LESS THAN 50 EMPLOYEES with only 14% having more than 250

of service providers that participated have only ONE LOCATION

of these service providers have been in business for MORE THAN 5 YEARS

6%

44% over 10 years

operate out of more than 5 LOCATIONS

EMPLOYEES

LOCATIONS

4%

less than 2 years

TIME IN BUSINESS

WHO PARTICIPATED

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DEVELOPER / PUBLISHER OVERVIEW

Developer / Publishers Platform Focus 72%

Console games

47%

Mobile games

41%

Browser/PC games

14%

VR games Facebook games

12%

Social Casino Games 4%

Frequency of Changing Partners Year Over Year

• • • •

5 Average team size managing service providers

100% are the same 75% are the same

75%

50% are the same < 50% are the same

14 Average number of service providers a developer / publisher works with annually

of service providers are the same year after year for the majority of developers/ publishers

93%

93%

Foresee a growth in demand for external development services

Developer / publishers expect to work with the same service providers again after project completion

QUICK STATS

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TOP 3

1

most important factors when selecting a service provider:

QUALITY

2

EXPERIENCE

ART

accounts for 80% of all external development projects.

GAME INDUSTRY EVENTS are the #1 place service providers meet new clients

3

RATES

#1 Reason Companies Engage Service Providers: to scale teams to deliver more content & features

2017 EXTERNAL DEVELOPMENT INDUSTRY OBSERVATIONS

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Mergers and Acquisitions Activity is Leading to Consolidation in the Industry Mergers and Acquisitions activity has been increasing over the past year with visible consolidation in the industry. 30% of SERVICE PROVIDERS reported that they are actively looking for acquisition targets and over half of respondents (55%) have been approached for M&A conversations.

What services are companies interested in acquiring?

30% SERVICE PROVIDERS Looking for M&A Targets

17%

3D ART

15%

ANIMATION

12%

2D Art

12%

VFX

10%

Cinematics

12%

Engineering

8% Mobile Game Development 7%

Other

5% Console Game Development 2%

72% of service providers say they are open to being acquired

Audio

2017 EXTERNAL DEVELOPMENT INDUSTRY TRENDS

Increasing Number of External Development Projects from Mobile Companies Service providers are seeing an increase in the number of art and engineering projects from mobile companies who now represent 20% and 29% of their client portfolio, respectively.

TOP 3

areas of increase in the past 12 months

1

Mobile Game Developer

2

Online Casino / Gambling Company

3

Multinational Games Developer / Publisher

Service providers cited Mobile Games Companies as the #1 growing client segment over the past 12 months, followed by online casino games companies. The increase in projects from mobile companies is not surprising given the growth in the market. According to SuperData’s report, “2016 Year in Review” the mobile market is continuing to see growth with total mobile games revenue estimated at $40.6 billion USD in 2016 and growing to a forecasted $50 billion in 2018. Comparing to data collected from a similar report of 100 service providers in 2011 shows further evidence of this trend; increases in work from mobile developers, TV/ media companies, motion picture companies, and online casino/gambling companies.

www.superdataresearch.com/market-data/market-brief-year-in-review/

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Service Provider Art Client Portfolio by Segment, 2013 vs. 2017

2017

31%

17%

21%

23%

36%

2013

0%

n n n n n

10%

20%

9%

30%

40%

Multinational Games Developer / publisher Small Independent Console Game Developer Mobile Game Developer MMO Game Developer Online Social Game Developer

n n n n

10%

50%

60%

3%

6%

10%

70%

9%

7%

5%

1%

4% 3% 1% 4%

80%

90%

100%

Motion Picture Company TV/Media Company Online Casino/Gambling Company Other

This is also true for engineering projects where SERVICE PROVIDERS cited that mobile companies represented 7% of their client portfolio in 2013 compared to 29% in 2017.

