Everyone is certain to remember the controversy surrounding the 38 Studios $75 million loan guarantee deal. I, for one, was concerned about the tepid clawback provisions in the deal that would let 38 Studios off with a $400,000 fine if it didn’t create 400 jobs in the state. In any case, Kingdoms of Amalur was released this week, and it has been receiving stellar reviews from all over the country. Case in point is this glowing review from the New York Times.
Kingdoms of Amalur: Reckoning isn’t just good. It sings with infectious, engaging excellence. This is a game that knows exactly what it wants to be, what it wants to provide and what its players will enjoy. Then it delivers with confidence, style and, not least, fun in abundance. Kingdoms of Amalur: Reckoning is one of the finest action role-playing games yet made.
I am very excited to play this game (although it’s something I’ll have to do after the semester ends). And my hope is that the placement of 38 Studios downtown, and the co-location of Hasbro’s children’s video games division right next to it, could result (with some significant collaboration and organizing at the state level) a new business cluster in Rhode Island.
One of the most important things the state needs to remember is that cluster development takes a long time to form and grow – there are no quick fixes to the state’s economy. But the state can help in broader economic development trends by making strong connections among related and supporting businesses. For instance, while the packaging was designed by 38 Studios, it needed to be created. The manufacturing sector is still the 4th largest industry in Rhode Island, and it’s likely that there are plenty of manufacturers that have the capacity to produce the packaging. Likewise, the actual disks needed to be pressed. Was there a local disk maker that could have been used? Then there is the shipping and logistics, warehousing, etc., all of which is possible in RI with connections to air and rail freight.
I’m sure that all of these additional support businesses can be found locally in the state, keeping more of the wealth created by 38 Studios in Rhode Island. We have amazing artists and designers coming out of RISD every year. And it wasn’t an accident that New England Tech created a Video Game Design program. It would be nice to leverage these incredible assets to promote further economic development in the state, rather than just complaining about taxes and unemployment. Of course the patience and deliberation required for long-term growth runs counter to our political system and national culture of immediacy. Thinking about this as a 20 year strategy doesn’t come easy, but wouldn’t it be awesome if, in 2032, we can celebrate Rhode Island as the video game capital of America?
Brian,
This Economic Development stuff is great in theory, but it doesn’t work in reality. The following is my understanding (and I’m not in this industry myself, so anyone who is could tell you with more accuracy):
See, the thing is, you’ll have 2 primary consoles for which there will be manufacturing of game-disks. You’ll have XBox360, which uses a proprietary Toshiba format, and Playstation, which uses Sony’s better-known proprietary format, Blu-Ray. For the PC, you can bet it will be run through Steam with a direct-download and no physical media (physical media for games will probably not be around in 20 years for any console – discs are so 1990s, eh?)
The only large-scale manufacturers of these proprietary disc formats in the world are in China. In fact, the manufacturers are just about all in one city, Shenzhen, which is on the mainland, but with proximity to Taiwan. This game will ship without a manual, which just leaves the Box (also, Shenzhen) and the art (which will be done by the in-house artists who did the game more often than not these days).
Further, video game companies develop, but do not distribute, the games. In this case, Electronic Arts is doing this (it’s why they’re the first company in the credits list when you play the trailer above). They have a distribution center in Louisville, KY, and don’t need one just for New England. Most companies just need one in TX, one in CA, and one in the mid-atlantic.
So don’t go getting your hopes up that RISD students could somehow be employed to do game-box-art (it will be the game-artists themselves), or that the Jewelry District could become a HD DVD manufacturing hub (that business is dying anyways), or that the game packaging for console games will be done here (it’s also a dying business). It’s all manufactured under Japanese patents in China.
We need to be realistic when looking at Economic Development, not optimistic.
Anyhow, there’s my 2¢, for what it’s worth.
Rhody,
Fair enough about everything you wrote, and perhaps using the Amalur game to illustrate my point was a little misplaced considering the licensing and distribution of the game (there’s also the acceleration of digital-only delivery), but I think my larger point is that at this moment, there may be an opportunity to leverage the (likely) success of Kingdoms of Amalur to generate the seeds of growth not just in video game design, but in other things as well.
