As I am writing this article, Activision is shutting down Radical Entertainment, Sega is laying off staff from their UK and U.S. offices, Vivendi wants to sell its majority 61% stake in Activision Blizzard worth $8.1bn and THQ is on life support. Over 120 developer studios have been shut down between the beginning of this generation (end of 2005/beginning of 2006) and the end of this generation (currently). If you continue to let budgets and team sizes spiral out of control, the future of gaming will be grim. There is a quote above that says: “ Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius – and a lot of courage – to move in the opposite direction.“ I believe this quote sums up why Nintendo’s strategy will prove to be more successful than other companies in the long run. Even with Nintendo’s least successful consoles such as GameCube and Nintendo 64, not only did they earn a profit, but they stuck by those consoles an entire generation to stay loyal to their fanbase.
Nintendo is offering Wii U as an alternative to PS4/Xbox 720’s way of development (increasing costs, hiring bigger teams, longer development times). This current generation, developers and publishers are struggling to break even on sales for their games. How can you double or even triple your costs on next gen consoles if you struggle to break even on current gen software? These companies are setting themselves up for suicide by ignoring simple economics and using poor decision making. Especially at a time when it only takes one game to bomb/fail to wipe out a studio.
Which is the winning strategy?: The Wii U/PC/Tablet/Mobile Phone ecosystem vs the PS4/Xbox 720/PC ecosystem.
On June 4th, 2012, Ubisoft CEO Yves Guillemot told a group of journalists that Wii U games can easily be ported to tablets/mobile phones: “The new content you can’t port on the other machines but what you can do is port it to mobile phones and to tablets. So it’s a way to create content that you will be able to port on the generations of tablets or phones that work well,”
Kotaku had recently ran an article called “The Wii U’s Power Problem“ comparing Wii U closer to an iPad 4 in specs. In my opinion, a development ecosystem for Wii U/PC/Tablet/mobile devices might potentially prove to be more attractive to developers/publishers from a financial/cost perspective compared to a PS4/Xbox 720/PC development ecosystem. Especially with Wii U having a one year head start to build an installed base compared to their competitors.
Source: http://www.gamesindustry.biz/articles/2012-06-04-ubisoft-to-port-wii-u-titles-to-tablets-smartphones & http://kotaku.com/5920931/the-wii-us-power-problem
What do current gen games cost?
In 2010, Gamespy.com reported on research done by Ibis Capital on the development costs of game. The author of the article writes: “ Developer Ninja Theory recently revealed its 2007 PS3 exclusive Heavenly Sword barely broke even despite its relatively impressive 1.5 million-copy debut. According to new research from Ibis Capital, that’s par for the course in today’s videogame industry. “
The article continues: “ The average Xbox 360 and PlayStation 3 game costs between $15 million and $30 million to make, Ibis estimates, and a $15 million game must sell at least 500,000 copies to break even, double that for a $30 million title — and that doesn’t include a company’s overhead costs.“ The article also mentions how the average Xbox and PS2 title only cost between $5-10 million to make, and Nintendo Wii titles cost $5 – 7 million to make.
Source: http://www.gamespy.com/articles/108/1082176p1.html
Let’s put this into perspective with another publisher. When PlayStation 3 launched in 2006, Namco Bandai President Takeo Takasu told Bloomberg that they needed to sell at least 500,000 copies to break even on their PlayStation 3 games. The game “ Enslaved: Odyssey“ is an example of a game that didn’t reach the break even point in 2011. It had only sold 460,000 copies. Namco marketing boss Carson Choi explained to Siliconera, “ It really didn’t do what we anticipated. We didn’t do a good job finding the right time for it because when you look at the quality of the game it speaks for itself.” Most likely the game has passed the 500,000 copy threshhold by now, but the problem is this happened after the price was heavily discounted and went on sale.
On February 2nd, 2010, Gamasutra.com reported Namco Bandai laying off 630 employees, which was 10 percent of its 7,000 total workforce. They reported a loss of ¥5.70 billion ($63.17 million). Namco Bandai had reported a ¥11.74 billion ($129.88 million) loss for the first nine months of that same fiscal year. They blamed their problems on weak market conditions. Then on May 2010, Gamespot reported that Namco Bandai‘s losses topped $300 million. Then on November 2, 2010, Gamespot reported Namco Bandai laid off another 90 jobs in the U.S. This all happened just two years ago.
Source: Namco Bandai Holdings and Statistica.com
Why do games currently cost $60?
Link: http://www.forbes.com/2006/12/19/ps3-xbox360-costs-tech-cx_rr_game06_1219expensivegames_slide_2.html
Factor 5′s forecast/predictions of next gen budgets and team sizes (from years ago):
This was Factor 5′s prediction years ago. But if you’ve paid attention to game budgets and the crazy increases in staff (Resident Evil 6, Assassin’s Creed 3, Star Wars: The Old Republic), I think things are much worse than what Factor 5 ever predicted. The irony is it only took one game, Lair, to financially kill Factor 5.
Should we be worried?
Negative trends in costs and teams are becoming more noticeable in game development with each new generation that passes. Cost of game development isn’t the only factor that increases the amount of copies a game must sell to break even. Overspending on marketing is another element of why some games struggle to break even on sales. But you’re a consumer, and you don’t care about the business side of gaming. You just want the best product for your money, and your idea of the best hardware is more power with the most AAA games.
A huge reason behind overbloated budgets and teams is this push to turn video games into interactive cinema. Every game these days wants to be an interactive film: Watch Dogs, The Last of Us, Beyond, Tomb Raider, etc. Other examples are past or current games like Metal Gear Solid 4, Uncharted series, Grand Theft Auto 4, Max Payne 3 and Heavy Rain. It’s true that gaming has had storytelling for the last twenty years but developers and publishers are trying to imitate the giant massive budgets of a summer blockbuster Hollywood movie. This business model of using Hollywood budgets for video games is going to lead to major disaster for the entire industry.
The harder you try to make games like movies, the more costs will build up and inflate out of control. These are two different industries. Just because they are both entertainment, doesn’t mean you should completely cross them together. Expecting most games to be cinematic will add tons of pressure on studios to deliver this on every game. Especially since publishers these days are less willing to gamble on more niche genres.
Average movie tickets are around 8 to 10 dollars (costs vary if you’re watching a movie in 3D or 2D). When the movie is released on DVD or Bluray, it’s usually priced around $20 while the average Bluray is between $20-$35. A brand new console game on day 1 is normally between $50 – $60. The retail price of a game is five to six times more than a movie ticket. And yet, the gap between movie production and game development costs is getting smaller with each generation. An average game’s budget on 360/PS3 is around $20-30 million. The biggest AAA games can range from $40 million to as high as $100 million. There’s been a few cases of game budgets hitting astronomical heights of $200 million (Star Wars: The Old Republic). Call of Duty 4: Modern Warfare 2 had a marketing budget over $200 million according to the L.A. Times. That‘s within the same range as most Hollywood movie budgets.
Films and games have something else in common: The first 3-4 weeks are the most crucial for sales. If the first three to four weeks are disappointing, then the game publishers and movie studios are screwed. Revenue dips significantly after the first 3-4 weeks, and stores will cut game prices to clear out inventory. Movie studios have it slightly easier though. Whenever movies have bombed domestically in the U.S. (like “Battleship“ or “John Carter“), international box office sales in foreign countries saved those movies from taking a financial loss. DVD sales and Bluray sales can also help a movie become more profitable.
