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22E25000 Accounting for Management Controls
Management Control Systems in Game Industry
Introduction
One of the most rapidly growing industries of the past ten years, the gaming industry is
comprised of companies developing games for all virtual platforms. The industry is not done
growing - just last year it was forecasted to generate over 35 billion dollars of revenue in
2016, a 20% increase from the figure of 2015. The rapid growth of the gaming industry is
linked to a number of factors such as the growing number of smartphone users and
digitalization. In the future, virtual reality will be a strong driver of growth for the gaming
industry. As an employer, the gaming industry is not hugely influential on a world-scale, as it
is estimated to employ only thousands worldwide.
In this term paper we are trying to understand the use of management control systems in the
game industry. The paper will begin by reviewing decisive features of the gaming industry
that will have implications on the types of management systems that can be effectively used.
Two important notions that arise are the notions that gaming industry parades characteristics
of a creative and a superstar economy. After an introduction of the features and their
implications the paper will progress to bring focus on the relevant management control
systems that can be applied in the gaming industry. We thus represent a balanced scorecard
and key metrics for implementing management control.
Development of the Gaming Industry and Trends
The gaming industry is relatively new as playing video games did not reach mainstream
popularity until the 1970s and 1980s. Due to its inherent link with technology and
technological development, the games industry continues to be shaped by these advances.
Technological development driven trends have a significant effect on the gaming industry
dynamics. Upon first emerging, the industry’s business model was simple: companies
manufactured devices and others designed games compatible with them. The source of
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revenue was the customers, or the players of the games who spent significant amounts of
money on new editions of video games annually.
With the growing market of smartphone users (estimated to be 2 billion by end of 2016), the
way the gaming industry works began to change. New companies designing games
exclusively for smartphone and tablet supported platforms emerged. The games for these
platforms tend to be substantially lighter than the traditional video games - and the barriers of
entry became attractively low resulting in an influx of new companies eager to grab a share of
the market. A new business model emerged where the players were no longer the customers
but rather a part of the product offering of the gaming industry companies, and the customers
were the advertising companies looking to maximize their audience.
Industry Characteristics
Creative industry
A definition offered by Higgs et al. (2008) describes the creative industries as ones
acknowledging individual creativity, skill, and talent as potential vehicles for wealth and job
creation by generating and exploiting these intellectual properties. The creative industries
entail many sub-industries ranging from age-old fine arts and literature, to much more
recently developed industries based on technological developments such as graphical design,
software development, and video gaming. The more recently budded industries have
experienced momentous growth due to realization of their potential to drive growth and
contribute to GDP by themselves as well as in combination to aid
traditional industries such as manufacturing (Reid et al. 2010).
The characteristics of creative industries exhibited by the video gaming industry are relevant
to identify as they differentiate the industry from others, creating management control
implementation challenges that depart from the challenges of other sectors. As one common
and obvious characteristic of the industries is their dependence on innovation and of
businesses the generation of profit, Wu and Wu (2016) identify the underlying challenge of
the creative industries as the strive to strike a balance between economic efficiency and
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continuous innovation, two forces that often clash. While a good starting point to begin to
understand the problematic set-up, the characteristics need additional explanation and one
must return to the definitions of the creative industry features offered by Caves (2000):
1.
Demand uncertainty
For one, there is significant demand uncertainty in the creative industries, because
reactions to a finished product are difficult to predict beforehand as well as to explain
afterwards due to multiple factors such as individual taste, joint consumption and
others. The demand uncertainty may thus result in difficulties regarding budgeting
functions.
2.
Industry actors’ respect for originality, technical prowess, harmony
The people finding employment in the creative industries tend to carry distinct
sources of motivation towards their work than, for example, in manufacturing
industries, where motivation is external and tied to financial stability. The creative
industry employees tend to be intrinsically motivated, as they view their line of work
as an art where originality, technical prowess, and harmony is of ultimate value.
