ceo survey report of japanese video game developers - mirko ernkvist

CEO Survey Report of Japanese Video Game Developers

Mirko Ernkvist

February 2012

©2012 Mirko Ernkvist Email: [email protected] To cite this publication: Ernkvist, M. (2012). CEO Survey Report of Japanese Video Game Developers, Working Paper, The University of Gothenburg. Mirko Ernkvist is a Researcher at the Centre for International Business Studies, the University of Gothenburg, Sweden. During 2010-2011 he was a Visiting Scholar at the Interfaculty Initiative in Information Studies, University of Tokyo. Dr. Ernkvist holds a PhD in Economic History from the University of Gothenburg. His research is concerned with entrepreneurship, development and innovation strategies in creative industries. Acknowledgement. The findings, interpretations and conclusions expressed herein are entirely those of the author. This research was pursued by the author as a visiting scholar under a JSPS Postdoctoral Fellowship for Foreign Researchers at the University of Tokyo, Baba Game Lab. I would like to thank Professor Akira Baba, Professor Masahito Fujihara, Zeng Qi, Sumika Ito and the other members of the lab for their help and support during this project.

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Table of content INTRODUCTION 3

SURVEY DESIGN 4 REFERENCE LITERATURE ON SURVEY DESIGN 4 RESPONDENTS 4 SURVEY SAMPLE 5 RESPONSE RATE 5 ITEMS SURVEYED 5 AIM OF THE SURVEY REPORT 7 STRUCTURE OF THE REPORT 7 INTERPRETATION OF THE RESULTS 7

FINANCIAL PERFORMANCE 10

EXTERNAL KNOWLEDGE SOURCES IN VIDEO GAME DEVELOPMENT 13

THE ROLE OF USERS IN VIDEO GAME DEVELOPMENT 16

GAME DEVELOPMENT TOOL USAGE 18

VIDEO GAME DEVELOPERS AS OUTSOURCING SERVICE SUPPLIERS AND PROVIDERS 20

BUSINESS TIES WITH PUBLISHERS 22

GAME DEVELOPMENT AND INNOVATION STRATEGY 24 ANTICIPATED AND ACTUAL GAME DEVELOPMENT TIME 24 ABANDONED GAME DEVELOPMENT PROJECTS 25 SELF-‐PUBLISHED GAMES 26 IP-‐OWNERSHIP IN GAME DEVELOPMENT 27

CEO BACKGROUND AND DEMOGRAPHY 29

CONCLUSION AND DISCUSSION 31

REFERENCES 34

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Introduction

This is a report of some of the results from a survey conducted in aim to gain more knowledge of

management and innovation strategies of Japanese video game developers. The descriptive statistical

results give quantitative indication of characterizing features of video game development, some of

which confirms issues that previously has been expressed by individual game CEO’s in public

remarks, some which might provide new knowledge. As often is the case in statistical surveys, it

describes the quantity and amount of phenomena, rather than the underlying why and how. To

account for this would have required a large number of additional interviews, something that have

not within the scope of this project.

The survey was sent out during the summer of 2011 to the CEO’s of all Japanese video game

developers with at least 3 years of business experience.

I would like to express my gratitude towards all the CEO’s that have shared their time and

knowledge for the survey report. This survey report would not have been possible without their kind

help. As in all survey results, the extent to which we can produce reliable results and the opportunity

to test more complex hypothesis is dependent on the cooperativeness of respondents.

The survey and this report has been part of a JSPS Postdoctoral Research Project for foreign

researchers. I am grateful for the valuable help and assistance in various part of the project from

Professor Akira Baba, Professor Masahito Fujihara, Zeng Qi and Sumika Ito. The kind cooperation

from the survey pilot test companies and industry experts is also acknowledged. Despite effort of

proofreading and checking the results, there is no guarantee that there might be errors of factual or

judgmental nature in the report. I personally hold the responsibility for any potential mistakes or

factual inaccuracies in this report.

Mirko Ernkvist

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Survey Design

Reference literature on survey design Established research indicates that business surveys to executives and upper management at firms are

some of the most challenging for academic researchers to pursue in terms of achieving a high

response rate (Bartholomew & Smith, 2006; Baruch & Holtom, 2008; Cycota & Harrison, 2002,

2006). Among the factors contribute to this challenge is the limited time that CEO’s has to their

disposal, the lack of an established social network between researchers and the respondents, the

challenges to motivate CEO survey participation and the layers of hierarchy in the organization that

makes it difficult to reach to the CEO.

In an effort to get a higher response rate, the current survey has followed principles from the

“Tailored Design Method” (Dillman, Smyth & Christian, 2009), involving specific principles when

crafting the survey question, the survey design, layout and implementation. In accordance to the

method, a five-step survey method was used consisting of (1) pre approach letter, followed by the (2)

survey letter, (3) first reminder notice, (4) second reminder and (5) final contact through either phone

or email (Table 1). These steps in the survey took place during the period June-August, 2011.

Table 1: Steps in the survey process

Survey steps and time plan for distribution

Distribution method for each company Time of distribution

1.PAL (Pre Approach Letter)

Mail with letter 4th week of June 2011

2. Cover Letter with survey attached (2 weeks after step 1)

Mail with cover letter, survey form and prepaid response envelope.

1st week of July 2011

3. First reminder: Thank you letter, no survey attached (2 weeks after step 2)

Mail with letter 2nd week of July 2011

4. Second reminder: letter, with survey attached (2 weeks after step 3)

Mail with letter 1st week of August 2011

5. Final contact though phone or email (using a different mode of communication).

Email (with attached survey) or reminder phone call

2nd-4th week of August 2011

Respondents The survey was addressed specifically to the CEO’s of Japanese video game developers, using a

database of Japanese game developers developed for another research project as a starting point

(Fujihara, 2010). The database was developed and updated though information from each companies

Internet homepage to incorporate additional variables (including CEO name, game platforms active

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on as developer, company founding year). This allowed the survey to specifically address Japanese

video game developers (companies active in development with packaged games on handheld and/or

console platforms).

The survey questionnaire was pilot tested with game industry CEO’s and industry experts, leading to

some alterations of design, questions and wording.