Video games don’t have that type of cushion that films have. They have to break even on the $60 price tag. It becomes impossible for game publishers to earn back those costs when the game starts hitting bargain bin prices. Selling 2 to 3 million copies doesn’t do any good if you are selling them for less than $50-$60. And when customers buy used games, developers and publishers do not see a single cent from that.
In a 2011 interview with Eurogamer.net, Naughty Dog expressed their concerns and fears about next gen. Studio Co-President Evan Wells explained: “The geek inside you is always excited about a shiny new toy, but then the practicality of it starts to set in: this is going to be a lot of hard work.“ He continues saying, ” the switch from PS2 to PS3 was “the period that Naughty Dog had its darkest days and we lost people on a weekly basis – people just couldn’t get through it.”
On April 3rd, 2012, gamesindustry.biz spoke with a developer with access to a Durango development kit. He told gamesindustry.biz that they are seeing costs rise sharply thanks to higher polygon counts and better textures being required. “I’m having to double my budget for models. If we want to take advantage of Durango’s capabilities, it takes a lot more time for each model.”
Source: http://www.gamesindustry.biz/articles/2012-04-03-next-gen-consoles-mean-increased-development-costs
On February 6, 2011, 200 people (30% of the company’s workforce) were laid off at Disney Interactive. However, the layoffs at Junction Point were minimal. In an interview with Digital Spy on April 27th, 2012, Warren Spector talks about his fears of next gen gaming after witnessing massive layoffs in the previous year at Disney Interactive.
“If you’re spending $200 million on a game and you’re making $60 on 20 million copies sold, oh wait, you’re losing money if you’re the best-selling game of all time basically, right? I don’t know how the business works anymore, that’s the problem,” Spector said. “It already takes three years to make a game, when all of a sudden creating assets at an even higher level of quality and animations that are even a higher level of quality, I don’t know how we’re going to do it. We’ll figure it out but right now I’m content where I am.”
Spector continues,
“Someone’s going to spend… well, there are already people spending $100 million on games, that’s not even insane anymore. $200, 300 million games, I’m a little scared about that, there aren’t a lot of companies that have the resources or the courage to spend that much. “
Warren Spector also added: “Pixar-quality graphics with interactivity” being achieved, which would result in development costs exceeded $200 million. “ He continues saying, “Once we can do Pixar-quality graphics rendered in real time with interactivity, I could see games costing $200 million to make and all of a sudden you have to sell a lot of games just to break even, so I’m a little worried someone’s going to do that”
Spector is not crazy. $200 million being spent on a single game’s budget is not insane anymore. According to Gamespot, the Times reported Star Wars: The Old Republic cost $200 million and took six years with 800 employees on four continents to develop it. This was significantly above Michael Pachter’s forecast of $80 million. BioWare co-founder Greg Zeschuk told the The Times “Coordinating it all is like teaching elephants to do ballet.” Unfortunately for Bioware, on May 22nd, 2012, there were a lot less elephants in the room. Layoffs hit Bioware, but the number of layoffs was unspecified.
Star Wars: The Old Republic’s lead designer, Emmanuel Lusinchi, talked about the impact of the Bioware Austin layoffs. “The MMO is the toughest part of the game industry without a doubt and we live in tough economic times in general,” he said. “So that’s very unfortunate, and on a personal level it’s quite difficult to have people that you’ve been working with for a long time that you know personally, you go to their barbecue and you meet their families and it’s never easy. I doubt it’d be easy in any industry for anyone, but it happens” says Lusinchi. If there is one thing Electronic Arts is good at, it is layoffs. In December 19, 2008 Electronic Arts announced it would send out 1000 pink slips on March 2009 (3 years ago): http://www.gamespot.com/news/ea-layoffs-hit-1000-black-box-consolidated-6202573
Bioware Austin and Obsidian weren’t the only ones hit with layoffs this year.
Blizzard (Diablo III, World of WarCraft, StarCraft) announced 600 layoffs on February 29, 2012which was almost a tenth of Activision’s 7,300 employees. The good news would be that most of the layoffs did not affect any of the actual development teams and were mostly customer service positions. Activision has had a strong history of layoffs. In February 2011, the Los Angeles Times reported that Activision laid off over 500 jobs and killed off Guitar Hero.
Source: http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/02/activision-guitar-hero-layoffs-call-of-duty-beachhead.html
In September 2011, analyst Arvind Bhatia from Stern Agees stated that Rockstar’s Max Payne 3 could cost $105 million to develop. $105 million is almost reaching production costs of a big summer blockbuster film. Arvind said Rockstar had a team of around 200 people working on the game, and Max Payne 3 needed to sell 4 million units to break even. In a financial report,Take-Two stated that they were expecting the game to sell at least 3 million copies. The game only sold 440,000 units in the first month. Michael Pachter called the game a flop, and there are now a few million copies of this game sitting around in stores as unsold inventory. How is this smart business? Why would you set yourself up in a situation where you have to sell 3 to 4 million copies just to break even?
This isn’t the first time Rockstar has run into financial problems with a project. In 2010, sites were reporting Rockstar spending a whopping $100 million budget on Red Dead Redemption. A similar budget to Grand Theft Auto V and the newly released Max Payne 3. Joystiq.com editor Bill Gilbert had been contacted by a Rockstar rep in 2010.
Source: http://www.joystiq.com/2010/01/12/sources-red-dead-redemption-development-in-trouble/
Joystiq.com – “We were contacted regarding this story by one Rockstar source, who told us: “It will take 4 million sales at full price to recoup the development costs of Red Dead. The good news is they [Rockstar] are not expecting to make money with Red Dead Redemption. At this point, that project is just supposed to prove that the San Diego studio can make a great quality AAA title.”
According to Joystiq, the previous game, “Red Dead Revolver“ (Playstation 2, Xbox) received mixed reviews and sold only 920,000 copies as of July 2, 2010. The chances of the sequel, Red Dead Redemption bombing were extremely high. The good news for Rockstar is they ended up shipping over 8 million copies of Red Dead Redemption, and made over $400 million on the game. But as previously mentioned, things could have easily went south financially if it ended up with Max Payne 3’s ho-hum sales. When you have to sell 4 million copies just to break even, is it always worth the risk?
While Red Dead was able to pull off a miracle, 2K’s Mafia 2 released in 2010 wasn’t so lucky. One week after release, Mafia 2 held the #43 position on Amazon’s Video Game Best Sellers list. Ouch. Wedbush analyst Michael Pachter also had some bad news: “Mafia II’s average Metacritic score of 74 is well below expectations, and consumer interest appears to be waning, as the game’s position has dropped in many best-seller lists in its first week. With six years in development, we believe the game is unlikely to achieve profitability,” Pachter said.
Things are even worse when you consider Take Two’s “Duke Nukem Forever” also bombed. Research firm NPD reported Duke Nukem Forever only sold 376,300 units in its first month which was half of Take Two’s expectations.
The irresponsible attitude of the gaming industry doesn’t end at Rockstar. Dead Space 3 and Electronic Arts are another example of why this industry is going to hell. In an interview with CVG, EA reported that Dead Space 3 must sell at least 5 million units for the Dead Space franchise to survive. Dead Space 1 and Dead Space 2 only moved 2 million copies each. Even if you combine the sales of Dead Space 1 and 2, they don’t amount to 5 million units.
