For the last decade, game prices have continually risen. On average, a video game title in 1998 would cost $30 compared to the rash of $59.99 titles we see today. Total game software sales reached $9.5 billion dollars in 2007 which was a 28% increase over the previous year (http://www.npd.com/press/releases/press_080131b.html). The ESA themselves notes that in the last decade the video game industry has tripled its size. (http://www.theesa.com/facts/index.asp) So, why do we hear so much whining about the cost of developing a game, used video game sales, and that piracy is killing the game industry?
I don’t know that anyone has written about that yet, or at least I can find such an article. What is my guess? Well this Layman, pardon the pun, would be willing to guess that many of these complaints are merely the excuse that video game executives give to shareholders, venture capitalists, and other investors. In the last decade have you noticed that Corporate America has focused a majority of its effort in pleasing their investors? Investors are important for inward cash flow, but there was a point in time where companies could support themselves and investors jumped on board because the long term outlook. Now it seems that investors think on a quarterly basis rather than long term. Growth is expected to be double digits every year and at the first sign of a slowing down, investors jump ship. Companies have to say something to keep all the rats from jumping ship.
Given these assumptions, the next few years could be rough for investors and the video game companies with which they invest. I listen to Bloomberg podcasts on a daily basis and most of the analysts say that although we will not reach depression levels, this economy will experience the deepest and longest recession since the depression. Investors will be looking for “sure bets” and retailers have already started discounting video games. Target recently announced its $40 game sale starting on Sunday with nearly a dozen games on sale. These games are older titles, maybe a year old at most, but will retailers like Target and Wal-Mart start asking for lower price points? If they do, and they get it, GameStop will follow suit. This means either a negative growth or no growth unless the industry can find ways to sell more titles in a year. Lowering the price of consoles is a good step, more console owners means potentially more titles sold. Although will someone who will not own a console at a price point of greater than $200 dollars by more than three or for $60 titles in a year? Probably not, but it seems that Microsoft has an answer for that – Xbox Live $5-15 price point online purchases. MMOs will have to find a way to keep users online. Blizzard seems to have shown that frequent content injection is a good model, but will it continue to be a good bet? Age of Conan has show that the alternative to massive and frequent content injection is not a profitable long term strategy. Casual games written in flash and available online for any platform that can support a web browser seem to be a great model providing they can continue to attract advertising dollars in an economy where the consumer seems to be scaling back their consumption.
Perhaps we’re reverting back to the 80’s. I think a shift to smaller games with less of an emphasis on sound and graphical effects but more emphasis on fun, accomplishments, medals/trophies, and published bragging rights will be a winning strategy. Complexity and Glitz requires more manpower, more time, and thus more money … the rise of the publishing houses. In an environment where such organizations become unwieldy an investors begin jumping ship, is the independent publisher the new growth area? If so how do they keep from becoming corrupted by the dark side of capitalism? If the independent studios begin to gain ground do we see studios divorcing themselves from the megalithic publishers and carving out their own individual niche? Do publishers change their strategy from ownership of studios to a loose confederation of studios for a smaller cut of the pie? Will episodic content make a comeback and individual games become platforms unto themselves and maintain the game engine / game mechanics and abandon the cycle of sequels? This approach could resurrect the traditional IP. Perhaps even developing these game platforms and then leasing out the rights to other studios or groups of enthusiasts who would generate additional content in exchange for a percentage. In much the same way that the mod community has created mods for their favorite games, individuals or groups could gain access to online tools that could create content and publish to company “proof readers” who would polish and publish this content for say $5 a pop giving the original author a $1 a pop.
One final note, publishers and studios would be well served to do whatever they can to create an environment where a “long tail” can evolve. What would a possible solution be? Stop selling only to the retail shelf. Create your own digital distribution system or utilize existing ones such as Steam or GoG (Good old Games). Most games seem to have a shelf life of a year or less. After a year, put your games online at a reduced price. Periodically reduce the price until you retire the game say five years later. Then lease the rights to sell that title to someone else for a very low price. Stretch the incoming revenue for each title out as long as possible.
The gist of all this babble is that I believe annual double digit growth is unsustainable and this economy may be what pops the bubble. The game industry has grown quicker than most consumer industries; as a result the game industry will either have to slow its growth or speed up its evolution in order to survive. The fallout and evolution of games and the game economy will be interesting to see.
Tags: Game Economy, Game Trends