Service Provider Engineering Client Portfolio by Segment, 2013 vs. 2017

26%

2017

14%

29%

38%

2013

0%

n n n n n

10%

20%

12%

30%

Multinational Games Developer / publisher Small Independent Console Game Developer Mobile Game Developer MMO Game Developer Online Social Game Developer

40%

6%

50%

n n n n

6%

7%

60%

Motion Picture Company TV/Media Company Online Casino/Gambling Company Other

10%

70%

3% 4%

1% 4%

9%

4%

80%

8%

1%

18%

90%

100%


VR/AR Not So Hot for External Development Although service providers are optimistic about the impact of VR/AR, developers / publishers are less convinced this will drive demand for external development.

37% SERVICE PROVIDERS see VR/AR as the #1 driver for increased demand in external development

ONLY 14% of DEVELOPERS / PUBLISHERS report that they are currently experimenting with VR/AR

ONLY 10% of DEVELOPERS / PUBLISHERS believe VR/AR will drive demand

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FINDING AND SELECTING PARTNERS/CLIENTS

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How do you meet the majority of your partners? Networking tools such as LinkedIn are one of the most utilized tools by service providers to reach out to buyers, but only 4% of developers / publishers find their external partners through this outreach. This declined compared to the 2016 report where 10% of respondents said they met services providers through “cold calls.”

Games industry events

Internal company resources

7% 31%

39% 27%

Online research

Service Providers

41%

Developers / Publishers

13% 3%

Other

Referrals

Internal referrals & company resources

18%

Buyer Reaches Out

Games industry events

12%

Industry Peer Referrals

4% 4% Other

Games events and referrals are the top ways that companies connect.

SERVICE PROVIDERS: Factors Considered When Accepting a New Client Project 1 Potential for future projects 2 Prestige of project/client 3 Rates the client can pay

TIP FOR SERVICE PROVIDER Prioritize attending industry events to meet potential clients’ verses relying on outreach through networking sites.

Networking sites

FINDING AND SELECTING PARTNERS/CLIENTS

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DEVELOPERS / PUBLISHERS: Factors Considered When Selecting an External Partner Developers / publishers indicated that the most important factors in selecting an external partner are quality, experience, and rates. Despite the huge impact that a company going out of business during an engagement or an IP leak can have on a developer / publisher, financial stability and security controls ranked as the least important factors. A report released by IBM (2016 Ponemon Cost of Data Breach Study) analyzing security breaches at 383 organizations in 12 countries found that “the average consolidated total cost of a data breach is $4 million USD” so leaks can be very costly.

1 2 3 4 5 6 7/8/9 7/8/9 7/8/9 10 11 12

http://www-03.ibm.com/security/data-breach/

QUALITY

EXPERIENCE

RATES

Credibility

Language/Communication Skills

Previous Clients & portfolio

Size of company

Studio leadership

Technology Experience

Security controls

Financial stability

Proximity

FINDING AND SELECTING PARTNERS/CLIENTS FINDING AND SELECTING PARTNERS/CLIENTS

TOP REASONS Developers / Publishers Engage Service Providers

31%

Scale teams to deliver more content and features

18%

Cost savings

16%

Flexible skill-set ramp-up/ramp-down

12%

Access hard to find skills

11%

Lack of available local resources

7%

Support content needs for live services

5%

Speed up development through follow-the-sun model

#1 Reason Scale teams to deliver more content & features

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TOP ISSUES IN ENGAGEMENTS

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TOP ISSUES Encountered with External Development in 2016

SERVICE PROVIDERS

DEVELOPERS / PUBLISHERS

1

Inadequate documentation and direction

1

Partners lack capacity

2

Differences between internal & client time estimates

2

Communication challenges

3

Communication challenges

3

Iteration issues (volume, speed)

4

Iteration issues (volume, speed)

4

Poor quality deliverables

5

Acquisition of client

5

Pipeline set-up

TIP FOR SERVICE PROVIDER Ensure you invest in communication tools, relevant language courses, and training for project managers. Communication challenges rank as the #2 issue for your clients.

TIP FOR DEVELOPERS / PUBLISHERS Take time to create adequate documentation, clearly communicate quality benchmarks, and fully understand reasons for differences in estimates. This can save you a significant amount of time and money in the long-run. It will reduce the number of iterations and asset polish/ code clean-up needed by your internal artists/engineers.

