Rock and a Hard Place

There's trouble ahead for the core games market - but it's wrong to blame social and mobile for these problems

Anyone who has played Kairosoft's superb mobile title Game Dev Story (and if you haven't, you really should) will probably have experienced the same moment of hair-tearing frustration that I encountered a few times during the game. Having painstakingly accumulated funds, I threw vast amounts of capital behind the development of a no-expenses-spared blockbuster title - only to get the dreaded pop-up, weeks from launch, which told me that another company was releasing a very similar game within the same period, which would seriously damage my title's sales.

That crushing sense of frustration and unfairness - it is, after all, a random factor that's seemingly entirely beyond your control - came to mind as soon as rumours began to circulate that major layoffs were on the cards for Black Rock Studios, the team behind last year's superb but commercially disappointing Split/Second. After all, Split/Second unquestionably suffered from being launched opposite Blur, a very similar title from fellow British studio Bizarre Creations - which recently shut its doors after Blur, too, failed to meet expectations.

Yet as tempting as it is to lay the blame for this closure at the doorstep of such an unfortunate circumstance - two talented teams doing the same thing at the same time, leaving the pie divided into portions too meagre for either to get by - the underlying story of Black Rock's present troubles is much more interesting, and arguably more worrying.

The core market, with its tens if not hundreds of millions of players, doesn't go away just because another market sector has appeared.

Of course, studios shut down all the time, and studios make redundancies all the time. It's part of the inevitable cycle of what is essentially a hit-driven industry - if a company starts missing the target with its releases, it rapidly implodes, throwing off a cloud of talented, experienced development staff who quickly coalesce into bright new development studios or bolster existing studios as fresh hires.

Critics of the games media are absolutely correct to say that we focus too much on redundancies and never give the same weight to new hires and new start-up companies. This is understandable, of course - bad news is intrinsically of more interest to most readers, as any editor with access to his site's pageview statistics can empirically demonstrate, and moreover, journalists hear of redundancies far more readily than they hear about new hires. People made redundant quickly email their favourite news sites to let them know what's happening; those recently hired rarely, if ever, do likewise.

Such excuses aside, however, it's certainly true that this focus on redundancies over hiring casts an unfairly negative light on the health of the games business. So it's not simply the matter of redundancies at Black Rock which gives myself, and many others within the industry, pause for thought. While everyone's thoughts, as ever, are with those whose lives will be thrown into upheaval by this latest round of redundancies, it's the apparent justification of studio owners Disney Interactive that's a really interesting indication of where the wind is blowing within the games business.

Speaking with Eurogamer, insiders at Black Rock confirmed what people familiar with Disney Interactive's strategy had already surmised - that the publisher, having acquired what was then Climax' racing studio in 2006, has now lost interest in full-price console titles and is enthusiastically pursuing digital distribution and freemium business models instead. Black Rock's IP didn't fit with that vision - nor, one suspects, did the entire development process in place at a company which has always worked on top-tier console releases.

One argument frequently made by supporters of the nascent and rapidly-growing social and mobile games market (myself included, on occasion) is that the apparent anger of core gamers at the popularity of everything from Farmville to Angry Birds is misplaced. These games represent an extension of the games business - an expansion into a new realm, rather than a cannibalisation of the existing market. The fact that millions of people are playing games on Facebook or iOS doesn't make the currency you're spending on core games any less valuable - the core market, with its tens if not hundreds of millions of players, doesn't go away just because another market sector has appeared. This is not a zero-sum game.

While that remains true, the tale of what's happened at Disney Interactive, at Black Rock, and at several other companies around the industry, provides a cautionary reminder that even if the core market isn't going away, there are other forces at work here. In a nutshell - developing top-tier console games has never been more expensive, and it's never been more risky. As such, it's never been less attractive to publishers, who find themselves forced into the position of funding individual projects with cash backing that used to fund a whole title catalogue, and then chewing their nails as they wait to see if they're ever going to see any of that cash again.