Designing incentive systems and compensation schemes for intrinsically motivated
workers is challenging, as wrong type of incentives may reduce the intrinsic
motivation and have results that decrease the perceived quality of a product (Frey,
1999). In a speech given by Holmstrom (2016), the economics researches concerned
with incentives states rewarding workers with monetary compensation may be
unnecessary and ineffective, as their motivation stems from other factors. Logically
this would hold true for the creative industries. Due to the nature of creative work, an
important characteristic for companies in these industries to take notice of is that
employees in the industry often exhibit characteristics more in line with those of
entrepreneurs than employees. For one, they have a much higher tolerance for risk
and uncertainty - changing the way an incentive/rewarding system might be designed
(if at all) for a creative industry company. Moreover, most of the employees will have
intrinsic rather than external motivation to do their work, and therefore control
systems most likely do not work in similar ways as in firms where the motivation
comes largely from the monetary rewards and financial stability that the job provides.
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3.
Diversely skilled inputs
The production of creative industries is such that it may require diversely skilled
inputs. Each skilled input needs to perform at least on a minimal level in order to be
able to contribute to the final product. For the gaming industry, these diverse skills
may include design, writing code, concept design, marketing, and finance. This
requires different talents and functions to work inside a firm, thus it is not given that
even inside a small company the individuals would do similar work. The ability to
attract talented enough employees to perform all functions may provide challenging.
4.
Products differentiated by quality and uniqueness
Creative industries products are valued by their technical quality, making the industry
a heavily knowledge based one, as well as the comparative uniqueness. Because
uniqueness is so valued, little control will be able to be implemented through
standardization of product, and likely not by work either as different styles of work
will lead to unique outcomes.
5.
Vertically differentiated skills
The amount of talent is measurable to an extent, and small variance in talent can lead
to significant variability in success. The characteristic and its implications are further
discussed under “Superstar Industries”.
6.
Time is of essence
The creative industries product development and creation is a timely process, and
once underway it is critical for it to be complete within a certain frame in order for the
final product to still be relevant when introduced to the markets. The principle holds
true for video games: a new game built on an emerging trend will only be interesting
as long as it is published when the game’s features are still considered novel and
interesting. Constant monitoring of the environment and fast reaction time to trends
and changes are essential for the gaming industry companies, but while enabling
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success they create challenges for budgeting activities and for building tools like the
annual clock.
7.
Durability aspects requiring copyright protection
Once a product has been created in the creative industries, it is easy to duplicate and
copy it, and thus the products require copyright protection.
While not introduced by Caves (2000) as a framework to study the implications the
characteristics will have on management control, the characteristics can be used to build on
an understanding of the obstacles one may face in managing a creative industry company.
Due to the peculiar characteristics of creative industries, it makes logical sense managers
have begun to see creative industries as hubs for innovative management control methods
(Lampel, Germain, 2016), as managers recognize the different characteristics make it difficult
to implement traditional control mechanisms.
Superstar Industry
The gaming industry exhibits characteristics of a superstar industry – an industry where a
small number of enterprises are able to earn huge profits compared to the profits earned by
other industry players. While an all-encompassing explanation to why some companies earn
more than others is to sell more is to earn more, the superstar economics research is not
interested on the quantity of sales but the ability to create a demand for such a vast quantity.
The curious aspect of a superstar industry is that a small difference, for example 5% more
talent, becomes magnified in differences in earnings, especially when approaching the very
best of the field. While the factors for success in the gaming industry have been identified, no
research exists to explicitly distinguish the differentiating factors between a superstar
company and another one in the industry.
To characterize an industry as belonging to the superstar category, two conditions must be
fulfilled: a close connection between personal reward and the size of one’s own market and a
strong tendency for both market size and reward to be skewed towards the most talented
operators.
