Insomniac Revels in Independent Status
Amid sweeping consolidation in the video game industry, Insomniac Games stands out as a relic of a bygone era. The founders of the tiny Burbank studio are among the last of a disappearing generation of small independent developers--those who started with a wacky idea, an itch to do something about it and a couple of like-minded buddies.
But as big publishers snap up studios left and right and small studios seek the safety of large companies, Insomniac has turned down three buyout offers in two years. Its three young founders revel in the hand-to-mouth nature of their enterprise.
“The people who work here came because we’re independent,” said Insomniac’s chief executive and co-founder, Ted Price, 34. “There’s a pride that comes from knowing we live or die by our decisions, that we’re always on the precipice. The feeling that we’re able to choose our own destiny is very important to people here.”
Contributing to the scarcity of small studios are big-budget economics similar to those in the film industry, which make it harder for new studios to crop up and replenish the ranks. Today, the notion of three guys making a game in a garage is pure nostalgia. It can take millions of dollars and a dozen programmers, artists and designers to even come up with a demo--a simple prototype of the actual game, which could end up costing $10 million or more to develop.
The result is a good deal of industry navel-gazing about whether innovation will wither in today’s rapidly growing--and some would say more corporate--games industry.
“One of the challenges this industry faces is how to make it viable for new players to enter this market. Consumers want fresh blood to push creativity,” said Kevin Bachus, a co-founder of Capital Entertainment Group, which is raising money to start a fund for projects by independent developers. “But budgets are going crazy, and the barriers to entry are higher than they’ve ever been.”
Price concurs. Insomniac, he said, could not have been born in today’s environment. “We couldn’t have done today what we did eight years ago,” he said. “We wouldn’t have survived.”
Price founded Insomniac in 1994 with $30,000 in savings and help from Alex and Brian Hastings, two brothers from South Dakota. Alex Hastings had just graduated from Princeton University, Price’s alma mater, and was looking for a job. Price, who had been working at his uncle’s medical services business as a controller, wanted to start his own company. The two hooked up when their mothers, who knew each other, made the connection.
Alex Hastings then recruited his older brother Brian, then a programmer for Siemens. The three had one thing in common--they liked to play “Doom,” which at the time was the most popular first-person shooting game. So with zero experience, they decided to make a similar game called “Disruptor.”
After spending nearly every penny they had on a demo, the three connected with Mark Cerny, then head of Universal Interactive. Cerny gave them a $250,000 budget and two years to deliver. The game, which came out in 1996, wasn’t a hit. But it did well enough to earn Insomniac a contract for another game.
This time the trio came up with “Spyro the Dragon,” an action-adventure game featuring a cute purple dragon. It was an instant blockbuster. The Spyro series of games, which sold nearly 10 million copies worldwide, continues to bring in handsome royalties for Insomniac. Price declined to reveal his company’s revenue but says Insomniac has been profitable every year since its inception.
“They’re one of the most respected independent studios in the industry,” said Jennifer Olsen, editor of Game Developer magazine in San Francisco. “Part of it is their track record. Every game they’ve made has done extremely well. Part of it is that they’re just a bunch of really nice guys. You don’t hear the kind of smack about them that you hear about other studios. They just seem very together.”
Back when Insomniac got its start, sleepless nights, an endless supply of junk food and harmless pranks were the staples of the independent game developer life.
That much hasn’t changed. Insomniac revels in its size, or lack thereof. Birthdays are posted on a common calendar. Visitors often are introduced to everyone in the studio--all 40 people. It’s a tour that can take an hour.
What’s new are the babies, fancy cars and mortgages that have sprouted as the company--and the industry--blossomed.
The U.S. game software market more than doubled from $3 billion in sales in 1994, when Price entered the business, to $6.4 billion last year. At the same time, game development budgets underwent a similar spurt.
“Five years ago, production budgets were routinely under $1 million, and development teams were maybe three to five people,” Bachus said. “Now you regularly see teams of 30 people and budgets that average $4 million to $7 million. The cost and complexity of games are such that it’s become very difficult for a couple of guys to just start a company.”
As game budgets spike, so have risks. Add marketing, advertising and distribution costs, and a single title can easily represent a $20-million investment. With that kind of money, publishers are loath to back development teams that are untried. Instead, they turn to--and purchase--studios that have good track records. For studios, a sale is a way to realize a cash windfall or a means to continue to make games without worrying about whether their next title is a hit. Other studios seek the financial safety net of a large company.
“We used to be six people, all single kids who hung out together until 4 a.m.,” said Jason Rubin, president and founder of Santa Monica-based Naughty Dog, an independent studio until 2000 when it was purchased by Sony Corp. “Now we have 17 babies among us. There are lives here, and I wanted to make sure everyone’s taken care of.”
Though Naughty Dog, which created the “Crash Bandicoot” series of games, had enough cash in the bank to fund four years of expenses, Rubin said the risks were becoming too high.
“There’s just a lot more at stake now,” Rubin said. “And I wanted to leverage the past against the future.”
So did Black Box Games in Vancouver, British Columbia; Rainbow Studios in Phoenix; Bungie Studios in Redmond, Wash.; Outrage Entertainment in Ann Arbor, Mich.; Neversoft Entertainment in Calabasas; and a slew of other studios that recently sold themselves to large publishers. This year alone, Activision Inc. in Santa Monica has spent $30.9 million in cash and stock to buy three studios--Z-Axis Ltd., Shaba Games and Gray Matter Interactive.
In the meantime, those at Insomniac like their independence.
“No one can come in and tell us what to do,” said Brian Hastings, 31. “In the end, we decide.”