It's not that the games business hasn't always been hit-driven and hence risky - it has, of course. It's just that the gambles are getting bigger and bigger, and the odds are getting worse. Moreover, even as game software budgets rise, sales have flatlined. The generation's most popular console, the Nintendo Wii, should be the bright spot in all of this. It's relatively cheap to develop for and is the only system which looks likely to challenge the PS2's sales records, but it also has the weakest attach rate of the three contenders, so it doesn't make the situation look much less bleak for third-parties.

What happens when the next generation of consoles hit the market? If they follow the power curve of their predecessors, development budgets will rocket again - but the home console market, it seems, has reached a cap.

There are a few approaches you can take to guiding your business through this situation. You can shrink your catalogue and focus intensively on a few proven franchises to keep your margins high, as Activision has done. You can bite the bullet and attempt to weather the storm with extremely high quality titles, gambling on your ability to turn your publisher's brand into a marque of quality that'll drive sales - an approach being cautiously attempted by both EA and Take-Two. Or, you can simply accept that the market isn't growing and costs are rising, and respond by trying to extract more money from each of your consumers.

The last option is one being embraced by every publisher in the industry. It's the reason for the proliferation of DLC and in-game purchases. It's the reason for the artificially high prices being maintained on digital download services, which although self-defeating are a bit more understandable in the context of companies desperately attempting to maintain their per-unit revenue - which has generally been shrinking, rather than growing, of late.

The old argument is that dropping prices will expand the market and make up for the smaller margins, but this has never been truly convincing in videogames - and social gaming has shown us what the price points that really pull in the mass market are. They're "free", or "impulse purchase level" - less than the price of a sandwich at lunchtime. That doesn't require a rough and ready Economics 101 solution, it requires a total restructuring of how you do business and make money.

Hence the final option for publishers who find themselves facing down the barrel of the gun in the core games space - get out, and establish yourself in social and mobile instead. This is still a risky space, not least since there's a Wild West feel about it - structures like Facebook and the App Store are still young and boisterous and can pull the rug from under your feet with little warning. However, you spend far less time and money developing a game, so the risks are far more acceptable, and with social or freemium games you even get the chance to throw out a product that's little more than a prototype and then invest more heavily in it if it's successful - a tantalising prospect for executives used to dumping tens of millions of dollars into a game before ever testing it on consumers.

This transition is what's happened to Disney Interactive, and through them, to Black Rock - and in this instance, yes, there's certainly an argument that it's "robbed" the core gaming space of some undoubtedly excellent titles which will now never even get a green light. Equally, it's interesting to note that some other imploded studios, including Bizarre Creations, have spun off new companies focused on social, digital and mobile rather than on full-scale console titles.

However, it's lazy and pointless to blame the rise of social and mobile gaming for this development. The fault doesn't lie with the new market sector to which developers and publishers are turning their attention - rather, it lies at the very core of the core gaming market itself. Rising costs, lengthening odds and a stagnant market size are a tough prospect for any company - social and mobile are just the greener pastures to which some of them are escaping. Were it not for the existence of those sectors, it's entirely likely that some of these companies would simply leave the gaming space entirely. As it is, at least they've only moved a few streets away.

It's not that core games are about to go away - there's still a lot of money to be made here and there are talented companies in the field who are convinced, probably correctly, of their ability to build, market and sell blockbuster hits. Those firms aren't going anywhere. However, there's definitely a dilemma in the making here - the crescendo of a problem which developers and publishers alike have been hinting darkly at ever since the hardware transition to the PS1-era consoles caused budgets to skyrocket due to the introduction of 3D gaming.

The dilemma is this - what happens when the next generation of consoles, the PS4 and the Xbox 3, whatever form its name may take, hit the market? If they follow the power curve of their predecessors, development budgets will skyrocket again - but the home console market, it seems, has reached a cap (hopefully only a temporary one) which rises only slowly. Faced with stagnant sales and rising budgets, who will be willing to take the risks on full-price, core titles for these systems?

It's a problem which, I suspect, both Sony and Microsoft find deeply troubling. It will be interesting to see if the end result is that Nintendo's approach with the Wii turns out to be prescient - with the hardware arms-race hitting an abrupt speed-bump, not through the limitations of silicon but rather through the crushing weight of sheer economics. If so, we can point to events like this week's unfortunate downsizing at Black Rock as being clear markers along the road leading to that point.

