Curt Schilling's 38 Games & Video Game Subsidies

♠ Posted by Emmanuel in at 5/27/2012 10:57:00 AM
[NOTE: This is the first part of a two-part American subsidies series. Forgive me in advance for another reference to what's obviously my favourite Eagles tune.] They came to Providence, the one in Rhode Island, where tech enclave dreams hang heavy in the air. It was supposed to be an All-Star lineup: three-time World Series champion Curt Schilling was an avid role-playing gamer who brought together Elder Scrolls III and IV lead designer Ken Rolston, illustrator Todd McFarlane of The Spawn fame for art direction, and bestselling author R.A. Salvatore for creative direction. Yet alike any number of stories conjured by these creative minds, this one did not end happily ever after.

Having played 38 Studios' first game offering Kingdoms of Amalur: Reckoning, I was surprised by how polished the game was. It loaded quickly, had a fine user interface, and had far fewer bugs and crashes than games released by the longer-established Bethesda. As far as I knew, the game sold well (1.2 million copies so far) and garnered its fair share of positive reviews. Although perhaps not the most advanced release technically speaking, I liked the lore involving how a lowly court jester slew the fairy king, harnessed great evil and proceeded to embroil the known world in a protracted war. I even prefer Amalur to to the critically acclaimed Witcher II Enhanced Edition and Elder Scrolls V: Skyrim. Heck, I bought the 500-page game guide, didn't I?

Imagine my even bigger surprise when Curt Schilling recently sacked the entire staff of 38 Studios after barely meeting payments on its $75 million loan from the state of Rhode Island which was arranged in 2011 during the term of current Governor Lincoln Chafee's Republican predecessor, Donald Carcieri. Part of the reason why Rhode Island didn't want to extend another lifeline to 38 Studios may be that the Democrat Chafee wasn't so keen on the staunch Republican loyalist Schilling unlike his predecessor. Moreover, Rhode Island's finances are as bad as those of any American state. It was time to pull the plug and not give more funding.

But all is not lost. An interesting Forbes commentary offers that Rhode Island may still recoup its investment if game developers stick around despite Schilling's firm folding. As with other enclaves as those familiar with the literature on them know, the key is to sustain positive spillover effects that not only help retain creative minds but attract more of them:
Timothy Loew, the executive director of the Massachusetts Digital Games Institute (MassDiGI), sees a silver lining in the clouds over Rhode Island. “When a game company falls apart, quite often what happens is a lot of new games companies start up. So it wouldn’t shock me if, in a month or two months, there are more games companies in Providence as a result of this than there were a month ago.” 
In other words, Rhode Islanders might not get their loan paid back, but new games companies may eventually stimulate the economy of the state, potentially more so than 38 Studios would have. For example, Boston-area Looking Glass Studios fell apart in 2000. But its alumni either created or went on to work for other games companies in the same area. An incomplete list includes Irrational Games (Bioshock), Harmonix (Rock Band), Mad Doc Software/Rockstar New England (Empire Earth), and Floodgate Entertainment (casual games). 
A more recent example includes Kiev, Ukraine-based S.T.A.L.K.E.R. developers, GSC Game World, which folded in December 2011. The development team reformed in March 2012 as Vostok Games, also in Kiev. The message for state governments looking to boost their economies is to make themselves attractive as a place for games companies to set up. The trick is to achieve a critical mass of developers under your roof, so even if games companies go under, new ones will arise and take root in your soil.
Now back to the big question: Why did 38 Games (in its present form at least) fold? the role-playing game Amalur was going to be a springboard to a more ambitious MMORPG (massive multiplayer online role-playing game) codenamed Copernicus. As they teach you in business school, there is a risk-reward tradeoff, and while successful MMORPGs are definitely cash cows, those are few and far between. Meanwhile, the costs of developing such a title ultimately brought 38 Studios to its knees:
38 Studios was developing a massively multiplayer online role-playing game (MMO), based on their previous (and only) title, Kingdoms of Amalur: Reckoning and codenamed Project Copernicus, on June 2013. MMOs are expensive to develop and expensive to maintain. But if successful, an MMO can be very profitable indeed. 
“[Schilling] dramatically underestimated the capital resources he would need and how long of a runway he would need to develop this game. MMOs are the aircraft carrier of the games industry: they’re the most complicated, the most expensive, the largest possible games that you can create. And World of Warcraft has set such a high bar that you can’t enter that market without a really excellent product, making it obviously even more expensive.” 
As it happens, 38 Studios is following in the footsteps of Scotland-based Realtime Worlds, which also burned through $100 million in investment in a few years trying to produce an ambitious MMO. We know how that ended: Realtime Worlds’ game, the crime-themed APB (or All Points Bulletin), was released in mid-2010 with high expectations but met a muted reception and was shut down only a few months later. While the developer is defunct, its intellectual property was subsequently sold (at a small fraction of the development costs) to California-based MMO operator K2 Network (not to be confused with 2K Games). 
So the virtual ground of the video game industry is littered with failed MMORPG titles. Either they cost too much to bring to market and fail during the development stage, or fail to create a fanbase when released. I am unsure of whether someone will continue the development of Copernicus, but I am fairly certain that there will be a sequel to Amalur since this franchise now has fans (like myself). Just as Bethesda published Fallout III despite having no involvement with the earlier titles, Amalur will likely resurface with another developer.

And lastly, what it is the moral to the story? Since this is not the Cato Institute blog with its stock answers to everything, it is not that "video game subsidies don't work." Rather, it's a case of overreach that could have probably been avoided had the state of Rhode Island watched the company more closely as it has a right to and Schilling been more forthcoming about its fiscal health. Whether through tax breaks or outright loans oe grants, trying to establish EPZs or tech enclaves for that matter are fairly common practices that I don't think are necessarily doomed to fail. Yet it's the execution that matters more than the idea.

So despite the hype, I am afraid that it's both a lack of due diligence on the state's part and overambition on 38 Studio's part that are largely behind this tragedy. As for now, though, its creator's dream is on hold as state authorities breathe down his neck. For 38 Studios' employees especially, it was not "just a game."