EA Labels president Frank Gibeau explains, “In general we’re thinking about how we make this a more broadly appealing franchise, because ultimately you need to get to audience sizes of around five million to really continue to invest in an IP like Dead Space. Anything less than that and it becomes quite difficult financially given how expensive it is to make games and market them. ”
Obsidian Entertainment is another developer trying to break even. They consider South Park: The Stick of Truth to be a low-cost triple-A game. According to THQ, “South Park requires a relatively smaller investment than other titles due to its simple animation.” They also say that South Park needs to sell at 2 million units to break even. Any less and it’s a financial disappointment by Obsidian’s measure. If a low cost triple-A game needs to sell 2 million units, then imagine what a high cost triple-A needs to sell to break even. On March 14th, 2012, Joystiq reporting that 20-30 people were laid off from Obsidian. Many being from the South Park: Stick of Truth team. Joystiq also reported that Obsidian’s next gen title had also been cancelled after the layoffs.
This isn’t the first time this has happened with THQ. In 2011, THQ talked about how “Homefront” needed to break 2 million units. Paul Pucino said, ““When you just think in terms or profitability, the owned IP, there’s a threshold of break-even of about 2 million units per game, so you have to sell somewhere in the area of 2 million copies of a game like Homefront to break even. Once you get past that you’re generating incremental operating margins as high as 60 per cent.” Homefront topped 1 million units sold, but it was nowhere near the 2 million units needed to break even financially. This forced THQ to shut down Kaos Studios.
38 Studios had it much worse. Their game, “Kingdoms of Amalur: Reckoning” needed to sell 3 million just to break even. The game wound up selling 1.22 million copies in 90 days. “The game failed. The game failed,” said Lincoln Chafee (governor of Rhode Island) at a press conference. Curt Shilling had taken a $75 million loan that won’t be paid back. This cost the state of Rhode Island around $112 million collectively in taxes. Eurogamer.net chimed in by saying “Industry experts tell us this is very, very expensive and it’s not only the cost of producing the game, but then maintaining it once it’s released, and then tens of millions of dollars to market it.”
With each new generation, the minimum number of games sold to break even on production and development costs will become significantly higher than the previous generation. Sales numbers that were considered a moderate success this generation will be considered a failure next generation. Selling a million units was okay years ago. Selling a million units next generation will be considered a financial loss for many developers and publishers. Heck, it’s considered a financial loss for most games this current generation.
When I see how far Epic is trying to push expectations for next generation, I believe this will drive the entire industry off a cliff. Yes, the engine cuts down on the work of creating a game from scratch but it cannot cut down on large overhead costs. Even with Unreal engine 3, many current 360/PS3 games are hitting $50 million to $100 million budgets with 100-600 members on a project.
Mark Rein of Epic Games says, “If next-gen consoles aren’t bleeding edge, Apple will beat them”.
“That’s the console gaming model, and if you don’t do that – if you don’t stretch just far enough, you don’t just have enough of a difference to make people want to take the leap with you… it all falls down. Now, I don’t think that’s going to happen – I think the console guys are going to blow us all away. But as you say, we’re on them.” - Mark Rein
This logic will kill the entire industry. Mark Rein is trying to raise expectations ridiculously high with next gen consoles. This forces developers to match these crazy expectations, and not every developer has the money or people to do that. He emphasizes that gamers would not settle for a small leap over current gens graphics. Mark Rein is setting up hundreds of studios to fail next generation just like over 120 studios went defunct this generation. Mark Rein’s logic – stretching graphics far enough or risking to fall apart is leading developers on a dead man’s path.
This type of logic is why small developers have a difficult time competing. This is why big publishers like Electronic Arts and Activision are gobbling up, buying out, or shutting down smaller developers. That is scary, scary logic, and developers should not be listening to Mark Rein’s advice.
“There’s no end in sight for what we can do with unlimited technology. So we’re always going to be pushing and I’m sure we’ll be pushing for more than is possible to give. But yes, we feel that’s kind of our duty. That’s what Epic is here for.” – Mark Rein
Unlimited technology? Technology is limited by the talent of people to make full use of that technology. But people are not an unlimited resource. People cost money for companies to hire and keep. Technology can’t be used to its full potential without people. People and talent are not cheap. Many have salaries. Games like Arkham City, Skyrim, and Max Payne 3 don’t take one year to make. Current gen AAA games take at least 2-4 years to make. Technology will never change that. There are also many overhead costs that must be dealt with to keep the studio going while a game is in development.
“Not everybody in the games business is going to use our technology and that’s OK. But if we can help the games business as a whole then we help the people that use our technology, we help ourselves, we help consumers.” – Mark Rein
Gamers and developers need to quit taking business advice from a snake oil salesman.
His goal is to sell an engine to developers and publishers. It is his job to tell you that Unreal Engine 4 will be the greatest thing since sliced bread. Epic probably makes more money licensing engines than selling actual games.
After E3 2012, Assassins Creed 3’s creative director Alex Hutchinson had this to say about next gen costs to Digital Spy: “There’s not a lot, really… graphically obviously there’ll be new stuff and a little bit more detail, but with higher detail comes higher cost. So in a weird way we’re at that point where everything that is a plus is also a minus because we have to pay for it. I think its going to be a very interesting hardware transition for the business. I remember people saying the PS1 to PS2 hardware transition put a lot of companies out of business. I think the distance between your blockbusters and your lower budget games is going to get even wider.”
The last sentence is all you need to read to understand why Wii U’s future is in good hands. Not every developer or publisher is like Activision, Electronic Arts, or Ubisoft with gobs of money to throw at the wall. I believe many lower budget games will end up on the Wii U. There will be a plenty of developers who can’t throw massive budgets and hire 300-500 people on staff to compete with Electronic Arts and Activision. And those small developers who try to match the budgets of big developers will crash and burn into bankruptcy.
People said third parties didn’t jump on the Wii bandwagon even though Xbox 360/PS3 were expensive to develop for. But I believe this is a different situation. We are living in an age where developers can’t break even on their costs for current gen games, and they are becoming more cautious about what projects they’ll take risks on.
Ubisoft’s Assassin Creed 3 is a great example of when game development becomes overkill. The game has the biggest budget out of all the Assassin Creed games (double the budget of Assassin Creed: Brotherhood), and it has six to seven studios working on it. In a developer interview with Ubisoft, they explain that there’s around 400-500 people working on this game. This doesn’t matter because Assassins Creed 3 will probably be one of the top selling games of the year. But imagine if other studios began following this method of development for every big game.
Looking at this chart, it’s frightening how much teams have ballooned up. For example, Resident Evil 2 had a team of around 30 people, Resident Evil 4 (between 154-160 people) and Capcom is now bragging about how Resident Evil 6 has over 600 people working on the game.
Table below: For games unreleased, we used numbers from developer quotes that are publically available on the internet. For games already released, we tried to get the numbers as accurate as possible based on what is listed at Mobygames and other sites that list credits.
The idea of this table is to show you how much teams have bloated up in size over the years.
Saber Interactive’s CEO Matthew Karch thinks publishers make games more expensive than they need to be. He believes costs come from wasteful spending more than anything. Writing to CVG, he tells them:
“It’s not necessarily because games are not as expensive as publishers make them out to be. Games are expensive because publishers make them expensive. They overspend on things that they shouldn’t be overspending on, they misspend in many respects. I think games publishers spend the money because it’s a matter of habit. Executives think that if they don’t spend the money they’re not going to get the results. There’s a right way to spend money and a wrong way to spend money.”
