Game Companies Face Hard Economic Choices

Hugh Pickens writes "The NY Times reports that the proliferation of free or low-cost games on the Web and for phones limits how high the major game publishers can set prices, so makers are sometimes unable to charge enough to cover the cost of producing titles. The cost of making a game for the previous generation of machines was about $10 million, not including marketing. The cost of a game for the latest consoles is over twice that — $25 million is typical, and it can be much more. Reggie Fils-Aime, chief marketing officer for Nintendo of America, says publishers of games for its Wii console need to sell one million units of a game to turn a profit, but the majority of games, analysts said, sell no more than 150,000 copies. Developers would like to raise prices to cover development costs, but Mike McGarvey, former chief executive of Eidos and now an executive with OnLive, says that consumers have been looking at console games and saying, 'This is too expensive and there are too many choices.' Since makers cannot charge enough or sell enough games to cover the cost of producing most titles, video game makers have to hope for a blockbuster. 'The model as it exists is dying,' says McGarvey." As we discussed recently, OnLive is trying to change that by moving a big portion of the hardware requirements to the cloud. Of course, many doubt that such a task can be accomplished in a way that doesn't severely degrade gameplay, but it now appears that Sony is working on something similar as well.

Comments

$25 million?

[OverlordQ]

It takes $25 million to take the exact same game, shine it up a bit and put a new cover on it and expect people to shell out $60 for it?

Maybe spend some of that on coming up with something new.

Already proven model

[mcrbids]

As we discussed recently, OnLive is trying to change that by moving a big portion of the hardware requirements to the cloud. Of course, many doubt that such a task can be accomplished in a way that doesn't severely degrade gameplay, but it now appears that Sony is working on something similar as well.

This model is already proven in the case of my Win Mobile phone. See, IE mobile takes suck to whole new levels. There's Opera, which does much better, but is still slow as sin, even with a dual-core 400 Mhz ARM chip powering the unit. It honestly feels like Navigator 4 back on my Windows 95 Pentium 90 way back when...

Enter Sky Fire. They have a Linux rendering farm of (get this!) instances of the Mozilla rendering engine that pre-render websites for you, and you download the rendered result, much like Google Maps - in square sections, ajaxy-style.

It's fast enough for me to watch YT and Hulu video meaningfully if I'm connected via a decent Wifi. Now, it's not FPS games, but if it's good enough for a video, it's probably good enough for pre-rendering and/or AI computation.

Math

[El_Muerte_TDS]

The cost of a game for the latest consoles is over twice that â" $25 million is typical, and it can be much more. Reggie Fils-Aime, chief marketing officer for Nintendo of America, says publishers of games for its Wii console need to sell one million units of a game to turn a profit

Cost for the developers is $25m, need to sell 1m units at $50-$60. So, what happens with the other $25-$35? I'm assuming the licensing fees to make a console game are included in the $25m. So that leaves, physical production, logistics, and the retailer cut. Those 3 things really make up 50% of the price tag? Maybe that's something that has to be fixed. A lower price tag often has a positive influence on the number of units sold.

As for OnLive going to change things, who's going to pay for OnLive's hardware, and software licenses? Right, their subscribers. Will OnLive get more relaxed licensing terms than normal customers (i.e. don't require a license for each subscriber)? Probably, but when 1000 people want to play game X at one time you still need 1000 licenses at that time.

Re:Math

[vlm]

Cost for the developers is $25m

Huge mistake right there.... budget breakdown is more like:

30% various licensing fees for theme, art, and music.
30% for marketing, tv commercials, paid for advertorials and complimentary copy in magazines and online, print ads, posters in stores, parties for the media, show expenses.
30% for executive management bonuses, HR, finance, other non-frontline cost centers
8% for customer service to handle all the bugs, purchasing/shipping department, technical writers, etc.
2% for developer pay, at most.

The percentages vary slightly from megacorp to megacorp, but not much.

The question that will not be asked, is why the overhead approaches 99% yet provides so little impact on the final gameplay experience.

Re:The solution is 2D games

[cliffski]

I disagree.

To get quality art in 3D is hugely expensive, and pushes the system requirements through the roof.
I use 3D spaceship models rendered as sprites for my next game. They are hugely high poly, yet I rendre them using 2 quads.
You can't get the same effect in 3D without rendering at least 30,000 times as many polys. It also means the entire ship (not just the bit facing the camera) needs to be modelled and textured.

I've worked on 3D games and 2D games. 3D gobbles up tons of CPU and GPU time and involves horrendously huge teams to get decent visual quality.

Show me the 2D games companies that are struggling. Popcap maybe? BigFishgames? Both making millions, whilst the big 3D blockbuster publishers struggle.