Is the AAA Games Console Business Doomed?

| About: Nintendo Co., (NTDOY)

The gold standard in the games industry is currently the AAA blockbuster console title. An investment of perhaps $10-20 million or even more from a big publisher on a big team over a couple of years. The global marketing costs run into the millions as well. The result is games like Grand Theft Auto, Halo and Assassin’s Creed, all well crafted global best sellers. They can make a lot of money, but often they don’t.

It could be argued that these games are actually a big part of what is wrong with the games industry:

  • They use up a disproportionate amount of the available development talent and finance.
  • They hold the focus of the media when, in fact, there is a lot more going on that doesn’t get the media attention it deserves.
  • They usually only appeal to a narrow demographic, thwarting the wider acceptance of gaming.
  • They are usually difficult and are inaccessible for a non gamer to get into.
  • Their genres and subject material are usually limited and intellectually and emotionally stunted. Let’s make another alien shooting game.
  • They are far, far too expensive for customers to buy. A factor of their high development costs, their limited appeal, their high risk and the large slice the platform holders take out of each one. Most games would still be too expensive at half the price.
  • They use the limiting distribution model of cardboard and plastic.
  • Usually they have no room for user generated and/or episodic content.

But now the winds of change are blowing through the industry. Nintendo (OTCPK:NTDOY), casual gaming, free MMOs, handhelds, social networking. All of these, and more, are changing the way the public look at games. The industry, eventually, will have to follow the customer.

Quite simply, a publisher will find that they can get a better return with less risk by not doing traditional AAA blockbusters. They will see that they can use their finance and development resources in ways that are better for their business.

The film industry learned this a long, long time ago. If you are going to invest a lot of money in a film make sure it appeals to a very wide audience. Don’t spend the big money on art house movies. We will follow suit and the current generation of AAA titles will be looked back at as an anomalous growing pain of the video gaming industry... and less aliens will be shot.