Small teams, making art, and a laser focus on building great games, that is what indie game development should be about. It often starts with a single or few developers who have a vision, willing to build a great game out of passion. Visions that in some cases led to great success with titles such as Minecraft, Terraria, and Stardew Valley. However, the sad reality is that the vast majority of indie games never come to completion.

Also, in general, only a very small percentage of games that go into production will turn a profit, or reach profitability. But it is especially indie studios that face particular obstacles in turning their game into success.

Challenges and Funding Issues for Indie Studios

Game developers want to do what they’re best at, which is to fully focus on the creative endeavor of making great gameplay. However, the success of a game is dependent on much more variables. This creates challenges for small teams.

Game development is a lengthy and costly process, and due to the low success rate of games, and therefore uncertainty in creating future revenue streams, it makes it a risky endeavor for investors. Especially in the case of indie game studios that like to try new concepts. This is also the reason why many of them are self-funded or use crowdfunding. However, these funds only provide for so much runway, where the inability to raise new funds will lead to collapse.

Making Concessions

Due to the inability to raise new funds, many indie teams hope on venture capital (VC) coming in, or being acquired by a larger game studio or merged into one. However, indie studios will often need to make sacrifices in this instance, which damage their vision, in order to align with these parties. Since VCs and larger studios are focused on profitability, and the indie studio owner(s) is focused on pursuing their passion and making great gameplay.

Many indie studios run on tight budgets and have trouble attracting new capital as said. This goes hand in hand with the inability to spend on (performance) marketing, often the primary source of user acquisition. Besides this, small studios often don’t have an experienced marketer on their team, making marketing efforts that are undertaken less effective.

As said, the success of a game goes beyond the gameplay itself. Owners also need to consider and manage the financial, human resources, legal side, and more within their studio. They rather focus on game development and outsource other areas of the business. However, this is in many cases not possible with a small team and budget.

Supply and Demand

Another challenge is the supply and demand of new games. The amount of games being released is outpacing new demand, for every new game released there’s a smaller amount of players available.

This effect is exaggerated by the increasing lifespans of existing (hit) games and high-retention GaaS titles. Games such as Rust are continuing to release new content, which retains existing, and attracts new players. For a game that was released in 2014, it is still doing really well and has good growth numbers.

Not only indies are challenged by increased competition, but the whole industry is. Running on small budgets, and a lack of marketing know-how only exaggerates this effect.

Crowdfunding

Many indie games are trying to get funded via crowdfunding, often via Kickstarter. There is a handful of indie titles that were made and turned out to be a success such as Shovel Knight, Undertale, and Night in The Woods.

However, crowdfunding is nothing easy, as users expect something of value in return. So developers often try to pledge contributions offering merchandise, early access, or in-game resources. And this may convince some but in many cases only a very small percentage.

New Funding Methods in Web3

Challenges for indie studios mainly revolve around getting funding in order to continue game development and publish a complete game. Web3 gives access to alternative funding methods, allowing more studios to get funded.

NFT Sales

The most common way to raise funds is by selling NFT skins, items, or land. This is different from the typical pre-sales of in-game assets, as these are not tradable and are almost always confined to the boundaries of the game. Different from NFTs, which are and open up the possibility of financial rewards, creating a sense of ‘true ownership’.

Creating greater incentive for players to buy assets from the developer. The studio also gets access to a new revenue stream, which is trading fees and is able to tax based on the game’s economic activity.

Furthermore, indie studios are able to create better UGC systems than they normally would in traditional gaming. And incentivize value-adding creators, which leads to the loop of more content > more players > more engagement > and more revenue. This creates less strain on the developers to continually release new content.

Token Sales

Besides NFTs, selling on-chain tokens is another way of raising funds. Again, different from selling in-game currency, as traditional hard and soft currency is in almost all cases confined to the boundaries of the game. Just like NFTs, they are seen as a way to obtain (more) financial rewards creating greater incentives to buy tokens.

The Downside

NFTs and token sales give developers the ability to raise more funds through their player base directly, however, it doesn't come without its drawbacks. Some players might see purchasing NFTs and tokens as an investment (often advertised as such), but this can create unrealistic expectations. Therefore, it becomes more important for developers to manage expectations, and make sure to avoid disaster when prices (inevitably) go down at one point.

Furthermore, NFTs and tokens make it significantly harder to balance gameplay and economies. In the case of gameplay, when NFT skins are not solely cosmetic and provide in-game benefits, this comes with the issue of P2W. This is more accepted in mobile games with IAPs, however way less in competitive PC and console games. Also, the use of tokens and the ability to trade outside a game’s ecosystem proves to carry major difficulties in creating a sustainable economy. As there will always be player types that will try to extract value out of the game for a financial benefit. And can destroy the game experience for other players in the longer run.

Lastly, it has in dozens of cases led to affecting the motivations of the development team to deliver a quality product, studios abandoning projects, or simply taking advantage of the speculators (NFT and token buyers). The amounts that smaller teams were able to raise led in many cases to the millions. Something that seems unfeasible for indie studios with the traditional path of success.

Different VC Climate

With the potential of Web3 gaming, many new funds were founded, and existing funds started deploying (more) capital in the potential of this tech. By participating in seed, strategic, or any rounds before the public token offering, VCs were able to buy large amounts of tokens for little. And use the public as exit liquidity according to when their tokens were released. VCs were able to shorten their investment cycle by years compared to traditional game studio investing. Tokens and NFTs also seemed an easy way for studios to generate revenue, which almost ensured VCs they got their investment back and more. Allowing many smaller teams to raise funds, something which they couldn’t have done as a traditional gaming studio.