Survey sample Due to the surveys focus on business activities during the last 3 FY, video game developers that had

been established 2009 or later were not included in the survey. A few companies that recently had

gone out of business or otherwise erroneously included in the database were also secluded from the

survey process. The survey was distributed to a final set of 289 Japanese video game developers.

Only companies engaged in video game development were included in the survey. This excluded

company that only were engaged in other types of the broader category of “digital game” industry

(arcade games, PC games, mobile games).

Response rate 74 CEO’s responded to the survey, representing a response rate of 25.6%. The response rate was

relatively high in comparison to other CEO surveys (Bartholomew & Smith, 2006; Baruch &

Holtom, 2008; Cycota & Harrison, 2002, 2006). Some items in the survey received lower response

rate, presumably due to perceived confidentiality reasons from responding companies.

Items surveyed

The choices of question and the distribution of topics in the survey were made with references to the

respondents (CEO’s) and the planned dissemination of the research results. The areas of coverage

are summarized in Figure 1 and a more detailed list of items is described in Appendix 1.

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Figure 1 Survey areas of coverage

Survey areas of coverage

CEO

Background & demography

Firm

Background & demography

Game development & innovation strategies

Technology usage

Information sources & market

feedback

Financial performance

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Aim of the survey report The report mainly provides descriptive findings of the survey. There are a number of annual reports

with quantitative data of the game market in Japan that is published annually, e.g. by CESA, Media

Create and Enterbrain. However, the information regarding the supply side in the form of game

developers is more limited. In particular, there is a lack of data regarding the large number of

medium sized and small video game developers in the Japanese video game development ecosystem.

Previous academic research surveys of Japanese game developers include a study of HRM (Human

Resource Management) (Fujihara, 2010) and game companies in-house versus outsourced

development strategies (Shintaku, Tanaka, and Yanagawa, 2003).

To the author’s knowledge, this is the first industry wide survey to CEO’s of Japanese game

developers. The aim of the report is to provide descriptive results of the current status of Japanese

video game developers in the following areas:

• Technology usage in development

• Knowledge sources for game development

• Application of user feedback methods in game development

• Financial performance of game developers

• Game development strategies

• Business relationships with publishers

• CEO demography & background

Structure of the report

The areas listed above are analyzed in their own separate chapter of the report. The chapters begin

with a “Background” section, briefly presenting the research area in its larger frame, with reference

to some selected references (if applicable). This is followed by a “Result” section, in which the survey

results are presented and analyzed.

Interpretation of the results There are many sources of error and biases, some of which are applicable to survey research in

general and some which are specific to CEO surveys. Detailed discussions of all of these are not

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within the scope of this report. However, below is a description of some of the more important

sources of error and bases, including the research design strategies applied to account for them.

Representativeness Due to the comparatively low response-rate of most CEO surveys, they are often prone to problems

regarding how representable the responding sample is to the general population (in this case the

video game development industry). As discussed, the survey has tried to limit this problem by

adopting various strategies to increase the response rate. Nevertheless, the issue of representativeness

remains one of the major sources of potential bias and error when interpreting and generalizing

results from this report.

Terminology and interpretation error Diverging interpretation or misunderstanding of the surveys terminology provides a potential source

of error and bias. Some terms in the video game industry do not have a coherent definition. The

survey has tried to handle this issue by several strategies. For example, efforts have been made to:

• Identify ambiguous terms in the design and pilot-test of the survey.

• Use survey terms that are close to the terms commonly used in the industry (rather than

terms which might be more commonly used in an academia).

• Write out definition of terms and in some cases examples in connection to the questions.

• Define the key term “video game” clearly at the start of the survey.1

• Remove survey responses apparently based on erroneous understanding of the questions

from the survey results.

Memory recall error, sensitive information, cognitive complexity Certain types of survey question are more prone than other for memory recall errors, biases due to

question being perceived as sensitive information or errors due to questions that are too cognitively

complex/demanding.

In terms of memory recall errors, the questions have been limited to the last 3FY. The survey has

tried to avoid or reformulate question of such nature that prone to memory recall errors in the

questionnaire design.

In terms of sensitive information, some questionnaire items are likely to have received lower

response rate as a result of the, being perceived as confidential or sensitive to reveal. This has e.g.

1 Although efforts have been made to define the term video game, a few responded have included downloadable games

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likely been the case for the questions related to company financial performance, game titles

developed and some items of development strategy. Due to the lower response ratio of these

questions, they should be interpreted more cautiously. In an effort to try to account for the low

response rate of financial items, the report has collected complementary data from two external

corporate financial databases.

In terms of cognitive complexity/demands, respondent could have regarded some questionnaire

items as too cognitively demanding or complex to give an exact or correct response. The survey has

tried to limit this problem through the feedback during the design and pilot test of the survey.

However, it is notable that some questions might be more cognitively demanding than other,

especially fore larger firms with large-scale operations and development activities.

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Financial performance

Background The current survey has taken place in a context characterized by challenging economic environments

for Japanese video game developers, both at the supply and demand. At the demand side, shipments

to both the domestic and international market have been declining in recent years (Figure 2). At the

supply side, production economics has been challenging with increasing development costs of game

software (CESA, 1998-2011). In addition to these industry factors, Japanese video game companies

also had to cope with the general macroeconomic challenges that have faced the Japan during this

time.2

It has been a lack of data regarding how the larger ecosystem of Japanese video game developers

have been able to handle the challenges the industry has faced in terms of financial performance.3

The current report had the aim to measure the financial performance of the ecosystem of Japanese

video game developers.

Figure 2 Japanese video game market, 1996-‐2010

Source: CESA Games White Paper (1997-‐2011) 2 E.g. factors such as the strengthening of the Japanese yen, the unfavorable demographic development in Japan and the challenging development of domestic consumption. 3 While financial performance data regarding the larger publicly listed video game companies’ financial performance is readily available, the situation for medium-sized and smaller video game developers is less well-known (besides opinions expressed by individual developers).

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Million Yen

Domestic Japanese market shipments

Total international exports

Exports to North America (US +Canada) Exports to Europe

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Results of financial performance from TSR and Teikoku Databank The databases used to collect financial performance data for Japanese video game developers have

been two corporate financial databases: TSR (Tokyo Shoko Research) and Teikoku Databank. By

combining these two corporate databases to the dataset of video game developers, it has been

possible to report the financial performance data from slightly more than half of the companies from

the database of Japanese video game developers (n=289) (Table 2). This alternative was preferred

over reporting data collected in the survey form as it was able to cover a larger sample of Japanese

game companies and limited the potential errors and biases from self-reported financial performance

data. 4

The financial data reported from the database are profit margin (profit/revenues) of the companies.