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The gaming industry satisfies the first condition when exchanging “personal” to a company,
as most gaming companies tend to be quite small in size. Deloitte (2013) estimated a video
games industry company generating a million dollars in annual revenue to be able to
profitably employ 15 people, therefore a company gain is very close to being personal. As the
revenue increases, company profit and individual rewards increase as well due to the cost
structure of the industry. In simpler words, companies see a direct link between increasing
market size and profitability. The second condition of market size and reward to be skewed
towards the most talented operators is fulfilled to an extent. The more profitable companies
are able to attract and employ the best video game designers, because less successful ones
simply do not have the cash for it. It’s a rather circular condition that reinforces itself. An
evidence of this is that out of the thousands of video game companies in the industry, only
around 200 are earning more than 1 million dollars in revenue in 2016 of a total of 35 billion
dollars of total revenue for the industry.
The more traditional superstar industries include the fine arts market and entertainers such as
singers. The video gaming industry perhaps does not exhibit such a skew as these industries,
but is something of resemblance. The underlying and important conception however is, that
only a fraction of the operators will become wildly successful and the differences in success
are not necessarily in line or in the right proportion with the differences in talent. The
industry depends on large amounts of operators willing to take risks with the hopes of
belonging to the group that makes it, and as this paper attempts to identify successful
management control methods, considering these characteristics and their effects on the
company’s goals and management style are of importance.
MANAGEMENT CONTROL SYSTEMS, BALANCED SCORECARD and
CONTROL METRICS
Management control systems, MCSs, refer to the devices managers use to ensure the
behaviors and decisions of their employees are consistent with the organisations objectives
and strategies. The paper will discuss the most common methods of managerial control: the
balanced scorecard.
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Balanced Scorecard for Game Industry
A company in the game industry faces the challenges of a technology company as well as a
creative industry one. Challenges inherent for technological companies include shrinking
product cycles, attracting and recruiting talent, retaining and rewarding the talent, making and
communicating critical product development decisions, tracking the evolution of customer
feature demands and use models. On the other hand, a challenge for a creative industry
company comes in the form of finding a way to reward the talent that does not decrease the
internal motivation and creativity of the employee towards their work (Frey, 1999). A
balanced scorecard used as a framework for strategic planning and management allows a
company to deal with these and other relevant issues while creating value for customers and
stakeholders. Good scorecard systems will focus on a few critical performance measures that
provide real business intelligence and contribute to the achievement of operational
excellence, employee excellence, and business success. But more importantly, these systems
focus on the elements of strategy that can be made actionable.
The logic of building a scorecard system and using the system as the organization’s strategic
planning and management framework starts with an understanding of the organization’s
customers and stakeholders, and their needs. The management team then develops and
validates the strategic components of the management system. While no research has been
found that explicitly describes an appropriate balanced scorecard for the gaming industry, this
paper will draw on research about BSC for technological enterprises as well as on
considerations based on the industry characteristics described earlier in order to suggest what
these scorecards might include.
Financial perspective - The pressure to be financially profitable is as inherent to a gaming
industry company as to a company operating in any other industry. The profitability depends
on a company’s ability to combine exploitative activities with exploratory ones. To counter
the challenge, companies often find a solution in alternating or developing simultaneously
highly innovative games and less innovative ones that will bring in steady, however low
revenue (Tschang, 2007). Different companies in the gaming industry have different business
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models, and in developing financial objectives and measures the company will need to
differentiate between whether its revenue comes directly from players or from advertisers.
Customer perspective - Technology customers tend to expect, and in some cases demand,
continuous improvement in the products/services they purchase. A technology customer
typically will consider an upgrade or enhancement over a replacement, even if these upgrades
come at a cost. The same way in game industry, the customers expect continuous
improvement. In technology businesses as well as in game companies, interaction and
participation in the marketplace is the primary source of information regarding what the next
set of product/service requirements might be.
