Only Three Of Ten Games Recover Costs, EIF Chairman Claims

Only Three Of Ten Games Recover Costs, EIF Chairman Claims

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The head of the Edinburgh Interactive Festival says that rising development costs and falling software sales means that less than three out of ten videogames recover their costs through retail sales.

In a speech opening this year's festival, EIF Chairman Chris Deering warned, "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 percent by 2011 versus this year. Something is going to have to be there to make up the difference and take us beyond that threshold."

"My guess and analysis shows that less than three out of ten games recover their development and marketing costs with boxed good sales," he continued. He noted that development costs for major games can now eclipse $10 million, and in the case of blockbusters like Grand Theft Auto IV can run as high as $100 million. "So what's going to have to happen? Creative use of hybrid online and offline advertising revenues, online [and] offline transactions with consumers - these business models must be explored."

Deering predicted the emergence of internet-served video, increased remote data storage and the development of "global virtual currencies" over the next ten years, along with the growth of potential new revenue streams for games, including mobile social, television, GPS and advertising. He did not suggest, however, that if the industry cannot continue to support development costs in excess of $10 million, then perhaps it should stop spending in excess of $10 million to develop games. That was entirely my idea.

Source: GamesIndustry

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Malygris:
Only Three Of Ten Games Recover Costs, EIF Chairman Claims
He did not suggest, however, that if the industry cannot continue to support development costs in excess of $10 million, then perhaps it should stop spending in excess of $10 million to develop games. That was entirely my idea.

Source: GamesIndustry

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I am intrigued by your analysis and would like to learn more. Can I subscribe to your newsletter?

Considering that eight out of ten games are more or less shit, and me, the consumer; am only interested in one of the two that are not, this statement makes perfect sense.

rougeknife:
Considering that eight out of ten games are more or less shit, and me, the consumer; am only interested in one of the two that are not, this statement makes perfect sense.

I think you pretty much hit the nail on the head there lol. I read somewhere recently that Sega have reported MASSIVE losses...i wonder why...?

Archon:
I am intrigued by your analysis and would like to learn more. Can I subscribe to your newsletter?

I can't tell if you're making fun of me or not.

It's a bit on the knee-jerk side of things I suppose, but my take on it is simply this: If you're spending tens of millions of dollars to develop games and you're unable to recoup your costs, spending less on development seems like a more direct route from point A to point B than trying to come up with new revenue streams to support games that apparently aren't as popular as you thought they were going to be in the first place.

Well, this is what happens when developers decide to spend millions and millions investing in graphics technology rather than in basic things like imaginative design teams, good script-writers, etc. I dunno how much a competent writer costs to hire, but I'm sure it's not $10 million. But what do I know? I guess investing in a competent core production team rather than pseudo-phallic graphics technology is just a crazy idea that'd never pay off...

Oh, someone remind me, what's the name of that developer that made the clever sci-fi shooter with the man and the crowbar. Began with a V, I think... Value? Valet? Valentine?

Well, thank God the Wii is still dirt-cheap to develop for. I remember reading that Mushroom Men barely cracked 1.2 million in costs and took 18 months to make. It won't have to sell as many units to crack a profit and hopefully those creative bastards will keep producing.

Or how about this...wait for it...companies just use old content and art assets and just release variations or expansion packs that have wacky things like good writing, creative game design, and deliciously cheap price tags that my pathetic budget can handle.

3 out of 10? I kinda doubt it. No company could hold it's head above water if it was that way, not even the mammoth ones.

Anybody got some numbers from Hollywood we can use for comparison?
Or numbers from network/cable TV?

-- Alex

90% of all statistics are meaningless.

This is one of them.

What he does NOT say is what percentage of their dev costs *successful* games make.

If a successful game makes, say 100 times the dev cost, then the three that hit more more then pay for your other unsuccessful tries. The film industry is no different. its a hit driven industry., You make big bets and you often lose, but if you win often enough you make a LOT of money. And if you don't, well, you find something else to do for a living.

lol someone's a liar (EIF Chairman), if that was the case no company could last unless they made the best game in the world that changed society as we know it, ceased world hunger and included cures for at least 4 (previously untreatable) fatal illness. Then they might last long enough to produce a sequel (Which according to those statistics is more then likely to loose the company all the money it gained)

Yes, this makes me wonder. If these games don't make money, why are there so many of them? I'm no economist, with a fine tuned sense of supply and demand, but I've often heard lack of profit = failure of company.

rougeknife:
Considering that eight out of ten games are more or less shit, and me, the consumer; am only interested in one of the two that are not, this statement makes perfect sense.

What he said.

Um, this isn't that ridiculous a claim. You have to remember these companies make more than one game at a time, so they float on one of the 3 out of 10 while all their other products cost them money. It's a very risky business model.

Midway is reporting lay-offs and losses of 34.8 million for this quarter.

http://www.gamasutra.com/php-bin/news_index.php?story=19794

Gametap has failed to turn a major profit, downsized, and is now being sold.

