Financial Issues May Force Changes On Games Industry

krou writes "According to comments made at the Edinburgh Interactive conference, operating costs of making games are spiraling upwards, and there has been 'significant disruption' to the games industry's business model. Games are getting much bigger and taking longer to develop, the console market is fragmented, and the cost of licensing intellectual property has gone up. All of this, says Edward Williams from BMO Capital Markets, means that 'For Western publishers, profitability hasn't grown at all in the past few years and that's before we take 2009 into account.' Recent figures suggest game sales have fallen 29% over the last 12 months. While westerners still relied on putting games on DVDs and selling them through retail channels, 'Chinese developers focused primarily on the PC market and used direct download, rather than retail stores, to get games to consumers,' and the lack of console users 'meant developers there did not have to pay royalties to console makers.' Peter Moore of EA Sports said that significant changes will come in the future, particularly in electronic purchasing of games."

Comments

ARRRGH

[religious freak]

Goddamnit slashdot!!! I had an f'in essay written on this topic and inadvertently clicked on a link, thereby wiping my whole mother F#$*%^! comment out! Can you not save data in forms when I go back like every other webpage out there???

Ugh... FRUSTRATION!!!

Re:ARRRGH

[sopssa]

that's why you fire up notepad when writing long comments. :|

Re:ARRRGH

[Mystery00]

https://addons.mozilla.org/en-US/firefox/addon/6984

Not necessarily a bad thing

[Anonymous Coward]

I admit that I'm probably in the minority on this, but I haven't been happy about where the game industry has been going in the past decade.

The big budget phenomena has been the very thing that's lowering my enjoyment of games. IMHO, the obsession with graphics, sequels/IP and marketing (all big budget things) has detracted from the biggest part of games: gameplay.

Perhaps this will be an opportunity for the game industry to take a step back and reevaluate their approach to development. I, personally, would very much like to see developers choose a route of detail, gameplay and innovation rather than releasing the same game every other year with improved graphics.

But what do I know, my ideal game is Dwarf Fortress.

Re:Not necessarily a bad thing

[bmatt17]

"The big budget phenomena has been the very thing that's lowering my enjoyment of games. IMHO, the obsession with graphics, sequels/IP and marketing (all big budget things) has detracted from the biggest part of games: gameplay."

I don't think that's quite the case. There have been some exceptional games released that have both excellent gameplay and great graphics. Call of Duty, Bioshock, Mass Effect, Dragon Age is looking to be awesome, the list of great games really goes on and on.

What I have a problem with is the games that don't have cutting edge graphics and great gameplay yet still cost the same. $60 for a AAA title I have no problem spending. $60 for the latest movie tie in or just average game I refuse to buy. And will pick it up used for half the cost if I want to play it. I really think that games should be released in different pricing tiers. For example the new Katimari for PS3 that's coming out would be fun and worth buying new for 20-30 bucks, but not a good deal for 50 or 60 when compared to Uncharted, Gears of War etc. If publishers would release these average games at a lower price point I would buy a lot of them new. As it is, most games aren't worth the price of admission and as such instead of the publisher/developer getting $30-40 of my money gamestop gets it.

Re:Not necessarily a bad thing

[KDR_11k]

Go play them then but don't assume every one wants the same thing as you and don't live in the illusion that simplistic game play can cut it for the mass market today.

I think the only illusion here is that the more demanding customers form the mass market. They're the minority, it turns out that the mass market doesn't really need great stories and whatnot and is perfectly happy to play a game of tennis where you don't even control your character's leg movement.

Re:Not necessarily a bad thing

[Eskarel]

Do they really need all that?

I personally find that while cool at first, voice actors just mean severely limited dialogue and character options. Certainly bad voice actors are horrible and can ruin a game, but I've played a lot of games with no voice acting at all, both new and old, which were perfectly acceptable. A great story does require dialogue, but it doesn't necessarily require voice actors.

Musicians are really a fairly minor part of the equation as they don't get paid anywhere near as highly as actors and composers(who actually are expensive) have always been necessary. The mario music was as much the work of some creative composer as anything from a modern game, and hiring an orchestra to record something for you isn't really all that expensive in the grand scheme of things, there are plenty of musicians out there who just want to eat and can play well enough(though not write anything worthwhile) who are also cheap.

Even graphics(which is where a lot of money goes) can be cut down a bit. The vast majority of players of any given game do not have a current state of the art gaming rig and so generally most of the top end features which took all the time aren't ever actually seen by anyone because they have to turn down the settings.

DRM is also stupid. It's not stupid because game developers don't have a right to feed their families, it's stupid because it doesn't work, and realistically can never work. There are always more clever people trying to break any DRM scheme than there are people implementing it, and they can always dedicate more man hours. That's just the way it is. All DRM has ever done is inconvenience legitimate customers and prevent small incidental piracy. Preventing that small incidental piracy is perfectly fine, but the bar required to do so is far lower than the increasingly draconian DRM that companies are spending money on.

