Golden Ticket

Golden Ticket
Playing the Spread

Jason Della Rocca | 3 Jul 2007 12:00
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What hasn't been said about the "stagnant" state of the game industry, with our reliance on licensed properties from other entertainment sectors and sequels galore? Where has all the innovation gone, and why is there no love for original ideas?

The always outspoken Scott Miller of 3D Realms never misses an opportunity to push the value of IP ownership and control, stating in a Gamasutra interview:

"For most studios, [developing licensed IP is] just not as fun as doing something original. ... If the studio owns a valuable IP, then they have lots of leverage and clout. They can reap financial rewards, call their own shots and make better deals. It changes the game for them."

Not wanting to retread the same arguments, I turned to NPD, the folks who track retail sales across the U.S. The first thing I looked at was the list of top 100 selling games over the past seven years, across all platforms.

I manually tagged each game as based either on "external" intellectual property (IP) (licensed from outside the industry, like Madden and Spider-Man) or "internal" IP (ideas and properties "born" from within the game industry, like World of Warcraft and The Sims). Additionally, I tagged games as either "new" if it was the first or only game (e.g., Halo, Gears of War), or "old" if it was a sequel or part of an ongoing franchise (e.g. Halo 2, Tony Hawk's Pro Skater 4).

The internal vs. external IP distinction (instead of original vs. licensed) is an important one. It is easy to debate whether a game based on Mario should be considered "original," or if it is in fact an "intra-license" within the industry. But no one would say the Mario IP wasn't born within the game industry. Plus, the word "original" often gets intermingled with innovation, and it's not fair to assume innovation can only occur in one form of IP.

In that context, I'm less interested in the debate over brand-new, "original" IP. Bigger picture, it comes down to a question of control and wealth generation for the industry. Assumedly, internal IP should offer greater economic potential. All things being equal, selling a million copies of Halo is more profitable than selling a million copies of Madden, since there's no external license or royalty to pay on the Halo IP - it's ours to begin with.

Rational economic behavior suggests companies would lean toward developing games with the greatest potential for profit. And they are: EA recently announced their plans to rely more heavily on their ability to generate internal IP. But that's only one publisher, and even they aren't completely abandoning external revenue streams.

Aside from comparing the sales results between internal and external IP more generally, I wanted to see if there was some overwhelmingly compelling economic motivation driving game industry execs to favor external IP. Put another way, were investors justified in loading up Brash Entertainment with $400 million in funding to primarily produce videogames based external movie, television and music properties?

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A long-tail style plotting of the sales data (Graph 1) initially demonstrates a healthy picture for internal IP. The highest point on the internal IP line (~$303 million) is nearly twice that of the highest external IP point (~$168 million). We have to step down about six internal IP titles before we hit that external IP high point. Furthermore, it's not until the very last internal IP title (74) that we drop slightly below the lowest point on the external IP curve (~$26 and ~$28 million, respectively).

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