When interpreting the data, it should be noted that this measure include the profit margin for the

entire company in question which might also include other business activities than video game

development.

Data was collected for the two latest years in order to also be able to provide the data for a two-year

period. This measure of financial performance could provide a more comprehensive account of

financial performance, taking into account the fluctuation in revenues and profits that could take

place over the lifecycle of video game platforms.5

Table 2: Financial performance for Japanese video game developers as reported in Teikoku Databank and TSR

Last reported company FY

Second last reported company FY

Last 2 reported company FY

Mean Profit Margin (%) -2.59 -4.68 -1.82 Median Profit Margin (%) 0.86 1.22 0.90 Percentage of companies with positive profit margin (profit margin >0%)

54.8 56.2 54.7

N (Share of companies in the databank which provided data though Teikoku Databank or TSR)

157 (55.0%) 169 (58.5%) 150 (51.9%)

4 The survey also collected financial performance data by asking companies to report the sales and operating income during the last 3 FY in order to analyze return of sales (ROS; operational income/revenues). However, response ratio for these financial items was relatively low. It has also been noted in the research literature that CEO self-reporting of financial performance data has some challenges in terms of reliability. Accordingly, this raise question regarding the reliability and how representable the financial performance data reported from the survey was. Based on this, it was decided to only report the financial data collected from the TSR and Teikoku Databank in this report. 5 Within this context, the financial performance reported concerns a time period in the middle/later stages of the lifecycle of the current video game platform generation. This is likely to be the more profitable period, as the period during platform generation shifts involves high R&D costs.

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The result confirms the picture of a relatively challenging business climate for Japanese video game

developers.6 The mean profit margin for the studied sample of companies was negative, both for the

most recent reported company fiscal year (-2.59%) and the second most recently reported company

fiscal year (-4.68%). Median profit margin was slightly positive (0.86% and 1.22% respectively).

Furthermore, almost half of the companies do not pass break-even in terms of profit margin. During

the most recent reported company FY, 54.8% of the companies reported a positive profit margin

(>0%). During the second most recently reported company FY, 56.2% of the companies reported a

positive profit margin.

6 The sample has certain bias in terms of company size. The Japanese video game developers that it has not been possible to collect financial data from are predominantly smaller video game developers. Hence, the data could be interpreted as more representative for medium size and larger video game developers in Japan.

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External knowledge sources in video game development

Background: Knowledge sources and video game development Each industry relies on its own specific external knowledge base for product development. This

points towards the recent emphasis within the field of economic geography of examining the

different knowledge bases of different industry contexts (Asheim, Coenen, and Vang, 2007). As an

industry both high on creative elements as well as technology, the video game industry could best be

described as an industry in the intersection between a creative- and a technology-intensive

engineering knowledge-base. Accordingly, we could expect the video game industry to be oriented

towards the general features of both the “symbolic” knowledge base that characterizes many creative

industries and the “synthetic” knowledge base that characterize the technology-base of

engineering/technology based industries (Table 3). By comparison, the analytical knowledge-base that

are highly reliant on scientific knowledge and are not expected to be especially characterizing for the

game industry.

-‐ Table 3: Categorization of analytical, synthetic and symbolic knowledge bases

Analytical knowledge base

Synthetic knowledge base

Symbolic knowledge base

Important type of knowledge

Importance of scientific knowledge often based on deductive process and formal models.

Importance of applied, problem-related, knowledge (engineering), often though inductive processes.

Importance of reusing or challenging existing conventions.

Knowledge learning process

Research collaboration between firm (R&D department) and research organizations.

Interactive learning with clients and supplier.

Learning though interaction in the professional community, learning from youth/street culture or ‘fine’ culture, and interaction with ‘border’ professional communities.

Proposed importance for video game development

Low High High

Source: Asheim, Coenen, and Vang, 2007:661 The symbolic knowledge-base of creative industries have been characterized as highly dependent on

learning-by-doing with face-to-face interaction as essential component, a deep understanding of

specific user groups, highly tacit knowledge, and a reliance on local “buzz”(Asheim, Coenen, and

Vang, 2007).

Synthetic knowledge bases, often characterizing of engineering based industries, have been

characterized by applied knowledge and learning though interaction with clients and suppliers (Ibid).

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Previous research has outlined the knowledge base of other industries (e.g. Martin & Moodysson,

2011), but we have little quantitative evidence pointing towards the characterizing knowledge base

involved in video game development. Based on this theoretical framework, the survey aimed to map

which sources of knowledge that were perceived as important for video game development in Japan.

Results To gain an estimate of the perceived role of different sources of knowledge in Japanese video game

development, the survey asked game developer CEO’s to rate the importance of different sources of

knowledge for their game development efforts during the last 3 FY. The 10 categories of knowledge

sources were similar to those used in a recent Japanese national innovation survey (NISTEP, 2010),

with some minor alteration to better fit the context of the video game industry. Each knowledge

source was rated on a scale: “not a source”, “not an important source”, “moderately important

source” or “very important source”. The results are presented in Table 4.

There are no established ways in the literature of how industry survey ratings of knowledge sources

should be interpreted. However, we suggest a basic classification of “critical” and “general”

knowledge sources as follows. A critical knowledge source could be interpreted as those that are

rated as a “very important” for a majority of the firms in an industry. A general knowledge source

could be interpreted as those that are rated as “very important” or “moderately important” for a

majority of the firms in an industry.

Based on this definition, “users” falls under the category of critical knowledge source with a majority

(61.5%) of responding CEO’s regarding it as a very important source. The broader category of

general knowledge source included users (87.7%), competitors (75%) suppliers (73.2%), professional

magazines (65.7%) and exhibition/fairs (57.6%).

It is notable that the least important knowledge sources on the list were those 3 related to research

and education. A large majority of the firms rated private research institutes/consulting firms (92%),

Universities/Higher education institutes (85.8%) and Public institutes (84.1%) as either “not a

source” or “not an important source” of knowledge for video game development.

