The head of the Edinburgh Interactive Festival says that rising development costs and falling software sales means that less than three out of ten videogames recover their costs through retail sales.
In a speech opening this year’s festival, EIF Chairman Chris Deering warned, “Traditional revenue sources will not be sufficient to fund games development. If you look at the very narrow definition of the gaming market, people are saying the software business will be down 20 percent by 2011 versus this year. Something is going to have to be there to make up the difference and take us beyond that threshold.”
“My guess and analysis shows that less than three out of ten games recover their development and marketing costs with boxed good sales,” he continued. He noted that development costs for major games can now eclipse $10 million, and in the case of blockbusters like Grand Theft Auto IV can run as high as $100 million. “So what’s going to have to happen? Creative use of hybrid online and offline advertising revenues, online [and] offline transactions with consumers – these business models must be explored.”
Deering predicted the emergence of internet-served video, increased remote data storage and the development of “global virtual currencies” over the next ten years, along with the growth of potential new revenue streams for games, including mobile social, television, GPS and advertising. He did not suggest, however, that if the industry cannot continue to support development costs in excess of $10 million, then perhaps it should stop spending in excess of $10 million to develop games. That was entirely my idea.