Source of chart figures: Entertainment Software Association; NPD Group; Statistica.com
In 2009, Japanese game sales and hardware totaled a 24% drop from 2008. This information was reported by Enterbrain sales statistics reported from Andriasang. Famitsu publisher Enterbrain released a 2011 report stating that the Japanese market had dropped 8 percent.
It does not get much better for the U.S. or the UK. The Association for United Kingdom Interactive Entertainment reported total retail sales for all entertainment software, non-PC hardware, and gaming accessories declined 13 percent year-over-year to £2.52 billion ($3.9 billion). For the U.S. IGN reported NPD’s total sales of games being down 32%, from $930.9 million to $630.4 million. Hardware were also down 32% year over year. Software is down 42% year over year.
I believe we are on a spiraling decline. The video game industry can’t be sustained in its current format. We can’t have games with Hollywood budgets of 100-200 million dollars and teams of 400 people working on a single game. $60 price tags on games is not sustainable either. Publishers will take less risks on less popular genres of games. Development costs will wipe out studios and publishers left and right. Chasing the dream of creating video games one day with CGI graphics is a deadly dream. Studios like Factor 5, Silicon Knights and Free Radical chased that dream and look what happened to them. Silicon Knights is struggling to stay alive, Factor 5 is no longer with us and Free Radical was bought out by Crytek to become known as Crytek UK.
How many more employees need to be laid off so gamers can get a tiny bit more realism in their games?
Publishers that might not survive next generation:
SEGA - On (June 26th, 2012), Sega began laying off staff in American and European offices. They reported huge losses for their fiscal year in March, cutting back on their game publishing schedule, and all of their international operations are being restructured. Website Gamekyo had reported the following: ” What’s more Sega would be abandoning console game development and physical retail, refocusing on small, digital-only releases.“ Rumors have spread about tons of Sega projects being cut including Bayonetta 2. Sega has officially said that the only games that won’t be cancelled are Sonic the Hedgehog, Aliens, Football Manager, and Total War. Total War and Football Manager. Phantasy Star Online 2 and PlayStation 3 exclusive Yakuza 5 are both expected to be releasd by the end of the year.
THQ – A report filed on June 11th, 2012 by THQ talks about the grave threats that face them. “We may require additional capital to fund our planned business operations.” In the explanation for this factor, the company notes that “We believe we have adequate resources to execute on our product plan and deliver our multi-year pipeline of games; however, there can be no assurance that we will be able to do so without additional capital. Should net sales or costs vary from plan, THQ “may need to defer and/or curtail currently-planned expenditures, cancel projects currently in development, and/or pursue additional funding or additional external sources of liquidity, which may not be available on financially attractive terms, if at all, to meet our cash needs.”
THQ emphasizes that they can’t have another flop. “Due to this dependence on a limited number of franchises, the failure to achieve anticipated results by one or more products based on these franchises may significantly impact our business and financial results.”
Here is a list of 120 developers/publishers went defunct between 2006 (beginning of generation) through today. That is a lot of people laid off.
Credit: kifimbo from Neogaf
Source: http://www.neogaf.com/forum/showthread.php?t=459131
3D Realms – 2009
7 Studios (Activision) – 2011
ACES Studio (Microsoft) – 2009
Action Forms – 2009
Artech Studios – 2011
Ascaron – 2009
Atomic Elbow – 2008
Backbone Vancouver
Beam Software/Melbourne House – 2010
BigBig (Sony) – 2012
Bizarre Creations (Activision) – 2010/2011
Black Rock (Disney) – 2011
Blue Fang Games - 2011
Blue Tongue (THQ) – 2011
BottleRocket – 2009
Brash Entertainment – 2008
Budcat (Activision) – 2010
Carbonated Games – 2008
Castaway Entertainment – 2008
Cheyenne Mountain – 2010
Cing – 2010
Clover Studios (Capcom) – 2006
Codemasters Guildford – 2011
Cohort Studios – 2011
Concrete Games – 2008
Dark Energy Digital – 2012
Deep Silver Vienna – 2010
DICE Canada – 2006
Digital Anvil – 2006
EA Chicago – 2007
EA Bright Light – 2011/2012
EA Japan – 2007
Eidos Manchester – 2009
Eidos Hungary – 2010
Empire Interactive – 2009
Ensemble Studios (Microsoft) – 2008
Factor 5 – 2009
FASA (Microsoft) – 2007
Fizz Factor – 2009
Flagship Studios – 2008
Flight Plan – 2010
Frozen North Productions
FuzzyEyes – 2009
Gamelab – 2009
Game Republic – 2011
GRIN – 2009
Groove Games – 2010
Helixe (THQ) – 2008
Hudson Entertainment – 2011
Humannature Studio (Nexon Vancouver) – 2009
Ignition London – 2010
Ignition Florida – 2010
Incognito Entertainment (Sony) – 2009
Indie Built (Take-Two) – 2006
Iron Lore – 2008
Juice Games (THQ) – 2011
Kaos Studios (THQ) – 2011
Killaware – 2011
Killspace Entertainment – 2011
KMM Brisbane – 2011
Krome Studios (might still be operating on skeleton crew) – 2010
Kuju Manila – 2009
Kuju Chemistry – 2009
Kush Games – 2008
Locomotive Games (THQ) – 2010
Loose Cannon Studios – 2010
Luxoflux – 2010
Mass Media (THQ) – 2008
Monte Cristo – 2010
Monumental Games – 2012
Midway Austin – 2009
Midway Newcastle – 2009
MTV Games – 2011
Multiverse – 2012
NetDevil – 2011
Ninja Studio – 2009
Nihon Telenet – 2007
Outerlight – 2010
PAM Development (Take-Two) – 2008
Pandemic Australia (EA) – 2009
Pandemic LA (EA) – 2009
Paradigm Entertainment – 2008
Pi Studios – 2011
Pivotal Games (Take-Two) – 2008
Propaganda Games (Disney) – 2011
Pseudo Interactive – 2008
Radical Entertainment – 2012
Rainbow Studios (THQ) – 2011
Razorworks – 2009
Realtime Worlds – 2010
Reakktor Media – 2012
Rebellion Derby – 2010
Red Octane – 2010
Redtribe – 2008
Rockstar Vienna – 2006
Sandblast Games (THQ) – 2008
SEGA San Francisco – 2010
Sensory Sweep Studios – 2010
Seta – 2008
Shaba Games (Activision) – 2009
SideCar Studios – 2007
Sierra Online – 2008
Snapdragon Games – 2009
SOE Denver – 2011
SOE Seattle – 2011
SOE Tuscon – 2011
Stormfront Studios – 2008
Straylight Studios – 2009
Team Bondi – 2011
The Code Monkeys – 2011
Titan Studios – 2009
THQ Studio Australia – 2009
THQ Digital Warrington – 2009
Transmission Games/IR Gurus – 2009
Ubisoft Brazil – 2010
Ubisoft Vancouver – 2012
Underground Development/Z-Axis (Activision) – 2010
Universomo (THQ) – 2009
Venom Games (Take Two) – 2008
Vicarious Visions California – 2007
Visceral Australia (EA) – 2011
Wolfpack Studios – 2006
Yuke’s Company Of America – 2010
Zoe Mode London - 2009
Zoonami – 2011
Follow Emily Rogers on twitter at: https://twitter.com/Emi1yRogers
Follow NotEnoughShaders.com on twitter at: https://twitter.com/NEShaders
Namco Bandai sources
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=az3neI1eJui8&refer=japan
http://www.gamespot.com/news/namco-bandai-losses-top-300-million-6261564
http://www.gamespot.com/news/namco-bandai-cuts-90-jobs-in-us-report-6283407
http://www.psu.com/a010648/Namco-blames-poor-Enslaved-sales-on-busy-holiday-period?page=0
Cost breakdown charts of development
http://www.forbes.com/2006/12/19/ps3-xbox360-costs-tech-cx_rr_game06_1219expensivegames.html
http://www.forbes.com/2006/12/19/ps3-xbox360-costs-tech-cx_rr_game06_1219expensivegames_slide_2.html
Gamespy article about breaking even:
http://www.gamespy.com/articles/108/1082176p1.html
doom and gloom nonsense
A+ parody would read again.