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Table 4: Perceived importance of different sources of knowledge for video game development during the last 3 FY

Not a source (%)

Not an important source (%)

Moderately important source (%)

Very important source (%)

N (Number responding CEO’s)

Mean (0=, Not a soruce, 3-Very important source)

Std. Deviation

Suppliers 12.5 14.3 35.7 37.5 56 1.98 1.02 Users 6.2 6.2 26.2 61.5 65 2.43 0.87 Competitors 3.1 21.9 48.4 26.6 64 1.98 0.79 Private research institutes/consulting firms 44.4 47.6 4.8 3.2 63 0.67 0.72 Universities/Higher education institutes 42.9 42.9 11.1 3.2 63 0.74 0.78 Public institutes 44.4 39.7 11.1 4.8 63 0.76 0.84 Academic conferences/Association of technology 28.1 31.3 28.1 12.5 64 1.25 1.01 Professional magazines 10.9 23.4 43.8 21.9 64 1.76 0.92 Exhibitions, Fairs 10.6 31.8 42.4 15.2 66 1.62 0.87 Patents from other companies 19.4 35.5 35.5 9.7 62 1.35 0.91 When the results are interpreted in relation to the theoretical discussion of knowledge-bases, they

imply that the video games industry is an industry with significant elements of symbolic and synthetic

knowledge bases. The later is evident by the perceived general role of learning both though suppliers

in game development and the former by the critical importance of interaction with users and the

general role of professional community of other firms (competitors). The result also implies that the

Japanese video game industry is less depending on analytical knowledge-bases, as evident by the

small perceived importance of learning through collaboration with research organizations and

institutes.

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The role of users in video game development

Background: Users and video game development The nature of symbolic knowledge and the uncertainty regarding the market acceptance of creative

products means that firms are involved in an design process in co-development process with users

where certain user groups act as lead-users in an on-going design dialogue (von Hippel, 1986;

Morrison, Roberts, Midgley 2004; Grabher, Ibert and Flohr, 2008). Accordingly, users have been

described as having a key role in product development for creative industries.

In the game industry, some previous qualitative case studies have analyzed how individual game

companies have used different methods if user feedback in their development (e.g. Jeppesen, 2002;

Pagulayan et.al., 2003; Sotamaa, 2009; Zackariasson, Styhre and Wilson, 2006,). These studies have

also noted some of the major challenges involved in collecting, interpreting and implementing

different forms of user-feedback in game development.

In recent years, user-feedback methods have received renewed attention. In particular, several studies

of the use of focus-group tests and test-lab have been reported in trade magazines (Dobson, 2011;

Greenwood-Ericksen et.al. 2010; Viggers, 2011). While no comparative data exist, accounts from

game developers imply that the use of more formal user-centered methods such as focus group tests

still is more common practice among game companies in the US than in Japan (Author’s interview).

Hence, there is a lack of statistical data regarding the current status of user-feedback practices in the

Japanese video game industry. The current report aimed to address this by surveying the usage of

feedback-methods among Japanese developers.

Results To gain an estimate the application of user feedback methods in Japanese video game development,

the survey analyzed how often and when different forms of user feedback were used in game

development. A total of 8 categories of user feedback methods were included in the questionnaire.

The categories were chosen based on a list of existing user feedback methods in the industry that

were derived after secondary literature, expert interview and the survey pilot test. A category of

“other” that could be specified were also be included. This other category did not generate any

additional user feedback method from responding companies, indicating that the chosen list

sufficiently covered significant user-feedback categories.

The results are presented in Table 5. The top 3 most common form of user centered feedback

methods was playtesting with the company’s own employees (80%), followed by playtesting with

company external users (66.7%) and informal field studies of users (44.6%). Some of the more

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formal ways of analyzing user feedback were used by relatively few developers, with 21.5% having

experience of focus group test and 27.7% of user surveys.

In terms of video game development process, different forms of user feedback methods are focused

on different stages of the development process. In this sense they might complement each other. For

example, user surveys are more used to gain knowledge during the early concept/prototyping phase,

while playtesting with users and informal field studies of user are more common in the late beta

phase of game development.

Table 5: Experience with different forms of user feedback in video game development during the last 3 FY

Experience of the method (any stage of development) (%)

Experience of the method during concept/prototyping phase (%)

Experience of the method during Alpha phase (%)

Experience of the method during Beta phase (%) n

Playtesting with users (excl. company employees) 66.2 16.9 24.6 46.2 65 Playtesting with company employees 80 46.2 61.5 67.7 65

Focus group test 21.5 4.6 13.8 10.8 65

User interviews 21.5 9.2 9.2 7.7 65

User surveys 27.7 18.5 3.1 10.8 65 Internet forum feedback analysis 26.2 15.4 0 10.8 65

Media feedback 27.7 6.2 4.6 18.5 65 Informal field studies of users (e.g. during game shows, company events) 44.6 1.5 10.8 36.9 65

The mean number of user feedback methods used based on the surveys classification was 3.2 with 1

the most common answer (mode) reported by 20% of responding companies (Table 6).

Around half of responding companies (53.8%) had experience of 1-3 feedback methods.

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Table 6: Number of user feedback methods used in video game development during the last 3FY

Number of user feedback methods used during the last 3 FY of video game development

Responding companies (n) Percentage of responding companies

0 5 7.7 1 13 20.0 2 11 16.9 3 11 16.9 4 7 10.8 5 9 13.8 6 3 4.6 7 2 3.1 8 4 6.2 N=65

Game development tool usage

Background: The use of game engines and SCM programs in game development The increasing complexity of video game developments had given rise to a range of support

industries developing middle ware. This includes e.g. companies making graphic engines, physic

engines, AI engines and version control tools. While the larger game publishers in Japan have

extensive resources to develop their own game development tools (e.g. Capcom’s MT Framework),

the situation is markedly different for smaller and medium sized developers that have more limited

financial- and R&D resources.

As one of the challenges facing the Japanese game development industry, individual developers have

expressed the perception that Japanese game development in general has not been able to advance its

technology to the same degree as U.S. game developers in recent years (e.g. Sheffield, 2007; Tabuchi,

2010). It has further been argued that Japanese game developers have been reluctant to adapt and

invest in the usage of game development tools such as game engines, physics engine, AI engines and

Software Configuration Management programs (e.g. Burns, 2010; Carless, 2008; Parish & Mielke,

2008).

