So, I'm no business analyst, but I do follow this industry quite a bit. I've noticed all sorts of large corporations getting money out of customers in every way they can. But then I see CD Projekt speaking of zero DRM, having their previous games go on extremely deep discount, and up to 20% off a Witcher 3 preorder. I know these games sell well, but with CD Projekt being more or less independent and not necessarily creating the best-selling games in the world, how can they afford to completely get rid of PC DRM, delay this game multiple times, have significant discounts right off the bat, and also develop Cyberpunk at the same time? Do they have a separate source of revenue that I'm unaware of? Are they just really banking hard on a massive success with the Witcher 3?

they own and operate gog.com

The own GOG.com don't they?

This seems like what you're looking for: Forbes Article

I think they are making popular games and pulling in popular game money with a relatively small team and living in a country where the cost of living is extremely low compared to most other developers.

Oh god you're all right they do own GOG. And @kidavenger your point about cost of living also makes a certain amount of sense. Thank you guys this makes so much more sense now.

The development cost of Witcher 2 was only around $15 million and it has sold over 6 million copies. CDPR is using the same engine for both Witcher 3 and Cyberpunk 2077...a lot of that $15 million was incurred developing the REDengine. Their cash flow is through the roof and debt is nonexistent. Proof positive that DRM only affects legitimate buyers of games.

$15 million is nothing compared to the budgets of the big games today. Watch Dogs was at least $70 million, I'm not even sure if that included marketing or not. And don't even get me started on the Watch Dogs paid DLC that came out a week after it was released before much needed patches were even ready.

Not only all of that, CD Projekt Red is even giving GOG.com refunds to people outside of the US who have to pay more for Witcher 3. Every video game developer and publisher could learn a lot from CDPR, including Valve. Maybe especially Valve.

@mb said:

The development cost of Witcher 2 was only around $15 million and it has sold over 6 million copies. CDPR is using the same engine for both Witcher 3 and Cyberpunk 2077...a lot of that $15 million was incurred developing the REDengine. Their cash flow is through the roof and debt is nonexistent. Proof positive that DRM only affects legitimate buyers of games.

$15 million is nothing compared to the budgets of the big games today. Watch Dogs was at least $70 million, I'm not even sure if that included marketing or not. And don't even get me started on the Watch Dogs paid DLC that came out a week after it was released before much needed patches were even ready.

Not only all of that, CD Projekt Red is even giving GOG.com refunds to people outside of the US who have to pay more for Witcher 3. Every video game developer and publisher could learn a lot from CDPR, including Valve. Maybe especially Valve.

And they are coming out with the GOG Galaxy to compete more with Valve/steam. I think it will do well. Lots of people love CDPR/GOG and will support them.

They can survive because a lot of their business is registered in tax paradises. Plus its not a big company in the US sense it has indie spirit.

Good read. Seems like they've made a lot of progress in the two years since that went up, so I'm curious where things are at now. Presumably even better.

So CDPR is slowly becoming the next Valve out of Europe.

I like this.

Cost of living is actually one of the largest factors. Compare the scale of The Witcher 2 with Dragon Age 2. The Witcher 2 took something like 4x as long to make utilizing nearly as many people. Yet it cost $15 million to make. To put it in perspective, the 2 year development of a Call of Duty game costs between $50 million and $75 million, while the development of a large scale open world game like GTA5 can cost upwards of $150 million. (GTA5 itself cost over $200 million to make but that is not especially common).

At $50 a copy they need to sell only 300,000 copies on GOG (where they keep 100% of the sales) to cover production costs. Add in marketing and distribution costs and the studio still likely needs to sell under 750,000 copies at any source to make money. Meanwhile, Activision needs to sell somewhere around 5 million copies of Call of Duty just to break even while GTA5 likely had to sell something like 8 or 9 million copies to break even. Basically, the cost of making a game is very directly related to the cost of living where the game is created. Considering the vast majority of production costs come in the form of developer salaries, having to pay a developer to live in California is going to raise your costs something like 10x over what it would cost to make the same game in Poland, Eastern Europe, or many parts of Asia.

I remember reading them talk about DRM before. I don't have the link, but the article pretty much that DRM is just a waste of money because its costs a ton and all it buys you is a week before it get cracked anyway. And it just seemed to be better business to just say NO DRM.

The term is tax haven (as in the safety/nautical kind not the religious kind). There is also some misconception of "tax haven" registered companies. By law they are simply not taxed based on country of registration but based on country of operation. So you don't pay double taxes in both countries etc. While a small business or businessmen might get away with registering such a company and then not declaring their business anywhere else and hence not paying any taxes at all, this simply doesn't work for anything above a medium sized enterprise as a tax authority in the country you do business in will instantly look into you and ask where do you pay your taxes? Especially for someone as highly visible as CD Project Red you can be sure that Poland is taxing them. They might be reducing some of their taxes through a dividend payout setup or similar, but that's about it. (i work in the field)

@dasdude Like @kidavenger has said their main benefit over the rest of the game companies is that they are based in Poland, the salaries and other costs in Eastern European countries (even tho they are part of EU) are much much lower then in say US or UK or say Germany. For example a 24k euro yearly salary in country i currently work in is considered quite good, well above avarage for a stadard job, most people not in management positions (and not government workers) ie your total rank and file Joe gets about 18k euro a year, minimum wage is 10k/year. And I know people from Poland who traveled here for a better job. This is HUGE and probably the single most important thing.

