IP profile: Black & White

Black & White – The Stats

Number of iterations: Two major releases, one expansion
Estimated total unit sales: 2.5 – 3 million (PC)

Timeline:
1989: Populous
2001: Black & White
2002: Black & White Creature Isle (expansion disk)
2005: Black & White 2

Ownership history
1987: Bullfrog founded by Les Edgar and Peter Molyneux.
1989: Populous, the first ‘God-sim” game released on PC.
1995: Bullfrog acquired by EA for an estimated $25m-$30m.
1997: Peter Molyneux leaves EA to form Lionhead studios with Richard Evans, Mark Hedley, Steve Jackson and Tim Rance.
1998: EA Distribution secured as publisher for Black & White.
2000: Lionhead initiates satellite development studio structure.
2002: Lionhead investigates flotation on London Stock Exchange.
2004: Lionhead takes on investment of an estimated £7m from a consortium of investors (IDG Ventures Europe, Ingenious Ventures and Add Partners), Fable released, reaching over 2m unit sales.
2005: Black & White 2, Fable: The Lost Chapters and The Movies released.
2006: Lionhead initiates major restructuring, making 50 development staff redundant.
2006: Lionhead is acquired by Microsoft one month later for an undisclosed sum­.

Creators: Peter Molyneux, Richard Evans

Game inception and growth

The concept of the god simulation strategy games, which place the player in the role of god-like entities, can be traced back to 1989 and the release of Populous by Peter Molyneux’s first Guildford-based development studio, Bullfrog Productions. Populous proved to be Molyneux’s most successful game series, going on to achieve an estimated 4m unit sales across multiple SKUs and driving the acquisition of Bullfrog by EA in 1995.

Black & White came to life when Peter Molyneux and Richard Evans left Electronic Arts to form a new company, with the aim of creating quality games using small teams. They quickly secured a publishing agreement with EA and began development in earnest with a new team largely staffed by ex-Bullfrog staff and Cambridge graduates.

The game took some of the core gameplay concepts of Populous and expanded upon them, adding a more open-ended game structure, artificial life simulation (developed by Richard Evans) and expanding the strategy components. Players use their divine powers to cajole and persuade villagers on an island to worship them, and also make use of an AI-powered mythical creature which inhabits the island and performs acts of violence, benevolence or even assistance for the player. The game’s name refers to the moral dilemmas resulting from this gameplay.

The game’s release was delayed several times as tweaks and improvements were added. However, when it was finally released, Black & White was very well received by the critical press, and was acclaimed for its novel features and gameplay. Its success spawned an expansion pack (Black & White Creature Isle). Together they achieved some 2m unit sales. The game was only ever released on PC; development of PlayStation and Dreamcast versions of the game were started but never released.

By the time work began on Black & White 2, Lionhead was working on a number of titles (Fable and The Movies) as well as developing new game concepts. The size of the development team had grown dramatically from 25 on the first game to over 70 on the second, and an overall company headcount of over 220. The efficiency of the enlarged studio was low, its senior production managers were overloaded and the company’s senior management were being distracted by protracted attempts to raise finance whilst still trying to manage three large teams.

The game’s sequel was based on a moderately improved version of the original game engine and featured a more structured form of gameplay. It was reasonably well received by the critical press but not as well received by consumers as the original (later attributed by Molyneux to failing quality levels after a rushed release). As a result, the game underperformed commercially, achieving only a fraction of the unit sales of the original.

Company inception and growth

Lionhead Studios was set up by Peter Molyneux, Steve Jackson (co-founder of Games Workshop with Eidos’ Ian Livingstone), Mark Webley and Tim Rance in 1997. The original aim was to create and maintain only a small development team working on a single title. Black & White was their first title and, with the company financially underpinned by Peter Molyneux, the company was able to secure an advantageous publishing deal with Electronic Arts’ Distribution business (a business that focuses on publishing games IP developed/owned by third parties and one that is separate to the main, higher margin EA publishing business) well before major development milestones were reached.

However, Lionhead found itself being approached by several other development teams, and it saw an opportunity to nurture them by setting up a ‘satellite development’ business where Lionhead would help secure publishing deals and provide admin support in return for equity and royalty participation.

