Philip Holt, the studio head at Undead Labs, the developer behind the State of Decay series, has shed light on the complexities of securing investment in the current video game industry. His comments come in the wake of Undead Labs' successful management buyout, which saw the studio regain its independence from Microsoft following a deal with unnamed buyers that ultimately fell through. The transition involved the creation of a new holding company, Full Measure, and was followed by layoffs.
Speaking to The Game Business, Holt explained that the opportunity for independence arose during an "accelerated period of time for Microsoft’s divestiture." He noted significant interest from potential buyers, but ultimately opted for a management-led acquisition, believing the capital needed to complete State of Decay 3 was achievable through independent fundraising. "I knew other studios were doing management buyouts, so I submitted an offer for a management-led acquisition, and Microsoft thought that would be a good idea," Holt stated.
However, Holt described the broader investment landscape as "challenging." He suggested that many significant investors are hesitant, preferring to wait for "obvious slam dunks" rather than taking on more complex opportunities. "There’s capital available, but I think it’s nervous, perhaps sitting on the sidelines waiting for obvious slam dunks," he commented. Several factors contributed to this caution, including the substantial costs associated with development teams and the speed at which decisions can be made.
The Economics of Labor
A key concern for potential investors, according to Holt, was the cost of labor, particularly given Undead Labs' location in Seattle, one of the most expensive regions for game development. "We’re in one of the most expensive places in the world to make video games," he noted. "And, we’re seeing the rise of incredible games that are coming from parts of the world where the labor costs are just much lower. I was out talking to investors and publishers, and there was a lot of scrutiny around our unit cost of labor." Holt feels this indicates a general trend towards a "race to the bottom on the economics of labor" within the industry.
This sentiment echoes comments made by Saber Interactive CEO Tim Willits, who previously advised studios to look beyond North America and Europe for development talent in regions with lower labor costs. Willits encouraged acquiring development teams in places like South America, highlighting the availability of skilled professionals and favorable time zones.
Despite the recent restructuring and layoffs, Holt remains focused on the development of State of Decay 3. He indicated that some changes have been made to the game following the buyout, but the studio is still targeting a release for next year. The studio's focus on scaling the business according to audience demand remains a core principle.