Pessimism’s End

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We are now well entrenched into the third year of this console generation; the generation that was supposed to crush smaller third-party developers under the boot heel of extreme development costs; the generation which was to be the doom of clever and unique games as big publishing houses played only the safest of bets. And yet, even as an inexplicably lingering sense of pessimism oozes from prominent developers constantly espousing the Death of This and the End of That finds itself compounded by constant fears of a sluggish economy, the videogame industry is coming off one of its strongest years, apparently immune to the downturn that plagued holiday retail for everyone else and the widely forecast doom.

We see neither widespread closures for small developers, nor the abandonment of creative experimentation from large publishers. We don’t see consumers avoiding current-gen (formerly next-gen) consoles and games for their high prices, as had been widely predicted. What we see is an industry chalking another record breaking on its bedpost, bolstered by new IPs like Rock Band, Portal, Bioshock and Crysis as well as the revitalization of existing franchises like Call of Duty, Mario, Half-Life and even Halo. As traditional entertainment media like film and music struggle just to maintain the slipping status quo while failing to adapt to an ever changing digital marketplace, videogaming is succeeding and even flourishing.

And the really good news is that the industry seems to have crossed an important threshold in this generation, a threshold beyond which development costs shrink while sales increase. As systems like the Xbox 360 and even the PlayStation 3, now improved by the coming demise of HD-DVD, become the standard with millions of homes having made the leap into this generation, the return on developing for these consoles justifies the expense of development. We have entered that realm of a generational cycle where smaller companies can take advantage of the trail blazed by early adopters, where not every game requires AAA sales numbers to keep the lights on.

With tools and methods in place for developing for technology that was, only a few years ago, the domain of those with near limitless resources, creating the games that make for the foundation of the industry is now a reasonable prospect. This seems evident as GameStop, the leading retailer of video games, has increased its earnings estimates for the coming year following a strong holiday season. In a retail environment where the question isn’t if you lost money, but how much, GameStop’s sunny disposition is telling, because this is not a company that profits from the sales of consoles but from software. Any uptick of earnings predictions means that the company reasonably expects that this year is the one in which developers play catch up, releasing a far greater volume of games to a much larger base of consumers.

It would seem that much of the pessimism about the industry’s future is not panning out. So, why didn’t all the nightmares come true?

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For one thing, the industry is far more flexible and resilient than might be expected. The presumption that smaller development houses have no room to market their product, which supposedly they don’t even have the money to make, is less true now than ever before. Creative and unique content, even content created by an army of a relative few, is increasingly visible through new markets like Xbox Live Arcade and the increasing adoption of digital distribution on the PC. And, failing wide commercial success, creativity frequently attracts the attention larger companies with the resources to turn clever ideas into profitable products, as was the case with Narbacular Drop, which Valve helped turn into the widely successful Portal. Even artists who create mods and content for existing games get recognized and absorbed into development houses, constantly infusing the industry with new talent.

These are the kinds of indicators that should serve to remind us how wonderfully diversified, and therefore strong, the video game industry has become. Markets exist for AAA titles, for casual arcade titles, for portable and cellular gaming, for in-browser gaming. And the gaming indie movement is perhaps the strongest for any major media. It is so easy to be focused on the games that cost $10 or $20 million to make, without recognizing that the fastest growth in the sector is coming from a segment of gaming that is done with the most modest budgets.

It seems that every cycle the industry forgets how much it costs to launch a next-gen console. Yes, this was a particularly bad one, but it’s easy enough to assume the hardware manufacturers will see the success of the Wii, will recognize how difficult this particular transition was, and perhaps be a bit more budget conscious next time. But, it takes a few years to have a big enough install base in any generation to give developers and publishers the kind of safety net with which they are familiar. The good news is that a few years of growing install bases are increasing sales as the cost of development drops.

Even as consensus suggests that at least the American economy is in the toilet, videogames can rest comfortably on the fact that at-home entertainment media tends to do pretty well in a downturn. People may be less likely to go after big ticket entertainment and expensive nights out, but their discretionary spending for entertainment doesn’t disappear; they simply choose to stay at home more often, and that works to the advantage of the industry. As most other markets board up the windows for the coming storm, this is just part of the explanation why gaming retailers are bullish and the videogame recession suggested by many just doesn’t seem to be materializing.

So, rest easy, and don’t buy into the rampant negativity of the past few years. The videogame industry is more robust than it seems, and is populated by people passionate about what they do, devout to their customers and driven by the desire to create great games. It is an industry experiencing dramatic growth and the evolution toward a mainstream medium, which opens up the potential and rewards for games with multi-million dollar budgets, but does not actually demand the entire industry to adopt a big-budget model. It is the industry that is pushing the technology and retail envelope, constantly evolving new revenue streams and opening new markets, rather than trying to change the course of decades of anachronistic momentum. I, for one, am incredibly optimistic about what coming years and generations will bring.

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