If you're not following the ongoing developments at 38 Studios, developer of Kingdoms of Amalur: Reckoning (KoA:R) and the upcoming Copernicus, and you're interested in game development, you are doing yourself a disservice. What you'll find unfolding is a tale of an up-and-coming studio filled with talented people crushed by business realities.
38 Studios was founded by Curt Schilling back in 2006 under the name "Green Monster Games." Though KoA:R was its first major release in 2012, its release is the product of 38 Studio's acquisition of Big Huge Games (Rise of Nations) back in 2009. Schilling started the company with the intention of bringing a MMORPG to market. Copernicus is to be the realization of that vision.
Along the way some of the realities of running a company got in the way, and to explain requires some context. The company originally leased space in Maynard, MA while still under the Green Monster Games moniker, but struck a deal with the Rhode Island Economic Development Corporation (RIEDC) to secure a $75 million loan that would bring 450 jobs to the state of Rhode Island by 2012.
What that means is that 38 Studios borrowed this money from the state at what we can assume to be a favorable rate on the condition that 38 Studios relocate to Providence, RI, thereby bringing in jobs to the state. Rhode Island is under intense pressure to bring jobs to The Ocean State. As of April 2012, Rhode Island has the nation's second-worst unemployment rate at 11.2% (after Nevada, which sits at 11.7%).
Unfortunately, it turns out that 38 Studios is having financial difficulty and is cannot pay back its loan in a timely manner- or its own employees. On May 15 local media (NBC) found that State officials were meeting with 38 Studios on concerns about its ability to meet the terms of its loan. While we do not know the full details of the agreement, we do know that 38 Studios defaulted on a $1.125 million payment to the RIEDC as part of its loan package that was due May 1, 2012. It then delivered a check to the RIEDC that 38 Studios Rick Wester said had insufficient funds in its account to cover- so the check was returned. Now you have 38 Studios laying off employees, though how many of its 379 full-time employees (as of the end of March) is unclear. Most recently it came to light that CEO Jen MacLean and Senior VP of Product Development John Blakely are no longer with the firm (Source).
To recap: Thus far you have the state of Rhode Island so desperate for jobs it makes a gigantic loan to a video game company with zero track record to relocate into the state (38 Studios relocated in 2010, KoA:R was released in 2012). This is a huge risk, since you have no cash flow to cover said payments: What exactly was used to secure this loan? Remember: This is taxpayer money being lent to a video game developer.
Then you have 38 Studios who accepted the loan. Somewhere along the lines someone misstated their earning expectations and release dates, because KoA:R sold about 330,000 copies by March, which comes in a bit under $20mm assuming a $60 retail sale... and that's gross revenue, meaning it doesn't take into account distributor fees (Gamespot, Steam, Amazon, etc.).
Analysts put a net asset value of about $20 million on 38 Studios, assuming they could even find a buyer in the event of a liquidation, so it is in the best interest of the State to try and bail out what is fast becoming a sinking ship. Queue the world fly-through of the scheduled 2013 release MMORPG Copernicus:
The kicker is that Copernicus' release date and trailer were announced by Rhode Island Governor Lincoln Chafee, who is desperately trying to salvage what still has the potential to become a profitable title- if 38 Studios can get its act together.
Boston Globe Reporter Scott Kirsner spoke with game industry executives and venture capitalists who've invested in other developers of massively-multiplayer games and came up with three likely scenarios for 38 Studios' future (Source):
- A bigger game studio or media company comes in and offers to take the 38 Studios assets for nothing.
- Someone acquires 38 studios offices in Maryland, otherwise known as "Big Huge Games."
- 38 Studios eventually shuts down and files for bankruptcy.
These are all possible, but there are alternatives. 38 Studios could secure additional lines of credit from private investors to continue development on Copernicus and meet its loan obligations with the RIEDC. Or the RIEDC could forgive loan repayments temporarily until 38 Studios gets back on its feet- which seems likely because RIEDC needs to save face both economically and politically. They don't want to lose jobs and the governor does not want to look like a fool.
Personally I am hopeful that 38 Studios can stabilize itself financially and complete work on Copernicus, but we will not know what's going on internally for some time.
You can follow the ongoing saga on this page, or follow Rhode Island WPRI-TV reporter Ted Nesi on Twitter @TedNesi.
I think everyone got laid off already. And many are stuck with a second mortgage due to the relocation and 38 not entirely buying out their old houses.
The whole thing is sordid and disgusting, and I can't help but feel bad for the employees and for the citizens of Rhode Island.
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@Gelugon_baat Someone is a diligent reader, and I mean that as a compliment. I'm leaving the typo in for anyone else reading the comments.
Things just get worse and worse for these guys every day. I've been watching this train wreck over on The Escapist. It seems like everyone involved just made a bunch of missteps, the biggest of which is probably throwing all that money at an MMO in the first place. MMOs are pits that you throw money into, and I don't think it was a good idea to try and make such a big budget MMORPG based on a completely untested IP like this. The loan also seemed like a really bad idea in the first place...
I haven't played Amalur yet, though I thought the demo was pretty good. I always intended on picking it up sometime later on, perhaps after the first big price drop. Real shame to see them in such a horrible position, especially since nearly 400 employees just lost their job today.
I might have passed out and hallucinated, but I thought I read somewhere that someone had stepped in to help the studio? Or have I just imagined that.
I haven't yet played Kingdoms of Amalur, but it has had very positive praise from my friends. It will be a shame to see a studio filled with talented people disintegrate.
Las Vegas NV is the gaming capital of the US but Nevada has the highest unemployment, go figure. Nothing was used to secure the loan. The state bonded 38 Studios for 75 million, and 38 promised the state 450 new workers to tax. They hired the workers, but they're not profitable. If they can't pay their employees then liquidation is the best option.
Schilling obviously had no idea what he was getting in to. I love video games.... but I'd never try to make one.
Best of luck to the folks at 38 Studios whose jobs are on the line. I hope you find the courage and strength to endure these times to release what will hopefully be an excellent game!