Yet their games sold good numbers for an average western developed game. Witcher 1 was made with a tiny studio reportedly sold 2 mil right? You know what else sold just above 2 mil? ME1 and ME3 that were made by much bigger and much higher paid teams. Witcher 2 had a much bigger team, but again their costs are still way lower then they would be in the west and the engine they made in house is going to be used to it's fullest in more then one game and iterated upon.

They are also taking a page out of the Valve playbook, directly. Discounts are cheap. Getting people into your shop ecosystem is where you win. Giving owners of previous Witcher games get discounts on GoG for new entries only plays into their hand. They get more registered customers each time. The Witcher games also directly appeal to the now grown up nerds (like me) who would be into the GoG main stock and trade ie good old games. By selling any Witcher copies through GoG, they get almost 100% profit, that's no manufacturing cost, no distribution costs, no license payments, no retailer cut, no nothing (just an already setup infrastructure and some bandwidth/server costs). 20% discount? pah! They'd loose way way more then 20% if you went and bought a retail copy from some third party shop. If you buy from them at that 20% preorder discount they win in every possible way. It's a great synergy.

DRM doesn't matter, it's been talked to death. Unless you have a server infrastructure hidden from view (ala multiplayer focused games like BF3 or 4, Mobas, MMOs) your shit will get broken day one, if you're unlucky before release even. A pirated copy will get out there and people who don't want to pay will not pay. So they prefer generating good will and selling more copies that way, especially in countries more prone to piracy (east europe and former CIS block)

Their return policy on GoG also doesn't cost them almost anything. The DRM free versions they provide are already out there, if you want to get them and don't want to pay they are easily pirated. But people buy from them anyway. So only people with legitimate problems are likely to use the policy.

@tennmuerti:

Sorry but you are not quite right. They part of their business is registered on Cyprus and that part does not pay taxes. Also cost of living is not much cheaper in Poland than it is in Germany.

I've spent quite a bit of time in Poland and let me tell you, the cost of living there is incredibly inexpensive. That's part of the reason why I keep going back year after year. The cost of things in Poland is nothing compared to Western Europe or the United States. The zloty is doing better every year, but it's still significantly undervalued vs the dollar and euro while salaries in Poland are steadily rising. Things are looking good right now for companies like CDPR who have an international market presence.

I pre-ordered the collectors edition with the ridiculous Geralt statue and metal medallion because hey, I support their consumer friendly views. I just hope it runs fine on my PC, but I think these guys are mainly PC oriented so it shouldn't be poorly optimized or anything.

Cyprus is not even a "tax haven"... Cyprus companies pay taxes depending on which country that company is managed and controlled from via double taxation treaty with other countries (like Poland or Russia or Ukraine). So even if their company is registered in Cyprus they still pay taxes either in Cyprus or in Poland. They can't not pay taxes if registered in Cyprus, it would be completely illegal. They would get shutdown in a flash with their profile. Yearly financial audit submission is compulsory for CY companies.

Look dude, please just don't. I work directly in this industry, it's how I make money on a daily basis. Currently in Cyprus funnily enough.

@tennmuerti: Out of interest, why are they registered in Cyprus? If they don't run an office there (do they?) I'd assume there must be some benefit tax-wise to doing it?

@thomasnash: Yes, the general idea is to reduce taxes, not get rid of them. Taxes in Cyprus are relatively lower compared to a lot of other countries, so by paying their taxes there they can save a bit. (because of the mentioned tax treaties between countries) But to do that they would have to prove that the company is "managed and controlled" from Cyprus, this is super easy for an unknown small company but would be harder to prove on paper for someone of their visibility. They might even have an office space registered for that very purpose with token staff, but i doubt it. There are also varied levels of taxation on stuff like dividend payments. ie the company makes less taxable profit because it is making payouts to shareholders, which are taxed differently. There are hundreds of ways to set things up and I don't know CD Projects Red specific corporate structure setup (and if I did I wouldn't tell obv.), tho some of it is public by law. Then there are also some other gaming publishing and distribution companies from US, UK or Russia, who also have daughter, branches or related companies in Cyprus too, which makes stuff like hundreds of contract signings and sales reports and their distributions amongst parties easier.

I fucking love this studio.

I might have to transfer a maximum of my PC purshases on GOG. Those guys are putting out what looks like THE next gen RPG the same way valve was putting out THE next gen fps years ago. Mindblowing, creative single player games and consumer oriented policies are what I'm looking for in a high minded private company like Valve or CD projekt red, not sociological/psychological experiments to maximize F2P revenu of multiplayer games and whale milking.

@pyrodactyl: What1?!?! You don't like whale milk?

Whale milking????

Anyway, it's amazing seeing what's become of this studio that not too long ago was struggling to find a publisher for their weird little RPG called The Witcher which nearly became vaporware.

@sterling: @vuud: Yep, the fine art of milking whales is one of the few things that interests Valve these days. If you don't know what whale milking is you should check out Matt Kessler's twitter some time.