None of the current consoles have hit the massmarket price points of $99 or $129, nor have they crossed the threshold of 100 million units sold, though Wii is looking like it’ll hit that by 2012. And apart from some occasional grumbling about the storage capacity of DVDs for 360 games, developers and publishers haven’t been clamouring for new machines, nor have there been any rumours of thirdparty developers being in possessions of devkits for the next generation of consoles. So it’s not much of a stretch to predict that the coming transition will take place between no earlier than 2012 and no later than 2015.
Regardless of when the transition will arrive, the question that’s been on my mind lately is this: can the videogame industry survive another transition? With every announcement of yet another studio closure or yet another round of layoffs, it becomes increasingly clear that the fundamentals of this sector are not as strong as they once were. For years now, executives and industry spokespeople have crowed about how annual videogame revenues have surpassed those of Hollywood (true if you only consider box office and leave out DVD and the other revenue windows that Tinseltown enjoys). Well, be careful what you ask for, because the economics of making videogames have rapidly become akin to Hollywood, going from six figures in the PlayStation era to seven figures in the PS2 era to eight figures at present.
Sony execs have publicly stated that God Of War III cost $44 million to develop, while a Rockstar Games bigwig revealed that Grand Theft Auto IV cost around $100 million to produce. Factor in increasing marketing costs now that television is a bigger part of the mix – rumour has it that Activision spent over $50 million to advertise Modern Warfare 2, to say nothing of the Super Bowl ad EA ran to promote Dante’s Inferno – and it’s clear that the industry is steadily moving away from a traditional portfolio strategy of singles, doubles and triples along with home runs to an industry that is primarily focused on home runs. And if that sounds like Hollywood, where studios appear to be abandoning a varied mix of movies in favour of big-budget ‘event movies’, that’s because it is.
How did publishers and developers find themselves in this state of affairs? Part of it has to do with the cost of HD game development: it simply costs more to make even the same kinds of genres that produced the biggest hits in the previous generation, which pushes out the break-even point and makes flops have an even bigger impact on the bottom line. Part of it is that, almost from the beginning, this generation has been more winners take all rather than a rising tide lifting all boats; a few games every month get the lion’s share of sales, and the rest appear to limp along until the next blockbuster is released. Part of it is the evolution of retail, where the Walmarts of the world have cut their initial inventory from four weeks to two and are only interested in carrying the top ten or 20 games.
And part of it is that, for the first time that I can remember, most thirdparty publishers are not primarily focused on the console with the largest market share. In fact, it’s the opposite: no thirdparty publisher has even come close to figuring out a viable portfolio strategy for the Wii. Any successes appear to be one-offs – a Guitar Hero III here, a Carnival Games there, a Just Dance for good measure – but nothing that points the way towards a sustainable thirdparty business model. So while Nintendo dominates its own platform, thirdparties are concentrating on Xbox 360 and PS3, where the behaviour of consumers is more readily understood, where the audience is more aligned with the titles developers know how to make and promote.
This, then, is the state of affairs that has resulted in a slew of layoffs and studio closures – many of them taking place after 2007, the year the industry set records for annual revenue. So is it any wonder that I’m pessimistic about the impact the next transition will have on developers and publishers? Higher costs of development. Increasingly fragmented audiences (I didn’t even touch on iPhone or Facebook). Divergent motion controllers. Uncharted territory regarding the rates of adoption for new consoles coming off a prolonged cycle for the previous machines.
May you live in interesting times, states the Chinese proverb, and interesting times most certainly lie ahead. But can the industry live through them? We shall see.
N’Gai Croal is a writer and videogame design consultant. You can follow him online at ncroal.tumblr.com.