What's Wrong with the Gaming Industry?

There are a lot of doom and gloom headlines around at the moment. Lots of development staff being laid off, games selling far less than expected, major publishers making massive losses and release schedules that look a little thin. What is happening here?:

• The industry has become even more lemming like than normal. We get a successful game like Guitar Hero and suddenly everyone thinks it is the second coming. Other people do “me too” imitations whilst the owner of the original title flogs it to death with countless variations. Then we have the inevitable, a Beatles game that flops. Publishers are just not thinking from the customer’s perspective, people really don’t want all these similar titles.
• Annual iterations of popular titles. Another way of flogging a successful IP to death - try and get the customer to fork out every year for a slightly updated version. This is incredibly inefficient as you end up with lots of customers just buying alternate iterations. Or being turned off by the cynicism of the whole exercise. Leave 2 years between releases on popular franchises.
• Modern Warfare 2. Every publisher is frightened of being in the same market as this 800 pound gorilla. So loads of games have been launched early for Q4 ‘09 and loads more have been moved into Q1 ‘10. This is a good thing as it has spread out the previous very silly Q4 congestion. This is a bad thing because not every customer wants an adult rated war game.
• The customers are moving to online faster than the publishers are. Lots of publishers have misread just how quickly the market would change. Apple’s (AAPL) App Store getting one and a half billion downloads in a year and Evony getting 10 million registered users in just a few months whilst boxed cardboard and plastic retail games gather dust on the shelves is the new reality.
• Unwillingness to experiment with a new IP. This is just pathetic. So many publishers now are just sitting there flogging their old IPs to death because they think it is safe. It isn’t safe at all, those IPs will not deliver forever. Publishers need to build value in their business and the only way is with a new IP. Sure it is risky, but publishing is about risk. And these days you can experiment on the cheap to develop platform and then if it works move the IP to the expensive to develop platforms. And the Apple App Store has loads of brilliant new ideas for the IP.
• Awful marketing. By and large the industry markets are incredibly inefficient with advertising that preaches to the converted. Instead they should be trying to engage with the public so as to switch their spend from other pursuits. Nintendo (NTDOY.PK) has done this incredibly successfully but the rest of the industry have failed to take this on board.
• Secondhand sales of boxed games. Customers now buy games with an eye for the resale value. This inevitably has the effect of concentrating the market into the blockbusters, at the expense of worthy, less well known titles. And the purchasers of the secondhand games are not putting any money in the developer’s pocket.
• Mid generation lethargy. Most publishers have now released all their franchises for this generation of platforms. So they are waiting for the next generation platforms to release them all again. In the meantime they can’t think of anything for their developers to do.
• Piracy. The 360 is being hit quite hard with this now. Microsoft (MSFT) really needs to put a whole pile more IP protection into the Xbox 3/720/phoenix, especially if it is a mainly, or all, online machine.
• Recession. A convenient excuse. Most of the world is out of the recession now (except for the UK, which has the worst run major economy). And even in a recession people give up paying for their entertainment last.

So it is the management’s fault. And the few well managed companies are making hay.

Comments

[Tom B:]

The margins will be squeezed in games, going forward. All the cutting-edge stuff (innovation-wise; not "frame rate-wise) is on the iPhone, and many of those are $1 games. Fun, quick games-- in your pocket--on the morning commute.

Nov 08 11:49 AM

[Tyler Jenish:]

I would not go so far as to say people do not want newer versions of the same game, because the Beatles rendition of Guitar Hero was a flop. Does this generation care about the Beatles more so than a band like The Killers or any number of new bands? Probably not. That was an attempt to attract Baby Boomers and failed.

As for title repeats, they continue to roll out new titles because they are successful and continue to be successful. Call of Duty 4, Madden <insert year here>, World of Warcraft expansions, Diablo 3 upcoming (will be HUGE), Starcraft 2 (will be HUGE), Final Fantasy, Pokemon, need I go on? Looks like Blizzard (Activision) will have a good run coming up... again. People like the predictability, because they will know what to expect for game play and whether they will enjoy the game or not before spending the money for the game then throwing the disc in the console or downloading the content to their computer and wasting away countless hours doing whatever.

They choose to rerun these titles because it is it's own form of branding and it works to maintain customer loyalty. Also, less developmental costs and more profit.

Piracy is always an issue, an issue that will never go away unless marshal law is invoked concerning the issue. Certain privacy rights would have to broken to curb this trend.

Everything seems to be business as usual with the exception that people are tightening their budgets. Mom and dad are not purchasing as many games and 15 year old Johnny, cannot find a job because 65 year old Wilson came out of retirement to wait tables.

