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Here's Why Co-Development Is Better Than Outsourcing

Lav Games Art Director Vuk Banovic talked about their company, touched upon the original IPs they're developing, and explained why co-development is better than outsourcing. 

Recently, Vuk Banovic, Art Director at Lav Games, a development and art outsourcing studio specializing in environment art for video games, has joined us to tell us more about the company, its ongoing projects, and co-development as an efficient approach focused on fostering closer collaboration and long-term client relationships.

First of all, we asked Banovic to share with us their current projects and provide more information about the games they are developing.

"Currently, we're working on two original IPs. One is in partnership with our partner studio from Norway, Rock Pocket Games. We're planning to release our first game in late fall. Additionally, we're also working on a UEFN project, which is our own IP, and we're aiming to release that before Somber Echoes – the Metroidvania project in partnership that I just mentioned.

Other than that, about 50 to 60% of our team is focused on developing our own IPs, while around 40% is engaged in outsourcing or work-for-hire projects. Primarily, we're shifting our focus toward co-development rather than just producing batches of assets like props. We currently have two major projects at the studio. One, unfortunately, is more focused on props due to the current challenging market conditions. However, we're also working on a project at a smaller scale than what we're used to because, as you're aware, the current situation isn't ideal for co-development, and there aren't many contracts available for massive outsourcing of assets and such. In summary, we have a team of 18 Senior Artists, each with an average of nine years of experience."

Co-development is an approach that focuses on nurturing close collaboration and building long-lasting client relationships. Unlike traditional outsourcing, which typically involves completing tasks and ending the interaction, co-development emphasizes ongoing engagement and partnership with clients.

So, the next question on our list was to find out more about the co-development aspects and why it's considered to be better than outsourcing.

"Co-development allows us to have some level of ownership over the project. It often includes art direction as well, so we can deliver a full package, such as an entire level or complete environment art, which involves a variety of skills different from those required for producing batches of assets. Our team, or several members of it, need to be proficient in world-building, lighting, optimization, VFX, and so on. It's a more comprehensive package. It's more sustainable in the long term and easier to manage than handling batches of props because you need several batches to keep multiple artists busy. Often, these involve multiple contracts that require extensive management for tracking and coordination, making it much more challenging for smaller teams like ours compared to engaging in co-development."

Co-development and outsourcing also differ in terms of relationships and their dynamics.

"Essentially, the relationship dynamics between the studios are similar; however, the structures of the contracts differ. For co-development, you usually have milestones, and you're paid per milestone. In contrast, for asset production, you're paid per completed asset. This requires a lot more communication because building an entire level involves weekly feedback cycles, whereas working on batches of assets requires daily check-ins to ensure everything aligns with the art direction. These are two distinctly different approaches and business models."

When you're involved in the process of co-development, you retain some ownership of the game. Sometimes, you also share profits with partners but "only for the games that we are self-funding. Basically, for projects that we build and invest in until a publisher picks them up – those are ideal opportunities for profit sharing."

"I believe creative ownership is important for everyone because it reduces the number of iterations required. Sure, we can work with strict mood boards or precise guidelines, but it's much smoother when there's room for creativity. Most of our team members are artists, and artists thrive on being creative – it's much more satisfying for them to have the freedom to be creative rather than having to follow precise instructions strictly. On a larger scale, it allows us to set the mood boards and the overall look and feel of the project, which involves more work but is also more rewarding for a creative team."

Earlier, Banovic mentioned that they are developing their own original IPs and outsourcing some tasks to other companies. So, we're curious to know the reasons behind their decision.

"We specialize in environmental art and can handle anything related to environmental architecture. However, we're not coders – while we have technical artists, they don't do coding. For that, we either look for help in the outsourcing market or partner up, as we did with the code-exclusive team for our first game. So, we don't do coding, animation, or character art ourselves; those are the areas we typically outsource or handle through partnerships with other studios who specialize in those areas."

You may wonder why they outsource these components instead of hiring someone in-house and becoming a full-scale game studio, so here's what Banovic told us.

"That's a good question. Primarily, it's about finding the ideal talent and building departments from scratch, which usually takes years. It's not something you can achieve within a few months or even a single year. A coding department alone, which includes specialized areas like gameplay tools and AI, requires a range of expertise. Assembling a group of people that can gel into a productive team is quite challenging. Plus, it's easier to manage when you work with a team that has proven skills, communication, and reliability, whether through outsourcing or partnerships, rather than building such a team from the ground up. We're open to the idea, but we're just not there yet."

The next question we were curious about was whether it is common for all outsourcing companies to aspire to become full-cycle development teams, or if it is Lav Games' specific goal.

