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Dysfunction Junction - The Recession and Videogames

Sean Sands | 21 Feb 2009 13:00
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If you're a console exec, you're probably looking at the collapse of the housing and banking industries worldwide and seeing a stark vision of your own future.

So, then, what does a more sustainable future look like? As much as we have been entirely focused on the console market as the definition of gaming dominance, the model for the industry may be more in flux that most people suspect. There's a reason that four years into the current generation no one wants to talk about the next PlayStation or Xbox.

John Riccitiello, CEO of Electronic Arts hinted last year at these changes for the future, pointing out that right now console and dedicated handhelds currently account for two-thirds of the industry. By 2011, he expects that market share to contract to around 50%.

This year EA will be talking big words about The Sims 3, Harry Potter and of course Madden, but the core of the business is in trouble. Their biggest successes last year came not through in-house efforts but via EA Partners with titles like Left 4 Dead and Rock Band, which is revenue rich but profit poor. What EA really needs is what Activision already has, which is why the most important upcoming game on their books is probably the Knights of the Old Republic MMO (pictured).

Between Activision and EA, the model going forward is a question of who can sustain their existing franchises best while restructuring a console industry that seems completely unsustainable. They will talk about breaking into markets in China, finding new models of distribution and development, trimming their investments and finding sustainable methods of generating revenue, and more importantly profit.

Outside of the big two, the analysts I spoke with seemed positively dire. THQ, Ubisoft, Take 2; none of them seemed positioned to do anything but tread water and struggle against the rising tide.

So, in the end, the recession does play its part here, but not as the driving force in a contracting market. The answer to the original question about the disconnect between a healthy consumer base and a sickly industry is that the economic turmoil isn't preventing gamers from buying games.

It's preventing companies from making them.

The cyclical nature of the console market naturally describes a historic plateau that publishers have seen, or at least should have seen, coming. The problem is that the easy investment of capital and loans that allowed a largely broken console industry to glut itself on free money has dried up, and now the industry has to try and sustain itself. The companies that can do that, certainly Activision, most definitely Eastern companies like Netease and possibly EA, will come through the storm dinged up but perhaps better positioned to enjoy the recovery. Those who aren't sustainable, and that's almost everybody else, will see more layoffs, more closures, more cancellations and perhaps the darkest days since the 1980s.

Sean Sands is the co-founder of and a freelance games writer. He shares in common with the videogame industry the apparent total inability to make any really impressive amount of money.

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