The Future: Death

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The gaming industry is dying.

No witty remarks, no cute little anecdotes. I’m cutting right to the chase. The current development model is unhealthy. Dozens of companies have already gone under and thousands of personnel have lost their jobs with many more guaranteed to join their ranks. This is not a “what if” scenario. This is actually happening.

And the worst part? There is nothing, nothing, you or I can do to stop it. 

Do you think I’m fear-mongering? Do you think I’m making a mountain out of a molehill? Well, I wouldn’t expect most of you to know or care. You are too busy enjoying the games themselves and bathing in the communal waters to be bothered by the business end. Why should dollars and cents matter to you?

It should matter. It should scare you shitless.

Take a look at this list of closures, bankruptcies, and staff reductions from 2009. More than a dozen studios were affected in some other capacity in January alone! The rest of the year is a graveyard: Ensemble Studios, Midway Games, GRIN, Factor 5, Pandemic Studios, and many more. Even the big players like EA, Sega, THQ, Sony, and Microsoft were rushing to get rid of their dead weight.

Since 2008, roughly 11,500 people have been kicked to the curb. Talent is vanishing at a record-breaking rate all because most companies are unable to keep up with the demands of the changing market quickly enough. There is simply no room to breathe.

This has become a hit-driven industry. Everyone is racing to make the next big blockbuster epic and it is causing development costs to soar astronomically. Today, the average budget is $10 million up from $3 to $5 million for a single-platform title, between $18 to $28 million for multiplatform, and that’s before considering other costs like marketing and shipping. To get an idea what the upper echelon is like, Gran Turismo 5 is pegged at $60 million and Grand Theft Auto IV was figured at a mind-numbing $100 million!

One of the biggest success stories this past year has been how Call of Duty: Modern Warfare 2 generated over $1 billion in revenue. If you want to follow in Activision’s footsteps, however, you should be prepared to plunk down big bucks for that initial investment, $200 million to be exact. That breaks down to about $40 to $50 million for actual development and the rest for production, distribution, and a disgustingly ostentatious advertising campaign. Activision Blizzard CEO Bobby Kotick made some mad bank and all it took was raising the stakes so high that the competition willingly moved into the next quarter, missing crucial holiday sales.

Big brands are so popular that smaller companies want to do everything in their power to emulate them. Make a huge game pumped full of Hollywood shine and watch as the units shift in the millions! They rarely stop to realize that the potential losses are just as severe as the potential gains. All it takes is one screw-up to knock the foundation out from underneath a business. Let’s not forget how following Lair, Factor 5 was faced with cancellation after cancellation as well as a short-sighted union with movie-license publisher Brash Entertainment before its eventual death.

Ironically, most companies think the solution is to invest even more into subsequent projects, thus hastening their downward spiral. Smaller companies cannot compete at this level, and so the behemoths of the industry get to run away with the majority of the market share. At least they are successful, right? Wrong again.

Take-Two Interactive just recently posted a net loss of $138 million for fiscal year 2009, compared to a profit of $98 million for 2008. Despite Borderlands and Carnival Games showing big numbers, Take-Two flounders without a mainline Grand Theft Auto. EA announced back in May that it lost $1.09 billion the previous year despite earning over $4 billion in revenue; now it is warning investors not to hope for much in fiscal 2010. And despite Activision’s success with Modern Warfare 2, the game is merely a distraction from how the company squandered the viability of the music genre.

The big scapegoat in all of this is the recession, but that’s bullshit. This past year may have seen a decline in overall game spending from 2008, but total sales amounted to $19.7 billion, the second-biggest year in the industry’s history. That would make 2008 the biggest year with over $21 billion in sales. On top of that, this past December was the best month ever. With consumers so willing to spend big on video games despite the economic downturn, how is it possible that the industry as a whole could fuck up so badly?

There has been a lot of mismanagement and restructuring as noted in some of the links above. More importantly, no one can seem to follow the needs of the market well enough to keep from bleeding. It shouldn’t be too hard, right? The biggest spenders are the enthusiasts who buy multiple games per year, per month, per week. All those “casual” gamers and fickle soccer moms can’t possibly support this industry, so it’s best to target that nucleus.