SEGA is reporting a 105 million loss.

http://www.gamasutra.com/php-bin/news_index.php?story=19725

And Square/Enix is taking it on the chin as well, but I don't quite know what to make of their numbers since they are still in the green.

http://www.gamasutra.com/php-bin/news_index.php?story=19647

Meanwhile, Atari's ass has officially been saved by 'Alone in the Dark'.

http://www.gamasutra.com/php-bin/news_index.php?story=19657

It's just the way the industry is right now.

Malygris:
He did not suggest, however, that if the industry cannot continue to support development costs in excess of $10 million, then perhaps it should stop spending in excess of $10 million to develop games. That was entirely my idea.

But then how are we gonna add the excessive bloom and other purtty grafix?

Anyways, it's obvious that many games don't sell much: many games suck.

Malygris:

Archon:
I am intrigued by your analysis and would like to learn more. Can I subscribe to your newsletter?

I can't tell if you're making fun of me or not.

It's a bit on the knee-jerk side of things I suppose, but my take on it is simply this: If you're spending tens of millions of dollars to develop games and you're unable to recoup your costs, spending less on development seems like a more direct route from point A to point B than trying to come up with new revenue streams to support games that apparently aren't as popular as you thought they were going to be in the first place.

The other alternative is to just make them higher quality too.

I'm a bit puzzled. Hasn't NPD basically said that sales of game software increased every year for like the last decade? Not even counting online sales, downloads and subscriptions? Maybe I'm remembering incorrectly (I don't think I am) but if I'm not, I wonder what makes this fellow think the trend is going to suddenly reverse itself. Given that conclusion, I have to wonder about the validity of the rest of his statements. Again, maybe I'm simplifying too much, maybe he's seeing something I don't see, and maybe I don't remember the last 10 years very well, but I have a hard time swallowing this one.

1) His "guess" and some unnamed, ethereal "research" states that 7 / 10 games don't make a profit?
2) This depends wildly on the given definition of games. I mean even now most "games" must be the small online / trial / independent sort. Not everything is released by big companies, or indeed to make a profit from selling boxes.
3) GTA4 is a bad example of "wow games are expensive to make". You think Rockstar are struggling? You think they spent that much without considering exactly how much they would *make* from a game that, with such an established (and well-deserved) world-wide following became the highest selling game of all time?

Bullshit article.

I think you can attribute the astronomical dev costs to the demand for games with God-awesome graphics, and with AI than can outsmart a human. And you can attribute the lack of sales to lack of name-recognition. Halo 3 sold $170 million worth of copies on the very first day. The only thing you can accredit that to is record advertising budget, and the public's familiarity with the Halo franchise. And that makes perfect sense: someone's a lot more likely to buy something if they actually know it exists. Devs should focus a little more on advertising.

(you know, when I think about it, I don't even remember the last time I saw a game advert on TV. I think it was an ad for Bad Company [which I did go out and buy after seeing the commercial with the golf cart getting chased by the tank :) ].)

Royas:
I'm a bit puzzled. Hasn't NPD basically said that sales of game software increased every year for like the last decade? Not even counting online sales, downloads and subscriptions? Maybe I'm remembering incorrectly (I don't think I am) but if I'm not, I wonder what makes this fellow think the trend is going to suddenly reverse itself. Given that conclusion, I have to wonder about the validity of the rest of his statements. Again, maybe I'm simplifying too much, maybe he's seeing something I don't see, and maybe I don't remember the last 10 years very well, but I have a hard time swallowing this one.

The overall sales went up, but that's only because certain blockbusters like Halo 3 make $300 million in the first week alone. There's a lot of game companies struggling right now. And I'm not talking about Joe Schmo Productions, I'm talking about real big name companies like Sony, Midway, Atari, hell even the juggernaut Square-Enix is having some trouble. The sales are up, but it's all concentrated on a few games.

I don't understand what is making games cost so damn much, of course it isn't just one thing that is making games expensive to develop but seriously, they have to do something about development costs, we aren't going to be loyal and supportive for long if it means we can't eat our next meal.

ElArabDeMagnifico:
I don't understand what is making games cost so damn much, of course it isn't just one thing that is making games expensive to develop but seriously, they have to do something about development costs, we aren't going to be loyal and supportive for long if it means we can't eat our next meal.

Art is a biggie. You need a lot more art to make a level if you're displaying it at 1080p as opposed to 480p (or VGA)... the extra detail work takes more time, or more artists, and that means more payroll. Trees don't grow themselves (Well, not yet... though there's some promise with procedurally-generated foliage middleware. Yeah, there's real money to be made in imaginary trees.) and every object in the game has to be modelled and skinned. Animation comes under this category too... it takes a ton more work to do 3D animations than it used to in the era of sprites.

More sophisticated engines need more coding, too. Add in coding for network play.

Test ain't cheap either, and the more complicated the engine the more you have to test it to find weird stuff.

I think art is the biggest single cause for steeper costs these days, though.

-- Steve

 

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