The point of all of this is that companies have to do what makes them money. If the current model isn't working for them(and the article claims that it isn't) then changes have to be made. That probably means either increasing revenue or decreasing costs. While people do pay higher prices for games in other parts of the world than they do in the states(a new game is about $AU80-100 here in Australia), there probably isn't much wiggle room there. There's an argument to be made for selling more copies of cheaper games, but there's been no convincing arguments that this would actually create real profit increases. That essentially leave cutting costs, which basically means cutting some of the things they're talking about. That might not work either, gamers might not accept games without huge development budgets, but they're not accepting games with huge development budgets either so they can't keep going as they are.

Most anecdotal evidence shows that some proportion of gamers prefer games which are fun to games which have flashy features. The Wii proves that such a market exists, though it may not translate onto more traditional platforms. Even if the number of sales does drop, even if it drops dramatically, if the per unit revenue increases faster than the sales drop, then they could still come out on top.

Good thing, too

[puroresu]

The cost of licensing IPs has gone up? Then stop relying on licensed IPs and start making compelling games that people want to play.

Every year there's a new Tiger Woods/NFL/WWE game, virtually identical to the last offering with a few player updates and token changes to the control system. Sorry, but I prefer actual depth over the latest and greatest graphics and accurate sports team rosters.

A lot of developers could take influence from the greatest pro wrestling game series ever devised. Concentrate on making a fun game and make it customisable enough that the player can change it to accurately represent a given league/company/tv show/movie/comic book (delete as required).

Re:Good thing, too

[MBGMorden]

While licensing big properties like that is part of the equation, later comments in the summary lead me to believe that a big part of "Licensing IP" that they reference is simply the fees you pay to publish on a console. If you put out a PS3 game, Sony gets a cut. If you put out a Wii game, Nintendo gets a cut. If you put out a computer game though (be it Windows, Linux, Mac, whatever), you generally don't have to pay royalties to any company just to publish your game.

Download .iso & key?

[achowe]

If the games industry switches to a buy online / download model, I want to be able to burn that download to CD for backup. Nothing worse than paying for something and finding N+1 months later when you want to play again, that the download is no longer available and/or the seller has gone bust. For example NetStorm. Greatt game. Good single player campaign. Net play was good too, except the servers eventually died off. Still I do like to play single player from time to time. If I didn't have the CD, I'd be shit out of luck to replay later (yes I know there are online cracked versions now). The point is that if you buy something, people had better be able to burn to CD and install from CD.

Consumers should change too

[interkin3tic]

It would be nice if economic troubles caused gamers themselves to be more selective about which games they bought. A few years ago when I worked at gamestop, most of the customers (children especially) seemed to buy games based ENTIRELY OFF THE BOXART. "Hey, I have a PS2. Hey, I enjoyed the movie 'fight club". Hey, this box which appears to have been the first game I picked up is Fight club for the PS2. That's GOT to be a good one!" Many people are apparently buying wii games at random, the effect being that most of the games for the wii are barely playable. Developers wouldn't make movie-tie in games if they didn't sell. It would be great if the economic troubles really put a damper on people buying games on impulse without reading a single review to tell if the game was halfway decent, or shovelware.

Then again, I'm pretty sure even if that 29% decrease were entirely due to throwaway games, the industry would still follow the path of least resistance. Maybe they'd just make ONLY worthless games.

While I'm making demands of millions of people who wouldn't change even if they did read this post, it would be nice if gamers were more supportive, or at least more forgiving, of games that try to do new things. A lot of "hardcore" gamers get very entrenched opinions about what a game should and should not be according to genre. It's like if moviegoers complained that a movie wasn't formulaic enough.

Re:Consumers should change too

[KDR_11k]

Many people are apparently buying wii games at random, the effect being that most of the games for the wii are barely playable.

The data actually shows that sales are MORE concentrated on the Wii, most sales go to an even smaller number of games than usual (80% sales on 14% games, the usual values are 80-20). The few shovelware titles that managed breakthroughs did so because they did something people really wanted. AFAIK the sales of the shovelware are mostly really low and the market for it is so oversaturated (the developer of Carnival Games, a million-selling minigame collection said they wouldn't stand a chance in today's Wii market... yet they kept throwing money at more shovelware) that I wouldn't be surprised if they failed to sell enough to break even despite their low dev costs.