Amazing article Emily – we both know how much work this was.
I maintain this is your best yet, let’s see if you can top it next time!
i smell dudebro tears
Budgets are rising, game prices are going up, studios aren’t breaking even and closing, genres are becoming saturated, and publishers are still interested in pursuing a financial model that guts the industry from the inside-where exactly is the nonsense?
Pray tell, would you be so kind as to elucidate what *exactly* about this article is “nonsense”?
I’ll Wait.
(Probably forever.)
Good article, nothing nonsensical about it.
It’s only nonsense if you didn’t read it
Fantastic article. Knowledgeable, well written, well researched and most of all an extremely important subject that the main gaming sites seem to be either clueless or ignorant about. Bookmarked!
If you think its nonsense, you should list some reasons why it is. I think the article more that backs up its position with hard facts. If anyone wants to debunk it, be my guest. But bring a little more than blind fanboyism and driveby posts to the argument because nobody is going to care otherwise. I highly suggest anyone who dislikes the position taken by the article writer and sources to ask yourself, is the article false? with no truth to be had? or do you simply hate hearing news like this because of your own personal interest? I think the answer there will open your eyes a bit.
Bring back the 16 bit days for all i care. Im ready man. IM READY.
It’s not quite “nonsense”, considering most of the article is observable trends. What’s nonsense is the idea that companies will keep spending budgets they can’t afford forever. They won’t. They can’t!
Instead what you’ll see is companies cap off their budget and spend the efficient amount of money needed to make a profit.
And that’s without bringing up the truly massive number of games being created on shoestring budgets nowadays. From Steam to iOS to other platforms, there are a lot of ways to (profitably) create games which don’t involve being a $300 million dollar AAA title.
Also…IS the article parody? The presence of all the Wii U images makes me wonder. Certainly I’d be surprised if that platform had any inherent advantages over the others out there.
“What’s nonsense is the idea that companies will keep spending budgets they can’t afford forever. They won’t. They can’t!”
Of course they can, because that’s what the publishers and investors demand. Bigger profits or else. And the only way to achieve that is to take bigger gambles.
“And that’s without bringing up the truly massive number of games being created on shoestring budgets nowadays.”
No need to bring it up, because inherently these guys follow different rules than AAA studios. Most often creative and financial control is directly in the hands of the developers.
“there are a lot of ways to (profitably) create games which don’t involve being a $300 million dollar AAA title”
Of course there are ways, obviously, but they also don’t make $500 million even if they do succeed, and that’s the only number inverters seem to care about.
The Wii U images was probably just trying to make a point about Nintendo not catering to the same mindset (though why she chose the Wii U is beyond me).
“Of course they can, because that’s what the publishers and investors demand. Bigger profits or else. And the only way to achieve that is to take bigger gambles.”
If large gambles consistently end up with negative ROI, then the average ROI on AAA investment could fall below the average ROI on non-AAA games. In which case “bigger profits or else” means investing in multiple non-AAA titles (or perhaps investing outside the games market entirely.)
So, assuming AAA games become a genuine bad investment as a general rule you would eventually see the entire market shift away from that (or realistically: cap spending a whatever threshold is still financially viable, as I’m not convinced AAA games are always a bad idea unless your spending exceeeds the growth rate of market opportunities.)
“Of course there are ways, obviously, but they also don’t make $500 million even if they do succeed, and that’s the only number inverters seem to care about.”
Well a negative ROI is a negative ROI, and no investor is going to chase after something which looks like it’ll be negative (which, if AAA games consistently fail to make more money than they cost, it will.)
Amazing read. I can’t imagine the amount of research put into this.
Great points, very well thought out, and nothing too dramatic. This is an issue needed to be addressed; there is no way the industry will survive if it continues in the direction it’s going. Again, great job, looking forward to reading more from you!
This is why I think Nintendo is going to be laughing if costs skyrocket again. If more devs get annoyed at bloated budgets they might just go to Nintendo due to not being as expensive to develop for. I doubt many games on the Wii needs to sell 5 mil to break even. Also think of how many smaller developers they had on the DS. If there’s another 1983 Nintendo is probably going to be standing among the ashes just like back then.
Great article, it’s something this industry tries to hide, it also reminds me of the hype train, this industry is flying right into the sun.
Brilliantly put together article, Em. This is a definite monster of a problem that has already claimed enough studios. It’s good to know Nintendo are practicing smart business tactics and are avoiding the budget disaster. So many poor souls out there think that studios can churn out magically high detailed games and that the studios making them are just fine. Prototype 2′s “failure” leading to the closure of its studio should be a bucket of ice water for everyone that makes and plays games. The fact that Vivendi is selling off Activision Blizzard should open some eyes too.
very good article Emily.. very good effort have been put into this writing.. It should open many eyes on current gaming business..
a very informative article. thanks
Very good article and gets the point accross well. i just hope people read it instead of just assuming what it might say.
It a worrying time for this industry indeed, and try as they might Nintendo probably isnt going to turn the tide on its own. theres just too much money involved and to many big players for the whole thing to turn around right now.
imo, we’ve jumped a bit too far ahead of ourselves in conole and pc technology. Sure we can make 2TFLOP GPUs but are they efficient to make/buy, can they even be utilised for gaming purposes? I liken it to supercarts: Sure, we can make a 1000BHP road car, but does that mean the whole industry needs to start doing it? no because its unsustainable to the companies making it and its unsupportable to the consumers buying it.
We can produce incredibly powerful pc’s nowadays, but they are loud, hot and in a sense they are using unpolished technology which in my view is on the market too soon. We’ve jumped ahead of where we should in terms of gaming tech. Nintendo (and apologies, but Apple too) have sort of the right idea in my view; If its loud, runs hot and is unreliable then it isnt fit for consumers to use in their living room/bedroom. Hell, my 1st gen PS3 couldnt be used in my TV cabinet because it didnt get enough air?! So a gaming console designed to be used in my lounge, could not be used in my lounge without sitting it on the floor! It was too powerful for 2006 and the next gen will likely be too powerful for 2013/14. The more people like Mark Rein push and push for unusable and un-needed graphical/processing power, the furthur away from a sustainable industry we will move.
Hopefully, other devs will risk standing up and pointing out this inconvenient truth.
