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Reason On How and Why 38 Studios Went Bust
cathyreisenwitz writes "The 2012 bankruptcy of Rhode Island-based video-game developer 38 Studios isn't just a sad tale of a start-up tech company falling victim to the vagaries of a rough economy. It is a completely predictable story of crony capitalism, featuring star-struck legislators and the hubris of a larger-than-life athlete completely unprepared to compete in business." Reason makes no bones about its view of this kind of public-private "partnership."
Neither the article nor the summary says anything that could even be remotely interpreted as an attack on capitalism. And you know it.
Strawman arguments are lies.
Reason, a libertarian magazine, is probably the most pro-capitalism publication currently available. The article is about how taxpayer-funded loans are almost always a bad idea. Schilling was unable to find private sector investors - which usually means that the business model is not very good. Crony capitalism is not capitalism, it's a corruption that wastes a whole boatload of our tax money.
Short story: Leave investing to investors and stop risking taxpayer money on ventures that will most likely not succeed.
Come on, son.
Neither the article nor the summary says anything that could even be remotely interpreted as an attack on capitalism. And you know it.
Strawman arguments are lies.
Not to mention that this entire deal had nothing to do with capitalism. Government guarantees a giant loan to a business driven by nepotism, greed and lies in an erratic industry headed by a former sports star with no management experience whatsoever? How is that capitalism?
I'm a good cook. I'm a fantastic eater. - Steven Brust
Crony capitalism is not capitalism
Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.
Give me Classic Slashdot or give me death!
This magazine (Reason) is clearly against public-private partnerships, if anything seeing them as even worse than regular purely-government projects, due to the increased potential for this kind of cronyist corruption (but still inferior, in their view, to purely private-sector endeavors). A lot of free-market conservatives see them as an improvement on purely-government projects, though: public-private partnerships are often promoted as a way to bring efficiencies of the private sector into infrastructure and development (e.g. a pubic-private partnership to build a toll road), rather than having the "big government" do it all.
Are those two different camps of the economic right? Perhaps "libertarians" versus "pro-business conservatives" or something along those lines?
10 PRINT CHR$(205.5+RND(1)); : GOTO 10
Crony Capitalism is when you use the state to get unfair private advantage. It's not like a builder who gets the state to "smooth things out" when building something for public purposes (ex. police station, highway, etc.). There are times when the government needs to help facilitate the work of private parties. This was not one of them. It was the government doing something with a marginal public purpose (the nebulous "it'll create more jobs" excuse).
Put another way, this is precisely the same sort of crap we saw Bush and Obama do with the banking sector (using public funds to secure private losses that were not incurred due to a public purpose). In either case, the government stepped in to do what the market should have done in an otherwise private transaction with minimal to no public purpose.
Insofar as the governor making the call was a (R), and the ceo of the company involved was a notable (R) campaigner (and there was serious talk of him running as (R) for senate a few years back, for the seat Scott Brown won)... it did indeed smell of "politically motivated favor to a friend of the political party" at the time.
At a minimum, Curt probably had a leg up over other CEOs in getting in to see the governor and talk about his great company, even if the decision itself wasn't biased -- even those who are trying hard not to bias decisions directly have a hard time not having a serious bias in that they talk to their political allies a lot more than their political foes.
The article doesn't go very deep into that aspect of it though.
(disclaimer: I worked at 38, and I disagree with some aspects of the article; in particular, it fails to mention that the new (D) governor of RI jerked the company around by cancelling payments to the company which _caused_ the sudden cash crunch that pushed it off the cliff, as revenge for the above... What the crony giveth, the anti-crony taketh away. But the original deal did smell funny, and management was surely also at fault for dancing so close to the edge of a financial cliff that one failed payment from the state could push them over, so the article isn't too far off the mark.)