The whole situation has made third parties run around like headless chickens, only able to clone what others succeeded with and not realizing that they could at least clone games from other consoles instead of only what was released on the Wii. As it is they keep cloning a very small pool of games with no understanding of why the original game worked in first place and then act surprised as the result bombs. EA's Peter Moore seemed to have a recent realization of how to sell Wii games, namely thinking about what the customer demands from a game of that type and then dealing with those demands instead of just taking an existing formula (that was probably developed with those customer demands even if it was by accident and so long ago that noone remembers what exactly happened). Maybe it was triggered by Wii Fit where everybody could immediately understand why a customer would buy Wii Fit: Because they wanted to lose weight! By knowing the customer demands they were able to make their own fitness games that worked. If you don't understand WHY something was done you probably won't be successful at copying it.

Not suprising

[dbIII]

The last financial crisis killed Loki Games even though they were on track with their financial plans.

That's the way it's supposed to happen.

[psnyder]

This is the natural way it's supposed to happen.

Graphics
When SNES came out, the fact that it looked so much better than the NES added to the enjoyment. Now graphics are at a point where we can move characters around in something akin to what we'd see in a CG movie. We've hit a peek where cartoonish graphics can't really get much better.

Expansiveness
Next we have huge sandbox games. Again we've hit a peek, where the worlds are so expansive that by the time you've explored everything you're either addicted (like an MMO), or you've spent so much time doing the same things that the gameplay becomes repetitive.

Complexity
Then we've got games that take months to learn all the possible moves and combos.


Flair is no longer as important
So the old adage of more is better is no longer valid with video games. We've hit a peek in many areas where more is simply not necessary. Now we can focus specifically on what makes something "fun" besides the flair.

This is why the Wii is so popular. And as technology keeps getting better, it becomes easier and easier for independent developers to produce graphics, game play, and complexity that are passable, so that audiences will just focus on if it's fun or not.

Of course big game companies may soon be in trouble. A lot of their main commodities (graphics, expansiveness, complexity) are getting easier and easier to reproduce to an appropriate level. This makes what they produce less valuable. It's progress.

Re:That's the way it's supposed to happen.

[KDR_11k]

Their main commodities don't get easier to reproduce but they are demanded less by customers. Most if not all core values of gaming have overshot the majority of customers, i.e. reached the point where they offer more than the customer demands. The big publishers may be better at driving these values but since they've overshot a smaller company can come along, make a game with lower core market values than the big guys do and still not be too low for the customer's demands so the big guy just spent a whole lot of money on something that failed to give him a competitive advantage. Meanwhile some companies find values that were traditionally ignored but are undershooting the customer (i.e. not up to the standard the customer would like and improvements are much appreciated) and improve them, resulting in a MASSIVE advantage. This is a disruption (actual business term) and it usually ends with the incumbents being driven out of the market while the newcomer becomes the new master.

Re:That's the way it's supposed to happen.

[tepples]

This is why the Wii is so popular. And as technology keeps getting better, it becomes easier and easier for independent developers to produce graphics, game play, and complexity that are passable

But it still remains hard for independent developers to meet the minimum bar that Nintendo and Sony have set. For one thing, Nintendo is still openly hostile to a developer preparing its first title:

We typically look for companies that are established game developers, or individuals with game industry experience. The authorization for Wii/WiiWare or Nintendo DS will be based upon your relevant game industry experience.

We require that companies are working from secure business offices. Home offices are not considered secure locations.

Cost

[mccalli]

I'm buying more games than I've bought in ages at the moment, but 'the industry' may not like the reasons I'm doing so. My two primary platforms are iPhone and Wii, in that order. iPhones games are anywhere from 59p to an eye-watering £2.99, the Wii has Gamecube games available which I can get for £1.99 second-hand.

That's about what these are worth to me. Looking at games appearing for £29.99, even £49.99 etc....I'm just not interested. The only games I've bought within the last year or so at full price have been Guitar Hero III (thinking about it, must be more than a year now) and err...err...hmm. Actually that's it. Oh yes, World of Goo which was already a download and relatively cheap. One glaring exception would be Wii Fit, depending on whether you want to count that as a pure game or not.

It's really a question of pricing for me. I don't care about licensed IP, I only marginally care about having the latest greatest graphics....it's just that games started costing a huge chunk of cash and I'm simply uninterested at that level. It's not that I can't afford it either, it's that I simply don't think it's worth it and would rather put the money towards a day out, or more bits for the bike, or something other than gaming.

Bring down the cost, get more buyers. If it's not profitable for you to bring the cost of your current model down, then change the model.

Cheers,
Ian

Re:Cost

[KDR_11k]

One glaring exception would be Wii Fit, depending on whether you want to count that as a pure game or not.