Whilst the Web3 VC climate was highly favorable for studios in Q4 2020, through 2021, and the beginning of 2022, bad market conditions, poor macro conditions, major hacks, insolvencies, and black swan events have tipped this climate into VCs deploying capital more carefully again in the remainder of 2022.

The coming of the ‘free-to-own’ (free mints) is how the industry had to shift in order to make their NFT sales successful. As paid mints were slowly dissipating in the second half of 2022. This means studios have fewer revenue opportunities or rather be dependent on different streams of revenue such as trading fees. Overall this puts the power back into the hands of VCs, where it is less about making a quick buck now, and the strong (experienced) teams with good fundamentals are the ones getting funded.

The Whole Industry

What’s been discussed in this chapter is not only applicable to indie studios but all Web3 game studios. However, it is believed indie studios could and have benefited the most when compared to the traditional gaming environment.

Now that the obstacles to indie studios have been addressed and how Web3 can solve these, a look will be taken at the benefits. And how indie titles have helped shape the game industry today.

Experimentation to Innovation

Larger studios often confine themselves within the lines of existing genres and only pursue genre blends when the concept has been proven. These parties are not able to take on the large risks associated with financial failure (e.g. lack of product-market fit). The type of risk that indie studios on the other hand can take, led to many genre blends, and innovations in the industry that wouldn’t have happened otherwise. Great examples of this are:

• Rocket League - Football and racing
• Cult of the Lamb - Roguelite and sim management
• Golf Story - Golf and RPGs
• Moonlighter - Roguelite and shop management

Experimentation leads to new genres and a wider range of gameplay, bringing new experiences and game mechanics, different themes, and unique art styles. This helps to push the boundaries of the gaming industry and is beneficial to the players as it drives innovation and brings novel experiences.

Accessibility

Indie games are priced lower than the vast majority of AAA games and often have fewer hardware requirements. This lowers the barriers for players to get access to indie games, as there are fewer budgetary requirements. Opening up this market for a larger market.

Indies in Web3

As history has shown, indie studios have played a large role in taking risks and experimentation that led to innovation. Indie studios are believed to have a similarly vital role in the growth of the Web3 industry.

Higher Output of Games

Looking at the amount of Web3 games available (estimated to be between 1500 - 2000), and considering there are about 5M traditional video games, it is no wonder there haven’t been any good games available yet.

Similar to when the F2P model arrived, both developers and players were hesitant to take part in this new form of gaming. As monetization seemed abusive, P2W seemed unfair, and advertisements were intrusive. However, F2P mobile gaming now takes the largest share of the whole game industry.

A large part of game development is layering on top of existing know-how. Clash of Clans (CoC) for example was largely inspired by Galaxy Life and lends many successful gameplay mechanics from it. Using this proven concept, CoC turned out to be one of the most successful mobile games ever. The popularity of the game using the F2P model also brought a lot more attention from players and developers. It is likely the same will be the case for Web3 gaming.

Failure down the road

Web3 gaming is lacking infrastructure such as tooling, data insights, and successful case studies. Many of the larger games that are being developed right now still have a good chance to be a bad product-market fit (PMF), due to a lack of concept testing and existing know-how. Meaning years of development can go to waste.

The fact that Web3 allows more indie studios to get or raise funding and develop a game leads to a higher output of games, which will lead to:

• A higher chance of Web3 games going mainstream
• A higher degree of innovation, which can lead to disruption
• More testing, meaning more data, and a higher chance of other companies reaching success
• Attracting more builders, not only other studios but also the ones that support the overall infrastructure

AI Content

The more recent developments in the field of AI shook the gaming space. Keeping the controversy aside, there are benefits associated with it. The most important one is being able to reduce the amount of development time, and therefore the costs of production. This will have the potential to bring games to market quicker, and with more content. Especially beneficial to indie studios, whose largest limitations are manpower and budget.

Varying degrees of success

Instead of needing to sell an X amount of copies or DLCs, indie game studios can make their game available for free, and monetize with the sales of in-game assets. This led to the success of The Beacon, a small-sized Web3 studio, allowing them to raise $1.6M. Instead of making their NFT sale speculative, they allowed players to play the game freely, and if they’d wish to earn NFTs they could buy a $40 character with a set price by the developer.

Meaning studios could be successful with a smaller player base, which is willing to spend more to have ‘ownership’ in the game they play, instead of them spending somewhere between $5 - $20 one time. It does have to be noted here that monetization via NFTs will not always be more successful (profitable) than traditional gaming counterparts.

Conclusion

Web3 has the ability to empower indie game studios and help resolve the existing challenges they face in traditional gaming. Primarily revolving around obtaining (more) funding. The Web3 landscape will enable more indie games to bring their vision alive, and considering the amount of innovation indie games have brought prior, this can be a huge benefactor to the industry. More innovations will lead to a higher chance of disruption.

Another benefit to this is a higher output of games. Comparing the number of games available in Web3 vs. traditional gaming, it makes sense there is no ‘hit’ game yet. A higher degree of smaller teams entering this space, and so more games being made will increase these chances.

On the contrary, it is also important to note that the current market conditions and ‘worsened’ (more careful) VC environment will set back funding opportunities. However, it is believed the next bull cycle will see an influx of smaller studios getting funded.

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