However, despite these individual accounts there has been a lack of statistical data regarding the

usage of middle-ware and development tools among Japanese video game developers. In order to

investigate this, the survey asked video game developers about the usage and source of game

development tools.

Results CEO’s were asked about their experience of 4 game development tools. They were selected for

inclusion in the questionnaire as they have increased in importance during the last decade as game

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development has become more complex. Each game development tool also has a number of external

suppliers, providing companies with the additional option to develop them internally or license them

from external parties. To investigate the usage of each strategy, the questionnaire asked the

developers if the game development tools they used were developed internally and/or licensed from

external parties.

The results are presented in Table 7. In the survey, 57.8% of the developers reported having used

game engines in video game development during the last 3 FY. This was followed by physics engines

(40.6%), Software Configuration Management (SCM) Programs (37.5%) and AI engines (35.9%).

Developers were also asked about the sources of these development tools, i.e. if they were internally

and/or externally developed. The results varied considerably between different type of development

tools. While a majority of developers with experiences from game engines and AI engines reported

having developed them internally, the distribution between internally and external sources were

rather equal for physic engine and SCM programs (Table 4).

Although there are no directly comparable data from western game developers, some data indicates

that the usage of game development tools is comparatively low in Japan. 7

Table 7: Experience of using game development tools during the last 3 FY

Experience using it

Experience of using it, developed internally

Experience of using it, developed externally n

Game engine 57.8 43.8 18.8 64 Physics engine 40.6 21.9 21.9 64

AI engine 35.9 25 12.5 64 SCM program 37.5 18.8 21.9 64

7 A recent survey from Game Engine Survey from Game Developer Magazine indicated that 58.7% of PC and video game developers had been using a licensed (externally developed) game engine for their current development project (DeLoura, 2011). This is significantly higher than the most related result from the current survey results in which 18.8% reported experience of using externally developed game engines during the last 3 FY. The differences are even higher considering the fact that the Game Developer Magazine survey only asked about the current development project and not the experience of all development projects during the last 3 FY. However, several differences between both surveys (survey mode, potential response biases, question wording etc.) make a direct comparison of results difficult. Nevertheless, this might indicate that experience of using externally developed game engine technology is higher among Western developers. These potential differences and their cause might be a topic that could be of interest for future studies.

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Video game developers as outsourcing service suppliers and providers

Background The increasing complexity of the game development value chain and the increasing development

costs of games have provided incentives for outsourcing activity in the industry.

To get a better estimate of the current status of outsourcing activity in the industry, the survey

measured the extent and focus of outsourcing activity. Questions were divided into supply and

provider activity in order to measure both (1) how developers are working as partners providing

services as outsourcing suppliers and (2) how developers are outsourcing activities to external

companies during their own game development efforts.

Results: Companies as outsourcing service partners The results confirm that many Japanese game developers also work as outsourcing partners in

addition to their game development efforts (Table 8Table 9). According to the survey, 63.5% of

responding video game developers had worked as outsourcing partner for other companies’ video

game projects during the last 3 FY. The survey also asked which specific part of game development

that respondents had worked on as outsourcing service partner (Table 9). Looking more closely at

specific parts, the top 3 most common was: Animation/CGI (59.2%), Programming (53.2%) and Art

(40.4%).

Table 8: Developers as outsourcing service suppliers

Worked as outsourcing partner for video game projects during last 3 FY (%) n

63.5 63 Table 9: Specific part of video game projects developers worked on as outsourcing supplier for

Percentage worked as outsourcing supplier during last 3FY n

Art 40.4 47

Programming 53.2 47 Story 21.7 47

QA/game testing 14.9 47 Animation/CGI 59.2 47

Planning/Design 34.8 47 Music/Sound 26.1 47

21

Results: Outsourcing service provider The results confirm that a large majority of Japanese game developers had outsourced parts of their

game development efforts (Table 9). In the survey, 78.7% of responding video game developers had

outsourced some parts of the video games they developed during the last 3 FY. The survey also

asked which specific part of their game development that respondents had outsourced (Table 11).

Looking more closely at specific parts, the top 3 most common was: Animation/CGI (64.7%),

Programming (58%) and Art (47.1%).

Table 10: Developers as outsourcing service providers

Outsourced parts of video game titles during last 3 FY (%) n

78.7 61 Table 11: Specific part of video game projects developers outsourced

Specific part of video game company outsourced during last 3FY

Percentage of companies that outsourced part n

Art 47.1 51

Programming 58 50

Story 34.7 49

QA/game testing 44 50

Animation/CGI 64.7 51

Planning/Design 20.4 49

Music/Sound 72 50

22

Business ties with publishers

Background Japanese business practice is often characterized by sticky business ties, although the structure of

business networks have changed during the last decade (Lincoln & Gerlach, 2004). Within the

Japanese video game industry, a previous study has analyzed the business network between game

publishers and video game platform holders (Inoue and Nagayama, 2011). However, there is limited

quantitative data of business ties between video game developers and publishers in Japan. To

account for this, the survey asked developers to report the strength and length of business ties they

had with game publishers during the last 3 FY.

Results Respondent companies (n=70) had business relationships with a mean of 4 publishers during the last

3 FY (Table 12). The most commonly occurring number of publisher relationships (mode) were 3

(18.6% of responding companies). The result confirms that the number of publisher ties among

individual developers is relatively low. Around half of the developers (47.2%) had worked with 1-3

publishers during the last 3 FY (Table 13).

Table 12: Number of developer ties with publishers

Mean 4.04 Mode 3 Standard Deviation 4.20 N 70

Table 13 Frequency of number of developer ties with publishers

Number of publisher relationships during the last 3 FY

Responding companies (n) Percentage of responding companies

0 6 8.6 1 11 15.7 2 9 12.9 3 13 18.6 4 7 10.0 5 7 10.0 6 7 10.0 7 4 5.7 8 1 1.4 10 3 4.3 14 1 1.4 30 1 1.4 N=70

23

In order to study the length of develop ties with publishers, the survey asked companies to rate the

length of the ties with the publishers they had business relationships with during the last 3FY. The

survey contained 3 categories: 0-3 years, 4-6 years and >6 years. Of the total number of publisher

relationships reported, 49.1% had lasted 0-3 years, 26.7% had lasted 4-6 years and 24.2% had lasted

>6 years (Table 14).