*Stands up and cheers*
This is a pattern I’ve actually seen for a while, and I also feel that a crash is innevitable if trends continue as they are. Every time I hear Mark Rein speak I cringe, especially when I think back to the simpler times in the games industry. Nintendo’s design philosophy, which has gone mostly unchanged sinse the NES days, is a shining example of what companies should be doing with their own projects. I think so many of them just got caught up with the bigger is better line of thinking that not only did sales of these games become affected, but also the overall quality of the games. Sure, they are shiny and highly detailed, but they are also very forgetable compared to the classics of yesteryear. Growing up with the industry, I can understand the importance of new technology, but I’m also experienced enough to know when it is used intelligently or not, and right now, most companies are just being dumb.
Brilliant article, this is easily one of the best articles I have ever read that outlines all the problems currently facing the gaming industry. Incredible job.
Hey Tanto, you should hurry up and get a job in the industry. With your economic intelligence and line of thinking, you would fit in perfectly right now. Just make sure you also file for unemployment at the same time.
You missed something. During E3 this year, Epic decided to go on and on about how they will start making Quadruple A titles. That’s just adding grease to the fire at this point. Really Epic? AAAA titles? Who will be able to afford that? Just say it Epic, you want to see small devs die and the game business become a heaven for shooters to rain supreme.
Wow!
Nice article Emily. Some publishers have big decisions to make next gen.
After reading the whole thing, I’m tempted to laugh.
Consider how the article compares movie PRODUCTION budgets to vague claims about a game’s ENTIRE budget. (Production, marketing, manufacture, distribution, etc).
Consider that Factor 5 chart. It has no units on the left side. Did you know $17-20m is over twice as much as $12-15m? Are the bars supposed to reflect staff, I’m assuming? The whole thing is less alarmist if you read the numbers rather than looking at the pretty picture.
Consider how Warren Spector is quoted as being aware of the coming problem, but his own game Epic Mickey 2 is listed with one of the largest staff.
Consider that in the giant list of closed studios are places like GRIN, who earned their shutter with back-to-back poorly received titles, or Hudson, which didn’t close, it was simply purchased, and lost its North American distribution centers due to redundancy. All sorts of publishers are listed, rather than just developers. MTV Games closed because it no longer existed once Harmonix was spun off.
Are spiraling production costs going to be a problem? Yes. Absolutely. However, the vast amounts of money being made in places like the mobile space, Facebook gaming, et cetera, show how things will simply change, not die. Might there be fewer enormous-budget games? Sure. But what the industry has learned over the past few years is that the rise of interest in gaming doesn’t simply mean making more shooters.
This article takes a real problem and does a terrible job of representing it. It’s apocalyptic even as it ignores all aspects of gaming except big-budget, “AAA” titles. It engages in dubious, if not disingenuous math. It’s the kind of work that would shutter one of the many above studios.
Name one of those developers and publishers that are actually making money from those places. A lot of those smaller developers got bought up by bigger publishers to do work in those crowded genres. Yes, there are success stories-it wasn’t the point of the article. It shows why so many studios close down and how bad money management led to that.
“Consider that Factor 5 chart. It has no units on the left side. Did you know $17-20m is over twice as much as $12-15m? Are the bars supposed to reflect staff, I’m assuming? The whole thing is less alarmist if you read the numbers rather than looking at the pretty picture.”
@Taylor Vincent
I’m pretty sure the chart (which came straight from Factor 5) says Team Sizes and Budgets. Anything with a dollar sign is budgets. Anything team size related (people) are on the left.
The factor 5 chart is based on predictions that Factor 5 made about next gen. I posted it to show the comparison of things they said, and what other articles have said. They were Factor 5′s predictions of next gen. Not factual numbers from Factor 5. I made that pretty clear in my article.
Also, how is Warren Spector complaining about big budgets and then having a large sized team for Epic Mickey 2 exactly my fault?
If you have certain problems with my article, I respect that. If you disagree with the article, that’s fine. But I have done a lot of work in citing my sources for every single thing mentioned in my article, and nothing in this article is pulled out of thin air.
It’s a pretty long article, and if you want to take one or two things you dislike about it to discredit the entire article, that’s a bit unfair.
I will try to explain my interpretation of Taylor’s points, at least the ones that seem to make sense. And I do believe he has one or two noteworthy points (though he chose to state them in a fairly obtuse fashion). The factor 5 chart complaint is ridiculous, as I pointed out in a response to him. And it’s not even your chart, which you mentioned in your article, so don’t worry about that part. The whole ‘Warren Spector ‘-thing, I kind of get, but I don’t think it’s a serious flaw in your article. I think Vincent’s point is that Spector is some sort of a hypocrite, and quoting him without mentioning the contradiction is the part that is potentially dubious. So here’s my translation of Taylor Vincent’s sentence: “I would have appreciated it if you had mentioned after the Warren Spector quotation (about development costs), that he also happened to have one of the largest development staffs with his game Epic Mickey. ” See? It’s not so hard to provide constructive criticism.
The issue with the list of closed studios is one that comes down to annotation. I think that it is a valuable distinction to make between a game company that is closed down vs. bought out. But really, in the greater scheme of things, at least in regards to the issue that this article is pushing towards (one of big companies and big budgets) I think they are all kind of in the same trouble. After all, if a small developer is bought out by a big company, that’s fine. And let’s even assume the parent company lets the developer work under relative autonomous control of their games (which is awesome). But then they develop a hit, something that didn’t take a lot of money (relative to the big-budget games, at least), and is a huge success. So, naturally, they need to make a sequel, and that’s when the parent company starts to get involved, telling them it needs to be big, bigger, huge even. They inflate the budget to exorbitant amounts, and then when the game (which may still be a very good game, despite the meddling and un-necessary budget inflation) doesn’t sell over a million copies on release day, and the company doesn’t turn a profit, the publisher now decides to shut down the developer because they failed to meet the publisher’s mega-high sales expectations. This is, of course, a hypothetical (and possibly anecdotal) example, but it’s not such a ridiculous notion, as to make this scenario one that is not plausible. So, again, I think it might have been nice to note the different circumstances under which a studio closed (bought out vs. bankrupt vs. bankrupt because their games were crap to begin with and not because of their budgets), but I don’t think it negates the power of the list completely.
And then I guess Vincent is also mad that you only focused on the big budget game? But considering how you are completely open about the fact that it is the foundation of your article, I don’t consider that I valid complaint. I guess it would have been nice to contrast one or two examples of companies that are doing it right, rather than just focusing on the companies that are doing it wrong, but that’s just not what this article is about. The overall conclusion (or implications) of the article could maybe use some fine tuning. But for an informational article published on a brand-new, small, independent website, I think you did a phenomenal job presenting such a large amount of information. I hope you don’t let one or two knuckleheads bring you down, and I hope to see more articles written by you in the future.
The chart seems to be confusing people (well, at least one person) which is almost understandable, seeing as how it incorporates two separate sets of data in a fairly non-traditional way. Had I been the chart engineer at Factor 5, I would have removed all of the development costs that were displayed in the parentheses and put them on a completely separate chart. What you would be left with is a standard graph that charts development team sizes over time (the time being measured not in standard increments like years or industry quarters, but rather in video game console generations), and contrary to what you (@Taylor Vincent)may have thought, the chart is very much to scale. The problem (apparently?) is the projected development costs, which don’t actually correspond to the bars in the graph at all, nor should they. You cannot chart development team size over time and then also over development cost, at least not in just two dimensions. That’s why one would normally make two separate charts; one measuring team size over time, and the other measuring development costs over time. But the people over at Factor 5 are (or were) game developers, not data analysts, and their only real crime was including some extra data they thought would be helpful (they even put it in parentheses to try and make it obvious that it was extra information). So cut them some slack, eh? No, wait… let me re-phrase that: Please learn to read and pay attention, ok?
