Game Development Stagnating Without New Consoles, says Former Activision VPThe current consoles are old. This console generation is in its sixth year and heading into its seventh Christmas, significantly longer than a traditional 5-year cycle. For the most part, both publishers and the console makers are excited to see the cycle extend. But is an extended console cycle good for the business and can the business support a new console generation?
Already a longer cycle is resulting in fewer sales, as consumers fill their need for new and innovative forms of interactive content on new platforms like smartphones and tablets, on Facebook where they already spend time, and with new free-to play game models that encourage people to join in. The traditional games market needs new, innovative hardware and content to grow. The question is can publishers afford to make games in the next cycle and can console makers afford either the R+D investment that is required to create truly innovative new hardware or the losses that accompany their launch?
"If Apple becomes the dominant piece of game hardware where does that leave consoles and console games?"
Today’s traditional games market is in trouble. The retail packaged video game market is down and has been declining for 2 years. July 2011 was the worst month since October 2006 for U.S. retail game sales. Year to date through July 2011 the retail gaming market is down four percent. NPD says the market will be flat to down two percent this year…not as bad as July but not good news. Many believe digital sales and the economy are the core drives of the decline. I believe a lack of innovation – actual stagnation in game development – is the real culprit.
Digital sales are growing and digital growth is coming from game makers like Zynga, Rovio, etc. and new gaming platforms like Apple and Facebook. Digital is not a big driver for most traditional publishers. Even Activision only got 37% of their revenue from digital sales last quarter, and Activision owns World of Warcraft, one of the largest and most profitable digital games, as well as Call of Duty, one of the most valuable games for digital downloadable content. Electronic Arts’ digital sales are increasing rapidly, primarily via DLC/add-ons, mobile and micro-transactions. Yet EA, who has made significant investments to acquire digital scale, continues to rely on traditional game sales for the bulk of their business. Publishers need growth in console games to be successful, and those games remain primarily a retail business. Even including digital sales of these games, I suspect the market would still not show meaningful growth. The growth areas are mobile and social. Electronic Arts CEO John Riccitiello said that the fastest growing platform for EA is the iPad. This should be a concern not only for traditional game publishers but the console makers, Microsoft, Sony and Nintendo. If Apple becomes the dominant piece of game hardware where does that leave consoles and console games?
Is this the industry's future?
Is the economy hurting AAA game sales? Of course. Fewer and fewer consumers are willing to spend $60 for games that don’t offer anything new or different. And once habits change what will drive consumers back to traditional games if or when the economy improves? Publishers and the console makers need to figure out how to get consumers to spend their declining discretionary income on traditional games. Both Sony and Microsoft need third party games to be successful to make money. Nintendo needs its own software to sell. As traditional game sales decline so goes the profit and future for the console makers.
Despite the industry declining, the biggest games are selling more than ever before. By the end of 2010, within three months of launch, sales of Call of Duty: Black Ops had exceeded $1 billion in sales, an unheard of feat just a few years ago. Ubisoft’s Just Dance and Majesco’s Zumba games prove more casual games can sell a lot of units with more limited development budgets. The problem is a very few games that sell a lot of units will not support an industry or even individual publishers for long.
Are new consoles what the industry needs? Certainly innovation is a must and a new generation of hardware will drive innovation. With the right console and resulting game innovation, industry sales for traditional games should grow. Even peripheral innovations, like Kinect, have helped the market. The problem is that the cost to make games has doubled, even tripled, with each successive generation of hardware. Console games have gone from a few million dollars to make for the PS1 to $20-$50 million to make games for the Xbox 360/PS3. Today, publishers need to sell at least two million units or more of a title to break even on their development investment; yet, less than 40% of the top 100 game in July have life to date sales of two million units or more in the U.S. and Europe.
"In an industry where new, innovative and fun is key there is no future in more of the same."
If the trend of rising development costs continues, AAA development costs will rise to $50-$100 million per game (or more) in the next console generation. The market may grow but at the expense of publisher profit, and inevitably at the expense of innovation and breadth of games. In addition, the console manufacturers would have to invest significant human talent and money in R+D to develop breakthrough consoles and survive the early years of a new console launch when losses are the norm. No wonder most publishers and the console makers are satisfied with an extended cycle.
So what does it all mean? Continued growth on platforms, like smartphones, tablets, Facebook, etc., that bring games to players where they are and that approach the industry differently is inevitable. These platforms will continue to focus and reward what’s new and train consumers to seek out new games and experiences at an increasing rate. In contrast, traditional publishers will continue to try and drive more revenue from a single title (via DLC or premium services).
Perhaps the Wii U can drive more innovation and sales?
For traditional games to grow, I believe a new generation of consoles is needed, consoles with real innovation and the resulting onslaught of new IP and innovative gameplay. Ideally these consoles will bring a breakthrough on how games are played or what kind of game experience can be delivered. It cannot be just bigger, more complex games or yet higher definition graphics. The industry, both traditional publishers and the console makers themselves, need something different in the next cycle.
The next generation of consoles and games should recognize that consumers are mobile and active, value the player regardless of where and when they play, consider short and long play sessions, optimize both hardcore and casual games, embrace button/controller led play and new interfaces, enable content to evolve so games are dynamic not static, encourage alternative payment approaches like free to play, that drive more users to try the game, alongside the traditional buy it to play model, drive increasingly social and community driven experiences, and perhaps even allow play across devices regardless of manufacturer or form factor.
The industry cannot afford either more years of the same consoles and basically the same games or a new cycle with consoles and games that deliver more of the same just bigger. In an industry where new, innovative and fun is key there is no future in more of the same.