Table 14: Length of publisher relationships (that the companies had during last 3 FY).

Publisher relationship been lasting 0-3 years

Publisher relationship been lasting 4-6 years

Publisher relationship been lasting >6 years

Percentage of companies 49.1 26.7 24.2 Number of relationships 138 75 68 N=64

24

Game development and innovation strategy

Anticipated and actual game development time

Background Game development is a complex endeavor, shaped by several sources of uncertainty. Development

time seems inherently challenging to predict accurately. Some of the suggested sources of these

challenges include such factors such as underdeveloped planning and development methodology

among developers, unrealistic expectations about development time from publishers and the

inherent uncertain and unpredictable nature of game development itself. A meta-analysis of Game

Developer Magazine post-mortems of game development projects (published Feburary 2008-January

2010, n=24), found that a large number of development projects reported an extension of the game

development time to finish the project (38%) and/or crunch-time (38%) (Shirinian, 2011).8

Results The survey asked respondent CEO’s about their experience of extended game development time. In

order to provide a quantifiable and coherent way to measure this, CEO’s were asked how many of

their game development projects during the last 3FY that had taken longer time than anticipated at

the original design document. 9 Because it is likely that some games did not have a specific

development time at the design document, a third alternative was also included: “no anticipated

development time in the original design document”.

The results are presented in

Table 15. Based on the survey answers, 50.7% of games were responded to have been developed on

time, 43.9% took longer than anticipated at the start of the alpha phase and 5.4% of video games had

no anticipated development time in the design document at the start of alpha phase.

The result confirms that it is common with game development projects that take longer time than

anticipated at the start of game development. The present survey has not investigated the main

underlying causes for these delays, something that might be of interest for further studies.

Table 15: Anticipated and actual video game development time

8 The results should be interpreted cautiously as meta-studies of self-reported postmortem include several sources of uncertainty, including differences in definition of the terms, differences in the degree of self-reporting the issues, different positions of respondents etc. 9 Other existing strategies to handle time-constraint challenges (crunch-time, feature cuts etc.) were secluded from the survey because they were perceived as challenging to define and measure accurately in a coherent way.

25

Video games developed on time (last 3 FY)

Video games taking longer than anticipated at the start of alpha phase

Video games with no anticipated development time in design document

Percentage of games developed

50.7 43.9 5.4

Number of video games 308 267 33 Mean 4.97 4.31 0.53 Standard Deviation 6.27 6.34 2.30 N=62 In order to get some rough sense of the length of additional development time, respondents were

asked to rate the number of games that were 0-6 months and >6 moths over time. Based on the

responses, 93.9% of the games were within 0-6 months over time and 6.1% >6 moths over time.10

Hence, among those games that take longer than anticipated, most of them is finished within less

than half a year delay compared to the plan at the start of alpha phase.

Abandoned game development projects

Background It has been well known that creative industries often are characterized by a significant

overproduction. A large number of projects are discontinued during the various stages of

development before they reach the market and only a limited number of the products that reach the

market become unprofitable (Caves, 2000; Hirsh, 1972). As the sunk-cost often increase rapidly in

each subsequent stage of production, one of the key challenge for managers in these industries is to

try to improve ability to predict which concept that become market success as early as possible (De

Vany, 2003; Caves, 2000).

There are little data regarding the degree to which video games are abandoned in different stages

before they reach the market.11

Results In order to study the extent to which games were abandoned during the development, CEO’s were

asked how many games they had abandoned during the three stages of production: prototype-,

alpha- and beta phase. The results are presented in Table 16.

10 The number of responding games companies were slightly lower for this item, 60 companies (reporting 229 games that were delayed). 11 According to one guesstimate from a book author, “only 20% of games that begin production will ever finish” (cited in Chalk, 2008). However, it is likely that these guesstimates are erroneously overestimating the number of abandoned games.

26

According to the result, 11.4%of the total number of video game projects (abandoned and released)

during the last 3FY was abandoned.12 The number of abandoned projects appears relatively low, but

the survey results should be interpreted carefully as there is a risk of underreporting of sensitive self-

reported data.

Looking more specifically at the different phases of development, games are most often abandoned

during the earlier phases with the prototype phase representing 46.4% of abandoned game projects,

alpha phase 37.7% and beta phase 15.9%.

Table 16: Abandoned games development projects

Video games abandoned in prototype phase (last 3 FY)

Video games abandoned in alpha phase (last 3 FY)

Video games abandoned in beta phase

Percentage of abandoned projects last 3 FY

46.4 37.7 15.9

Percentage of total video game projects during the last 3 FY (abandoned and published, n=604)

5.3 4.3 1.8

Number of video games 32 26 11 Mean 0.53 0.43 0.18 Standard Deviation 0.99 0.89 0.47 N=60

Self-‐published games

Background The choice between self-publishing games and using an external publisher could be a complex one

for developers involving a number of economic as well as creative factor. During one of the

interviews preceding the survey, one game companies expressed the opinion that the choice was

depending on the nature of the planned game: the company tended to self-publish game concepts

that was “out-of-the-box” concepts posing difficulties for publisher to analyze their potential

(Author’s interview). The current surveyed asked the companies how common each strategy is.

Results According to the results, 60.6% of the games reported to have been released during the last 3 FY by

companies in the survey were self-published (Table 17). In terms of each mode, responding

companies tended to use either strategy for all their games (i.e. either mostly self-published or using

an external publisher), with relatively few companies choosing a middle ground.

12 The number for “total number of video game projects” do not include games abandoned in earlier concept phase or game projects that still are in development but not have reached the market.

27

Table 17 Share of self-‐published games

Published by external game publisher Self Published Share of video games developed 39.4 60.6 Total number of games reported 168 258 Mean 2.95 4.53 Std. Deviation 5.05 10.8 N=57

IP-‐ownership in game development

Background IP-ownership is often an area of controversy and negotiations between publishers and developers

(see e.g. Orland, 2011). While ownership and creative control of game IP often is expressed as a

preference and goal for many developers, publishers often have a strong interest in IP ownership due

to economic reasons and for control over future sequels.

