Counting Rupees: Take me to your lead platform

Each week Jeff Engel and Geoff Brooks contribute Counting Rupees, a column on the business behind gaming:

N'Gai Croal of Level Up recently pointed to an interesting development factoid from EA CEO John Riccitiello's 3rd quarter earnings call. A Cowen & Company analyst noted that many publishers have had difficulty in completing PS3 titles quickly and asked whether or not EA had made progress in narrowing the development times between PS3 and 360 games. The answer appears to be that meeting technical specifications is no longer an issue for games where development led on the PS3 – but where development was either parallel or started on the 360, there's still a notable lag in speed and quality.

Croal e-mailed EA with an obvious follow-up question: If that delay can be eliminated by starting with the PS3, would EA consider mandating that development begin there? Director of Communications Jeff Brown responded that no, the company doesn't provide such edicts and that a number of factors are considered when selecting a game's development path. Why might this be the case? I think this decision probably makes sense from a business perspective for several reasons.

First of all, I suspect that some of this difference is probably illusory. It's well-known that the PS3 is more difficult to develop for than other consoles, which means that converting a game from a less complex to a more complex development environment takes more time than the reverse -- not particularly surprising. More importantly, it's only marginally relevant for the question being raised.

Basically, this issue boils down to a simple question: Where can a firm earn the largest profit in the shortest period of time? (I'll admit that this is very much an overly simplistic view.) It probably won't come as a huge surprise to most people that profit is just a function of revenue and costs. So, how are company revenues impacted by the choice of lead console? Well, the amount of revenue you're going to earn is, in turn dependent on the quantity of games you're going to sell and the price that you're going to sell them at; and since PS3 and 360 games are priced at essentially the same point, we're really just talking about quantity.

The most basic part of quantity is a console's install base – the more people who own a given console, the larger your prospective market. Currently, the 360 has a lead over the PS3 worldwide, but there are other factors at play. For example, the consumer profile of each console may be somewhat different (think about a typical Wii owner vs. that of the 360), and they may demand different types or genres of game on each platform. There may be more demand for a given game on one console relative to another. The key takeaway here is that all other things being equal, you're likely to sell more overall units on the 360 than the PS3, although in some circumstances the reverse may be true – it depends on the game.

On the cost side of the equation, we have a few more issues to consider. The first is just the overall cost of developing a game on the PS3 vs. the 360; I think that overall, the differences are fairly minimal here and so I'll gloss over them. The second is the incremental cost of adding a feature to the PS3; one of the reasons that development time takes longer when done in parallel is that some features are just easier (and thus cheaper) to add to the 360. If you start off with the PS3 in mind, you're probably considering features that aren't extremely complex to develop on the PS3, and so you don't have as much trouble porting to the Xbox (the reverse isn't necessarily true!). Finally, a more subtle concern is the opportunity cost of developing on one console relative to another, and this is where timing comes into play. I see two possibilities here: The first scenario is if you get one of the versions to market before the other (i.e., if you make the PS3 version first and then start selling it before the 360 version gets out). If you create a PS3 game before a 360 version, you're basically choosing to forgo the difference between the revenues earned on the PS3 version and those that you would have earned in that time period had you made the 360 version instead.

Since that might seem a little odd, let me give an example: let's imagine you made a new game for the PS3 that you were eventually going to port to the 360 three months later. The game would be equally popular on both consoles, but given the larger install base of the 360 you expect to sell 25,000 more copies of the 360 version in a given month than the PS3 version. So you make the game and sell 250,000 copies of the PS3 version in the first three months, and then 250,000 copies of the PS3 version and 325,000 copies of the 360 version in the next 3 months. Because you expect that the 360 version would overall sell more copies each month, making the PS3 version first basically cost you the difference between the 250,000 PS3 copies you sold and the 325,000 360 copies you could have sold in those first three months. That difference is a cost to the company.

The other possibility is that you make the PS3 version first but launch both games at the same time; in this scenario, the PS3-first approach would simply settle for what is overall a slightly longer development cycle due to the complexity of the PS3. In other words, the PS3-360 method would have equivalent quality but longer development, while the 360-PS3 would result in shorter overall development but lower PS3 title quality. The logic here is the same as the above, but on a slightly different scale. This is because the quality differences are probably not costing EA (or any other company) much because they're already producing both versions in the end regardless. Let's stipulate up front that the quality differential between PS3 and 360 titles are not drastic. People are going to own either a PS3, 360, or both. If they own a PS3 alone, the relatively minor differences they probably won't actively prevent them from buying the PS3 version. If they own a 360 alone, they're already going to purchase that iteration. And if they own both – and a company is producing both versions – the company may not care too much if the consumer opts for one version over the other. The console manufacturer is really the one with the major preference.

There is one additional issue that should be taken into consideration as well. EA has indicated that it's attempting to decentralize its decision-making somewhat in order to avoid destroying the value of the developers that it acquires. Even if it made no monetary sense to avoid mandating development orders, it might be the right decision from this perspective too.

So what does all of this mean relative to the question we initially asked? At a minimum, it means that mandating one platform as lead just doesn't make financial sense. At least some of the time, the 360's higher install base means that you want to get the 360 version on the market as soon as possible to maximize your overall profits. At other times, demographic differences in PS3 owners or other console-specific preferences will mean that a PS3 version should be developed first (or even exclusively). And EA in particular probably has strategy-specific reasons for preferring to remain agnostic on this issue. But regardless, it precludes a one-size-fits-all approach to lead development.

As co-editors of A Link To The Future, Geoff and Jeff like to discuss, among many other topics, the business aspects of gaming. Game companies often make decisions that on their face appear baffling, or even infuriating, to many gamers. Yet when you think hard about them from the company's perspective, many other decisions are eminently sensible, or at least appeared to be so based on the conditions at the time those choices were made. Our goal with this column is to start a conversation about just those topics. While neither Geoff nor Jeff are employed in the game industry, they do have professional backgrounds that are relevant to the discussion. More to the point, they don't claim to have all the answers -- but this is a conversation worth having. You can reach them at