The Business of Games
First off, despite my sore throat, I was the guest host of a 3-hour internet radio show on Team Sportscast Network yesterday. They should be rebroadcasting it today, but I can't find the link. Here's the link to comments on yesterday's show though.
http://www.tsncentral.com/forums/showthread.php?t=530
Also, I went to the Game Developer's Conference. There was one topic that permeated the whole conference. There's been a link going around about the rants at the "Burning Down the House" session, but I'm not going to post it. That was merely *one* place this topic was discussed at the conference, and not even the best place.
Daniel Arey's short documentary that interviewed top game developers on their views about making AAA games was the best treatment of this big subject. Dan is Creative Director over at Naughty Dog/SCEA, and I thank him for all the work he did to put those interviews together.
So here's the big issue everyone was talking about: the economics of making games are spiraling so far out of control, that the next generation of consoles (ps3/xbox2) will probably spell disaster for lots of game developers. The interviews featured Mark Cerny, Will Wright, Dave Perry, David Jaffe, Warren Spector, Niel Young, and others. It was striking that every single one of them said that to be one of the 20 top selling games of the year, you *need* huge production values. Great gameplay alone is not enough. Cerny put in that some of the top 20 games of 2004 are really only mediocre games, but they have amazing production values and amazing marketing. But every single game on that list is bursting with production values. You need that to even be "in the game" of getting to the top 20.
So how much does it cost to be one of these top 20 AAA games? Daniel Arey showed poll results from top game companies that estimated $15 million at the minimum, and possibly as much as $25 million. Most respondents said $20 million. When ps3/xbox2 comes around, the estimates went up to $25 million mean and as high as $30 million. Other charts showed that the top 6 games made 50% of the dollars of all game sales last year. The drop-off after that is big. Once you get past the top 20 games, the dropoff is HUGE, and those games make very little money.
With those stats, we can now restate the problem more clearly. Either you are shooting for a AAA game or you aren't. If you are, you need a crazily huge amount of money to even have a *chance*. Publishers will be forced into even more risk averse activities which means funding even fewer risky titles and more of the same old boring fare. There will be a racing game, a football game, a first person shooter, etc. We're already suffering from lack of innovation and it's about to get worse. These huge budgets will lead to even more consolidation of companies, which is another pointer towards fewer games and less innovation. Failures in the next gen are going to spectacular, $25 million failures.
But the story for B quality games is even worse, and is the heart of the problem. We can see from the sales charts how much B quality games will make. We know how many units they sell, we know they retail for about $50 and we know that a publisher sees about $25 of that per box. Given the budget of current B quality games and their return, we can see that B quality games are barely a break-even undertaking right now. Companies that are in this category are surviving, but barely. Next time around when there's more tech required than ever, more art required than ever, their costs will go up by about 50%, but there's no way the revenue will go up that much. Every single person interviewed touched on this point. B games are not feasible to make on next gen console given the current business model.
Everyone was calling for a new business model to solve this, but no one really knew what it was. Niel Young (of EA) suggeted that anyone who's having trouble should be bought by EA. ha. Dave Perry suggested that employees should leave their companies right now and go to AAA companies because there won't be B companies next time around. I'm personally thinking an alternate distribution system like Valve's Steam could help...somehow. And Xbox 2's new system of micropayments could allow game companies to publish episodes of their games every month (or whatever) as an alternate form of distribution. But I don't really know the answer either. Troubling times are ahead.
--Sirlin
http://www.tsncentral.com/forums/showthread.php?t=530
Also, I went to the Game Developer's Conference. There was one topic that permeated the whole conference. There's been a link going around about the rants at the "Burning Down the House" session, but I'm not going to post it. That was merely *one* place this topic was discussed at the conference, and not even the best place.
Daniel Arey's short documentary that interviewed top game developers on their views about making AAA games was the best treatment of this big subject. Dan is Creative Director over at Naughty Dog/SCEA, and I thank him for all the work he did to put those interviews together.
So here's the big issue everyone was talking about: the economics of making games are spiraling so far out of control, that the next generation of consoles (ps3/xbox2) will probably spell disaster for lots of game developers. The interviews featured Mark Cerny, Will Wright, Dave Perry, David Jaffe, Warren Spector, Niel Young, and others. It was striking that every single one of them said that to be one of the 20 top selling games of the year, you *need* huge production values. Great gameplay alone is not enough. Cerny put in that some of the top 20 games of 2004 are really only mediocre games, but they have amazing production values and amazing marketing. But every single game on that list is bursting with production values. You need that to even be "in the game" of getting to the top 20.
So how much does it cost to be one of these top 20 AAA games? Daniel Arey showed poll results from top game companies that estimated $15 million at the minimum, and possibly as much as $25 million. Most respondents said $20 million. When ps3/xbox2 comes around, the estimates went up to $25 million mean and as high as $30 million. Other charts showed that the top 6 games made 50% of the dollars of all game sales last year. The drop-off after that is big. Once you get past the top 20 games, the dropoff is HUGE, and those games make very little money.
With those stats, we can now restate the problem more clearly. Either you are shooting for a AAA game or you aren't. If you are, you need a crazily huge amount of money to even have a *chance*. Publishers will be forced into even more risk averse activities which means funding even fewer risky titles and more of the same old boring fare. There will be a racing game, a football game, a first person shooter, etc. We're already suffering from lack of innovation and it's about to get worse. These huge budgets will lead to even more consolidation of companies, which is another pointer towards fewer games and less innovation. Failures in the next gen are going to spectacular, $25 million failures.
But the story for B quality games is even worse, and is the heart of the problem. We can see from the sales charts how much B quality games will make. We know how many units they sell, we know they retail for about $50 and we know that a publisher sees about $25 of that per box. Given the budget of current B quality games and their return, we can see that B quality games are barely a break-even undertaking right now. Companies that are in this category are surviving, but barely. Next time around when there's more tech required than ever, more art required than ever, their costs will go up by about 50%, but there's no way the revenue will go up that much. Every single person interviewed touched on this point. B games are not feasible to make on next gen console given the current business model.
Everyone was calling for a new business model to solve this, but no one really knew what it was. Niel Young (of EA) suggeted that anyone who's having trouble should be bought by EA. ha. Dave Perry suggested that employees should leave their companies right now and go to AAA companies because there won't be B companies next time around. I'm personally thinking an alternate distribution system like Valve's Steam could help...somehow. And Xbox 2's new system of micropayments could allow game companies to publish episodes of their games every month (or whatever) as an alternate form of distribution. But I don't really know the answer either. Troubling times are ahead.
--Sirlin