Developers / publishers cite that high demand for the top service providers is leading to capacity issues.

EXTERNAL DEVELOPMENTS TOOLS AND TECH RESOURCES

TOP TOOLS Tools commonly used to support external development displayed in order of highest usage.

SERVICE PROVIDERS


Jira Trello Shotgun Basecamp

MS Excel Jira Shotgun

Communication

Skype Email Slack

Email Skype

File Transfer

FTP Dropbox Aspera Faspex

Aspera Faspex Perforce FTP

Art Review

Basecamp Shotgun Jira

Shotgun Internal tool

Code Review

Github

Github

External Company Database (CRM)

Pipedrive Salesforce/Internal tool

Internal tool

Project Management

Emerging Tools

For the second year in a row, Substance was named as the top emerging tool adopted by service providers.

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PROJECT DISCIPLINES AND PLATFORMS

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The number of integrated art projects have decreased in 2017, dropping from 41% of all projects to 25% while the percentage of conventional art projects with partial tool pipeline jumped from 19% to 36%. The number of co-development projects also dropped from 16% to 8%. This could be a result of an increase in mobile projects where service providers do not integrate art assets directly in engine or normally work in a co-development model.

TYPES OF ENGAGEMENT Of all external projects, 84% are for production (-6% YOY) with very few projects for R&D, pre-production, live services updates or DLC.

36% 25%

Conventional Art External Development with partial tool pipeline

Integrated Art Development full pipeline

Convectional Art External Development without partial tool pipeline

19% 8% 8% 2% 2%

PROJECTS BY PLATFORM

Full Development

Co-Development

Programming

Other (Programming and Full Development)

Console

58% (+3% YOY)

Mobile/Tablet

22% (-8% YOY)

Browser/PC

21% (+3% YOY)

VR/AR

2% (+2% YOY)


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External Development within Art Disciplines

Although photo-real projects represent a slightly smaller percentage of overall projects by art style compared to 2016, there has been a 20% YOY increase in these types of projects.

Photo Real

63% PROJECT TYPES BY

ART STYLE

4%

Cartoon

33% Stylized

By Project Duration Compared to 2016, for projects overall there has been an increase (from 35% of projects to 49%) in the number of projects under three months in duration and a drop in projects lasting more than 12 months (from 33% to 25%). This could also be a result of the increase in mobile projects which are often shorter in duration than console projects. The below graphic provides a break-down for art and engineering (does not include other categories such as UX-UI, VFX, QA, etc).

art engineering

60%

% of project engagements

51%

30% 20% 12%

11% 10%

6%

months 12

>12


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Maturity of ART/ANIMATION External Development Disciplines Most companies started their art engagements by sending 3D props out-of-house. A third of respondents began this over 10 years with all respondents now citing that no prop work is done internally. This is expected as props are one of the easiest types of assets to send externally with an abundance of service providers being able to take on this work. Very few respondents (less than 10%) started sending 3D art work out-of-house less than a year ago with approximately 70% starting over 5 years ago. Hand-in-hand with this, only 8% of companies have kept 3D animation internal. Most companies started sending 3D animation out-of-house around 2 to 4 years ago. n

Less than 5% of developers / publishers have kept 3D art (characters, environments, weapons, and props) internally.

n

Developers / publishers appear cautious to send 2D work out-of-house with 15 to 20% of respondents keeping this internal. Most started sending 2D assets out-of-house about 2 to 4 years ago. This also ties in to the growth of mobile games within the past few years.

n

Very few companies create cinematics internally (less than 3%). Over 50% of respondents started sending this out of house over 5 years ago.

n

U X-UI is one of the newest areas that companies have started sending out-of-house. Almost 40% of respondents only began engaging with service providers in this area less than 1 year ago and 32% starting 2 to 4 years ago. Only 22% of UX-UI work now remains internal.

n

VFX is the area most companies keep internal (45% of respondents) with some companies experimenting with this over the past couple of years.