I think it's an important one. Wii Fit isn't just a game that manages to sell stupidly well without pricedrops a long time after its release and even sells consoles too, it's also a game that would be impossible to make online-only because of the balance board. As much as game publishers seem to love the idea of something like OnLive where you basically subscribe to a gaming broadcast Wii Fit would be a killer app against it. Peripherials can't be downloaded and Wii Fit cannot be done without the balance board (there are other fitness games but AFAIK they all come with at least one peripherial to get more data about your body movements). OnLive's promise of playing all games without upgrades is made impossible by games like Wii Fit.

Sins of a Solar Empire

[Xelios]

Didn't Sins of a Solar Empire have a budget of just $1 million? Didn't the game sell more than 500,000 units? Wasn't it a good game? Maybe other developers should follow their lead, and for the record not every game has to be ported to all 3 consoles to make money.

Re:Sins of a Solar Empire

[tpgp]

Didn't Sins of a Solar Empire have a budget of just $1 million?

Just 1 million you say? Wow! Let's hear it for those small budget indie games!

Re:overhead bloat

[julesh]

Somewhat off topic but think about this. How can District 9 which is such a great movie with some of the best unique effects Ive seen in a recent Sci Fi movie cost 30 Million and yet Transformers 2 cost $228 million, GI Joe Movie $170 million etc. All icing and no cake.

It's called Hollywood accounting. The quoted cost of producing a film that's expected to do well typically actually includes costs of earlier films that didn't do so well when they were released. By doing this, they reduce royalty payouts on the successful movie (as Hollywood typically pays royalties to writers, IP holders, etc. as a percentage of profit rather than percentage of net takings as most other IP-related industries do).

Re:Looks like

[Ren.Tamek]

The delicious irony is that publishers and developers were the ones who decided to abandon the PC games market. There's 'too much piracy' there they say, throwing away millions in sales from the many loyal PC fans worldwide. Now they're telling us that console royalties are too much money? Well, I can't have too much sympathy there; they've pretty much made their own bed, and are complaining that they have to lie in it.

Needing a PC for each player

[tepples]

If you put out a computer game though (be it Windows, Linux, Mac, whatever), you generally don't have to pay royalties to any company just to publish your game.

But if you go PC, your game generally becomes single-player unless it targets the college demographic, which can afford a separate gaming-class PC for each player. Very few major-label PC games take into account the case of one PC, one 32" monitor, and four USB gamepads; most 4-player party games are either single-console exclusives or multiplatform in the sense of "both country and western".

What would Guitar Hero have been?

[tepples]

Then stop relying on licensed IPs and start making compelling games that people want to play.

What would Guitar Hero have been without songs that people recognize?

Re:What would Guitar Hero have been?

[nschubach]

Canceled... like it should have been a long time ago. ;)

I think the biggest obstacle is greed

[SmallFurryCreature]

Anyone remember the old x-wing and tie-fighter games? What did these games have? Relative long gameplay, you couldn't finish those games in a weekend. And then when you were done, there were TWO expansions for both games, released at a small price that offered another few days of gameplay.

Compare that to Kotor and Kotor2. You can't of course compare gameplay of an RPG with a space-sim but you can compare the expansions. Or rather the lack of them. Had Kotor2 been produced as an expansion right from the start and not been shuffled out of house AFTER lucasarts realized that a sequel might make some extra money (gosh, a SW rpg might be a success, who would have thought).

If games were tv, then they would produce a pilot to test the audience, tear down the set, kill the actors and de-invent the camera. If the pilot happens to be liked, they start filming. One episode at the time. But no more pussy-footing about. They don't just tear down the set but nuke the state. Kill the actors entire lineage through time-travel and get god himself to remove light from the universe.

What exactly is taking so long with Mass Effect 2? They seems to be adding a lot of stuff (yet more planet surveying, my favorite part of the game) but the delay really shouldn't be necessary to tell a story. The series really should have ended now OR at LEAST we should have had a few expansions produced for some quick cash and extra gameplay.

Games really just don't to be produced sensibly.

Of cours the tech has to advance, but it doesn't have to happen for every game.

Tell me this, if a producer had simple done Planescape: Torment 2 with absolutely no advances to the engine, just purely another story, would you have bought it? I think the answer is yes.

So why do companies produce so few "expansions" and so many year long sequels that look fantastic but are the equivelant of making a television series with episodes 2-3 years apart.

Re:Why do profits always have to go up?

[east coast]

Someone explain capitalism to me.

It's not a matter of capitalism. If you're happy with your 900k that's fantastic. But if you're asking others to invest (stockholders, money loaners) they want to invest where they get the most bang for their buck.

Believe me, if every business had to show a continuous profit increase there wouldn't be many that would last. Small businesses do what you're talking about and one of the reasons they can do it and survive the dry times is because they knew enough to invest in themselves. They don't need to go asking others for money the second they become unprofitable. Business owners who ride the edge of reserve capital are the ones who falter in difficult times.