Riders on the Storm

There's a crisis on the way for console core gaming, but this cloud has a thick silver lining

Last week's column outlined what I believe to be the ultimatum facing the core games industry - the harsh economic reality presented by spiralling development costs and seemingly stagnant market growth. It's a reality which is forcing publishers and developers to explore new business models and new markets, or to entrench deeply in existing franchises and proven genres - a reality which may even herald the end, at least temporarily, of the graphics technology arms race which has defined the games business' cycles for decades.

Most in the business seem to agree that we are reaching this kind of crossroads in the industry's development, although some are quick to point out that this kind of problem has been predicted before. Indeed, every console transition of the past 15 years (and probably further back than that) has been met with wailing and gnashing of teeth from those who hold the industry's purse-strings, watching with horror as development budgets skyrocketed - and there have always been those who claimed that this time was the step too far, the straw that would break the camel's back and bring the industry crashing down.

Each time, of course, they were wrong - spiralling development costs have always been more than matched by the industry's powerful growth. Certainly, each transition lays low a certain number of companies who don't manage to weather the storm - but everyone else ends up enjoying the fruits of a rapidly expanding market, even if the stakes involved do keep getting higher and higher. So why should the boy who cried wolf get a hearing this time around?

Even as the world stumbles through its halting recovery, the core games business doesn't seem to be following suit

Firstly, it's worth pointing out to anyone keen to employ the "boy who cried wolf" analogy that while we always remember this tale as a parable against issuing false warnings - at the end of the story, it's the villagers who ignored the boy who end up getting eaten. It might as well be a cautionary tale about letting your guard down because you've heard the same warning so often before. Secondly, it's important to note that the warnings this time around aren't actually the same as in previous generations.

In this case, it's not spiralling development costs that are being highlighted as the problem - those, quite simply, are a fact of life in such a technology-driven market. Clever tools and middleware ease the burden, but the reality is that if you want graphics and content that's markedly better than what's gone before, you have to pay for it. However, it's only worth paying for it if doing so makes more people buy your game - and that's where the problem lies this time. More people aren't buying core games.

The market started contracting around the time of the financial crisis, which allowed people to shrug it off as being the global recession's fault - even when plenty of commentators sounded warning notes about this being more fundamental to the games business than that. Now, even as the world stumbles through its halting recovery, the core games business doesn't seem to be following suit. The money is going elsewhere; the growth has slowed, stopped, and in some cases, may even have reversed.

But rather than bemoaning this situation, I think it's important to look at the sectors which can actually benefit from this change - because this is, undoubtedly, a change in the industry rather than a decline. The money is still there. The consumers are still there. The growth is still there - it's just switched focus, away from easily measured boxed-game retail revenues, and into a variety of new areas.

I'm not talking here about the growth in mobile and social gaming. That's undoubtedly a hugely important feature of the gaming landscape in recent years, even if there's definitely some truth to Denis Dyack's assertion that a bubble mentality has emerged. However, it's a little far-fetched to claim that any great number of former core games consumers have started playing social games instead, or that any of the would-be core gamers who would normally now be growing the market organically have decided to stick to casual titles exclusively.

No, those people are finding their entertainment elsewhere, certainly, but it's happening in sections of the market that's still recognisably "core gaming" - even if it doesn't involve 40 game purchases from high street retail.

It's the PC and its burgeoning indie scene which is benefiting from the battening down of hatches in the console market

Where is the benefit being felt? Well, subscription gaming is definitely one part of it, even if right now World of Warcraft remains about the only show in town in terms of sheer numbers. Other publishers, however, have games on the market whose size pales in comparison to WoW, but whose subscriber bases are comfortably large enough to support continued development on the product. Yet others are experimenting with business models that eschew subscriptions in favour of paid-for content updates.

Handheld gaming is another area that's booming, and likely to keep doing so for some time. iOS is a hugely exciting platform, and one that's very gradually earning its stripes even among core gamers, but the DS, 3DS and PSP are also obvious beneficiaries of the current upheaval in the market. Coverage of the 3DS in particular has focused on how hard it's going to be for Nintendo to duplicate the success of the original DS in much tougher market conditions - which is entirely reasonable.

However, that assumes that the lower end of the market is more likely to keep playing smartphone games than to buy a new dedicated console - a fair assumption - and ignores the possibility of a major influx of developers and consumers alike who are fleeing the risky, high-priced home console market. Handheld games are vastly cheaper to develop, and as a rule priced much more competitively than home console titles - they are essentially the mid-priced mid-range of gaming which console fans so often lament the lack of. Expect many core gamers to find more and more of their gaming expenditure going on handheld rather than home console software in the coming years.

The final boom market? The trusty PC - a platform whose death has been predicted countless times in the past decade, but which actually finds itself better equipped than almost any other to capitalise upon the market conditions in which we find ourselves.