Internal Business Processes Perspective - For a technology company to continuously lead in
its market segment, it needs to maintain strength in the technologies that enable new
capabilities. The most crucial decisions a technology company management team makes are
what projects to invest in and the level to invest. Technology company personnel
continuously characterize situations as “resource limited” when in reality resource limitation
is inevitable. It’s participation in the debate and communication of the result that enables
alignment. And it is strategically important to have the ground rules for the debate, the
decision, and the communication of the result. Technology companies can often benefit from
improvements in the management of the phases of their products. A product life cycle
describes the discrete steps or phases of a product or service from its conception to its
end-of-life. Typically, a few critical results at each phase can drive the decision as to whether
a project should continue or not. Defining these phases and the critical deliverables of each
phase enables consistent, coherent decisions on what programs are being invested in, and
why.
Learning and growth perspective - Continuous recruiting and hiring practices to get the “best
people on the bus” can be pivotal to increasing capacity. Often times the innovation can come
from an unsuspected part of the organization. Much of the technology company’s challenge
lies in speed of execution. Important then is clear definition of goals, priorities, the
breakdown of the steps and tasks to reach the goal, and what deliverables result. By
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increasing the project management skill level of the entire organization, a project
management approach becomes a standard practice for collaboration and communication.
The classical “organization chart” fails the technology as well as in a game company.
Top-down empowerment will slow progress and risk falling off the pace of marketplace
leadership. Empowered, cross-functional teams can use their diverse perspective to bring
recommendations of innovative paths to management for sanctioning and funding.
Management is required to keep pace with their teams by participating in the collaborative
processes that move the team forward. Continuous participation of the business decision
makers reduces the dependence on business case proposals and presentations for
communication, and focuses those sessions on decision making, speeding progress.
Collaboration tools such as portable PCs, PDAs, desktop sharing, work product repositories
such as wikis and web portals, and network connectivity/performance/ bandwidth become
infrastructure necessities. Training and knowhow to develop and drive the definition and
adoption of consistent collaboration processes must become a strategic mandate.
Collaboration teams need to cross geographies and time-zones to fully deploy the talent and
knowhow the task requires. The prior barriers of location and work hours need to give way to
continuous collaborative progress.
When choosing metrics, there are hundreds of numbers to track. On one hand there are
numbers that are relatively straightforward and measure concrete actions like the number of
daily users or number of downloads. On the other hand there are more complicated metrics to
follow like the number of average revenue per paying user. According to Trevor McCalmont
(2015) while there is no one-size-fits-all policy for game analytics, there are some useful
metrics that can help the management of a game company. Knowing the simple metrics are a
crucial starting point for the analysis. Daily active users and the number of sessions of these
users can give the information to the game company about how engaged the users are to the
game. The ratio of daily active users to monthly active users shows how well an app retains
users. McCalmont points out that in a free-to-play game the most important metric is
retention. These mentioned metrics focus on measuring the relationship with the users but the
most important metric for game developers is that whether their game is making enough
money. This can be measured by the average revenue per daily active user. Beyond
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understanding user engagement, retention and monetization, it is important to measure and
balance the game economy. If it is too easy to earn virtual currency, users have no reason to
monetize but users still need enough currency to enjoy and explore the game. Before
measuring changes the game developer needs to understand how the users behave. (Trevor
McCalmont, 2015)​.
KPMG carried out a survey that give statistics about the metrics that are used in software and
service IT industry. In terms of company size, the largest companies had an average of 410
key controls, followed by large companies 382 and mid-sized companies 333. The smallest
companies had an average of 187 key controls. (2011)
(KPMG, 2011)
It noticeable that automated controls are increasing as companies are trying to meet the tight
requirements in flat budgets that are introduced later.
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FINANCIAL RESULTS BASED CONTROLS
Financial management contain acquisition, financing, asset management that suit the game
plan. Therefore, the decisions are made around investments, financing and asset management.