Results The survey asked responding CEO’s about the IP-ownership of the games they had released during

the last 3 FY in order to get a better estimate of how it was distributed between game developers and

publishers. Although more complex forms of IP ownership sometimes are used in the game industry

(e.g. co-ownership or multiple party ownership), the survey only asked about publisher or developer

owned IP for the sake of simplification and clarity. The data answer was cleaned and 3 responding

companies that had misinterpreted the survey question were secluded from analysis.13

The results are presented in Table 18. Of the total number of games developed by responding

companies, there were roughly an equal number of game IP owned by external publishers (51.9%)

compared to those of the respondent developers (48.1%). The result confirms the view that IP-

ownership owned by the publisher still is the dominating form of video game development in the

industry.

Looking at the distribution of game developers in terms of IP ownership, there is a large variation

among developers with a tendency of them to be specialized on either side of the spectrum. A large

number of developers were reporting that all of their games have publisher owned IP and a smaller

group of the developers at the other end of the scale that reports that ≥75% of their developed

games have self owned publisher.

13 These companies had misinterpreted reporting as involving downloadable video game as well (not only packaged video games). The results should be interpreted carefully, as it is possible that other companies that has not been identified also have included the reporting of downloadable games in their reporting.

28

Taking all respondent companies into consideration, then around half of the developers (49.2%) did

report that all of their game IP were self owned, while slightly more than a quarter (27.1%) of the

developer reported that ≥75% of their games had self-owned IP and 11.9% reporting that all of their

games developed had self owned IP.

The above sample also includes small and relatively new companies that just have developed a few

games during the last 3FY. The distribution is slightly different if we only include the responses from

companies that have developed ≥5 games during the last 3FY from the survey sample (n=36). 41.7%

of these companies reported that all their games were self owned, with 27.8% of the companies

reporting that ≥75% of their games had self-owned IP and 5.6% reporting that all their games

developed had self-owned IP.

The results confirms the view that there is a relatively small group of developers that predominantly

pursue a strategy of self-owned IP and a large group that only have been pursued development of

publisher owned IP.

Table 18: Developer owned and publisher owned IP of games developed during the last 3 FY

Developer owned IP External Publisher Owned IP Share of video games developed 48.1 51.9 Total number of games reported 293 272 Mean 4.73 4.39 Std. Deviation 5.239 9.481 N=59

29

CEO background and demography

Background The survey asked respondent to provide information regarding a variety of demographic variables.

The descriptive results for these survey items are provided below.

CEO Age, tenure, company-‐ and industry working experience The average CEO in our sample were 47.4 year, having worked 10.7 years as CEO in the current

company, 12.9 years in the company and 20.1 years in the industry. Of the responding CEO’s, 80.3%

(n=71) reported that they also were the founder of their companies, with the remaining 19.7% being

appointed CEO’s.

Table 19 CEO Age, tenure, company-‐ and industry working experience

Mean (years) Std Deviation N CEO Age 47.4 8.1 72 CEO Tenure 10.7 7.7 71 CEO years working at current company

12.9 8.2 72

CEO years working in the game industry

20.1 6.8 71

CEO educational experience Responding CEO’s were asked about the highest level of education they had attained based on 8

categories of education (lowest to highest). The results are presented in Table 20. A majority of the

CEO’s had a university degree, with the most common educational level being bachelor degree

(55.7%).

Table 20 CEO Highest level of education attained

Share of CEO’s (%)

1.高等学校 [high school, did not graduate]. 0

2.高等学校卒業 [high school, graduated] 20.0 3. 高等専門学校卒業 [college of technology] 1.4 4.専修学校専門課程卒業 [vocational school] 11.4

5.短期大学卒業 [junior college] 2.9 6.学部卒業（学士）[university bachelor degree,] 55.7 7.大学院修了（修士）[university master degree] 8.6 8.大学院修了（博士）[university doctoral degree] 0

N=70

30

CEO main fields of experience To measure background experience, we asked CEO to report up to 3 areas in which they had gained

most experience during their career. The choice of the 8 areas included in the survey was intended

to give an extensive coverage of areas of experience. The list was derived though prior studies of

CEO surveys, qualitative analysis of a selection of video game CEO career backgrounds and pilot

test with industry experts.14

The results are presented in Table 21. The top 3 most common areas of experience were in

production (63.4%), design & story (43.7%) and creative direction (40.8%). This provide a support

for the notion that a large share of video game developer CEO’s have a background of experience in

areas that is related to the management of the creative processes and project. A smaller number of

CEO’s had experience of areas related to business, i.e. marketing & sales (35.2%) and financial &

administrative services (18.3%). Human resources (8.5%) and Animation (0%) do not appear to be

areas that many CEO’s have experience from.

Table 21: CEO main areas of experience

Share of CEO with significant experience from the area (%)

Production (e.g. game producer) 63.4

Design and Story (e.g. game designer) 43.7

Animation 0

Creative direction 40.8 Technology and programming (e.g. lead programmer, technical director). 21.1

Financial and administrative services 18.3

Marketing and sales 35.2

Human resources 8.5 N=71

14 An open-ended category of “other” was also included to enable respondent to provide any potential area that might not have been included among the suggested categories. During the data-analysis of the survey responses, the few responses from this other categories were interpreted to fit into some of the existing 8 categories in the survey and data were adjusted accordingly.

31

Conclusion and discussion Based on the first research survey aimed specifically towards CEO’s of Japanese video game

developers, the current survey and related analysis presented findings of Japanese video game

developers related to the following areas:

• Financial performance of game developers

• External knowledge sources in game development

• User feedback methods in video game development

• Development tool usage in video game development

• Video game development strategies, outsourcing and business relationships with publishers

• CEO demography & background

The overall CEO response rate for the survey was 25.6% (N=74), with some of the individual survey

items received lower response rate. The following present some of the findings from the survey.

Based on the response rate, survey results have to be treated as indicative. Each chapter of the report

provides further information regarding response rate, results and background.

Financial performance of video game developers. The report data provides indication of a challenging

economic climate for Japanese video game developers with almost half of them having zero or

negative profit margin. These results support the concerns expressed by individual game developers

regarding the current financial status for video game development in Japan.

External knowledge sources in video game development. As reported by responding CEO’s, the most

important sources of knowledge involved in video game development were knowledge from users

and competitors. Notably, the results indicated that knowledge from research related institutes (e.g.

universities) were not regarded as an important for video game development.