Bravo Emily! Very good article, and at some point made me worry about the future.
It’s a very well researched piece, but instead of just saying that it’s your opinion that Nintendo will buck it, just point out the facts about their development costs.
Coming from a Nintendo point of view adds an element of bias that the article doesn’t need.
Bias is alright as long as it’s kept in reasonable boundaries.
I agree that the Wii U picture is not really necessary but in my opinion Nintendo is one of few publishers who avoid the blockbuster model for good reason and focus on profitability and lower budget productions.
This is an editorial, not a news piece. Emily has an opinion and she expressed it while keeping it well-sourced and researched.
Great article. This was apparent to people even 6 years ago (http://www.raphkoster.com/gaming/ageofdinosaurs.shtml). The trajectories seen in 2006 haven’t changed in 2012.
However, I do not agree that Nintendo is doing anything to solve the problem. They are simply going to be experiencing the pain more slowly. They are going to eventually face similar cost issues, but more importantly, they are going to run smack-dab into the free-to-play issue, just like every other console. Consumers are getting trained to the idea that gaming is either free or bought for $0.99. The business model of selling subsidized gaming hardware in order to collect licensing fees from software publishers is being challenged by the ubiquity of relatively powerful gaming hardware in normal PCs/laptops/tablets/smartphones.
Well I won’t be supporting gimmicky strategies like Nintendo, used to like them but now? Cannot tolerate the Wii (sold it) and the Wii U looks very underwhelming to me.
I dont think you are using the term “gimmicky” correctly there. A gimmick is simply somthing which makes you stand out from your competitors. you could call XB Live a gimmick, or PS3′s Blu-Ray drive a gimmick and neither of those would have negative conotations. Just sayin’.
Of course, you could still be against nintendos strategy which i have no qualms with, just trying to get this ‘gimmick’ buzzword banished from the gaming media/community :p
Exactly. For every person who tries to use the word “gimmick” to insult a product they dont like, there are hundreds if not thousands of products in their home that got there by using “gimmicks”. Show me ANY successful product or even work of art that doesnt use a “gimmick” to sell itself. There are literally none. “Gimmick” is just a negative associated version of the term “hook”, as in, something that “hooks” a buyer, listener, consumer, etc. “Hooks” are what make things interesting and great.
Excellent article, very informative.
So, what are some possible solutions? Forego graphics improvements for the next few years? Smarter marketing strategies that cost less money? What would you as a hypothetical shareholder, want to see changed to stave off another crash?
Even more annoyingly, it looked like at least MS was going to do somthing about this by making the NextBox much closer to WiiU in terms of the hardware’s graphical power….but if rumours are to be believe companies like Epic were wispering in their ear and convinced them they needed to shoot for the moon with their specs again. So its obviously a real problem which companies are recognising, but no one seems to have the balls to make the first move – I assume because neither wants to lose the ‘core’ market to its main competitor (Sony/MS)
All of the above, and more. Better money management would help reduce the budgets; specifically, cut out all the middlemen involved in outsourcing to third party developers, who often outsource to third world countries. Most of these big budget games rely on outsourcing, and a lot of the actual work is done cheaply. The bloated budgets come from too many greedy dudes grabbing chunks out of the dough.
its called the crash of the industry and i welcome it with both arms wide open. For too long now the game industry has been shit, it has been casualized, originality has ceased to exist, and worst of all they made video gaming a mainstream culture. “hey everyone look at me im playing the latest over hyped video game im such a nerd look at all these pics of me holding an xbox controller on my facebook” this is what is killing this 7th generation of consoles because games are targeting those people to get the most money out of there game leaving the real gamers high and dry. Eventually like all trends being a “pro gamer” will stop being cool and something new will come along and all this money invested in these shitty COD clones and shitty sequals and remakes will come crashing down and were witnessing the beginning of that (i hope).
I LIKE THE WAY YOU TALK.
Unnervingly well said.
I did not realize this article would get that much discussion on TV Tropes as it did, but this is all well and good. I’ll be keeping an eye on this site in the future.
I found this article very interesting by the way. It was a good read.
Superior article that precisely lays out what has been going wrong with the game industry for the last six years.
In 2005, Iwata began talking about how the game industry might be in trouble if certain policies and mentalities continued to be used. The game industry and gamers did their best to laugh it off. Companies want to sell tech, and enthusiast gamers want to consume unlimited technology, but everyone is short sighted.
Many people who haven’t been paying attention these last several years don’t realize that much of what was warned has come to pass – just not a total collapse. And the game industry is VERY good at PR. Spin control. It is VERY good at putting on an expensive show to create the impression of infinite growth to attract investors, keep shareholders happy, and make the 20-30 year old tech-obsessed male gamer archetype drool with the prospective delight of more candy dangled in front of their faces.
But the cold truth is that the game industry has been pushing a thin membrane for a while now and is threatening to pop that bubble.
I agree with you. Also, look at what happened to many 3rd party developers (&/or studios, 1st & 2nd party studios for Microsoft & Sony included) who have just developed many of their party games on PS3 & 360, as an example.
http://www.neogaf.com/forum/showpost.php?p=34322459&postcount=1
Many of them went bankrupt & have closed their doors, while others like Namco & Tecmo had to wind up teaming up with other companies just to try to stay afloat. All because of being biased towards the Wii while developing games on the PS3 & 360 just to please the smaller, core base with higher development costs of making games for those two consoles.
If they were to focus all their efforts on the Wii (which has less development costs & a higher install base), & to focus less on the PS3 & 360 (two systems with higher development costs with smaller install bases), then most of them would still be around today.
And these posters below are right:
http://www.neogaf.com/forum/showpost.php?p=34338418&postcount=175
http://www.neogaf.com/forum/showpost.php?p=37011045&postcount=241
http://www.neogaf.com/forum/showpost.php?p=39337291&postcount=245
Nintendo had the right approach all along with the Wii, while the HD business model was VERY unsustainable this generation & shouldn’t have even begun until last year when HD was widespread & was becoming the mainstream within the public (heck, HD wasn’t even mainstream from 2005 to like, mid 2010).
That Satoru Iwata quote is quite the inspiration.
As always.
Pingback: Possible 2nd video games crash? - ggFTW
WOW!! PERFECT article, so much information…. and with graphics and source!!
great job… seriosly!! How much time you spent to do this? fucking great job!
Everything makes sense now!!!
Congratulations from Brazil!
oh, get a grip, dude! stop the faboyism already! It’s hard enough to counter fanboys of companies now we also have fanboys of blog posters?!
Great article!
Looks like the Neogaf staff altered your article over there to derail discussion from focusing on the industry as a whole to focusing on how “the Wii U will win.” But that’s to be expected when you have a forum run by Nintendo’s competitors.
They changed the title as a way of undermining the effort of the writer and the validity of the articles points. They did this out of personal fear that the article has truth to it, and because their moderators have no sense of decency in their conduct. They knew what changing the title would do, and they knew it would cause a negative reaction. The fact that they still did it really shows you their position on the pursuit of truth, and open discussion. It also shows how little concern they have for how they are seen by those of us who have brains and are able to see through stunts like this. No decent human being would undermine the amount of effort that so obviously went into that article.