(Van Horne & Wachowicz, 2005, USA) Game industry rely on innovative games that have
short life cycle. Digital trends are changing constantly and game industry have to stay in
tempo with the future. Activision Blizzard pointed these aspects out as unstable conditions
that need to be managed and answered (2015). Thus, limitations on innovations might be
crucial, since this creative field requires innovations in order for a company to succeed.
KPMG carried out a survey about financial controls among technology companies, more
detailed, software companies that can be compared to the gaming industry.
● The average percentage of automated key controls is 27 percent, and 73 percent for
manual controls.
● The average number of key controls in the software and services industry was 262.
Share of financial controls:
(KPMG, 2011)
Computer Economics made a survey about budgeting in the IT sector with following key
findings: Spending is changing, especially in flat capital budgets and in budgets for new
initiatives that indicate a shift towards the cloud that promise to provide long term growth
and increasing value from IT. IT spending has been descending significantly from the past
years 2012-2014. Increases in budgets is hitting the rock bottom and the increase in IT
operational budgets follow the same path, despite estimates of growing trends. Business
leaders, however, see the future in IT and are investing in in security, cloud, networking,
business intelligence, and mobile applications. Nevertheless, the squeeze in budgets has led
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to companies not being able to meet the needs and requirements the industry demands.
Capital spending hasn’t been rising, but the outlook is that companies invest in talent
increasingly. (2016)
World’s leading game companies inform about their ​investments ​and financial decision with
following phrases:
“Investing in and innovating around our core communications and social platforms,
especially in areas such as group messaging and video-format content” (Tencent, 2015).
“Investing in equity stakes in leading companies in related Internet verticals, such as Internet
Plus Holdings, to provide best-in-class services to our users” (Tencent, 2015).
“We will take a low-risk, low-investment approach to development and production and focus
on deeply engaging current fans and attracting new audiences. This small team is led by big
talents: a two-time Academy Award-nominated producer, Stacey Sher, and a senior executive
of many years at The Walt Disney Company, Nick van Dyk” (Activision Blizzard ltd, 2015).
These two major players in the game industry are mainly investing in smaller companies and
growing their own business by integrating new fields into the operation. Game industry
companies follow the trends and investment decisions are made based on already existing
companies earnings and technology requirements in the industry. (Activision Blizzard, 2015)
In addition ,these investments contain projects that are budgeted beforehands, as seen in
Tencent’s new investment in game movies. (Bloomberg)
Financing
Financing costs and risks are decomposed in credit risk, interest rate risks and liquidity risks.
In addition, the annual statements point out capital risk management. Tencent describes their
liquidity risk as follows: “The Group aims to maintain sufficient cash and cash equivalents
and marketable securities. Due to the dynamic nature of the underlying businesses, the Group
maintains flexibility in funding by maintaining adequate cash and cash equivalents” (Tencent,
2015). However, for younger and smaller companies these liquidity risk managements
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methods are not as easy, since cash and cash equivalent reserves might not be sufficient. In
addition, there are different financing options for listed and unlisted companies.
Assets
“Capital referred to the equity and external debts (including borrowings and notes payable).
In order to maintain or adjust the capital structure, the Group may adjust the amount of
dividends paid to shareholders, return capital to shareholders, issue new shares, repurchase
the Company’s shares or raise/repay debts” (Tencent, 2015).
Tencent does not provide any methods of capital risk assessment, but the report explains the
direction that the company is going in adjusting the capital structure. Activision Blizzard only
talks about capital allocation shallowly to be smartly done in a way that shareholders value is
not diluted and low risk investments will keep the capital structure in balance.
Based on the annual reports, the financial controls that the companies utilize limiting the risks
of credit, liquidity and capital. Budgets are made for certain projects, but annual forecasting
did not pop up in their operations. Financial controls ensure that the companies can steadily
maintain their liquidity and minimize financing costs in the changing international markets.
Excluding the liquidity risk, the other risks come from the international supply of the games
that bring uncertainties with characteristics of the changing economics of the world.