Crony capitalism is different than capitalism. Crony capitalism means a company gets special favors from the government that give it an advantage over their competition. Crony capitalism is why, despite a 35% corporate tax rate, some corporations (like Whirlpool) paid no or negative taxes last year. Arguably one of the best things Reagan did was to simplify the tax code to get rid of a lot of crony capitalism (to be fair the idea was being heavily promoted by a democrat before being picked up by Reagan).
In general, crony capitalism==bad. Capitalism==good. This is something agreed on by both parties: both sides hate the crony capitalism of the other side, but tolerate it.
"First they came for the slanderers and i said nothing."
Crony capitalism is not capitalism
Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.
In which real world?
It may have its problems, but capitalism is the best system ever devised for creating wealth and a higher standard of living for a population. Depart from it at your own risk.
Tax payer money was wasted by loaning it to a business nobody else would touch. When you depart from Capitalism, you reap the reward of inefficiency.
"File to fit, pound to insert, paint to match" - Aircraft Maintenance 101
Looks like baseball player Kurt Schilling (who apparently was very good at baseball) decided to start a video game studio, who knows why.
He tried to raise $50million from private investors, but they didn't think he could make money.
He went to the governor to get some money, but the governor didn't think he could make money.
A new, naive governor was elected in Rhode Island, and desperate to improve the economy of the state, he approved some $75million in loan guarantees.
They hired some people, built the game Kingdoms of Amular: Reckoning, and did a surprising number of things right considering a baseball player was the founder.
It turns out that in making a modern game, one of the hardest things is getting good developers in the right places, and the game turned out to be buggy. Very buggy. And they didn't have a good level designer, so the levels were kind of boring. These things combined to sink the game.
So, the company failed. And taxpayers now have to pay back the loans.
"First they came for the slanderers and i said nothing."
The disclosure notice said 38 Studios employed 379 full-time workers as of March 15, with 288 of them in Providence and the rest at its other studio in Maryland. The company also reported 34 full-time contractors and eight interns. The company listed 18 job openings on its website as of Monday evening.
Almost 400 people - I guess average salary must have been in the $30-$40K range.
What we made:
1) A console game -- Kingdoms of Amalur: Reckoning. Published by EA, you should still be able to buy it even with 38 gone (and it's been a year, it is probably discounted at this point; available for xbox360, ps3, pc, though if you play on a pc you should go buy an xbox controller because the keyboard/mouse control isn't that great). Got mostly good reviews, sold pretty well. It's an action-heavy-RPG, think the combat of God of War with a crunchy MMO inspired "gather piles of loot, explore a big world, do quests for lots and lots of people..." backing.
2) The Big Project the company was working on was an MMO, just titled Kingdoms of Amalur, set in the same world long afterward; you could think of Reckoning as a kind of teaser to get people excited about the world and story to lead them into the MMO. Think WoW, but with a very different art style (I can't really describe it in text, you can search for the screenshots if you care), and lots and lots of refinements. It was approximately a year from release when the company went foomp.
3) Assorted tie-ins. Yeah, just like you can get the WoW novels and comic books and action figures, there were plans for that stuff too. Obviously, those things don't get launched til after the MMO does, so they were in early-planning stage.
Technical and software issues: MMO software is big, and we were chasing a moving target. With an MMO... it's not hard to write an MMO that's better than what WoW was at launch, lots of people have done that. But to make any headway at all in the market, you've got to make something that's better than WoW is Right Now, because to attract a gamer of an inherently social game, you have to pull them not just away from the gameplay of their current game, you have to also lure them away from the circle of friends in their current game. You don't yet have a raiding guild in our game, so our gameplay/art/story/etc has to be enough better than WoW (or LotRO, or DDO or FFXIV or EVE, or whatever you are currently playing that we're trying to convince you to turn off long enough to try our game), that we can convince you to try us for long enough to get a guild going and establish those friendships in our game. That's a high bar, and in a multi-year development cycle, you have to go back several times, look at the new games and expansion packs coming out, and say "hey, WoW just came out with kung-fu panda expansion... is there anything in there that is really compelling? Is there some new piece of gameplay or UI that is good enough that we ought to match it, or is something that we can see how to do better?" If you compare the WoW UI of today to the UI of three or five years ago, there is a world of difference in usability. You don't notice it at the time, since it's growing in bits and pieces, but if you've played an MMO of today, you'd never go back to one of three years ago. Which means... Those design docs from when 38 studios first formed had to go through a lot of revision. Systems written early, we'd go back and say "oops, this needs to be seriously expanded, otherwise we'll look bad by comparison".