Nov 08 12:55 PM

[None-Too-Gr...:]

marshal law ---> martial law

Nov 08 05:20 PM

[notsosmart:]

thats all the dumb-dumbs need-more games to play( as soon as the sports game is over & the beer can is empty).LOL

Nov 08 06:05 PM

[cowlady:]

Until NATAL comes out, gaming will just make us illiterate, ill-informed and OVERWEIGHT.

Nov 08 06:14 PM

[Frank Castle:]

You continue to be confused by the glut of casual gamers Wii (and now iPhone) pulled into the market that simply DON'T buy games. If I was a game developer / publisher do I want the casual gamer who maybe buys 2 games a year or the gamer who buys a game a month (if not more).

It's not there is a lack of trying to develop new IP, some just don't attract gamers but some great ones have come out in the past couple years - Assians Creed, BioShock. Is Madden tired? Yes - the only people still buying it are the hardcore fans. Same with titles like Tekken and most FPS.

I will be in line Monday at 11:30 .. COD:MW 2 is going to have incredible sales 1st week and pretty much own gaming the rest of the year. I doubt any game will see half the on-line activity.

I don't think there is an answer of piracy across all gaming platforms (Apple's being the worst lately). It's always been and issue and there will always be a % that circumvent / hack their system to obtain free games. DLC and online play is a good start.

DLC is a great thing for their "developers to do" between major title cycles as well system generations. This current generation likely has another 1 - 2 years (if not longer) PS 2 lasted almost 10 years and STILL sells games. Infinity Ward made a killing on a map pack for COD 4 on XBL. As well smaller games which don't have such a long development time can be profitable (Castle Crashers, etc)

The major problem now is gamers have a wealth of ways to spend gaming time as well other media diversions so it's spread out.

Nov 08 09:13 PM

[Michael Clark:]

marshal law ---> martial law ---> marital law

On Nov 08 05:20 PM None-Too-Great Hits wrote:

> marshal law ---> martial law

Nov 09 05:04 AM

[GSlusher:]

Are you trying to be funny or are you just ignorant? If the former, you failed, miserably. If the latter, get a dictionary.

On Nov 09 05:04 AM Michael Clark wrote:

> marshal law ---> martial law ---> marital law

Nov 09 05:36 AM

[a. palmer jr.:]

Are you talking about the stock market? Now that's real gamBling! Odds are better you'll make money down at the local casino than on the market. At the casino they don't change the rules in the middle of the game or have congress come in and mess you up!

Nov 09 08:25 AM

[Jon T:]

I blame Microsoft's Xbox for turning people off hugely expensive hardware and software.

The Wii made it fun and lighthearted, and the iPhone has taken that a step further.

Nov 09 08:25 AM

[a. palmer jr.:]

Seriously now, most people around here don't act like there even was a recession. They would buy their games and cigarettes first and then worry about whether or not they could make ends meet. Most people I know would rather go to a casino or the local horse track than buy the gaming devices spoken about here. But, alas, the local casino has fallen on hard times and I'm not sure but I think the horse track has too. So I guess that somebody's cutting back.

Nov 09 08:34 AM

[ArtfulDodger:]

Netease (NTES) and Power World (PWRD) are doing quite well.

Nov 09 08:50 AM

[Chris Lau:]

iPhone app games are quietly gaining traction, because $1 games (and up to just $20) are attractive. The big gaming companies, EA, and ATVI, are still "milking" their core products. The consumer is beginning to feel wary of being nickel and dimed with them. Examples include buying more songs for guitar hero, and EA sports' releases that have little change year after year.

Nov 09 08:57 AM

[bobbybutte:]

Remeber this saying if you cant eat it drink it smoke it "bang it" watch it wear it or bet on it forget it

Nov 09 09:51 AM

[mollytjm:]

it's hard to compete with apps for free or up to $4.99...most iPhone and other apps. if Apple comes out with a bigger iPhone so the screen is bigger, it'll be even worse. True 'gamers' still use large screen computers or flat screen tvs...but the allure of games that fit in your pocket is really hard to beat. the stores that sell 'hard copies' will go the way of the old record stores. Maybe one can survive if there's little competition, but downloads are the future.

Nov 09 10:04 AM

[GhostOfSpec:]

Nothing wrong. Just a lot of competition, expensive dev costs, and a recession.

They are doing quite well. The recession is not over yet . . . did you see the 10.2% unemployment rate. Those people can't buy games. But sales have been on an upswing compared to earlier in the year.