Investment decisions are made based on the technological requirements and trends. New
successful entries are also often acquired by the bigger corporations that contain multiple
game houses from around the world, as Tencent’s acquisitions reflect. Finally, financial
controls in game industry ensure future cash flows with minimizing expenses, while
shareholder value is maximized.
VALUE BASED MANAGEMENT & REWARD AND COMPENSATION SYSTEMS
“We account for stock-based compensation in accordance with ASC Topic 718-10,
Compensation-Stock Compensation, and ASC Subtopic 505-50, Equity-Based Payments to
Non-Employees.” (Activision Blizzard, 2015)
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“The Group has granted share options to its employees” (Tencent, 2015).
Management must set objectives of maximizing shareholder wealth. Efficiency maximization
is also management’s objective and investments are allocated to the most productive
opportunities leading to growth of that company and sector. (Van Horne & Wachowicz,
2005, USA) Value based management will point out inefficiencies and together with
compensation models will ensure that the management and the organization is having the
same objectives. In gaming industry, fast growing start ups are ensuring steady cash flows for
the future, while bigger players deal with the uncertainties that the industry brings and ensure
wealth maximization for the shareholders. Since the industry relies on new investments due
to the short life cycle of games, capital allocation is playing a big role in opportunities to gain
growth. Technology have opened new investment opportunities during the rise of mobile
game industry and other interactive entertainment possibilities, e.g. virtual reality. (Activision
Blizzard, 2015)
While the focus is on maximizing shareholder wealth, result based compensation is playing a
big role in gaming industry. The salary is divided between base salary and many other
incentives; annual bonuses, project title/bonus, royalties, stock options/equity profit sharing,
pension/employer contribution. Gaming industry’s salaries vary from $54,000 to $95,000 on
average among the employees. However, the management enjoys over $101,000 on average
with other incentives. More importantly, the incentives based on the bottom line (results) play
a big role in gaming industry. The percentage of employees receiving additional income on
top of the base salary is around 77% among programmers, artists, and designers. Around 83%
of the producers and audio professionals receive additional income, while the number in
management lie in 80%. (Gamasutra, 2014)
The salary survey points out the deviation between the incentive models that the management
receives based on their performance as seen in the chart from Gamasutra (2014). 80%
receiving benefits cover majority, however, still surprising, since the number could be
expected to be closer to a 100%. In addition, only half of the sample are receiving annual
bonuses that can be linked to performance. However, the project title/bonus can be included
in annual bonuses, since it is project based bonus that could be a part of your annual work
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tasks. To minimize the conflict of interest,
there can be seen multiple different
compensation models that are used to
ensure the maximization of the
shareholders. Business and management
people receiving stock options and their
share of profits will reward them to not
only boost up their own project or team,
but take care of the overall health of the
company. With the mixture of the
compensation model the company can
affect the behavior of the compensated individual to act towards a certain direction, whether
it is to limit or encourage to take risks, for instance (Wowak & Hambrick, 2008). However,
personal characteristics of the compensated individual determine the reflection to the
compensation model, as weak self confidence would turn down a performance based
expectations. Therefore, the characteristics of the people in the gaming industry determine,
what types of compensation models could be implemented.
Considering all the business and management people's compensation, the shares of different
types of additional income show that majority are not receiving performance related rewards.
Nevertheless, annual bonuses cover almost half of the people and stock options covering one
third. Still, more than half are not receiving any form of performance related compensation
can be considered as a significant share. More surprising is the ratio between the annual
bonuses and the stock option. As stock options are almost as common as the annual bonuses,
the difference could be explained by the necessity of the cash flow and “cheap” compensation
that does not require free cash directly. The stock options are usually realized, when the
overall performance of the company is positive. With this said, although the survey does not
make a difference with startups and larger corporations, the bigger players could be assumed
to offer more annual bonuses and shares of profit than start ups with fresh entries.
