Growing the Long Tail
Having bandied about the term "recession-proof" a few times in recent months, albeit with a few more caveats than usual, it's something of a relief to see that the industry's top number-crunchers seem to agree.
GfK Chart-Track's pronouncement that this year's Q4 is on track to be a record-breaker in the UK will come as a relief to far more people than just errant pundits, however. For the games industry as a whole, the news that the perfect storm which has hit the world's economies seems to have passed over this corner of the entertainment business is welcome news indeed - especially since it comes from Britain, one of the countries where a crash in over-inflated house prices has amplified the effects of the crisis on consumers' wallets.
In the three months to the end of September - with house prices falling and credit deals disappearing from the market, not to mention newspapers filled with constant economic gloom - videogame software sales rose by 15 per cent in the UK. Even in the USA, supposedly on the vanguard of the financial crisis, none too shabby growth of 8 per cent was noted.
If recession were going to bite, then, perhaps it would bite in the run-up to Christmas? GfK Chart-Track doesn't think so - with business group director Dorian Bloch readily describing the UK as "gearing up for a best-ever Q4 performance overall".
It's hard to disagree. There was no sign of the recession on Oxford Street last night, when huge crowds gathered to buy the latest expansion pack for World of Warcraft, Wrath of the Lich King, at HMV's midnight launch event.
The store's own estimates suggest 2000 to 2500 avid gamers braved the cold weather to get their hands on the game - up from a crowd of 1500 who turned up for the previous pack, The Burning Crusade. Enthusiasm ran high even in unexpected places - at a Tesco 24 hour supermarket in the depths of East London, over half of a queue of well over a hundred gamers had to be turned away when the store ran out of copies within minutes of midnight.
WoW, of course, elicits significant passion from its core fans - which makes it tempting to dismiss this as an anomaly. Yet it's exactly that passion (albeit usually in less blatant forms, and with a lot less fantasy costuming) which is helping to keep gaming's flame burning bright even while households around the world are tightening their belts and worrying about their outgoings.
It's passion for the medium and its properties, after all, that has driven Microsoft's Gears of War 2 to sell two million copies in around a week, while Ubisoft's Far Cry 2 strolled past the one million mark in three weeks. This, at a time when games like LittleBigPlanet, Fable 2, Fallout 3, Mirror's Edge and Saints Row 2 are clamouring for space on the shelves and in gamers' hearts, and each no doubt contributing significantly to that industry bottom line.
So Christmas, it's fair to say, is looking fantastic. The passion of the medium's fans for their hobby is a big part of the reason for that, and the rest of the reasons have been outlined time and time again. In summary, videogames are a surprisingly cost-effective form of entertainment for people at a time when nights in are seen as an economy over nights out - a hypothesis borne out time and time again by the figures the industry records during tough financial times.
Another interesting note, however, does emerge from all of this - and that's the role of the "casual" games which have recently become such an important part of the market.
In a recent column, I mentioned my belief that more casual software - such as the games championed by Nintendo for the Wii and DS - could be significantly more exposed to macroeconomic effects than the traditional, "hardcore" games market is used to. That still holds true, to some extent - although it's worth mentioning that there's nothing to stop the industry's new, casual consumers from making similar value judgements to those which drive more traditional consumers to keep buying games in tough financial times.
What emerges from this latest set of figures, however, is not a picture of an industry which has recently expanded into territory on which it has yet to fully consolidate its hold. Rather, it's a view of an industry which, after being driven forward by transitory hits for decades, has suddenly discovered how to add a long-tail element to its output.
It's not that some software hasn't enjoyed long-tail effects for years, of course - but by comparison with the continues strong sales of games like Brain Training, Wii Fit and Nintendogs, previous videogame long-sellers look positively irrelevant. These products, and others like them (Nintendo's spring most readily to mind, but other titles like The Sims 2 and Mario & Sonic At The Olympics prove that it's not only Nintendo that has the long-tail Midas Touch), are finally providing a steady revenue stream that gives an underlying strength to an industry which has, in the past, generally lurched from one flash-in-the-pan hit to the next.