Nov 09 11:26 AM

[MichaelJ007:]

the gaming industry is still going strong. I agree with the author that there is a glut of titles that should not be getting made and are taking away from the sales of other and better titles. Also, gaming sales typically track hard copy retail sales ONLY. Online rentals, online downloads and rental services such as gamefly are increasing every month. MW2 is going to be HUGE and that is a title that gets nearly completely redone and upgraded every 2 years (when you include the COD titles). Nintendo and the Wii are starting to nosedive as the casual gamer demographic is pretty much "over" playing tennis and Wii board. Xbox 360- does anyone still pay for those games? go onto Craigslist and you can pay a guy $50 to get ur console moded to play burnt/copied titles. plus the 360 is a garbage console with a good online user interface that has more 12 yr olds using filthy language than a teen boot camp. PS3 is finally starting to gain momentum. Its the real deal console that cost less than your PC or blue ray player and can do 3x as much. As soon as PS3 gets the bigger franchise titles they'll take off. and the shelf life for the PS3 will last another 5 yrs. People are still buyng PS2 games!

Nov 09 11:51 AM

[Nettligent:]

Gaming industry will follow movie industry in 2010 and beyond. There are hundred thousand of games but only few great games. Bad years for gaming industry ahead.
The game companies that handle a downturn best are likely to lead when the economy rebounds.

Nov 09 03:05 PM

[jack dee:]

bad titles at $59.99 is killing the biz, it is directly driving consumers away from all but the best of breed.

Everyone is sick of shelling out $40 to $60 bucks only to find the game is a complete POS. So why risk it, just get a sub and rent a years supply of games for the price of a couple/few games.

Or Use steam for you PC games.....

Nov 09 04:34 PM

[j.harper12:]

Wow, I think more gamers should be commenting here. First off, what is the market for iPhone gamers? Well over 20 million iPhones sold, but how many of those people want to play games? How much will iPhone sales grow in the future? Competition in this arena is increasing, and guess what? Apple is stuck with AT&T, do you know what the call drop rate for iPhones in New York is? 30%. How long can they sustain this record growth in smart phones with their network? Not long I would say...

So iPhone app sales just aren't that big of a deal in the future of the industry as things stand now. Small apps in general across a broad spectrum of smart phones? Perhaps, and hopefully. I see them replacing PSPs and other portable gaming platforms. A net gain? Ha! Hopefully yes, likely, no. What is the barrier to entry for making a gaming app on a smart phone... I'll give you a hint. I was a social science major, and I buddy coded one with my brother. Low barrier to entry, low profits.

I agree that digital distribution is the bee's knees. I typically like to buy used games, and digital distribution puts a lock down on those plans. But right now it can be downright annoying, and makes a lot of gamers unhappy. Why? I can't play a freakin' game I just spent $57 on unless I'm online?!? That's ludicrous!

Further, we're not stupid. The gaming community isn't happy that we're paying the same price, but not getting a box, a disk, a manual, resale ability, or future guarantee of ownership. So what are we really doing? We're renting. You say, "Microsoft, put a lock down on piracy" to appease silly investors, Microsoft implements an absolutely obnoxious DRM that literally forces gamers away. Why was Spore one of the most pirated games ever? Because it was one of the worst DRM lock-down titles ever. That's incentive to pirate, because why own with the hassle, when you can own without it for cheaper? It used to be worth the cost to avoid having to pirate a title... now we have to pay to get screwed by DRM. Does that sound sane to you?

So what have most of us done in retaliation? Well, I for one don't pirate. I'm not sure why not, because investors, and the rest of the industry are certainly pushing us in that direction, but I just never have, and likely never will. So, I buy used (while I still can), look for sales, buy artificial currency (points) at discounted prices, and plan for the rental future. I have already accepted the fact that I do not own most of my newer games, so why pay retail? Want to know where the industry is heading? You're driving all of us straight towards a rental/online streaming market.

With fiber starting to spread across larger cities, it won't be long until onLive is online and possibly making good money. If they offer a rental service like netflix, but for games, they would get my business. Basically though, I'm just not going to buy games, new or used, in the future. You investors demanded so much IP protection that you finally started to break the loyal and LEGAL fans.

It's different this time, it's different this time, it's different this time. I swear I can hear some idiot analyst repeating this in their sleep with regards to DRM for games. Piracy in music? Two things, made it clear to the industry that fans DEMANDED a new medium for purchasing music, and second, study after study showed that total sales were not reduced by pirates. So you say, adding more IP protection will improve the bottom line, and I say the words, "it's different this time" are more often than not the calling card of a fool in denial. It's not different this time, and adding more IP protection will add to the industry's problems.

I agree with about 60% of the assertions made in the article, totally disagree with 20%, and would rather wait and see for the other 20%. This was a good, and well thought out, summation which drew my attention and caused me to write a response. Good article :)

Nov 10 12:40 AM

[GoMyLittleS...:]

Amidst all this blablabla, Modern Warfare 2 has now shattered one-day sales records by a 100% margin.

But hey, why spend time in reality when you can write an article giving a list of bogeymen about how the industry is in decline.

Nov 11 06:18 PM