IBIS Capital's Tim Merel

In the middle, the solution seems to be either dream outrageously big and take major risk capital (like RealtimeWorlds with APB), or get bought out by someone with the muscle to take on the majors. This could be one of the majors themselves, or one of the big media companies that is late to the gaming industry, but which brings significant brands, media and cash to the table. Otherwise I think this is an increasingly tough space to operate as an independent.

At the small end, it should be about doing things as quickly, cheaply and with as high quality as possible on tiny budgets. There is a huge community of small companies developing innovative casual and even console games in this space. So if you develop a console game for say $200,000, you could make it work economically by selling less than 100,000 units.

For the casual gaming portals like Spil, traffic isn't so much of a question as how to make money from it. I have never like the word "monetisation" as I don't know what it means (I prefer good, old-fashioned "sales"), but the casual games companies have had varying success in making their ad sales models work.

The exception that proves the rule is of course Bigpoint, where they offer the equivalent of PS2 quality games delivered via a web browser. The beauty of their model is that probably less than 1 per cent of their revenue comes from advertising, with most revenues coming from the sale of one-off virtual items/currency and subscription/premium monthly sales (there's that "sales" thing again). They're also really good at balancing those items you pay for so that they don't make the rest of the gaming experience weaker for the free players.

But then again Bigpoint isn't really small any more, which goes to show the value of its model for investors. This is really a consistent theme at the smaller end, as anything which has a Direct Debit or direct payment element (like iPhone apps) is much more investible and therefore more attractive for those looking to sell their companies for a good return.

Investments in blockbuster franchises are already the preserve of public companies and mega-private equity, as nobody else has the muscle or can manage the risks. In terms of huge franchise exits, I suspect this means that we will see less of them.

Many of the medium sized studios are living on borrowed time, although the best will survive. Some will adapt to the changes in the industry by exiting to major gaming or media companies to become internal studios to develop franchises (either existing or based on media company brands), while others will go to the wall.

The JV model is also possible, but requires a lot of work from an advisory perspective to make happen. If you haven't navigated the space inside large corporates before, doing this by yourself is challenging. With the right advisor who understands what both you and the corporate need, this isn't easy but it is achievable.

Investment in this middle ground is only for the very brave - like the investors in Realtime Worlds - who are comfortable with the high risk and potentially high rewards. In the same way that financial investors have become increasingly uncomfortable with the hit driven film model, many are equally uncomfortable with the hit driven games model.

The serial nature of gaming development for independents (so develop one, commercialise it, then if it succeeds use the proceeds to develop the next one) scares the life out of most investors. If you have a flop, it's not easy to make your money back. I think there could be an opportunity here for investment in shops which develop platforms for parallel games development, both their own and that of third parties. So act as a Mecca for talent, acting like a kinder, friendlier mini-major. This should be easier to implement for medium-sized online players than traditional independents.

At the smaller end it's all still to play for, so I don't think anyone has the silver bullet here yet. My view is that bootstrapping is good for small teams, as the chances of raising VC money are slim. Angel investment is possible, but if you can do it yourself with your own money and make reasonable returns, there is no shame in not shooting for the moon.

In some ways this is like the very early days in the eighties when companies like SSG in Australia made good livings from their passion for games development, without necessarily walking away as multi-millionaires.

The model which I think holds great potential at the small end is the majors setting up dedicated investment funds (as opposed to the standard publisher model) to provide the capital required for development (effectively a VC 'A' round), then picking the best developments for significant marketing and distribution support as the equivalent of a 'B' or 'C' round. Basically gaming majors acting as corporate VCs like Intel Capital or SAP Ventures. Right now most aren't set up for it, but with the right people and approach there is a lot they could do here.

I wouldn't be so focused on it if I wasn't!