Even the "casual market long tail" isn't the only new business model in town, however. The Sims provides a perfect example of a property that's creating ongoing revenue in a unique way - in this case, by pumping out packs of add-on items and functions for an existing, popular game.
Online retail allows that approach to be refined even further, with games like Singstar and Rock Band allowing companies to gradually build up online stores full of content. These items are purchased in small, single-item transactions, and are all in stock, all the time, without any of the worries of distribution or maintaining inventory, factors which would otherwise cause headaches for niche content and wide portfolios.
Then of course, there's World of Warcraft. We all know that WoW has created an amazing base of subscription revenue, of course, and plenty of other companies want a slice of the same action - but even discounting the amount of money that subscribers pay Activision Blizzard every month, consider the sheer volume of cash that will go through tills this week thanks to the Wrath of the Lich King expansion pack.
Two factors are worth noting on this expansion. First of all, it will be pirated - and Blizzard won't care. In fact, they'll be absolutely delighted for you to download a copy of the expansion pack from BitTorrent - because it's not the game disc that matters, it's the unique serial code that upgrades your account to give access to the content therein. Each code is single use only, and Blizzard couldn't care less if you copy your disc, BitTorrent your disc, or season your disc and eat it for dinner, as long as you've got a legitimate code - which will, of course, be paid for.
(This isn't DRM, it's worth noting for the benefit of those who continue to try to expand the definition of DRM to cover every kind of copy protection under the sun - in fact, since there's no encryption of content and every byte of data can be freely copied, it's the opposite of DRM. Rather, it's the benefit of running your game like a service rather than a product, and while it won't work for every game on the market, it's certainly a mindset a few more publishers could do with grasping.)
The second thing to note, however, is just how good Blizzard are at Collectors Editions of their games. Like its predecessors, Wrath of the Lich King's "CE" comes in a large, sturdy, embossed box, features a full-size, full-colour artbook, and a host of goodies like an in-game pet, a soundtrack CD and making-of DVD, and some unique cards for the WoW trading card game. Compared to the common or garden Limited Edition efforts of most publishers, it's an amazingly well presented set - and it's enthusiasm over that set which drove many of the crowds out on Wednesday night.
Blizzard doesn't need to do that - it doesn't need to give people a reason to buy its game rather than pirating it. However, other companies do need to watch and learn. In the music business, industry veterans Nine Inch Nails recently demonstrated the power of the special edition by releasing an album essentially for free, charging a little bit of money for higher-quality downloads, and then charging a lot of money for luxurious, well-presented "Special" boxes of various kinds. They sold vast numbers - by some accounts, exceeding their revenues from any standard album release. Yet the content, the media, was unprotected music that could be downloaded for free.
The lesson? If you have a reputation and a brand, people want a part of that brand - and they will pay for it. Put real thought and effort into your merchandising and special editions, and people will pay real money for them - both your dedicated fans who would have bought the game anyway (but are now providing more revenue for you), and those would-be pirates who are enticed by the physical products on offer. Blizzard proved the point this week - if you want to see the proof, just look at the bidding on Wrath Collector's Editions on eBay and Amazon Marketplace today.
All around the industry, the reasons for the continuing bright outlook are easy to spot. Pick a new business model, and it's almost certain that there's a company doing it right. From long-tail videogames through subscription revenue to ongoing content micro-transactions; from stimulating boxed sales with pack-in extras through to using retail expansion packs to turn a popular game into a business in its own right.
Innovation in gameplay is important, but for the business of games to keep moving forward, we need innovation in business as well. It's a combination of both that will keep videogames healthy through this recession - and on the strength of what we're seeing on the High Street and online at the moment, it's full steam ahead for continued growth.