Dysfunction Junction - The Recession and Videogames

Dysfunction Junction - The Recession and Videogames

If the videogame industry is so recession-proof, why are so many people losing their jobs?

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Very nice article, it confirmed some suspicions i had about the current climate.

A Star Wars MMO will be as big of success (if they are lucky) as Warhammer Online. EA is missing key points on what makes people play MMOs for long periods of time and sorry but KOTOR is focusing on.. sorry what? Story? In an MMO? Hopefully it's a never ending story.

Although, if EA pumps out half a dozen MMOs that are each successful in there own world they could compete in the long run but still the profits wouldn't be the same as Blizzards.

god article. Im starting to think MMOs may become the game publishing industries equivalent of the summer blockbuster. By which I mean as with many movie publishers, game publishers will have those one or two yearly money making cash cows which helps both offset losses & gives them the financial security to take risks with lesser known & more unusual IPs. Sadly as it is, while as applaudable for publishers to take risks with new IPs, its more often than not a financial black hole, especially considering they barely seem to make any real return of even the most reliable products.

Why is this so focussed on "hardcore-approved" companies? Why is the console market painted as bleak and the MMO market as the saviour when a MASSIVE source of growth is right there in the console market, namely the Wii? Now, that doesn't mean there won't be many more companies dying, in fact I expect more deaths until they figure out that the Wii is where the support has to go (rather than throwing B grade material on the Wii and using all the money to finance even more extravagant HD epics). The market is disrupted and by now that should be so damn clear it makes me feel stupid just watching all these companies trying to swim against the current. Swallow your goddamn pride, game designers and realize that the time for blockbuster epics is over! You have only one thing to deliver and that is fun, you have to relearn how to make that without horrendous production costs!

Why does everybody ignore the Wii? Maybe that's the real illness that is destroying companies, that they completely ignore the system that is by far the market leader? Are they listening to the damn fools who call themselves analysts? This whole industry is going insane, they are drowning but they are refusing the lifeboat offered! Maybe it's just not possible for large companies like that to adjust, maybe they really must be burned to the ground before anything can be rebuilt.

Isn't the comparison to the 1980s fitting? That was also when the game industry died and Nintendo created it anew. It may have been the darkest time of the old gaming but it was also the brightest time for Nintendo. Now it's the brightest time for Nintendo again.

Problem is KDR is that we are focusing on the production of games and that normally relies on the publisher companies. Sure the big three in the console market or should I just say nintendo is doing really well. However the production of games to go with those consoles is what the big is not making much of which is video games.

This is a global economy now and while the western market is doing poorly it is because the cost of video games is so immense now. Publishers have made video games too big in budgets like hollywood movies. There is also a reliance on companies making money consistantly via MMO's which would explain Kotick's company generating over 50% of it's cost through WoW.

If this is a sign of things to come for the west it means that the video game industry is a bubble market and is following the trend of the housing market. The cost of production of games to publish have become so gigantic now that we will first find that publishing companies will be bought out like D3 is going to be bought out by Namco-Bandai(which was a merger) leaving only big publishers left in the race for the western market. Also take note of Eidos being bought out by square-enix.

The next problem will be the assumption that video games has nowhere to go but up. This would increase not only the production and development of a video game but also the price. Imagine paying 90 US dollars for a Sony video game and movie all in one on a blu-ray disc. We also saw this happen when video games from this current generation went from 50 dollars a game to 60 dollars if you own a ps3 or 360. The amount of sales needed for these western developers to break even will require those gigantic sales numbers.

Finally this bubble will reach a point where the pop will happen and all publishers will fall on their faces and only those involved in the east like Kotick will be doing well. Apparently Kotick knows how to own and dominate the world of video games...for a carpetbagger :P.

Sean, I'm inclined to agree with Ryan Scott's assessment as opposed to yours: companies need to stop trying to create MMO's, because the race is over. Blizzard won.

Rather than being transfixed by WoW's numbers, think about all the money lost by other efforts at creating MMOs. They're expensive to develop, expensive to launch, and anyone who attempts to do so is confronting a deeply entrenched competitor. And while the Eastern model is interesting, American and other Western markets seem resistant to that kind of business. We're not cybercafe societies.

I would argue that the bigger problem is in development costs, which I think you can tie to a rather undifferentiated line of products. You've written and spoken about last year's many "workmanlike" games, and that's a point of view I agree with. The problem is that a lot of these companies are burdened with competing franchises that are expensive to develop. How do you set your FPS, action-adventure, or RPG apart from the competition? Pour a ton of money into development and marketing, then pray. I think that, more than anything, is eroding those profit margins.

Very interesting read. Every game company and it's dog has wanted a money-spinning subscription based online game ever since the first model flew, now it's looking like a silver bullet for cashflow woe. I'd never seriously considered the claim of game developers being recession-proof, only the entertainment industry in general, these being the comforts we often earn for.

Tenmar:
This is a global economy now and while the western market is doing poorly it is because the cost of video games is so immense now. Publishers have made video games too big in budgets like hollywood movies.

That's exactly what the Wii does differently. Nintendo is making insane amounts of cash with games that cost nowhere near what GTA4 did (yes they also make tons of money with the system itself but games like Wii Fit and Mario Kart make a lot of money as well). There's no reason other companies couldn't do the same if they actually understood the market rather than treating it as a black box and simply copying notes. There is no reason another company couldn't have built up a franchise that's as famous for quality as Mario, they just didn't do it because they pursued short term profits with many a new IP getting three titles per generation (yes I realize Mario did the same but the second Mario game wasn't fully Mario) and fading into obscurity soon after. There is no reason why other companies couldn't be making massive profits like Nintendo does now, they simply fail at it.