The last week, for example, as we watched the financial axe fall, we were running our one functional raid between sessions of watching the idiot governor holding press conferences about us. And then we'd post-mortem the run, say what was fun, with a lot of comparisons to other MMOs -- "here's why X was more or less fun than it would have been in game Y". That generated a lot of new feature/bug requests; it's often hard to tell what is going to be fun until you actually are running around in the world flinging fireballs... which is great, and very "agile", but unfortunately wrecks havoc with scheduling. In hindsight... Build in more slack in the budget/schedule to pay for revision passes, because with a game (or with art in general I guess), you're likely to do something, look at it, and see a way to improve it. Unless your goal really is to pu
Well, yes, in the sense that crony capitalism is what happens when various people try to "fix" capitalism by "protecting jobs" or "attracting business" or whatever, and politicians (both on the left and the right) have delusions of grandeur of being able to do this.
The solution, however, is not to get rid of capitalism, but to get rid of attempts to tinker with it. Let businesses fail and don't have the government "invest" in companies, period.
I mean, what alternative did you have in mind? If you don't like markets deciding where to put money and resources, and giving the responsibility to government leads to cronyism, who is left to make those decisions?
And the folks running Solyndra et al were committed Democrats. Selectively portraying only (R) as being greedy evil capitalists is disingenuous at best. BOTH The (D) and (R) parties are corrupt beyond repair. Government should not be making loan guarantees for businesses, period.
Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
If they had actually delivered a product that was expected to sustain their operational expenses, and if that product had failed to sell due to a rough economy, then I would agree with the comment in the summary.
You could argue that the gaming economy is always, or has lately (last ~decade) been a rough economy. Perhaps this was merely in reference to the lack of fluid capital in the markets that then pushed them toward the $75 million dollar gauranteed loan - that wasn't fully theirs and that they had to make huge payments on right away... I seem to remember reading an article about it last year that said they only received about half of that money. Anyway, they did deliver a game that was "expected" to sustain their operational expenses and provide the experience and capital to push on to making an MMO. It flopped, and thus did the plan.
"but money is the God of Algiers & Mahomet their prophet." - Rich. O'Bryen June 8th 1786
Let's assume an average weighted salary of $45k, that gives us a fully loaded cost of ~$65k per year, or about $2.2M per month, where's the other $1.8-2.8M per month going?
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
Rent at some of the most expensive office space in Rhode Island, equipment & toys, travel & entertainment expenses...i.e. they peed it away like most idiots who have never run a business and who all of a sudden have a ton of cash.
Wrong.
The regulation we applied to capitalism made higher standard of living for a population.
You might want to actually read up on capitalists.
"Tax payer money was wasted by loaning it to a business nobody else would touch."
while true with studio 38, usually that isn't true.
In fact, a lot of case it as helped. but success in government isn't really reported. You know why? it's not unusual.
The Kruger Dunning explains most post on
Most modern democracies have a fairly standard set of parties (roughly from left to right): communists, social democrats, "classical" liberals, Christian democrats, and nationalists. In the US, Democrats comprise the left end of the spectrum, Republicans the right end of the spectrum, and classical liberals sit uncomfortably in the middle without their own party. Except for "classical" liberals, everybody else believes in big government and government intervention.
