'Less than 3 out of 10 games recover costs,' says EIF boss

Edinburgh Interactive Festival chairman Chris Deering has warned the games industry that it must look for new revenue sources as development costs rise and software sales fall.

In a speech opening this year's EIF, Deering said, "Traditional revenue sources will not be sufficient to fund games development. If you look at the very narrow definition of the gaming market, people are saying the software business will be down 20 per cent by 2011 versus this year.

"Something is going to have to be there to make up the difference and take us beyond that threshold," Deering continued. He observed that major games can now cost more than USD 10 million to develop - and up to USD 100 million in the case of titles such as Grand Theft Auto IV.

"My guess and analysis shows that less than 3 out of 10 games recover their development and marketing costs with boxed goods sales," said Deering. "So what's going to have to happen? Creative use of hybrid online and offline advertising revenues, online offline transactions with consumers - these business models must be explored."

According to Deering, the big trends of the next decade will include the growth of internet-served video, the expansion of fanbases into new communities, increased remote data storage and the emergence of global virtual currencies. He also predicted the growth of mobile social networks, TV, GPS and advertising - all of which present the games industry with new opportunities to create games and seek out revenues.