Tenmar:
The next problem will be the assumption that video games has nowhere to go but up. This would increase not only the production and development of a video game but also the price. Imagine paying 90 US dollars for a Sony video game and movie all in one on a blu-ray disc. We also saw this happen when video games from this current generation went from 50 dollars a game to 60 dollars if you own a ps3 or 360. The amount of sales needed for these western developers to break even will require those gigantic sales numbers.

PS3 and 360 again. Where's the Wii? Answer: Busy raking in the money.

Finally this bubble will reach a point where the pop will happen and all publishers will fall on their faces and only those involved in the east like Kotick will be doing well. Apparently Kotick knows how to own and dominate the world of video games...for a carpetbagger :P.

I don't think bubble is the right term. A bubble is when something is artificially overvalued and the moment that overvaluing is pulled the whole thing comes crashing down. The core market is just slowly imploding as revenues aren't keeping up with cost growths and publishers make loss after loss. It's a slow process and there is plenty of opportunity to fend it off (e.g. Square-Enix putting the Dragon Quest games on the DS and Wii though I don't think the money sink that is FF13 will help them much, then again what the hell is FF doing on the HD consoles anyway, wasn't that usually reserved for the cheaper to develop for system?) but it seems that people either are too damn stupid to realize it (one look at the NPD or Enterbrain numbers would cure that so I don't think this is just ignorance) or they are deliberately avoiding the Wii because they joined the game industry to make great and epic games that further the "art" rather than commercial products that sell.

Another theory is that they have a completely screwed up definition of a "safe" investment: They think that safe means treading the same path as many before you. Yet that puts you into a situation where you have many major competitors and you have to expend a lot of effort (read: money) to stand out. Big investment, strong competition, what's safe about this? Isn't it safer to invest in uncharted territory? You have no competition there, you stand out by default and thus can invest less. Even if you don't know if that territory has any money in it you don't have to invest much and if you strike gold you make TONS more money than you invested, enough to finance many, MANY failed prospecting missions. Safety should not be judged for an individual investment (yes, a 90% chance to make 30% profits is probably a good choice if you only invest once and never again) but over a series of investments (10% chance to make 5000% profit means on average you'll make 500% profit for enough investments). As in poker you will not always win, you will lose and you will lose more often than you win (unless you're playing with 2 players) but you can make a profit if you lose small and win big.

Bad news for the gaming industry, good news for companies like Icarus Studios who make development tools, which cut costs and production times considerably.

World Of Warcraft
A lot of people reference WoW and Blizzard as having won over the market. As a player that makes me sad, because I'm in the minority that absolutely can't stand the game. I don't want to see companies competing with Blizzard; I want an alternative which is nothing like what they offer. I want a diverse market again.

MMO Trends
I'm also saddened to read reports of many companies going the way of Asian developers, as I am a die-hard fan of the subscription-based Pay-To-Play model, not RMT. I'd prefer everyone stand on equal ground, not the community division and hatemongering that takes place in mass-produced cookie-cutter grindfest MMOs supported by microtransactions. But it looks like P2P is fading away.

Just some loose thoughts.

KDR_11k:
Why does everybody ignore the Wii? Maybe that's the real illness that is destroying companies, that they completely ignore the system that is by far the market leader?

At least one of the analysts I spoke with directly linked the Wii as part of the problem, citing in particular their overwhelming 1st party success and completely underwhelming 3rd party success. Believe me, companies like THQ, Ubi, EA and Activision want in on the action, but for a variety of reasons they are being stymied.

I'm not sure I agree with that assessment entirely, so I didn't really include it in the article, but I do agree that the Wii is no savior.

KDR, even nintendo is falling to this, they may be getting in profits, but its still nowhere near as much as they have made in the past

Sean Sands:
At least one of the analysts I spoke with directly linked the Wii as part of the problem, citing in particular their overwhelming 1st party success and completely underwhelming 3rd party success. Believe me, companies like THQ, Ubi, EA and Activision want in on the action, but for a variety of reasons they are being stymied.

I'm not sure I agree with that assessment entirely, so I didn't really include it in the article, but I do agree that the Wii is no savior.

Third parties are mostly stymied due to gross incompetence, they throw C and D list dev teams at the system and then complain that Nintendo is trouncing them. These teams are the kind that provided the background noise for the PS2's software library that only confused parents bought for their kids, throw them in an arena with the A list teams of one of the highest quality software houses and the result is predictable.

The other question is: Part of WHAT problem? That the total value of the games industry isn't going up much? Well, the Wii has an indirect part in that because third parties just throw total garbage on the system while focussing their efforts on the now pretty small core market. It induces stupidity in third parties who then fail to make money and drag the total value of the industry down. However the total value of the industry isn't really a meaningful measure, it indicates only the average of how capable current companies are of serving the market, it does not indicate the potential for profits for a company that acts correctly. The market is not zero sum so the current total is not the absolute total, it's tied to the performance of all players and that includes the inefficient ones. Sure, a recession may reduce the income somewhat but that doesn't mean that a company who's playing it right cannot make shittons of money. The recession is no excuse for the many dying companies.

 

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