And that’s the kicker.

The enthusiasts, though reliable, are a very picky and demanding bunch. Thanks to the industry’s drilling of the mantra that technological progress is the only progress, gamers have come to expect more and more for less and less. The retail price of games ten and twenty years ago was not much different than that of today. There were even some cartridge-based games that went up to $70, $80, or $90! On average, prices have stayed relatively steady while the costs to make these games have exploded. Who could miss the brick wall ahead?

Titles all need online multiplayer which in essence is like making a second game, just consider BioShock 2 and how the multiplayer mode is being handled by a completely different studio than the main team. Additional content that once appeared in expansions and sequels are now demanded as free DLC. Games need hi-res art assets, top-quality voice acting, and heavy cross-promotion. Is your game viewed from a side perspective? It better be a $10 download on a digital delivery platform!

I know what you are thinking. I’m probably going to say that the answer to everyone’s misfortunes is to go full-on Wii. Sorry to disappoint you but no, it isn’t. As we’ve seen over the past few weeks, third parties are slowly realizing that the Wii is not some magic money-making machine. Nonetheless, I’d be ignoring the 800-pound gorilla in the room if I didn’t mention Nintendo’s position in all of this.

Back in 2005, Nintendo CEO Satoru Iwata asserted that the only way for the industry to grow was to aggressively target new and former gamers. Thanks to the Wii and DS, Nintendo has shamed the industry by offsetting most of the biggest losses every year by itself. Nintendo was successful because it correctly identified an underserved market and did everything in its power to cater to their interests.

Many gamers and third parties can’t seem to wrap their heads around Nintendo’s accomplishments. All they choose to see are minigames and grandmas, completely missing the real reasons these games sell. These customers value ease of use, local community, and arcade-style gameplay, all values that the traditional model avoids. I’ve often heard gamers muse that the Wii would have been even more successful had it matched the specs of the 360 and PS3, not realizing that then Wii software would have been held up to the same expectations as traditional software from the broken model. Just bringing so-called AAA titles to the Wii isn’t the answer either because then you’ll be propagating the arms race that forces out smaller developers and publishers.

Most companies are so invested in the traditional model that turning around and making games for a different audience would be cost-prohibitive. The big companies like Capcom and Ubisoft have the resources to develop strong expanded audience titles but refuse to devote serious time and effort because of the associated risks. For years, making games has been a relatively simple process of building upon the sustaining innovations of the past. All this accumulated knowledge and tech is useless when it comes to making games for people who aren’t impressed by the number of shader effects on screen. These companies know they’ve screwed up but can’t admit that they misread the market since that would put them in even hotter waters with their investors.

There needs to be a serious push into non-traditional and handheld gaming spaces. There needs to be a scaling back of promises and features in order to streamline development. There needs to be more transparency in publisher relations. Companies need to stop forcing industry standards and allow the market to set standards for itself.

That news doesn’t make you happy, does it? Video games are supposed to push boundaries! Video games need to become a credible medium! We demand advancement! We demand new hardware every four to five years! Companies are so convinced that they have to pursue these core audience demands or risk losing everything that they are driving themselves of a cliff regardless! They don’t have the skills to change their output and are too afraid to learn.

I already said that there is nothing you or I can do about this. This is not our fault. There’s no sense in giving up the games that we’ve grown to love. Besides, it would make no difference if we banded together to boycott the big studios. All that would do is send companies down the toilet faster when they fail to move their excessively budgeted product.

No, the onus is on the industry to change, but how can it be convinced to do so if the current environmental train wreck hasn’t already? What are these companies waiting for? More red ink? More layoffs? They must be waiting for one of the big players to kick the bucket. Imagine how scared everyone will be once someone like EA begins pawning off subsidiaries to the lowest bidder. If it ever reaches that point, though, it may be too late.

Video games will live on, of course. Unfortunately, the industry as we know it now will cease to exist. Whether today’s companies wise up or more adaptable companies replace them, the landscape will inevitably change. How long before your favorite studio files for Chapter 11? Five years, two, one? Next week? Think you can deal with that?

Welcome to the future.

Tony Ponce