Under this system, Lionhead quickly took on two new teams, Intrepid and Big Blue Box, and even separated out the Black & White development team in 2000 to form Black & White Studios. The satellite structure, however, failed to remain intact. Intrepid had its project cancelled and the studio was subsequently closed. Big Blue Box, which developed Fable for Microsoft, was eventually brought in-house after selling over 3m copies. Black & White Studios was in effect only an internal division formed to allow a degree of development management autonomy and never actually acted as a true satellite.

Partly driven by the satellite system, but also by the cash flow from the original Black & White sales, Lionhead expanded rapidly – at its peak hiring two to three new staff each week. By early 2006, despite being founded on the principal of keeping development teams small, it numbered 220 staff, and was burning over £1m per month. The management decided it needed more infrastructure to handle its teams, and in 2001 began to investigate a flotation on the London Stock Exchange (at the time approaching the apex of its dotcom-inspired ascent).

However, the company’s management found itself stretched between meeting potential investors, re-structuring the company to prepare it for a public listing and managing the company’s continued growth. The collapse of the dotcom bubble brought the flotation process to a halt and the company had to once again re-organise itself for its continued unlisted (and, at that stage, under-funded) existence. Needing a greater cash inflow than publisher funding was providing, Lionhead next sought venture capital and secured an estimated £7m investment from a consortium of UK-based investors (IDG Ventures Europe, Ingenious Ventures and Add Partners).
Unfortunately for the investors, two out of three of Lionhead’s major titles in development, Black & White 2 and The Movies, failed to live up to their promise – although the third, Fable, was a success, achieving around 1.5 million unit sales in its first month and over 3m to date. Like many of Lionhead’s products, Fable had experienced a difficult development process, suffering several release date postponements. The company had begun to get less stable financially, with one project bootstrapping another late game.

The elevated cost that this represented, combined with the commercial inertia of Black & White 2 and The Movies’ poor sales, forced Lionhead to undergo yet another restructuring whilst starting the search for a potential acquirer. Lionhead reduced its headcount to around 135, even letting 85 staff go just a month before its acquisition in 2006. A number of publishers were courted but, of the final three, it was eventually Microsoft that acquired Lionhead for a sum believed to be around $40m (of which half is believed to have been debt repayment).

Although Lionhead’s sale appears to have been made under a degree of duress from investors ready for an exit and from disappointing sales of two out of three of its major titles, its management were greatly relieved to find financial stability within a major publisher and go back to creating innovative games. Its sale value reflected both the IP rights and the creative force at the company’s centre.

Analysis

The original Black & White’s commercial and critical success suggested an extremely bright future for Lionhead. However, instead of adhering to its original ambition of remaining a small, focused single-team developer, Lionhead committed the cardinal sin of games development: expanding too rapidly on the assumption that all games would match the quality of the first. Whilst Black & White 2 was being developed, Lionhead’s focus began to be spread amongst numerous other projects. Instead of focusing on execution, its management team became distracted and tied down with flotation and then venture capital investment. The additional investment secured in the middle of the company’s lifecycle helped its survival and expansion but undoubtedly hastened its premature sale.

The expansion of concurrent development teams has often historically proven challenging if not fatal for some games developers, and Lionhead’s expansion and then sudden contraction after a successful first game is mirrored in the demise of many a UK studio. To attempt such an expansion whilst the senior management were heavily distracted with non-games issues only compounded the potential for disaster. The cancellation of a number of Lionhead projects and the commercial failure of key releases Black & White 2 and The Movies were undoubtedly attributable in part to Lionhead’s failure to grow in a controlled way, although schedule pressure from publishers also played its part.

Ultimately, Black & White’s potential as a major games franchise was damaged – possibly irredeemably – by its flawed sequel, and it’s likely that most of Microsoft’s estimated $40m valuation of Lionhead Studios was based on bringing the Fable IP (and also Peter Molyneux himself) in-house. It’s unlikely that the Black & White intellectual property rights featured prominently in the valuation, and it is still unknown whether any further Black & White games will be produced.

Conclusions

– The game received a strong critical reception with very high average review scores.

– Novel gameplay combined god-sim, artificial life and strategy genres to make a very compelling game.

– The original title had a highly open-ended game design.

– Black & White benefited from being published by Electronic Arts, then the largest games publisher in the world, and a massive PR campaign headed by Peter Molyneux, one of the best-known games developers.

– The development team, many of whom had worked at Bullfrog, had a strong pedigree.