"I see many studios heading in that direction, although I can't speak for all of them. For us, the original plan was always to be a full-cycle development studio rather than just having a few specialized departments. But it's not easy. Often, studios that offer full-cycle services might excel in one area, like coding, but not in others, like art. It's usually a risk if they are not specialized. For us, our strength is in environmental art, and that's what we're pushing as our main skill set."

Well, we've already discussed various benefits that come out of the co-development process. However, we all know that challenges are always part of the deal.

"One major challenge is whether the studio you are in a co-development agreement with is prepared for such a partnership. We've had experiences where studios were doing it for the first time and lacked resources like an External Outsourcing Manager, a Producer, or an Art Director. Their teams were spread too thin, which slowed everything down, and could not keep up with our output pace. This often leads to daily blockers, because we must wait for approval before moving forward, impacting the delivery timeframe.

Usually, it's the studios that need to expand quickly and don't have sufficient management capacity who face these issues. Large studios like Microsoft might have the necessary personnel easily available, but smaller studios, especially those with around 30-40 people, might struggle when they onboard another studio of similar size. It often takes time to smooth out these transitions, and the longer it takes, the more it impacts the production of the project."

Sometimes, it may occur that there are two requests at the same price, but you need to select only one project. To address this issue, the company evaluates a list of factors to determine which project to prioritize over the other.

"First of all, we would love to be in that situation in 2024. We've faced similar decisions a couple of years ago. Typically, we consider several factors. Communication transparency and flow before signing the contract are crucial because these aspects significantly affect our collaboration once the project starts. So, it's primarily about the people we work with and, of course, the type of project. Is it something within our comfort zone? Are there any potential skill gaps that we need to fill to deliver what's required? The overall scope of the project is also a factor – will the project last a year, or is it expected to extend over two or three years? What phase is the project in? Are we stepping in to fix issues after failures from their previous team, or are we developing something from scratch? These are all critical questions. But the most important factors are likely the quality of communication and our gut feeling about the potential collaboration and whether it could negatively impact any party involved."

Discussing the process of acquiring clients, before the restructuring of the industry, Vuk and his team found it relatively easy, it happened mostly through word of mouth. Satisfied clients would recommend them for additional projects, creating a chain of referrals.

While events like Gamescom and Reboot are helpful starting points, word of mouth has been their primary method. Vuk believes they have never accepted a project that wasn't referred to them through recommendations.

"There's not a single company that hasn't gone through some form of restructuring, whether it's budget cuts or layoffs, in the last six months to a year. This has significantly affected all business types, including companies like ours. External development partners are usually the first to feel the impact because companies tend to cut these external ties first before moving on to internal layoffs. It's a tough time, and I don't know of any studio that hasn't had to lay off at least 10 to 30% of their people, which is very unfortunate.

It directly affects game studios, especially for co-development. If a project is put on hold or canceled, it impacts everyone, but the outsourcing partners are usually the first to be cut off."

It's no secret that AI has become a sensitive topic these days. During our last interview, another studio mentioned that a game developer had them sign a contract prohibiting the use of AI. We then asked Vuk to elaborate on their stance regarding AI usage.

"Some companies are very vocal about not using AI, while others are more flexible. Our stance is that as long as it's used as a tool – for instance, for quick drafting or first drafts of concept art, and not for generative AI purposes – it's acceptable if the client allows it. It's a sensitive topic, but as long as it helps and doesn't replace human input, we see it as beneficial. However, this needs to be heavily regulated. Ultimately, our use of AI depends on the client's wishes. If they prefer not to use AI, we respect that choice. If we were in a position to be more selective, we would likely decline projects that heavily rely on generative AI.

Intellectual property is a crucial issue. Big companies that built their success on creating tools are now developing tools that could replace those same people, which is really unfortunate."

The final question we consistently pose to experts in the outsourcing and co-development industries is about the upcoming trends and forecasts for 2024. So, here's what Vuk shared with us.

"It depends on the day you ask me, but generally, I don't think next year will be much different from this one. With everything happening, like the Embracer Group's recent activities and studios being bought out, there have been serious layoffs, but they've retained all the IPs. These IPs will need to be worked on eventually, which might benefit the outsourcing and co-development business, but I don't see it happening next year. The full cycle of recovery and getting those projects up and running isn't likely to be completed by next year. It'll probably be the year after next when things start to improve. Next year might be slightly better than this one, simply because all the layoffs and restructuring need to cycle through, which typically takes a year.

Our plan is to ensure the IPs we are developing are successful enough to at least return their investment. We're going to focus more on that rather than on low-paid co-development agreements, hoping to find ones that are a good match for us."

Vuk Banovic, Art Director at Lav Games

Interview conducted by 80 Level Research Team

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