Wednesday, December 26, 2018

Star Citizen Receives $46 Million From Private Investors

Last Thursday, Cloud Imperium Games, the company developing Star Citizen and Squadron 42, announced that it was accepting $46 million in investments from Clive Calder and his son Keith. In conjunction with the investment news came the release of financial information covering the years 2012-2017. With sold information available, I have a couple of thought.

Crowdfunding is not enough to finish the games. As of Christmas, 2018, Chris Roberts has raised $212.5 million from crowdfunding. A staggering amount the world may never see raised from video game players again. But as the recently released information shows, not enough to complete the game.

CIG Income - 2012 through 2017

Through the end of 2017, CIG had collected $175.5 million from backers. Including the $11.2 from subscriptions, players provided $186.7 million to CIG. In the same amount of time, CIG spent $193.3 million. That's right, at the end of 2017, CIG had spent $6.6 million more than it raised from the fan base. The $15 million CIG had in the bank at the end of 2017 came from the "Other income" category:
The Other income line represents income from partnerships with various hardware and software vendors, sponsorship income and various local incentives which we receive based upon the nature and location of our development and production activities. It also includes any exchange differences as referred above.
With a burn rate of $50 million/year, without the cash infusion from the Calders, Roberts would have had to slow down development, even if he continued to collect $37 million from backers each year.

Roberts finally getting oversight. For six years, Chris Roberts had free reign to do as he pleased in the development of Star Citizen and Squadron 42. I don't think he will like having to answer to investors, even if he retains control over the company. In an interview with Gamasutra in September 2013, Roberts gave his thoughts on investors:
Roberts had lined up independent investors to fund his game, but he was happy to leave them behind when his crowdfunding campaign took off. In the end, he felt investment could lead to getting sold to a publisher -- and for his opinion on that, see above.

"The fact that we don't have to take investors... means that we can just concentrate on delivering a really great game and have no external pressure."

Roberts did have some "great people" lined up to invest in his game. All the same, he says, "I'm happy not to have investors, mainly because even the best investors, they're in it for a return, and at some point they want their money out, and that doesn't always match up to what's good for the game." 
After saying some nice things about Valve and CCP, the article continued:
He has big plans for the franchise that go beyond the launch schedule outlined above. "I just want to make a great game and continue to have fun with it. Because it's a whole sci-fi universe, and there's a lot of things I want to do. And some of them are going to get added after the main launch, because it's a big scope."

Investors pressuring him to sell would inevitably nip those plans in the bud.

"If you have an investor in, three years in, it's a roaring success, they could be like, 'EA wants to buy your company for $400 million, and I'm going to get 10x on my money, so you should take that deal.' And a lot of people get forced in, and a lot of sales happen because of that," Roberts says.

"It's just the nature of the beast, and for me I'm building this universe that I want to curate and be part of for a long time, so I don't want any of that." Roberts would know; he experienced this before at both Origin and his later startup, Digital Anvil, which eventually produced Freelancer after being acquired by Microsoft. 
I did find one passage from the interview amusing, given the state of Star Citizen today:
The first is that it brings him a tremendous savings. "I'm building a game that, if I was doing this at EA or somewhere else, it would be a big budget game, big high profile thing, but we get to do it for less money because I don't have all the overhead, and we have freedom for that, which is great," says Roberts.

"If this was getting built by EA or Activision, it would be a $40-50 million game. We're much more efficient. Our current budget is about 20 [million], but our specific spend is pretty much all on the game." 


CIG must keep the money machine on at full blast. Unlike some detractors, I believe that CIG needs the $46 million investment to adequately promote the release of Squadron 42. I also believe that, if everything goes according to Roberts' plans, the company has enough money to finish development of Squadron 42 and continue development of Star Citizen without needing to tap into the marketing funds. But in order to accomplish the feat, CIG will need to continue to raise $35-$40 million a year from new purchases and ship sales. I'm not sure the company can continue to rely on that type of support.

CIG winds up with one more outside investor. In the announcement of the outside investment, CIG laid out a roadmap for Squardon 42 with the end of the alpha scheduled for sometime in the first half of 2020. Assuming the development team finishes in June 2020, I'd wager the beta period lasts at least 6 months, with a launch sometime in the first half of 2021.

I stated in the section above everything must go perfectly from this point forward for the current funding plan to succeed. Honestly, I don't see that happening. Given both the current burn rate of development plus the need to use the $46 million investment for marketing purposes, I expect Chris Roberts to recruit at least one more investor, as the money from sales of Squadron 42 will not start rolling in until Q2 2021 at the earliest. The amount of slippage in the roadmap will determine the amount needed, but expect a minimum of $10 million more. $25 million more in outside investment is a reasonable expectation.

The fate of Star Citizen relies on the success of Squadron 42. In my years of watching the development of Star Citizen, the most disgusting behavior exhibited by the Star Citizen community is how backers interested in the Persistent Universe shit all over those who want a single-player game.  Without that original demand for a spiritual successor to Freelancer, the entire project would never have begun in the first place.

If CIG winds up selling Squadron 42 for $60, and winds up selling 5 million copies in the first month and 10 million copies the first year, that income should ensure that CIG will have the additional 2-3 years needed to finish Star Citizen sometime in 2023 or 2024. But if the game only sells 1 million copies? Not only will outside funding for Star Citizen dry up, but CIG will need to rush the minimum viable product out the door. I don't think most people really want to see that happen.

Final thoughts. In the long run, I think having outside investors is probably a good thing for backers of Star Citizen and CIG. The picture spelled out by the financial report is of a company that had outstripped its main source of income and only had 2-3 months of financial reserves when the new influx of money arrived. Despite the record amounts of money raised by CIG from fans, Chris Roberts had spent all of that money and was chewing through the reserve generated by side deals and currency valuations. If CIG can hold to its production schedule, the game still has a chance. Honestly compels me to point out that Roberts' history for the past 20-odd years indicates he cannot stick to a schedule. Failure to produce, however, means more outside investment and eventually Roberts losing control of the company. Roberts' detractors will argue that he has aimed for a buyout the entire time.

I really do hope that Squadron 42 and Star Citizen are made without the need for any more outside investment. The idea of gamers getting together to raise over $250 million to create a AAA-level video game through crowdfunding is a fairy tale come to life. But I think I'll wait until Squadron 42 hits Steam in a finished form before buying into the dream. Perhaps I've played EVE too long, but when something sounds too good to be true, it usually is.


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