Probably what confuses you is that Republicans say that they favor free markets when in practice they don't. (Of course, Democrats also say they stand for a lot of things that, in practice, they don't stand for.)
There is no "disagreement on the right" because "libertarians" and "classical liberals" aren't actually part of "the right". Republicans and Democrats are similar in their level of intervention in the market. The only people who would like less intervention are actual liberals, but both Republicans and Democrats are ganging up on them, trying to give them a bad name (and succeeding). Liberalism has been successfully marginalized in both the US and Europe for the time being.
Free minds and free markets? The latter, we've not experienced in our lifetimes. The former is the sign of a terrorist.
"Windows is like the faint smell of piss in a subway: it's there, and there's nothing you can do about it." - Charlie Br
Average Manhattan commercial realestate is $58/sq ft on an annual basis, round it up to $60 or $5/month. Average cubicle is 8x8, assume a really inefficient layout of half cube half shared space, you get 128sq ft per employee or $256k per month. The numbers aren't coming close unless someone on top is taking a hell of a lot out of the company or they're spending a good part of the loan on bribes.
There are 4 boxes to use in the defense of liberty: soap, ballot, jury, ammo. Use in that order. Starting now.
Not to mention that this entire deal had nothing to do with capitalism. Government guarantees a giant loan to a business driven by nepotism, greed and lies in an erratic industry headed by a former sports star with no management experience whatsoever? How is that capitalism?
Capitalism is the private ownership of the means of production.
When the VCs took a look at Schilling's plan said it sucked balls, that was capitalism in action.
When the RI governor went to lick Schilling's schlong and suck his balls, that was definitely NOT capitalism.
Crony capitalism is not capitalism
Crony capitalism is what actually happens when you implement captialism in the real world. Capitalism is the theory, cronyism is the practice.
Can you think of one -ism where that is not so? I can't. Cronyism is a disease all forms of economics and government seem to be vulnerable to.
You are correct, this isn't capitalism, it's crony capitalism, which is what the summary identifies it as.
Well done missing out the key word ("crony") and writing your own strawman.
The real "Libtards" are the Libertarians!
capitalism is the best system ever devised for creating wealth
I can agree with this part of your sentence
and a higher standard of living for a population
But not so much this part. Think mid-19th century industrial revolution, where people worked long hours, with no benefits, no labor restrictions (rampant child labor), no concern for safety, etc. Unrestrained capitalism isn't so great for the workers. It leads to sweatshop conditions we see in other countries.
I hate to use a No True Scottsman argument, but that's not True Capitalism. That's why they use the term "crony capitalism".
Capitalism derives from the right to own and use property, and the right of free association with others. Nothing more is needed.
Insofar as people whine to government for money (or regulation, often to harm competitors) and so on, it is not One True Capitalism.
These things involve using force to get an economic advantage, rather than producing a product that free people choose to buy, which is the glistening city on the hill everybody imagines.
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
Aye, a horrible system, but the best we have. Under certain conditions it works great.
And that condition is a free market. One with rational informed agents.
But guess what late-stage capitalism looks like? Feudalism. Someone starts to WIN. They own their turf and dictate what happens there. When there's just one guy in a market who bought out everyone else, that's a monopoly. The market is no longer free. It's owned. Sometimes bigger fish try to invade and take over their markets, and everything gets ugly. Now, since monopolies have been an obvious problem, they don't do that anymore. A group decides they're going to kinda-sorta compete and pay lip service the free market because otherwise uncle Sherman whips out his trust busting hammer. But if any of them get rich enough and/or powerful enough you're looking at regulatory capture.
But hey, where there's competition, low barrier to entry, a lack of natural monopolies, and moderately sane customers... yeah capitalism is great.
For everything else, there's regulation. To varying degrees.
Capitalism is generally viewed as an owner or investor introducing CAPITAL to produce a product or service, generally called a business. The investor can be the government or a private entity. This is a rather perfect example of capitalism. In fact it is still a form of mixed market "free capitalism" most of the modern world commences in. The issue was the business plan wasn't sound. It made no difference where the money came from.