Ironically, the PC's death has been predicted so many times precisely because the platform is so open and so network-friendly. As such, piracy has always been rife on the PC - so much so that plenty of publishers have hinted darkly about abandoning the platform entirely. Yet it's those same factors which now make the PC into one of the most exciting and dynamic games platforms on earth - now that bright developers have seen past the increasingly tired market for monolithic, 40 boxed games - a market which is so easy for piracy to destroy.

The PC's openness, its easy access to digital distribution services and its limitless potential for experimentation with new business models has led to a new breed of indie developers, creating some of the most fascinating games of recent years and increasingly joined by veteran studios and developers who find themselves energised by the possibilities of this resurgent platform. It's easy to get carried away, though - this is still a movement in its infancy - but more than any other platform, it's the PC and its burgeoning indie scene which is benefiting from the battening down of hatches in the console market. For the first time in years, the boy has stopped crying wolf over the death of the PC. Instead, everyone is watching this platform intently for a glimpse of what is almost certainly the future of the core games market.

Latest comments (13)

Paul Packham Studying Interactive Media Design, Edinburgh Napier University6 years ago
Games like Minecraft definitely back-up that theory, although I've also noticed a rise in indie developments in the console market, particularly on xbox live.

Those indie developers can't always afford a great art team, but they will often make up for it with good game mechanics. A prime example of this is Miner - Dig Deep, which uses simple but effective 2D graphics with insanely addictive gameplay.

It also seems like Flash and 2.5D graphics are helping the games market become more accessible to small studios, eliminating the cost of expensive 3D art program licenses (and render engines) and the powerful machines that are needed to run them.

Edited 3 times. Last edit by Paul Packham on 13th May 2011 9:34am

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Thomas Luecking6 years ago
If we take a look at the average price tag of a classic boxed AAA title, the numbers have been the same for the last 20 years. Economically this makes sense as long as the market grows and this growth can compensate for increasing development costs. In case we do really reach stagnant core markets, games just have to become more expensive. I think this is certainly overdue. Just think about the ticket price when you go to the movies. 20 years ago it was just as half of what they ask for today. Inflation had absolutely no impact on game prices - in fact, games have been getting cheaper all the time compared to the disposable income of households.
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Antony Johnston Writer & Narrative Designer 6 years ago
"In case we do really reach stagnant core markets, games just have to become more expensive."

I couldn't disagree more. Exploiting your core base with constant price increases just whittles away at that core, forcing them out one by one. And once they leave, they don't come back.

I know whereof I speak -- my primary gig is mainstream comics, an industry which has done exactly that for the past 20 years, and is now teetering on the brink of collapse.
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There is also the untapped OSX and Linux market for games.
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Tommy Thompson Studying Artificial Intelligence (PhD), University of Strathclyde6 years ago

Agreed, while the price of video game products has decreased when one considers the rate of inflation, it's not a market that will weather more expensive products. Gamers are more savvy about purchasing games and are more likely to either trade-in for new titles or simply wait for the impending price cuts. Furthermore, the perceived 'value' of video games is diminished in the eyes of many core consumers. Often the question is 'why should I pay 40 for this game on release?'. Sure, the die hard fans of a franchise, or a game with substantial buzz will garner lots of sales, but many consumers will wait for word of mouth and a price drop. Once you consider DLC, annual sequels and other attempts to further monetise existing products, increasing RRP of a title will not work. As has been said many a time, not every game is Call of Duty, and you cannot adopt that approach assuming it reap the desired returns.

As Antony says, comics is suffering from exactly this problem. The value of a $3/$4 book is coming into question, in an industry that is arguably way more expensive on a month by month basis for a 'core' consumer than gaming.
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Unless its a super duper game with a special limited edition pack, I tend to now wait 1-2 weeks after release in hopes of significant naturalization towards the 29.99 levels. It makes no sense to pay 40 on pre order.
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Thomas Luecking6 years ago
@ Tommy:

As far as I know a new release generates most of its revenue within the first weeks after its release. Thus most of the customers actually do buy the game at the full price. Of course most of them trade them in to buy the next new release for a disounted full price and the cycle continues...

Honestly, if markets stagnate and you do not want to charge more for your games, you cannot afford any salary increase and you cannot afford buying new middleware and other equipment as these things also become more expensive eventually. That means that your margin slowly shrinks and it becomes less attractive to develop a title with a high production value.

I also think, that this is the reason why the large publishing business model does not work anymore. Maybe you guys are right and publishers won't dare to increase wholesale prices... but then we will get the Michael Pachter scenario and they will charge for online services (the new Bungie IP?).

Edited 4 times. Last edit by Thomas Luecking on 13th May 2011 2:02pm

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Gary Lucero QA Analyst, Advanced 6 years ago
While I agree that MMOs do take away market share from console gaming, as do online FPS like Call of Duty, which players buy once and then play over and over again, only buying the next title in the series instead of buying new game after new game, but handhelds and PCs, really? I don't think so.