Most businesses in the state are at a much smaller scale than 38 Studios, and will operate on a much different level. Conceptually, how this all settles is anyone’s guess, but the state has a rare moment to be a facilitator in growth. RI gambled on 38 Studios, and so far that bet seems to be paying off, but it would be a real shame to lose this moment to leverage this success for greater growth. What that growth will look like is anyone’s guess, but will likely rely on the skills of creative designers and programmers, and the connections that are made between the IT industry and the broader economy. Being a catalyst for those connections could be a role for the state.
“In any case, Kingdoms of Amalur was released this week, and it has been receiving stellar reviews from all over the country.”
It actually hasn’t. The average metacritic score, based on 43 game critic sites, is 80/100, which it categorizes as “generally favorable.” I personally trust Gamespot as the most accurate review site, and they gave it a 7.5/10. The general consensus seems to be that it is a solid but somewhat bland game with enjoyable combat that doesn’t really do anything new. It might earn back the development costs and then some, but it hasn’t been getting much buzz overall and I doubt it will have any real staying power in the games market. Maybe I’ll be wrong – nobody can say for sure.
On the more general topic, the fundamental flaw with the state cutting these kinds of deals with companies on a case by case basis is that it substitutes the judgement of politicians and self-proclaimed “policy experts” for more reliable and efficient market feedback mechanisms. 38 Studios might ultimately work out for RI or it might not, but that’s not really the point. Just like it’s not good policy to put all your money on a few stocks, sound economic policy is making the state attractive for *every* business by offering a good business environment, as states like Virginia and New Hampshire have done. This deal will do nothing to change Rhode Island’s reputation for being fundamentally unstable and business unfriendly. In fact, it reinforces it by “politicizing” RI’s economy and sending a message that businesses either have to kiss the ring of the political elite or get left at a disadvantage to more influential competitors. Even among larger companies, very few want to plan their financial futures and invest in RI based on the whims of politicians and special deals that can change from year to year. Lastly, there is the issue that a large percentage of the jobs “created” in these projects are really just people leaving their existing jobs, which is the same thing that has been observed with stimulus spending. We will never hear about the small businesses that close when their designers and marketers jump ship for 38 Studios.
I’m not any kind of a gamer. I do word puzzles the point that there are no unsolved word puzzles in my vicinity and I actually create the most difficult kind of word puzzles. (Brian…) So appreciate your review of the gamer space. KoA is no…whatever the knock-out debut would have been. But…
You’re actually inaccurate in two different ways here.
First, our location is incredibly meaningful in this context. It’s well-known that the venture scene in the northeast is not at all the brightest bulb in the chandelier. VC (in the broadest meaning) are risk-takers; east coast money is old and blue and fleeing from risk. It’s more than an anecdote that Facebook was passed on by 100% of east coast VCs – all of whom are wishing they could get a do-over. So to say that the east coast venture scene has omnipotent powers to know a good risk from a bad one is simply not supported by the facts. There’s a reason that states are in this game. Not a good one, but a reason. (Am I hating on private equity? You know I am!)
But, more than that, it’s just factually inaccurate to assert that it was bureaucrats and “policy experts” that cut this deal. I was actually inside EDC (as a junior consultant) for most of the time this was gestating and 0% of the people involved were as you describe. The EDC insiders were mostly former bankers or company creators. And the Board of Directors that approved the deal are 100% practitioners. Good ones.
This deal was weird in every possible way – it’s mezzanine-scale numbers but with an angel-developed business. Easiest thing to say no to ever, except what it is and who it is. You can’t just walk away from that (unless you aren’t really in the VC game to create companies).
There’s certainly something in the idea of creating the right climate broadly…you and Rhody Towny agree, although you’d define it differently. But, as I say below, if this deal came to you, could you say “no”? It’s easy to answer that in the hypothetical; more difficult in the actual.
To your last point about the jobs simply taking already-employed people and moving them from there to here, there’s quite a bit to that, although not quite as you describe. The dynamic here is that we moved jobs intra-regionally. People that used to work in MA now work in RI. Yes, RI gets a bigger chunk of the income tax, and that’s a good thing for us. And PVD gets the meals tax when they lunch. But those gains aren’t as meaningful as the one’s we’ll take from B-more when the devs that actually made this single-player move up to join the mothership.