ART TIMELINE: When developers / publishers started sending art disciplines out-of-house

Remains Internal < 1 year 2 - 4 years 2D Environments 2D Characters 2D Vehicles 2D Props Concept Art 3D Animation 2D Animation Cinematics VFX

> 10 years 3D Props 3D Environments

VFX 45% UX-UI 23%

UX-UI

5 - 9 years 3D Characters 3D Weapons 2D Weapons

2D Animation

22%

2D Vehicles

20%

2D Weapons

20%

2D Props

16%

2D Environments

14%

2D Characters

14%

Concept Art

10%

3D Animation

8%

3D Environments

5%

3D Weapons

3%

Cinematics 3% 3D Characters

2%

3D Props

0%


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Maturity of ENGINEERING External Development Disciplines n

Compared to art, a higher percentage of engineering projects remain internal with 83% of rapid prototyping remaining internal, 75% of front-end development, 70% of engine development, and 60% of telemetry work.

n

Although a high percentage of rapid prototyping projects remain internal, 11% of respondents experimented with engaging external partners in this area over the past year.

n

Web development is the most common candidate for external development with only about a quarter of these projects remaining internal, 28% starting to send these out of house 2 to 4 years ago, and almost 40% started 5 to 9 years ago.

n

Only one-third of respondents have kept full SKU mobile development projects in-house.

n

About 50% of companies send console game modes, tools development, level design, and server-side development outof-house.

ENGINEERING TIMELINE: When developers / publishers started sending engineering disciplines out-of-house

Remains Internal < 1 year 2 - 4 years Console game modes Tools development Engine development Telemetry Server-Side development Level Design/Building

Rapid prototyping

Rapid prototyping

83%

Front-end development

75%

Engine development

70%

Telemetry 60%

5 - 9 years Web development Full SKU mobile development Full SKU console development Front-end development

Server-Side development

58%

Level Design/Building

52%

Tools development

50%

Console game modes

41%

Full SKU console development

41%

Full SKU mobile development

34%

Web development

26%


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TOP COUNTRIES for Different Types of Work

3D ART

FULL DEVELOPMENT

ENGINEERING

1

China

1

Ukraine

1

USA

2

India

2

India

2

United Kingdom

3

Vietnam

3

Russia

3

Russia

4

Spain

4

Argentina

4

Canada

CONCEPT ART

UX-UI 1

United Kingdom

1

United Kingdom

2

Mexico

3

India

4

Canada

*Backed up by the data on where game engineering work is being sent

TOP TOP EMERGING EMERGING markets for game markets for game development** development India and Ukraine India and Ukraine

SERVICE PROVIDER AVERAGE RATES BY COUNTRY

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Average rates were collected from over 150 service providers worldwide covering art, animation, and engineering. Information is shown on the next two pages for countries and disciplines that received a critical mass in responses.

CANADA

)

3D Animation Concept Art Console Dev Mobile Dev

$12,540 $14,200 $9,975 $11,702

USA 3D Animation Concept Art Console Dev Mobile Dev VR Dev

$10,313 $9,790 $13,734 $13,659 $13,200

UNITED KINGDOM Concept Art Console Dev VR Dev Mobile Dev

$11,200 $11,327 $8,580 $10,171

UKRAINE 3D Art 2D Art Mobile Dev VR Dev

$4,464 $4,162 $4,400 $5,368

SPAIN 3D Art 2D Art Mobile Dev

All rates are staff month rates in USD and calculated at 22 days per month.

$6,490 $5,280 $6,600

SERVICE PROVIDER AVERAGE RATES BY COUNTRY

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RUSSIA 3D Art 3D Animation Console Dev Concept Art

$5,075 $4,928 $6,774 $4,928

CHINA 3D Art 3D Animation 2D Art Concept Art

$4,082 $5,435 $3,874 $4,449

INDIA 3D Art 3D Animation

$4,253 $3,300

VIETNAM 2D Art 3D Art Mobile Dev

$4,400 $4,635 $4,500

PHILIPPINES 3D Art

$3,483

MALAYSIA 3D Art 3D Animation Concept Art

All rates are staff month rates in USD and calculated at 22 days per month.

