Venerable newspaper-of-record The New York Times has taken a look at the details of the game industry's financial health to determine that it is a difficult time for the industry. It's not a bad time in terms of profits -- overall they were up 19 percent in 2008. But the landscape is shifting and game companies are trying hard to hang on and find out how to stay profitable.
While the financial downturn sure isn't helping anyone, the main adversary to gaming's big companies is choice. Triple-AAA console games cost great sums of money to produce. Right now, consumers are offered so many video gaming options (Downloadable games, iPhone games, Scrabble on Facebook, etc.) that many are turning away from $60 discs. Plus, according to analysts, the base of users of the PS3 and 360 is not large enough to support the sales numbers that game companies would like to see.
"The model as it exists is dying,” Mike McGarvey, former chief executive of Eidos and now an executive with OnLive, told The Times. He said consumers were looking at games for consoles and saying, “This is too expensive and there are too many choices.”
Consider this figure for an idea of the hurdles game-makers must overcome: Nintendo's Reggie Fils-Aime says a Wii title must sell a million copies to turn a profit and only 16 of the 486 Wii games released have met that goal. Lower sales means lower profits means less money to make the next game, which in turn leads to lower sales, etc.
Much like movie studios, game-makers can no longer count on solid sales across all their release to pull them through. They have to work for blockbusters that keep the whole ship afloat. And when a potential blockbuster fizzles -- Mirror's Edge -- the entire bottom line of the company can be shaken. Speaking of Mirror's Edge, EA's lineup for the last holiday season was big on original games (Mirror's Edge, Dead Space, etc.) and they didn't exactly hit a home run. While the company's releases were critically lauded and enjoyed solid sales, there was nothing there on the level of a Grand Theft Auto IV or Halo 3.
Video game companies are adapting to the changing market in various ways. If you've been following our site over the last few months, you know that lots of game companies are laying off employees. Others are sending jobs overseas. Or focusing more on developing for other platforms. EA, for example, has just announced a big slate of iPhone games and its president has publicly said he wished the company had bet on the Wii. Companies that are lucky enough to be attached to large entertainment conglomerates, like Disney Interactive, are making games based on well-known properties and thus, saving money in marketing and "brand awareness." Others see ad-supported games and micro-transactions as the wave of the gaming future. But no matter how they cope, game companies seem to be reading the handwriting on the wall that the game-game is changing fast, probably forever.
Do you think the age of the AAA, big-budget title is on its way out? Or do you think people will always somehow find a way to push technology to its limits to produce huge, complex works of gaming art? Or does the real future of games lie somewhere in the middle?