Also, RT is inaccurate in that this won’t employ local grads. 38 is active in recruiting from RISD, JWU and likely UMASS-D, where they have a very strong computer sci program. They need to add artists and developers to scale to MMOPRG. And the eco-system is not so much about ancillary activities as it is overflow and side projects. Freelancers will move in and out, working in-house for a while, then starting their own groups and doing project work for 38 or Hasbro as it comes up. Standard fare in the media and marketing space.
Overall, we have to wait to see what the MMORPG does – that’s what’s getting built up on Empire St. (Fingers crossed, ‘cuz with a family of 7, I’m into these guys for $525.)
Does it suck that states (across the country) have to be in the venture game? Yes. Would we have been foolish to let this walk? Yes.
Sucks to be us. But we knew that already.
Frymaster – I appreciate the thoughtful comment. On the scale of hardcore gamers, I’m around a 9.5/10, meaning I’ve played and beaten pretty much everything noteworthy out there and I keep up with the community, but I’m still strictly amateur and it doesn’t literally consume my entire life like some people. As much as I like seeing state-sponsored enterprises fail on principle, I was actually rooting for this game. I liked the idea of God of War meets World of Warcraft. My guess is it will about break even, but not much more than that. I think 38 Studios investing in an MMORPG is a HORRIBLE HORRIBLE HORRIBLE idea. I cannot stress that enough. Nobody is going to play anything except World of Warcraft unless it is revolutionary or absolutely phenomenal or more likely both. Most contemporary MMORPGs have been effortlessly crushed like gnats under its massive lumbering heel as it plods its way to victory after victory. And it is a competition: unlike other genres, people play 1 or 2 MMORPGs and that’s it. The only thing that is giving it a run for its money recently is Star Wars: Knights of the Old Republic for four reasons: 1)They had over $200 million to invest in it, 2)Knights of the Old Republic was one of the best and most beloved games of modern times, 3)Bioware is an experienced, respected, innovative, and immensely talented company, and 4) STAR WARS IP. I think Schilling needs to let go of his Ahab-like vision of creating the next World of Warcraft or it is going to be the end of his company before it even begins. If anything can wipe him out, this is it. These things are extremely high-risk, high reward and there are very few winners.
I understand your point about this particular investment and why it made some sense, but I do think these special deals with companies do damage in less obvious ways. I see a lot of smaller companies being harmed by this favoritism and unable to compete for talent as a result. I also think it plays into the idea that Rhode Island is only good for “insiders.” I’m not a businessman, but I think I’m on safe ground saying that businesses like to plan and cost things out and know what they’re getting into. The big problem with Rhode Island is that it is viewed as so fundamentally unstable, like doing business with the mob – next year the taxes could be higher, the regulations could be enforced in strange new ways, or the politicians you allied yourself with for loans or tax credits or who knows what else could turn on you. It’s bad business to take such bets when you could get an up-front, decent terms, level-playing-field deal somewhere else and really crunch the numbers to see if you can make it there or not.
Brian,
I hope so. I know your heart’s in the right place, and mine is there too. I suppose that years of hearing buzzwords like leverage, catalyst, and innovation have made me a bit cynical. I want to see these visions more fleshed out than simply reliant on hope. We do have the ability to expand the Port of Providence, and with a little dredging, Quonset too. I’d like to see something more substantial done there than handing over land to chain malls and big-box stores that exist 10 minutes up the road. Perhaps attracting a medical device manufacturer/exporter, along the lines of Haemonetics, would be sensible given where the educational strengths of the state lie.
But Rhode Island is seriously deficient in some educational areas. We have no solid polytechnical school (sorry NE Tech, but you’re not anywhere near WPI, MIT, or even UMass Lowell), and until recently we had no law school. There are plans in the works to drag the commuter rail down to Wickford, which is sensible, but it still ignores Quonset. The other big problem with RI is that it has among the worst median income to median home price ratios in the country. Housing is expensive; jobs pay less than MA or CT; corporate and sales taxes are higher than MA or CT. These are all economic development problems that we can work on with solid, measurable goals.