$4,880 $4,840 $5,030

THE FUTURE OF EXTERNAL DEVELOPMENT THE FUTURE OF EXTERNAL DEVELOPMENT

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Q1 What are the main drivers for an increased demand in external development services over the next 3 to 5 years? SERVICE PROVIDERS


1

Virtual Reality

1

Demand for more content

2

Players demand for more content

2

Richer/deeper games

3

Augmented Reality

3

Need to decrease development costs

4

Need for developers to decrease development costs

4

Virtual Reality/Augmented Reality

Service providers are significantly more optimistic about VR/AR as they forecast this to be the biggest area of demand in the next 3 to 5 years. This ranked 4th for developers / publishers.

Q2

85%

of developer / publishers responded that the need for more content is driving demand.

F or what disciplines are service providers optimistic about growth in demand for services over the next 12 to 18 months?

Most Optimistic (10 is highest) Engineering Art Animation Audio QA UX-U Cinematic/VFX Localization

93% growth As games get bigger/deeper and with the proliferation of platforms, 93% of developers / publishers are seeing a growth in demand for service providers at their company.

1

10

UX-UI and concept art are two new areas seeing significant growth.


Q3

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In what areas have developers / publishers seen a growing demand for external services in the past 12 months?

3D CHARACTERS

81%

3D PROPS

75%

ALL OTHER 3D ART

70%

UX-UI 69% CONCEPT ART

Q4

58%

In what areas do developers / publishers expect to see growth/demand in the next 18 months?

DEVELOPERS / PUBLISHERS 1

3D Props

2

3D Characters

3

VFX

4

UX-UI

5

Concept Art

areas of less growth The bottom 3 areas where developers / publishers did not expect to see much growth were: 2D casual art, 2D animation, and web development.

only 17% of developers / publishers expect to see a demand in VR/AR development in the next 18 months


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Main concerns about the future of external development

SERVICE PROVIDERS


Demand for lower rates, but higher quality Increased need for investments and training on new technology, software, and platforms. onsolidation is pushing out high-quality, niche service C providers. evelopers / publishers often want hard to find niche D skills but do not always want to pay the higher rates.

Consolidation among service providers could potentially cause a number of issues:

• reduce competition among the top companies.

• lead to rate increases for the top companies that have been acquired

• o ne bad decision by the parent company could be detrimental to all of the entities that have been acquired

• w ork may be sub-contracted to different entities that have been acquired

Increase in competition due to both tax credits reducing costs in some regions and an influx of new service providers.

Service providers moving in to co-development and creating their own IP means they could become future competitors to their current clients.

evelopers / publishers do not always take cultural D differences in to consideration in communication.

Lack of capacity can mean teams are fighting for the best talent and bandwidth. Political and economic instability in some countries can cause issues working with partners. Talented artists leaving credible companies to start their own art studio, but without knowing how to run and establish a credible business.

GLOSSARY OF TERMS

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The following definitions may be subject to the context in which they were used in this report.

Co-Development Cooperative engagement where significant parts of development are shared by a client and service provider Conventional Art External Development (without tool pipeline) A service provider builds art content without any tools to integrate or export the assets to the developer Conventional Art External Development (with partial tool pipeline) A service provider builds art content with the support of tools that allow them to export content, or use a viewer to check their work Developers / Publishers (buyers) Companies that develop video games and/or publish games that they own, or publish games on behalf of other developers External Development The practice of video game developers and publishers (buyers) leveraging third party service providers (sellers) in any aspect of development Full Development A developer requires a full game to be developed by service providers

Industry Professional (buyer) An individual under the employment of a video game developer responsible for managing, influencing or decision making for external development. Integrated Art Development A developer’s full technical pipeline is used by the service provider Photo Real Art Art that is intended to simulate aspects of the real world, whether organic or inorganic, as realistically as possible Service Provider (seller) A third party external partner hired to contribute to certain or all aspects of game development Stylized Art Design according to a style or stylistic pattern rather than according to nature or tradition

EXTERNAL DEVELOPMENT SUMMIT

For more information about the External Development Summit (XDS), please contact us at: [email protected] www.xdsummit.com