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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.
am i missing something, or is the answer to this 'crisis' painfully obvious to everyone?
stop making these huge, expensive games.
go back to making small, experimental fun games.
it seems so simple.
every game should be a new experience, or at least bring something new to the table. adding a few more polygons, and some better shading algorithms does not make a game more fun.
-I only code in BASIC.-
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.
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Exactly
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.
That's because the majority of wii games are shit that SHOULDN'T turn a profit. Why people aren't changing that I don't know. It seems to me that if you put out a crappy game for the wii and it sells crappy, that might tell you something.
(Hint: put out a good game for the wii for good sales)
When I worked at Atari/Infogrames, it was all about convergence with the Hollywood business model. Everyone was running around spending money like a Hollywood mogul. Takes only a few flops (*cough* Enter The Matrix *cough*) to send your business model into the crapper.
It's true that the cost of game development is significant, and growing all the time. The answer isn't to flail desperately at the latest fad or wow potential customers with marketspeak, though. Here are a few suggestions:
1) Focus on quality instead of marketing hype. If a project isn't coming together, it's better to cut your losses than to shove a piece of garbage out the door and lose the confidence of your customers.
2) Develop your code with reuseability and extensibility in mind. Never accept quick hacks or shoddy workmanship. It never pays off in the long run. Also: quick hacks for funding milestones = long-term disaster.
3) Don't work your employees insane hours at crunch-time. You'll just lose the best ones after the project is over. Treat them with respect, pay them decently, and give them a stake in the financial success of the company.
4) Invest in internal tool and systems development. It's a longer-term payoff, but high-quality internal tools allow a small team to do what otherwise requires a small army to accomplish.
5) Betting on safe and sure things is a surefire road to stagnation and failure. You can't be afraid to shake up the status-quo and innovate. There's nothing wrong with sequels per se, as fans of your first are likely expecting a second (I'm working on one now), but you can't just remake the same game and expect everyone to buy it a second time.
Pretty boring list, huh? But I'd bet 9 out of 10 companies probably don't really follow this advice. It's sort of like advice on how to lose weight: eat healthy and exercise regularly. Stupid and simple, but it's just to tempting to take the easy road.
The game development company I work for seems to be adhering to these principles pretty well, and is hiring developers while other companies in the area are laying employees off. We'll see if it pays off in the long run.
Irony: Agile development has too much intertia to be abandoned now.
Best game I ever played was X-com UFO defense, circa 1993. It featured 320x240 (256 color) VGA graphics and mono sound. I don't know how many people were on the development team or what the budget was, but I'll bet it's not a lot.
Gameplay is everything. None of the $25 million-budget modern games can touch the X-com in game quality and sheer fun IMO.
But I guess console games today do cost tens of millions of dollars to develop... if cheap iphone games are putting the big studios out of business, I don't mind. Lots of little guys putting out lots of little games = more chances for a true gem to come out, as opposed to fewer megaexpensive titles by a handful of big companies.
BTW X-com would probably work just fine on a iphone, which has twice the screen resolution of the original game (!)
And how, exactly, is moving part of the compute load to the "cloud" supposed to reduce development costs?
OnLive is amusing. The technology isn't that interesting; it's the business model. Casual games can have a "console-like experience". It also has the ultimate answer to piracy. Since the game software runs entirely in OnLive's data center, there's nothing playable the end user can copy. The OnLive client is just a video player.
But they need an incredibly good bandwidth/latency combination to make it work. They need 5mb/s with under 20ms or so round trip delay to equal the console experience. Unless they have a data center at each cable headend, they're not going to be able to deliver that.
Worse, all the capital costs fall on the provider. Who's going to fund this thing?
Every few years the game industry goes through a big shake up. Companies die, people lose their jobs. Then it starts all over. I worked on games way back in the Sega Genesis cartridge days (yes, I'm that old). When my job disappeared I chose to get out of the game industry entirely. The pay seems ok on the surface, but you work horribly long hours, so you're actually getting ripped off. The games always suck at the beginning. The physics are experimental, the graphics are blocks and circles, the story line is just a twinkle in someone's eye. By the time the game is even half completed you are so sick of playing it you want to scream. I bet the industry hasn't changed since my days in it.
-- Will program for bandwidth
I read articles like this (well the summary anyway) and I am always left wondering where the money to produce these games comes from. The companies are saying that to break even they need to sell a million copies but they are typically selling 150k so therefore they are making a huge loss on every game. How do they stay in business? The console manufacturers can't be bailing them out as they are making a loss on each piece of hardware so they need to make their money from games sales so who is paying? I can only assume that when a company gets a blockbuster it makes so much money that all these total failures (from a business point of view) are paid for.