User feedback methods in video game development. As reported by responding CEO’s, playtesting and

informal field studies are the most common ways of gaining user feedback in video game

development. Despite the importance applied to users and the discussion about user feedback

methods in industry trade publications, game developers were using a relatively limited set of user

feedback methods. More formal ways of gaining user feedback though focus groups have not yet

been widely adopted among the respondent companies.

32

Development tool usage in video game development. Although the number of development tools has

increased in video game development during the last decade, their usage were still relatively limited

among responding video game developers. Although slightly more than half of the companies had

experienced using game engines, less than half had experience with physics engine, SCM programs,

and AI engines. In terms of game engines and AI engines, most of the companies with experience of

them had developed the tools internally. For physics engine and SCM programs, there was a rather

even distribution between internally and externally developed (licensed) tools.

Video game development and outsourcing strategies.

Video game developers also working as outsourcing partners for other game projects were relatively

common with over half of the responding companies reporting having experience doing that. As

expected, labor intensive work-tasks of development were most commonly pursued as outsourcing

partner with animation, programming and art being the most common.

Video game developers outsourcing part of their own development projects were highly common,

with a large majority reported having experience doing that. Animation, programming and art were

the most common part that game developers had outsourced.

The survey also reported results regarding various video game development strategies. These

included e.g. degree of self-published games, extent of development time overrun abandoned game

development projects and the status of IP-ownership of games in the industry.

CEO cognitive thinking style, demography & background. To get an indication of the background and

demography of CEO’s in Japan, the survey presented results regarding the educational experience,

career background and other variables. Limitations in the response rate of individual items did not

allow for reliable test of how this was related to financial performance and innovation at the

company level.

Discussion To the degree that the results of the survey also are representable for the larger population of

Japanese video game developers, they might have implication for the industry, policy and research.

For industry policy and academic research, the survey highlight that there are some specific

characterizing feature of video game development which differentiate it from other industries and

might warrant specific policies tailored to its conditions. Two areas of interest in this regard are the

knowledge base of video game development and the specific development tools in the industry.

In terms of knowledge underlying video game development, user knowledge were perceived as

highly important while research institutes and universities were considered unimportant. The

33

implication of this is that traditional industry policy models which often relies on knowledge network

between universities and industries are less applicable to the game industry. At the same time,

existing industry policy have yet to build up tools to support the knowledge network with users in

the game industry, especially as it involves specific challenges related to interpreting the symbolic

elements that makes games appealing. Despite the perceived role of user knowledge, the results

showed the relative lack of experience with user feedback methods among developers. This might be

an area in which industry policy e.g. could support such efforts as learning, best practices and costly

infrastructure (e.g. usability testing labs) related to user feedback methods.

The survey also revealed a relative lack of experience among Japanese developers with many of the

game development tools that have increased in prominence during the last decade. This is also a

potential area for industry policy support, as the lack of familiarity and usage with game development

tools according to some accounts have been one factor contributing to a lack of technological

sophistication of Japanese video games compared to U.S. counterparts.

34

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Appendix 1: Items surveyed

Area Variable Measurement Firm demography Firmsize Number of full time employees

Firm demography Firmage 2011 subtracted with the year company was founded Financial performance

Firm sales Sales each of the last 3 company FY

Developer financial performance

Firm operational income Operational income of the last 3 FY

CEO background CEO age 2011 subtracted with CEO year of birth CEO background CEO firm experience 2011 subtracted with the year when CEO started working at firm CEO background CEO tenure 2011 subtracted with the year when CEO were appointed CEO background CEO industry specific experience 2011 subtracted with the year when the CEO started to work in the game

industry CEO background CEO ownership status If CEO are founder of the company (yes/no) CEO background CEO level of education Highest level of education attained (6 items) CEO background CEO functional experience Up to 3 functional areas of most experience during career CEO cognitive style CEO analytical thinking style 6 items ,5 point Likert scale. 3 ability, 3 engagement in analytical(rational)

thinking style. Based on items from REI, Pacini and Epstein (1999) with no negative items to better suit Japanese language context.

CEO cognitive style CEO intuitive thinking style 6 items, 5 point Likert scale. 3 ability, 3 engagement in (experiential) thinking style. Based on items from REI, Pacini and Epstein (1999) with no negative items to better suit Japanese language context.

CEO cognitive style CEO Social skills 6 items, 5-‐point Likert scale. 3 social adptability and 3 social perception. Based on Baron & Tang (2009).

Game development & innovation strategy

Number of packaged video games released

Number of video games released during previous 3 FY


Degree of outsourcing contracts pursued in video game development

Number of games in which the company has worked on a specific part during the previous 3 FY


Aspect of video games that the company has been pursuing outsourcing contract for

What aspects of games that the company has been used as outsourcing partner (8 items+ other)

Network of suppliers & publisher

Degree of use of external partners used in video game development

Number of developed games in which the company has used an external partner for developing specific parts during the previous 3 FY


Aspect of the game for which external partners are used

What aspects of the game that the company has used external partners for (8 items+ other)


Network of publishers: number and strength of ties

Number of publishers the company has had relationship with during the previous 3 FY. Length of relationship with publisher, 3 items with a range of years


Firm focus on own game IP Number of games with game IP owned by the company versus publisher


Firm focus on self-‐published games Number of games published internally versus using external publisher


Shares of game project time overrun

Number of games requiring longer development time than planned


Degree of game project time overrun

How long time games were overtime (2 items)

Technology usage Use of game development tools Listing of 3 types of middle ware and project planning tool. Technology usage Source of game development tool

(external, internal) If game development tool has been externally developed or internally.

Information usage & market feedback

Use of external information scanning for knowledge of game development

If different sources of external information has been used in game development (10 items listed + other).


Importance of external information scanning for technical aspects of game development

How important different sources of external information has been in game development (3 stages of importance, 10 items listed + other).


User information method adopted Which user information method the company has adopted


Development stage in which user information method is used

Listing of 4 stages for each user information method (concept, prototype, alpha, beta)

ceo survey report of japanese video game developers - mirko ernkvist

Entertainment & Humor

professor

memory recall

pre approach

game development

video game

professor

video game

video game