Outsourcing is an sector of the videogames industry that's changed hugely in the past few years as production service companies have become more reliable and developer team sizes have hit ever higher numbers.
Here Gilles Langourieux, CEO of China-based Virtuos, offers his views on the Chinese market, the changing economy and signs of maturity in the videogames industry.
Q: What's business been like for you in the past 12 months?
Gilles Langourieux: Well, we've been in business for four years, and every year has been strong growth. 2008 was probably 70 per cent bigger in terms of revenue than last year, and this year will be at least that amount. We have more visibility into this year now than we did for 2008 at the same time last year, so I would say business is very strong.
We're not seeing any major impact on our business following some of the announcements that have been made here and there about project cancellations, studios laying off staff, and so on.
Some of our clients include studios that have made these kinds of announcements, but one of our characteristics is that we work with a lot of clients, on a lot of projects at the same time.
We're fairly large now, we have about 400 staff, so we have the capacity to handle a lot of projects at the same time, so if a project is cancelled, it doesn't put the company in a difficult situation.
The way we're looking at it is that it's a growing industry. Yes, there are some accidents along the road, but for us it continues to go up and will continue to be good this year.
Q: We've seen projects cancelled for different reasons recently - some economic, some as the result of a merger - do some of those cancellations surprise you?
Gilles Langourieux: It's not a surprise to anybody. If you look back, 2007 was a big year for the industry, but when you look at the revenue and profits of the top ten companies you find that maybe less than half of them are making a decent profit. On top of that you have a financial downturn, so it's no surprise that companies act to improve their financial situation.
Also, it's not the first time - anybody that's been in the industry for more than five years has seen this. We know it's a violent industry, that there are technology and business cycles. When you look at what's happening outside of the industry, the current problems are nowhere near as strong in the games industry compared to what's happening to other industries.
I think we're still, as an industry, pretty lucky - and I'm hopeful that sales at Christmas will have been strong for the majority of the players, and we'll go forward this year with big publishers that are reassured, and reinvesting.
Q: Are you confident that the core gamers will continue to buy videogames regardless?
Gilles Langourieux: Yes - no gloom for now.
Q: Is it different for the likes of Nintendo? Its customers might arguably be described as more casual, and perhaps therefore will sacrifice their gaming spend in tight economic conditions?
Gilles Langourieux: I'm not a market expert at all, so I don't think I can comment intelligently on that. But what I do see is that there is still a lot of interest for the Nintendo platforms right now. Okay, there are people saying there are too many DS games, but at the same time we keep seeing a lot of demand for titles.
There's still strong demand for PlayStation 3 and PlayStation Portable products too. We continued to work on the PSP throughout 2007 and 2008, and we're glad that we did, because we're seeing renewed interest on that platform.
Q: Do you think people have been a bit harsh on the PSP? There might not be universal software support right now, but there are a lot of units out there, and it's a pretty powerful unit.
Gilles Langourieux: Yes, I think that we've discounted the fact that it can do a lot of things besides play games. In China I see far more people watching movies on PSPs than I do people watching movies on their computer. I can't speak about what's happening in Europe and the US, because I spend more time in China, but there are a lot of people there that own the console.
I think there are similar things happening with teenagers in the US, Europe and Japan.
Q: Much is said about the likely economic impact that China will have over time - what are your thoughts?
Gilles Langourieux: Well, I wouldn't talk about potential any more, it's a real market, it's over USD 1 billion already - and it's only eight years old and continues to grow at a fast pace.
So it's a real market, but an unfair market because content is controlled very tightly, and it's not easy for foreign companies to succeed in that market. There are very strong barriers to entry, so the Chinese companies have created a strong hold for themselves.
For us, as a foreign company operating in China... well, we're an outsourcing company, so we're not looking to develop our own games, and clearly not at developing MMOs for China, but it would be very difficult if we wanted to do that, because there's such a strong hold.
The one thing that's great about the market though is, because there's so much money in the market, a lot of that is invested in training and research and development - so the talent pool keeps getting bigger.
When I first went into China ten years ago with Ubisoft, and we set up the first Western studio, there was a large untapped talent pool - people coming out of universities that have never made a game before - and we had access to very clever people, very strong artists, but we had to do all the training.
Today we still have to invest a lot in training, but there are thousands of people working in the games industry, in Shanghai alone, so it's already one of the strongest game-producing communities in the world, and that's of huge interest for a company like us because not everybody wants to develop an online game - a lot of people want to work on the high-end consoles that our clients are working on, and we're right in the middle of that.
Q: It's a bit tricky in terms of thinking about the market in China for consoles right now though?
Gilles Langourieux: Yes, the market for console and PC games in China has always been small - we know the issues related with piracy - but it should change, even if it doesn't change very quickly, for various reasons. It's difficult for a single government to control what happens across such a large country.
Q: Would the market grow more quickly if China's market had more freedom?
Gilles Langourieux: Probably, if the first party companies - Microsoft, Nintendo and Sony - were able to operate a viable business model there. Today they can't, because of piracy and content control.
But if it were, imagine - the industry would be triple the size it is today. It's a huge opportunity, and I'm sure we'll get there.
Q: On the subject of outsourcing, it's an area of the industry that's changed a lot in the past few years. There have been trust issues in the past, but do most companies seem to see the benefits of working with partners now?
Gilles Langourieux: The whole approach to outsourcing has simply become professional. When you are a large developer you're not outsourcing because you're in a rush to suddenly develop a couple of assets a bit cheaper - you're doing it because it's part of your normal production process, and you've understood that you can produce more with a smaller team internally by using outsourcing.
When you look at the other side, on the vendor side, I think that Virtuos and some of our larger competitors, by focusing on outsourcing only and a service model, by investing in training - we've become professional vendors that the large companies can safely talk to and work with. That's different from the situation that we had four or five years ago, when most of the companies offering outsourcing solutions were relatively small developers doing it on the side to complement their income - not focusing on that, and putting IT and HR infrastructure in place to take care of it.
Q: There's a valid concern about the current costs of next-gen development - do you think those levels are sustainable, or will there come a time when people have to be more sensible?
Gilles Langourieux: The last two years have proven that such high costs aren't sustainable for the majority of titles, only maybe for the top five or ten games. Any studio needs to organise itself so that it's able to come up with a high level of quality, but with a much more streamlined operation.
Where outsourcing comes into play, it's not just about offering cheap labour - what's more important is offering extra capacity that allows you to keep a lean team in your studio in the UK, or US, for example, that allows you to focus your best people on the higher end work while you focus your resources on taking care of all the extra work that would otherwise force you to double the size of your studio - and put you in trouble when you are out of production.
Q: Is that a sign of maturity for the industry?
Gilles Langourieux: Absolutely. Why do we talk more about outsourcing today? It's because the industry is more mature. The fact that a couple of years ago a couple of studios understood that you need to clearly separate pre-production from production, and when you enter production you know fairly well what you need to produce, what tools you're going to use and how much time it's going to take - that makes outsourcing viable on a big scale.
Without that it's very difficult.
Gilles Langourieux is CEO of Virtuos. Interview by Phil Elliott.