I used to have a better sig but it broke.
The solution is 2D games
Seriously.
The obsession with 3D pushes every cost through the roof. 2D artwork (in a lot of cases) is tons cheaper, and can be made to work on very low end machines. Good luck getting crysis to run on a laptop that didn't cost an arm and a leg, but it's very difficult to balls up a 2D game enough for it not to run on an integrated chipset.
The crysis devs even admitted that their main problem was a game that wouldn't run on so many PCs. 2D games not only run everywhere, but they are easier to understand from a control POV to newcomers to gaming.
They also reduce support costs a lot because if you aren't using cutting edge 3D techniques, you are less likely to get incompatibilities and inconsistencies with video card drivers and hardware.
Of course not all genres can work in 2D, but time and time again we see 3D bump-mapped pixel-shaded shinyness applied to games where it just isn't necessary.
Imagine World Of Goo in 3D. Would it be a better game? Of course not, it would be horrid, and would lack the charm and individual art style that makes a game like that so fresh and awesome.
Journalists and gamers need to finally realise that 3D, and high dynamic range lighting are not what makes a game fun. They make it expensive, and they can make it more immersive, but they do not contribute automatically to making a game fun, which is what it's all about.
DRM-free indie games for the PC and Mac: Positech Games
It's quite simple, there is a vast overproduction of games.
People will only buy so many games, and when there's just too many games, eventually some of the producers will have to throw in the towel.
Which is good for the ones that survives, as they have a greater chance of turning a profit again.
How much money does your current generation shooter's 3D assets (Including textures) cost to produce? Let's assume it takes a week to produce a high quality 3D humanoid actor, and another month to do motion captures and animations.
Lets break that down now: 1 month + 1 week = 25 work days, give or take. If we are not working overtime (because we are on schedule-- like that ever happens...) for 8 hours a day, which comes to 200 hours for a single employee in that time frame. If we assume that the dev crew has 3 employees assigned to this task, that is 600 work hours invested. If we tabulate this up with 'Crazy California Wages' (at least 20USD/hr), we get something around 12k to pay those 3 employees for 1.25 months, to produce and animate a quality 3D actor... (*ONE* actor)
What happens to this 12k asset after the game is released? It finds itself in a backup queue somewhere, drawing dust, and adding to corporate overhead, because that model and it's animations are 'yesterday's news'. (But dont anyone else DARE copy it!)
An absurdly simple solution to this problem is a creative development commons repository, into which obsoleted, or true public commons assets (Such as textures, models and animations from public sources) are shared between a consortium of interested corporations.
EG, only one partnered company need develop a 1957 Chevrolet classic, and the other partners can use that asset later with a very minimal licensing fee. In return, that company can draw from the wide selection of physique animated, havok physics boobie girl models and textures that will be in there, rather than having to make one themselves.
Such cooperation between vendors would enable high quality content to still be available, but would drastically slash artistic staff overhead.
Similar collaborations for AI behavior, and engine tweaks/modifications could be kept, allowing work to not be replicated many times between the interested parties, and would allow these companies to continue producing innovative plots, and environments, while drastically cutting the overhead costs.
Looking for a specific make and model of car? Check to see if a partnered affiliate in the consortium has already made one that will fill your needs-- Looking to resolve an issue with AI bots jumping out in the open and shouting "HERE I AM!!" when they should be doing pop-shots behind cover? Check the AI scriptlet repository to see if another AI programmer may have had insight before.
A game title is more than the sum of it's parts, and having a shared resource of stock parts would allow game companies to focus more heavily on game DYNAMICS rather than blowing all their budget on artwork, and technical issues.
However, I won't hold my breath that such an outbreak of common sense will happen any time soon, given the current trend to ever increasing levels of escalating aggression involving tactical IP portfolio warheads.
What did the cold war teach us about standoff stalemates where we have hordes of weapons cached away, "For security"? It leads to economic problems, mismanagement, and bankruptcy.
People never learn do they?
What I don't understand is capitalism!
When 25 Million dollar games are not turning profits, then either:
1) Pay less to developers and artists
2) Make less expensive games
To me, (1) makes most sense. Isn't that how capitalism supposed to work?
If you are going to make a huge expensive game, make it worth buying.
The problem is this, there's a lot of games out there with massive budgets that are simply crap.
I'm not really sure the complaint in the article is exactly. They seem to be effectively complaining that the market doesn't reward games that have had a massive budget but are still crap? Well isn't that just the way business is? if you spend a fortune developing something that no one wants then you fail?
There's a reason we've always had certain studios come back time and time again with new releases - id Software, Blizzard, Square Enix etc. It's because they produce good games people want, even if they do spend a fortune developing them.
