The Entrepreneur Podcast · Eric Janssen and Eric Morse

75. The birth of an industry with Michael Schmalz

·39 min·5 clips

The story starts with video games as the underdog. The host points out that the industry is now worth more than music, television, and film together, then turns to how a London, Ontario studio lived through that climb. Michael Schmalz keeps the conversation practical. He starts with model rockets, then gets into Digital Extremes, his brother James, and the work behind Warframe and Unreal. One hard choice was building Digital Extremes' own game engine, part of what he describes as ten very difficult years. Publishers controlled the gate. To get onto Xbox, PlayStation, stamped discs, and store shelves, a developer needed publisher money, milestone advances, and contracts that could look helpful right up until the revenue math kicked in. A ten-million-dollar advance could mean huge gross sales before royalties showed up, and Schmalz says their publisher-funded games from 2004 to 2014 earned none. That does not come across as failure. Those projects kept the studio alive, but the model left the company dependent on timing and outside support, including Ontario tax credits paid at the end of projects. The plain business lesson lands harder than a victory speech: keep people employed, bridge the gaps, and stay alive long enough for the market to move. Then the market did move. Around 2013 and 2014, platform access began opening up, with PlayStation named as early and aggressive through its store. Warframe became the turn. Schmalz describes the grind of winning a few, losing a few, and then watching Warframe push the company into a different business situation. It is an operator's version of industry change: timing, partners, financing, and stubborn execution sitting right beside the hit game.

As heard by us

How gaming became a global business.

The episode follows how a once niche video game business grew into a global one through Michael Schmaltz's experience at Digital Extremes. The useful part is the working detail: publisher advances, milestone payments, recoupment math, Ontario tax credits, and the move from boxed…

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Why you'd press play

Hear how a London, Ontario studio rode out the old publisher model and the shift to digital distribution.

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