Latest comments (8)

Good editorial commentary about the current pulse of core market issues!
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Tom Keresztes Programmer 6 years ago
Black Rock is Disney, and Disney was making a lot of redundancies recently, including at their mobile studios.
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Cal Mackendrick Founder, Bamboo Raven6 years ago
Possibly a little bit of time and money spent to keep abreast of what competitors are working on might be worthwhile when investing large sums in a blockbuster title.
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Show all comments (8)
Hal Helms Studying Computational Media, Georgia Institute of Technology6 years ago
The solution to making the core market profitable again is to lower development time + costs on core titles. The amount of time and money being spent on developing current PS3 and X360 titles is absolutely ridiculous, and it's definitely not sustainable for PS4 / Xbox 3 if their hardware demands games with even better graphics and processing ability. We need to constrain the hardware specs; just because we have all this power to develop games with doesn't mean that it's a good idea to force every game to make use of it.

I think we need to stop and take a step back on the hardware development front. Older home consoles sold just as much (if not more) software than current consoles do, so the graphical and processing power of home consoles is as not important as one might think. Customers in the core market value a strong gameplay experience more than they value graphics (ever heard the argument "gameplay over graphics"?), so we should concentrate our efforts more on making the software side better. Games sell the consoles, consoles don't sell themselves.
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Mike Wells Writer 6 years ago
As well as external factors and the rise of mobile/social games, you also have to look at online multiplayer in the core console market. This has transformed the playable life of titles. It used to be that a single player experience would last 10 to 50 hours then you'd go out and buy something else. A decent multiplayer title can be all-consuming of time for a year or more. The market has changed and, sad though the outcome is, the new level of demand is being outstripped by supply.
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Andrew Goodchild Studying development, Train2Game6 years ago
I think a lesson needs to be learnt from the film industry. If the core/AAA games are the equivelent of Holywood, whilst a few super blockbusters have budgets around $100-200M, there aren't many of these, and not every Holywood film is trying to outdo Avatar at it's own game.
It seems that a lot of core games feel they need to be at the top end of development budgets and outdo CoD and GTA at their own game, but the audience can't sustain too many games that need to sell 4 million copies to be considered a success.
I think "Single A" is a much better aim than "Double A" if you can't compete with the big boys. We need stuff that does interesting stuff that can get away with lower sales as it doesn't need to make the budget, but that doesn't mean there should be no more ridiculas super blockbuster games. We just need to realise that space is a limited size, requires the best advertising, and if you can't do it as well as the leaders, it may be reaching to far.
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Terence Gage Freelance writer 6 years ago
This is the reason why I think the next generation consoles will not be a huge jump in power and capabilities, and will probably lean more toward ease of development and online connectivity (i.e. largely incorporating networks like Facebook & Twitter, online services between various MS & Sony platforms being linked, and so on). No publishers bar the biggest few will be able to or will want to invest tens if not hundreds of millions of dollars in each 'triple-A' development, and we'll see fewer and fewer risky developments and more FPSs and reliance on big brands like COD, Assassin's Creed et al. I'm sure indies will continue to pump out innovative and unique games on smartphones and PC and some interesting first-party stuff will always pop up on Live and PSN, but if the onus on the consoles continues to be purely on better graphics and more power, I don't think this is sustainable for most developers.
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Curt Sampson Sofware Developer 6 years ago
Limiting hardware capabilities sounds nice at first, until you consider that it's also part of the problem. How much a part, I can't say, but certainly a lot of development hours go into fitting levels into limited memory, dealing with getting the maximum performance out of that five-year-old GPU, and so on. Give developers on an existing game a PS3 with twice the CPU power, four times the GPU power, and a gig of memory and they'll find a lot of PITA problems suddenly go away.

That said, new hardware does also lead to an inevitable race to one-up anybody else using it. But I don't think I'm yet ready to declare that the power vs. development cost curve doesn't yet have another inflection in it.
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