This is an instance of /.'s poor understanding of economics clouding their ability to understand the lesson and trying to make it a case study on government investment.
Don't say sweatshop! The Libertarians have Youtube videos for everything, including one where a libertarian lectures us dirty statists on how wonderful it is to have the opportunity to work in a sweatshop.
No, that is not a free market at all. That's an extremely well-regulated market. Think of the term "free" as anarchistic in that anything goes barring violence and perhaps that as well. Free markets can't exist because people will go one of two ways, cheat to raise their own profits as an individual or use a trust-like syndicate to protect their interests against consumers. The race to the bottom in prices almost never occurs because the boom-bust cycle eventually plays out to a few huge players who inevitably dominate the market. It happened in trains, steel, the agricultural world, and even consumer electronics.
Regulations when used correctly create a more competitive playing field. There are those who argue the opposite but they base ir on unbending human greed which is a bad argumentative stance as it is a volatile subjective ideal.
The EPA has helped the smog levels in a lot of cities. They saved the bald eagle. And while I still wouldn't drink it straight, the Cuyahoga river isn't going to be set on fire again any time soon.
I think it's important to note that Schilling has always come out (publicly at least) against public money. He's a classic anti-big-government, pro-free market guy.
"Schilling spent no small amount of time in his career preaching the Republican mantra of smaller government and personal responsibility. He did this fresh off the historic Red Sox World Series win when he backed George W. Bush in the 2004 campaign. He did it on the stump on behalf of John McCain in 2008.
He did it for Scott Brown in January 2010, when he wrote in his blog, “He’s for smaller government,’’ and lauding Brown’s opposition to “creating a new government insurance program.’’
http://www.bostonglobe.com/metro/2012/05/18/late-inning-curve-ball/ANKpzy1g9rtaDboIciP56K/story.html
I like this part:
"Apparently smaller government, in Schilling’s world, applies to other people, maybe city kids stuck in underperforming schools or disabled adults looking for help back and forth to medical appointments. But for a former six-time Major League Baseball All-Star pitcher whose business venture can create jobs (!), bask in the greatness, people, and open the public vault."
I'm not against capitalism, but his hypocrisy is mind blowing.
"Solyndra got their loans under Pres Bush and a republican house."
Bullshit. The program that Solyndra got there money was started under Bush in 2005 but the credit committee voted against the loans on Jan 9 2009, before Obama took office. The Obama admin reversed this and granted the loans.
This is what the parent poster is talking about, the picture isn't being missed. In theory, capitalism utilizes self-interested parties to direct scarce economic resources towards their most productive uses.
However, in practice, self-interested parties use any means available to get ahead, and that means if they can pull in government money to back their risky investment instead of having to get others to front their money, they'll do it.
In reality, economics, politics, and society are inseparably inter-linked. Changes to any one of these factors means changes in the others. Capitalism is useful as an economic theory for debate, but the undesirable side effects that pure capitalism has in practice means that society gets pissed off by the fallout, and invokes politics to restrain unbridled capitalism's effects. Pure free market capitalism isn't really used anywhere in the world because reality naturally invokes society and politics to bring the system to find an equilibrium, thus we find ourselves with the many different implementations in different countries and markets.
Excess government waste also pisses off society, and politics gets used to cut back on the policies that led to such waste. It's not a foolproof system, but you can be sure that the current local government officials are not in a hurry to fund another 38 studios given the recent backlash. They will abstain for the time being until public outcry dies down a bit.
TL;DR, parent poster is indeed getting the big picture, capitalism naturally manifests as crony capitalism in the real world. They're inseparable.
A specious claim; there are no sources to back your claim. Regulations exist to (a) so the people in charge get their cut, and (b) fix the problems caused by previous regulations while maintaining (a).