As someone who was primarly a personal computer gamer, first on the C-64 and Amiga in the 80's/early 90's, then on the PC, I understand the value of PC gaming. But I'm a console gamer now, and it's hard to go back. Games are cheap on the PC, and there's a ton of great content, but it's just not the same as console gaming. I even sold off my Xbox 360 and returned to PC gaming only last year but it just wasn't the same. I bought another 360 this year and I'm never returning full time to the PC.

And as far as handhelds are concerned, they are great for commuters or people who want to be near their family as they game, but it just doesn't replicate console gaming. There is something completely immersive about sitting in front of an HDTV with controller in hand. I don't think handhelds can really replicate that.

So as far as I'm concerned the money is going to game rentals or to used games, both big markets, and downloadable games or even to DLC for games that people spend a lot of time playing. It's also going to MMOs and first person shooters. I know I buy less games and depend on rentals to try out the ones I'm not as hot about, and I buy all the DLC for the latest Bethesda RPG, which means I spend 200+ hours playing each game.

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Mike Wells Writer 6 years ago
The problem with the PC remains complexity for the purchaser. I gave up wrestling with graphics card drivers years ago and have been happily console-only, but, in the market for a meatier RPG I looked at the Witcher 2 system requirements last week and... I have no idea if my laptop (less than a year old) will run it. It was a bit easier when you could compare clockspeeds and RAM and that was it, but now I have no idea (thanks Intel and AMD for pumping an artificial fog of war over the CPU battlefield) and can't really afford the time to do the research necessary. Yes, the tiny hardcore are still upgrading their rigs left-right-and-centre, but the wider market has grown out of that - they bought laptops.
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David Jennison Senior Character Artist at Gunfire Games 6 years ago
And then there is- Cloud Gaming

From what I can tell, this is the biggest unknown factor in all of this. It is just starting out now with some inevitable start up tech hicups but I really see no reason why it won't become a major player in the next few years. It makes consoles and PC capabilities obsolete, nullifies piracy, and actually benefits both developers and consumers. It might be a rough and earthshaking transition but I think it is inevitable.

I think it needs to be discussed very seriously.
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Nicholas Lovell Founder, Gamesbrief6 years ago
I remain sceptical about cloud gaming.

Not because the technology doesn't work (I'm not qualified to judge that), or because it won't appeal to some consumers, but because it needs to appeal to an awful lot of consumers, all at once, in order to work.

A better way of putting it is this: for cloud gaming to take off, you need a lot of consumers (to attract publishers/developers) and a lot of publishers/developers (to attract users). Until you have that critical mass, you have to bribe people (both customers and publishers) to join your platform, and that is hugely expensive.

So to win, you need enormously deep pockets, a very long term view AND you have to believe that core AAA games on subscription are the future. I'm sceptical about the latter, and fear that big cloud gaming companies (particularly OnLive) will struggle to reach scale before their backers run out of patience.

And back on topic, the key change is in business models, and notably how you can now release a mass-market game on a budget that is a fraction of the budget needed on consoles. Since the console manufacturer/publisher oligopoly no longer controls distribution, no wonder they are so scared.

Great post, as always, Rob.
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Ian Baverstock Co-founder, Tenshi Ventures6 years ago
Great article Rob.

I think 'iOS' is hiding some key differences between phones and tablets. The latter are HD media consumption machines, easily shared in a household and often used in the living room like the console and unlike the PC. As they rapidly increase in graphical power and fall in price, they will emerge as a distinct and powerful threat to the traditional console. Especially if the software remains somewhere between free & 2.99.
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Facebook and mobile games are different markets entirely, and its good to see people recognising that. The trad games industry makes nearly every penny of its money from the first few weeks of sales. Those people != Facebook and iPhone gamers - or more accurately, while the individuals may be, the market is entirely different.

In social gaming terms, the entire core games market are a kind of "super-whale". We've been forced to rely on the super-whales by the increasingly predatory nature of the bricks-and-mortar retailers over the last 20 years. The reason the core games market has contracted is simple - a contraction onto a few specific hyper-successes. Why is this? Because we're coming out of a recession, and those times are typified by cautiousness in spending. Which means that our super-whales buy only one or two full-price games and half a dozen preowned, when before they would have bought 6 full-price and 2 preowned that they missed the first time. I know a good few core gamers who are doing exactly that right now.

So what kind of game makes good money in this kind of situation? Games with a reasonable upfront fee, followed by almost constant reinforcement to keep the media churning and the long tail running. Minecraft is the obvious front-runner there, although to be honest Notch seems increasingly happy to sit on his giant pile of money and cackle madly (for which, read "do 20 million interviews instead of working on updates"). The PC is the perfect platform for this kind of game, thanks in part to Steam and in part to the simple reality of PC ubiquity. The continuing massive success of the Humble Indie Bundles is a clear indicator of this; the market has shifted into a budget phase. Which suits me fine, frankly ;D
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