I don't see how it's a crisis that market forces affect the games industry like they affect everyone else exactly? What are they saying? That we should have to be more open to funding shite we don't actually want?
Expanding on your point - the key is to make games fun and that people want, whether it's a high budget or low budget production. What consumers wont tolerate are games that aren't fun even if companies have spent $25 million on them - that's their problem. Huge, expensive games are still perfectly valid and I'd certainly be sad if we didn't get anymore Call of Dutys, Gears of Wars, Half-Lifes and that sort of thing, but they still require the fun factor than smaller games require too.
Well, there is one problem there: everybody also competes with older games at bargain bin prices.
There was a time when that was a lot less of a problem, since Doom II looked like crap compared to Quake (and games based on the Quake engine), and then when you had Quake II games the old Quake I started to look like crap by comparison. Nowadays improvements are a lot more incremental. I've even played some ~10 year old games recently and while you can tell a difference, they're not exactly visually offensive either.
Gameplay has also been OK for quite a while now. It's been a long time since we had too little RAM for anything too complex, so you can go quite a bit back in time with your gaming before you run into problems.
Basically what I'm saying is this:
A) I could buy a new cutesy mini-game for casual players for 20 bucks or so. Like, say, Build-A-Lot, which I actually bought recently. Except it feels like there's a whole game missing around it. The complexity and difficulty are about right for one of the dozens of minigames in a $60 RPG, so I don't think I got much of a bargain with it.
B) I could get Fallout I, Fallout II _and_ Fallout Tactics on a DVD for around the same price. Seriously.
C) I could get a 1 to 3 year old game for the same price. E.g., The Sims 2 costs about that much by now, and it's actually a better value for casual gamers. (Though if you're a l33t FPS-er, you might not necessarily like it.) E.g., Settlers 6 is actually almost half that by now. E.g., Warcraft III including the expansion pack is also about 20 bucks by now. Slightly more money gets you Civ IV with all expansion packs. Etc.
So I think there's a finite niche for simple cutesy games.
Of course, that might not apply if you can come up with a radically new game concept that everyone just has to play. But that's a bit harder than it sounds. Designers which managed to come up with a whole new concept are very few and far in between, and even they rarely manage to repeat that. It's hardly a model for staying in business for the rest of your life, is it?
A polar bear is a cartesian bear after a coordinate transform.
From a purely economic perspective, where you can't sell enough units, and you don't make enough money to cover costs, you need to lower the price to drive sales and restore consumer confidence.
You see, there is a strange effect, I call the island of pricing stability.
On a graph of price vs units sold there is a sweet spot that extracts maximum net profit. Basic stuff. But to bolster the bottom line businesses often hike their prices in small increments. Short term this produces a bump to your bottom line as consumers tolerate the price rise, at least initially, which gets some smart guy who suggested it a bonus. Longer term sales take a hit as consumers make other choices, loose interest or merely spend less. Time wears on and your prices creep, overall you begin to loose gross revenue. It's not immediately obvious what is going on, it doesn't show up on short term graphs shown to the brass, nor obvious how to take corrective action (roll back that price change, cut costs, fast). Naturally everything from market forces to competition to alignment of the planets is blamed instead of potentially bad business decisions.
After a number of price increments, where the profits just seem to keep coming in and nothing is really going wrong, what you eventually reach is a island of stability in pricing. Even far above the sweet spot this is often a nicely profitable model, even if sales decline a little, cutting costs drives revenue back to the bottom line. It is even somewhat sustainable mid term provided reasonable scarcity is maintained, competition doesn't get the lead and demand holds out.
But there is one problem with this model. It's bollocks. This pricing island of stability is right on the edge of a steep slippery slope ready to be pushed off by competition or the slightest breeze of change from the market. Raise your prices further, for example, to try and raise funds for your lower than predicted bottom line, you can watch sales take a nose dive. In the overall picture, you just priced yourselves out of the market.
Now if you ever were looking for an example of the proverbial epic fail. How about a price rise when your sales are already failing in a struggling market with weary consumers that's hardly profitable for anyone anymore?
In the middle of a recession also? Surely this is madness.
After logging in slashdot still does not take you back to the page you were on. It's been that way for 20 years.
Ran out of chars...
Anyway, Valve has been running pricing experiments on its Steam platform and have come up with some surprising numbers. A limited-time price drop of Left 4 Dead resulted in a 3000% increase in sales income. How can any sane developer/publisher ignore the kind of numbers he shows us? The article cites many more examples, with hard to ignore results.
http://g4tv.com/thefeed/blog/post/693342/Live-Blog-DICE-2009-Keynote---Gabe-Newell-Valve-Software.html
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.
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger