It’s just bad businessDecember 14, 2008
These quotes demonstrate the schizophrenic nature of the games industry. The past year analysts have been announcing remarkable growth in the industry, yet many studios are laying off workers and announcing disappointing sales numbers. We have just come off the fourth quarter avalanche of games and the outlook is tepid. SCEA can announced a number of jobs lost and Electronic Arts has just laid-off 6% of its employees with more projected to come. Disappointment in sales for Mirror’s Edge, Rock Band 2, Boom Blox, and Little Big Planet have been surfacing, the Need for Speed franchise has been placed on hiatus, and it has been a disappointing year in EA Sports. Not to mention the numerous game studios that have gone into bankruptcy.
Now, this can merely be a testament to the current failing economy and the claims of massive growth in the videogame market can be contested as speculation. But the videogame industry cannot continue functioning in this manner for very long. Nintendo has changed the market of videogamers just as the Xbox had done for the PC gaming market. No, this is not a crisis but the way business is done today will not be able to sustain itself. Studios releasing over a hundred of titles and compression the majority of its AAA product in the fourth quarter will no longer last. There are too many games coming out simultaneously and too many overly invested games.
The videogame industry in America is controlled by a handful of studios: Activision, Electronic Arts, 2K, and Ubisoft. I have left out the hardwared business because what I’m discussing primarily concerns development houses. Reiteration after reiteration of the franchise will fail, we already see that today with the dipping sale of sports games and many gamers have been screaming fatigue this year. The gamble Electronic Arts took with new franchises has amounted in stock drops in the company. The problem is these studios are placing business models that overestimate sales from franchises to new IP. They are also overestimating the maturity of its sales to previous generation videogames. This entire market has changed with the introduction of Wii and the failing economy. The studios can’t continue churning out these blockbuster games and expect to gain a fair return on all of these titles. There are just too many titles competing with the same financial backing and quality taking up the shelf.
In ten years the videogame industry as it is today will be unrecognizable. The current way games are released and produced will become unsustainable for these high profile development houses. We have seen the PC market drastically change with fewer AAA titles, scalable system specs, and a multitude of smaller games coming out at a steadier rate. We already see the companies like Capcom put out smaller titles on virtual console and few AAAs in retail or Atlus releasing a moderate number of AAA titles steadily throughout the year. Some of these are new titles, some reinvisioned, and some reiteration.
Make no mistake, the videogame industry is growing and maturing. But the way business is done from production to marketing is changing. Hardcore games are approaching maturity in the market and casual games have just emerged into the mainstream. As casual games become the big elephant in the room the dynamics of games development and finance will change. We can’t assume that Madden or Halo will find market growth the same way as Wii(blank). The effects of this console cycle will undoubtedly effect the way games are developed and as the industry continues to grow and more competition enters we enter an evolving landscape on the number of games released, the quality it produces, and the way it will be sold to the consumer.