38 Studios was a good bet because of the people involved. You got the guy who did Spawn together with the guy who did TES Oblivion, the guy who wrote the Forgotten Realms series, one of the best distributers in the business and threw Curt Shilling’s money at it. This wasn’t the NE Tech team (I really don’t mean to keep beating them up). It came with capital. It was going to work. The state just gave it the sauce, which is fine, I’m actually not so much against these sorts of deals, especially when they’re smart.
But I think that rather than do things like try to make “industry clusters” or “knowledge districts”, you’d find a much better economic development effect if you 1) worked to plug the education holes, particularly the technical and legal ones, 2) sharpen the infrastructure, particularly around shipping, and work diligently towards filling industrial zoned land rather than give into temptation to take the quick commercial buck, 3) encourage municipalities to open up more land to development of moderate-income (not subsidized) housing (we’re talking small ranches, not McMansions or apartment complexes), and 4) shift the tax burden away from sales to rely on more progressive income taxes, and slightly away from corporate taxes to be more in line with our neighbors.
That’s how I see the state acting as a successful catalyst anyhow. It’s hard to pick winning industries or industry clusters, especially over time. We’ve seen the large, diversified urban centers continuing to do well, even as the specialized industry towns, like Detroit and Providence, struggled. I’d hate to see us invest big money into something that booms for twenty years then dies, when it could have been used to build up the infrastructure and skill sets that let the state adapt to change more quickly.
The best part is, the goals would be tangible and easily counted (without playing econometric games with multipliers). Do you have a technical school? Does it have a polymers engineering program (for example)? Do you have a law school? Does it have an intellectual property program? Where are these schools ranked? Can the next-larger class of ships enter the port? How many moderate-income houses were built? What is the median income to median home-price ratio now? Is there a slight comparative advantage with our immediate neighbors in the tax code?
These are things that are easy to measure, and much easier to benchmark and work towards than trying to leverage-up existing successes, which is something the state often has little control over, and can leave large investments ‘pigeon-holed’ in one industry.
Anyhow, sorry for the rant, it is more aimed at EDC, perhaps, than at you. The organization seems more opportunistic than strategic. Some of this is no doubt due to the electoral calendar. But I think that any real vision for economic development should start with asking “what is Rhody missing?” rather than “what industry cluster can we invest in?”
Like it. Education and infrastructure are clearly the best bets for your econ dev buck. And, FWIW, my econ man-crush Mondragon started out of a trade school in the Basque.
We should all be seriously cheesed that the state feels the need to be ‘angel of last resort’ (even though this particular deal was more mezzanine than anything else and that’s the most challenging phase for finance because the numbers are big but profits are small-to-non-existent…even though this didn’t deal didn’t even have REVENUE much less profits). With all the money sitting on the sidelines…just boils my cabbage! Job-creators my ass.
This truly was a one off. And if any of us were on the EDC board, the question wouldn’t have been how can you say ‘yes’? It would have been how can you say ‘no?’
My hat is off to you Brian for actually presenting this in a positive light. RTW is right about the uphill battles of bringing business to Rhode Island but sometimes you have to take that chance. Sitting back and doing nothing because the business climate sucks won’t solve anything.
Amalur might be getting favorable reviews, but there’s virtually no excitement about it inside the actual gaming community.
www.reddit.com/r/gaming/search?q=amalur&restrict_sr=on
I don’t think the right way to bring businesses here involves putting taxpayer money up for one-time sweeteners. It’s a massive distraction from the government doing what they’re supposed to be doing.
There’s only so much time for our leaders to do their jobs, I want them keeping the roads paved, the lights on, etc.; not playing venture capitalist while the basics take a backseat.
I wish I could dispute your 1st para, and I wish I could get behind your 2nd. If private capital isn’t stepping up – for whatever reason – then I have to grudgingly, vengence-mindedly agree with DD. We’d feel like idiots to have let this go down to Baltimore.
In conclusion – private capital freakin’ sucks right about now, so take your carried interest loophole and but a bunch of treasuries at less than 200 basis points.
But, I guess 1%-ers gonna 1%.
“It’s well-known that the venture scene in the northeast is not at all the brightest bulb in the chandelier.”
It is? That’s news to me, someone who’s raised venture capital in NYC. We’ve got the #2 and #3 cities for venture capital within driving distance.
On a per capita basis, MA was 1st in 2010, CT 7th, and RI 8th! Most regions wish they had that kind of access to venture capital.