As introduced earlier, gaming companies are fairly small in the beginning of their life cycle
and even after making their break through. Supercell could be used as an example, with only
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180 employees in 2015 creating over 2 billions in revenue. Therefore, the organization levels
are not complex and interaction between people has high transparency. With this said,
gaming companies can create an working environment, in which the individuals can have
influence on the operation with their actions. In addition, the notion of unity can work as an
incentive itself to encourage employees to work towards common goals (Simmons, 2010).
Although different mixes and types of compensation models are used in gaming industry, the
overall average addition income of $27,246 encourage to work towards the common goals,
since it adds 27% of the base income in their pocket. The survey does not cover the deviation
of the compensation models among the management and business people, but the does show
the relative figures between other departments: designing, programming and so on. The
percentual shares of additional income varies between 14% and 33%, making game testers
and producers receive the lowest compensation of their work and lifting audio professionals
to the top in terms of the additional income. This is surprising that producers would represent
the bottom in compensation, while having significant impact on the outcome of the projects
or operation. At the same time, audio professionals are representing the top, while having
little influence on the operational outcome. Nevertheless, this was explained by Gamasutra
that audio professionals are having significant influence on how the game will succeed. Still,
it is a part of the game design, rather than wider perspective strategic steering of the
company. Management decisions on recruitment of the audio professionals would have lower
influence on their own rewards, if the recruitment turns out to succeed, than the audio
professionals. On average, the audio professionals are enjoying same level of income with
business and management people, when combining base salary and additional income.
Gamasutra also shared quotes that occurred during the survey. “[The industry] needs to
consider actually paying employees a wage that competes with other industries, as well as
overtime.” Seems like the growing industry still focuses on stabilizing the operations with
steady cash flows, rather than compensating employees with markable benefits. Overall the
performance related reward systems are used, but not significantly. Finally, the annual
bonuses and stock options form the majority of additional income in the gaming industry,
while the deviation of base salaries surprisingly foster audio professionals and management
people.
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Conclusions
Game industry is growing rapidly and is generating significant amounts of revenue every
year. Technology enables more opportunities and growing industry brings complexity that
require controls, as the companies are getting bigger. The creative game industry stabilizes
between efficiency and innovations that itself is a challenging task, since controls are limiting
innovations, while ensuring efficiency. This affects the design of balanced scorecards and
metrics that are utilized to steer companies toward a certain direction without eliminating
creative thinking in regards with innovations. The metrics should consider the challenges of
gaming industry with shrinking product cycles, attracting and retaining talent, communicating
product development decisions and tracking customer preferences. Metrics focus customers
and downloads, as the products can be duplicated without additional expenses. In addition,
financial controls in game industry ensure future cash flows with minimizing expenses, while
shareholder value is maximized. Budgets in the sector are flat and increases in IT spending or
capital spending do not occur. However, game companies invest in creative minds with
innovations. Game industry provide adverse compensation and nearly half of the people are
receiving additional income on top of their base salary. The performance related additions
represent about one quarter of the base salary on average. The majority of the additional
income is directed towards management and audio specialists. Surprisingly the rapidly
growing industry is setting noticeable limitations in spending together with the economic
situation. The industry allows companies to produce efficiently with nearly zero incremental
costs, since the products are duplicable. Still, the controls to limit spending ensure that no
increases in budgets have been made recently. Finally, the game industry utilizes accounting
controls to provide efficiency, without limiting innovations. Ultimately, the accounting
controls reflect the economic situation, while trying to find the talent to meet the
requirements of innovations, while shareholder value is maximized.
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Works cited
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http://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_ATVI_2015
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Frey, Bruno. (1999), “State Support and Creativity in the Arts: Some New
Considerations”, Journal of Cultural Economics.
Tencent Said to Budget $295 Million for Backing Movie Projects, 8.11.2016, Chen Lulu
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