Dungeons & Dollars

Dungeons & Dollars
Death to the Games Industry, Part I

Greg Costikyan | 30 Aug 2005 08:00
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Glitz Over Gameplay
The problem is that once something becomes technically feasible, the market demands it. Gamers themselves are partly to blame: Indie rock fans may prefer somewhat muddy sound over some lushly-orchestrated, producer-massaged score; indie film fans may prefer quirky, low-budget titles over big-budget special FX extravaganzas; but in gaming, we have no indie aesthetic, no group of people (of any size at least) who prize independent vision and creativity over production values.

But the nature of the market and distribution channel is even more to blame. When a developer goes to a publisher to pitch a title, the publisher does not greenlight it because they play it and say "what a great game!" The developer may not even have a playable demo - but what he will have is a demo reel, a non-interactive visual pitch that may work to get some sense of gameplay across, but is mainly designed to impress the marketing dweebs with the graphics. Glitz, not gameplay, is what sells the publisher.

For that matter, half of the people sitting in on that greenlight meeting are probably marketing suits who think they're in a packaged goods industry, and are a lot more concerned about branding than anything else. Sequels and licenses, good; creativity - that's too risky.

And glitz, not gameplay, is what sells the retailer. Retailers don't have the time to play every title that comes across their desk and, in many cases, they don't play games anyway. They look at a video, they look at the materials provided by the sales guy, they make a decision. And that decision is ultimately based on concerns like branding, how much money the publisher will spend on product placement and stocking fees (what the industry calls "market development funding," or MDFs) - and whether it looks pretty or not.

And finally, there's the industry's attachment to "feature list" marketing. Online play? Check. Dozens of levels? Check. HDTV support? Check. You can often tell a game has nothing new to offer just by reading the backcover text: If it's basically a list of features and numbers (five of this and a hundred of that), you know they've really got nothing to say.

In other words, graphic glitz is the first barrier you must surmount. If you don't have it, you won't get greenlit; if you don't have it, you won't get distribution. Maybe, someday, way down the road, the actual quality of the game will matter to someone - a reviewer, an actual gamer - but you don't even get a chance to get to them if you don't have the graphic right stuff. In other words, gameplay may affect ultimate sales - but it won't get you shelf space.

The reverse isn't true, though - poor gameplay and great graphics will work just fine, as far as the market is concerned. 80% of all game sales occur in the first two weeks that a game is available; all you need to do is blow through your inventory before word of mouth catches up with you. The industry is full of best-selling, lousy games. Can you say "Driver 3?" I knew you could.

In other words: Pretty + bad = financially successful; good + not pretty = fuhggedaboutit. Of course, pretty + good would be nice - but neither the publishers nor the retailers have an incentive to care.

The Narrowness of the Retail Channel
Step into a typical record store - even a small mall location - and there will be thousands, possibly tens of thousands, of different titles in the racks. Step into a typical bookstore, and the story is the same. Step into a typical game store - and you will be lucky to find 200 titles.

In film and publishing, plenty of people make decent, middle class livings by catering to niche audiences - they're not going to get rich, they'll never make as much as Stephen King or 50 Cent, but they reach a market. And in both industries, a product has time to build word of mouth and an audience - several months, typically, before either music or hardcover books get returned (and even six weeks for paperbacks).

In the games industry, you get one shot. You have two weeks. If you haven't achieved sales velocity, you are dead. It's the bargain bin for you, buster. Thousands of games get released each year, they only have facings for 200, and they need the shelf-space for the next piece of over-hyped crap.

I want you to think about this, a little bit. Dozens of people have worked for, typically, three years to bring a game to fruition - and two weeks is all they get. Compressed sales is vital to staying on the shelves, 80% of all sales are in the first two weeks - and if the publisher has botched the marketing, it doesn't matter how good the game is.

Oh, by the way... Go buy yourself a copy of Freedom Force vs. The Third Reich. If you can find it. Nice game. Too bad about the marketing.

But Sales are Up!
Yes, they are; the games industry is the fastest-growing entertainment industry on the globe and unit sales increase year by year. There was a time that a million-seller was considered extraordinary, and now there are several every year. And if you believe, say, Michael Pachter at Wedbush Morgan, we can anticipate soaring growth for decades to come; surely all is for the best, in this best of all possible worlds?

Why is it that sales are up? The answer is very simple: Demography. Fifteen years ago, almost nobody over 20 (and almost nobody not male) played games. These days, almost nobody over 35 plays games. In other words, a much larger percentage of the population as a whole plays games.

Not because more people have become gamers, exactly - rather, because people's leisure time activities tend to be set in their teenage years, and they pursue the same activities as they get older. Thirty-five year-olds play games because they've been playing them since they were teens. Fifteen years from now, 50 will be the cut-off - and 30 years from now, the demographics of game players will match the demographics of the population as a whole. (And, by the way, we won't have idiot senators attacking games any more - everyone, regardless of age, will know how dumb that is.)

So the growth in game sales is driven by two factors: The growing portion of the population that was exposed to games when young - and, of course, the growth of the population. But what we're talking about, when you get down to it, is growth on the order of 7-10% annually.

Compare that to Moore's Law: 100% growth in processing power over 18 months.

In other words, the growth in processing power, which drives the cost of game development, is enormously faster than the growth in the population of gamers - and while technically both are exponential curves (at least until the global population levels off), the disparity is so great that you can treat the growth in sales as a linear curve, and the growth in cost as an exponential one.

And what's the upshot of that?

The result is that the average game (not the industry as a whole) loses more and more money. The publishers make up the losses on the few games that hit.

In other words: There is no room in this industry for niche product. There is no room for creativity or quirky vision. It's hit big, or don't try.

Implications for Publishers
The field becomes more and more hit-driven. There is no mid-list. You only want home runs. And those home runs have to cover the losses on everything else.

As a result, you need size to survive. It's what the finance folks call "portfolio risk;" if you invest in a single stock, you're doing something very risky, because you're tying your fortunes to a single company. That's why it's prudent to diversify, to invest in a lot of different financial vehicles with different risk profiles.

Similarly, being a small publisher is like making a high-stakes, low odds gamble - it's like betting all your chips on number 32. As a small publisher, you can afford to produce only a handful of titles every year - and if the ball lands on 32, you can make big money. But if you go a year or two without a hit - you are screwed. Goodbye Acclaim. Goodbye Eidos. Goodbye Interplay. And tomorrow - maybe Goodbye Rockstar.

This is why Sumner Redstone has been building up Midway's studios; Midway needs to get big, or get out of the game. They need a bigger spread of product. They need to spread their portfolio risk over more titles.

This is why there are only four stable publishers in the field - EA, Microsoft, Sony, and Nintendo. The latter three are mainly in the hardware business (and Nintendo is not immune - Revolution could easily go the way of Dreamcast). They'll do okay, they have deep pockets and a diverse portfolio, and anyway make money off the bets of others via the platform royalty.

EA is stable for a different reason: It is big. More than double the revenues of Activision, its closest competitor. EA has the broadest, most diverse portfolio of anyone.

And they know it. And they're the villains in this piece, because they're the ones who keep raising the budgets and the costs. Everyone else has to stretch to keep up. Raising the development bar has, for more than a decade, been a conscious corporate strategy for EA, a means of squeezing out less capitalized competitors. And it works.

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