A real free market would not cause the problems that governments purport to solve. Read up on AT&T's history for an example. There were hundreds of independent phone operators around the country, all getting along in spite of having different hardware standards and different protocols. All their differences were the usual sort to be expected from a new technology, and were being worked out peaceably with interface equipment, gradual standardization, and direct company-to-company agreements.
AT&T did it differently. They bullied smaller operators, isolated them, refused to cooperate, and it was a race between world domination and lawsuits. When the lawsuits appeared to be winning, AT&T begged the government to rescue them, using the excuse that they were too big to fail, too important, and needed to be regulated as a national public utility.
Occupational licensing began during the late 1800s as a way for existing providers to keep newcomers out. Do you know that licenses to cut hair or do nails generally require 500-2000 hours of schooling, while EMT requires less than 100? That's probably because anybody can actually learn to cut hair or do nails so quickly that there would be no barrier to entry if it weren't for the ridiculous artificial entry requirements.
Almost everywhere, taxis are regulated to a fair-thee-well, where the guiding goal is keeping taxi companies happy by keeping the number low. I could understand requiring taxi drivers to have decent training, a good driving record, and specific levels of insurance, but that should be the end of it. Anyone who could meet those requirements should be able to slap a magnetic sign on their car and give rides, at whatever price they and the passengers could agree on. The new smart phone apps which call taxis shouldn't have to jump thru hoops and go out of their ay to not look like taxis. Once again regulations to freeze the status quo for the benefit of a few have made life worse for most everybody.
Both these and countless other cases are classic examples of how not to help the poor. These are tremendous opportunities for poor people; cut hair on a door step or in a living room to earn a few books, and open a shop once you get busy enough -- but not if you have to go to school full time for a year first. Pick up a few rides on your way home from work when the commute hour needs it most, or on weekends when airport traffic could use the help -- but only if you pay a fortune (one million dollars in NYC) for the permit of an existing taxi driver.
That's what cronyism is. To call it capitalism or laissez-faire is ignorance so pathetic as to be comedy gold.
Infuriate left and right
Solyndra was not only in an industry with a lot of competition, solar cells is an industry considerably older, more stable, and better understood than video games. FWIW, one of the reasons Solyndra failed is inferior technology (according to Rogers of Cypress Semiconductor).
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Selectively portraying only (R) ...
shut the fuck up.
"They were pure niggers." – Noam Chomsky
Yes it is. OECD lists US government spending as around 40% of GDP:
http://tinyurl.com/ad6r4nw
So does Wikipedia:
http://en.wikipedia.org/wiki/Government_spending
I pointed you to an article on fiscal multipliers; it provides both general ranges across all policies and specific values. If you want a nice discussion of aggregate impact of fiscal multipliers, look here:
http://www.voxeu.org/article/determining-size-fiscal-multiplier
Note that even in the best of cases, that rises only to about 1.6.
Here is a good discussion in the context of US policy:
http://online.wsj.com/article/SB123258618204604599.html
You've provided no data to support your ludicrously implausible claims. I think it's clear you don't really know what you're talking about.
No, I don't know what EPA regulation I'd break with a lemonade stand. But unless you point it out, I'm going to guess none.
If you CAN'T point out the exact line of regulation and link to a source I can verify (You know a real one, not some talking head blog), then you're just making shit up and fear-mongering. Because you FEEL like the EPA is over-regulating and you've heard other people bitch about the EPA and lemonade stands.
And you know what? There probably ARE a lot of bad little things that the EPA is simply a dick about. Things like an overly picky method of... hell if I know, straining poop or something, which was enacted entirely because dickass company X was being squirrely and the EPA brought out the hammer to fix it. Things like that need to be fixed. But to say that the EPA is a net negative? That we should simply get rid of it? Naw dude. No, I'd prefer to be able to breath in my city.
A system has to be absolutely horrific before tearing it down is a better idea than fixing it.