Agreed. Although the person who posted it on NeoGaf didnt need to mention the “5 Reasons why Wii U wont fail” part, as I dont think that is what the article is about. In fact, saying that kind of undermines this article somewhat. Nintendo is part of this industry too, and although they appear to be on a better track than the others, what effects it’s competitors will inevitable effect Nintendo. The article gives 5 good reasons why the industry is flushing itself down the can, not 5 reasons why Wii U won’t fail – so the NeoGaf poster shouldnt have mentioned that in the OP. That gave the mods an in-road to mess with the title and derail the topic without it looking to biased.
Wow, hell of a job! It’s a great article, I was talking about this a few days ago and it’s increible how things are going wrong, I was working in Vostu, the most important company of social games of Latin America, I said ‘was’ because I was fired last week. The company was a in big troubles in Dec 2011 – Feb 2012 and they had to lay off around 200 people, and now they are letting go more people, one by one, discretely.
Video games companies are taking too much time, money and people to make games, sometimes I think that they don’t have people who really knows about the vg market (or the specific areas like, in this case, social gaming).
Have you got any twitter,facebook or something else to find more of your work? Please contact me, my twitter: @defcon0 or at guido.guasqui@gameshock.vg (I’m -kinda- editor-in-chief of the Argentinian website Gameshock.vg and I really like what you’ve done here, I’d like to be in touch, thanks!)
Great article and this is certainly something for everybody to think about. There’s no easy way out of this situation.
And that is why i’ll buy a WiiU . Day 1.
Pingback: URL
Just a smiling visitant here to share the enjoy (:, btw outstanding style . 41792
The absolute size of production budgets is not necessarily a problem if you can expand the customer base to match the budget. The problem is that game industry games are simply not appealing to a wide enough audience. Only the Wii was able to expand gaming to people who had not played games before. If the audience size remains fixed or declines, then the budget (and therefore level of detail, quality of art) MUST also be fixed or declining.
There is another disadvantage to over-detailed graphics, in that the depth of games suffers because you have to reduce the size of the world in order to afford it. Therefore you could have a game with a massive budget with less depth than a SNES RPG.
Well written! Thanks.
Companies do this to themselves. They push the envelope further than is needed. A small drop in visual quality gives a massive drop in development costs, with probably a negligible drop in sales.
Gigi.
Pingback: Newsflash: Game Development Costs Rising Beyond Reasonable Levels | Learn & Master Cocos2D Game Development
Again Emily, thank you for pointing out the obvious. I can summarize your entire article in two short sentences. Make crappy games, get crappy sales. Make good games, get good sales. Something you overlooked. You seem to think that developers are entitled to exist just because they exist. If you make junk, you’re not going to be around that long. If you publish that junk, guess what? You’re not going to be around that long.
Hey Emily! Let’s tango!
Kingdoms of Amalur was a good game with good sales, yet because of its budget, it was considered a failure. Usually a game selling 1mil isn’t considered a failure.
Overall, I dig the article, your collection of numbers and most of your points. Many of us working in this field are also worried about the shape of things to come. It’s funny that the industry gets slammed for being “risk averse” (creatively, which is mostly true) when they’ve never been taking bigger chances financially.
But you’re unfairly vilifying Mark Rein as being a cause of this. Unreal Engine exists and works, and solid middleware is *good* thing when it comes to controlling a game’s budget (the alternative is the prohibitive cost of building a new engine). Mark Rein is not a “snake oil salesmen” but with UE4, he may be selling Ferraris after peak oil.
Oops. That last reply was meant to go in the main thread (admin, please move it there if you can). As to this point:
“Make crappy games, get crappy sales. Make good games, get good sales. ”
…is missing the point of the article. It’s not only ignorant to the long list of critical darling/commercial flops but a complete failure in understanding basic economics. You need to make a good game ***that is capable of recouping it’s costs, considering the potential size of the market***. COD4 and Okami were both “good games” but nobody with any sense would think Okami for all it’s brilliance, could ever have the same mass market appeal.
The greatest game ever can be a flop if it costs more to make than it can be realistically expected to earn.
Brilliant analysis. This articulates a lot of the negative sentiments I’ve had about the gaming industry in the past few months.
However, I feel Nintendo is far from blameless. They’re serving a dual role, actually. They might be the sensible underdog next to Sony/MS’s systems, yet they’ve become power-hungry and wasteful in relation to the ongoing mobile gaming revolution.
They spent the entire previous year bleating about how mobile was irrelevant/impure/evil/destructive while assuming their 3DS would be a total success because of it’s 3D and $40 N64/PS2 ports… and well, who ended up swallowing a $80 price-cut and a $500M year-end loss? 2012 3DS games with large budgets like Metal Gear Solid 3D (PS2 port), Resident Evil Revelations (console-lite franchise game; gee, why does everyone bash Vita for this stuff yet it’s okay when the 3DS does it? Mmmm hypocrisy) and Kid Icarus Uprising (user-unfriendly controls) failed to break out in terms of sales.
Even now, Iwata explicitly stated that 3DS momentum in U.S. and Europe is “currently weak”, which flies in the face of condescending fanboy spin (“OMG 3DS IS OUTSELLING DS FIRST YEAR SUCK IT HATERZ!!1111″). New Super Mario Bros. 2 and 3DS XL will give it another boost, but it won’t be anything near what NSMB1/DS Lite did in 2006 because that Mario sub-series has far less novelty this time and the redesign is much bigger (and therefore less appealing for bite-size gaming).
Their 3DS mistakes aren’t anywhere near as damaging to either the industry (since portable gaming is innately less expensive than consoles) or their financial well-being (8B-9B reserves), but the fact is the 3DS’ overall approach has severely narrowed it’s appeal compared to the DS. If anything, Nintendo has a golden opportunity to apply their 3DS lessons on the much-larger stage of console gaming.
It’s the middle of the summer, smart guy; this is the time when game sales PLUMMET and that includes hardware. It is actually still outpacing the DS while the Vita has BOMBED even in comparison to its predecessor. We all know when NSMB2 rolls around come August it’ll get a sales boost.
Pingback: Artigos traduzidos: “O aumento de custos, a queda dos games” | Loading Time
Well researched. But surprising? No. Exponentially growing teams with stagnating install base vs. fixed prices. It’s not rocketscience to figure this one out. Crash? Maybe in the States – we in Europe have been in a state of “crash” for the last 10plus years. Does this worry me? Not in the least. We simply go where the users are, not expect them to come to us. The new model is B2C not B2B. To many people wanting to be movie directors instead of “game-mechanics”, selling us their “wisdom” as the road to salvation. Good riddance…
It’s not new information, but it’s very well said and backed up with evidence. As a game developer, I’ve seen this trend for a while. The game industry is constructed like a pyramid scheme.
Pingback: how to make a website
Thank you for the great article! It’s all true, and it was a pleasure to read. I’ve worked in game dev for 12 years, including at some of those studios that have gone out of business.
There’s some mention of game budgets that are unnecessarily bloated, and I’d like to expound on that. All of the big publishers rely on outsourcing to second and third party developers, who often outsource to third world countries. A lot of the actual work is done cheaply. Just as in the Hollywood film industry, the bloated budgets come from too many useless dudes grabbing chunks out of the dough.
The game industry is riddled with middlemen. Some of them pose as assistant producers at major studios, and many hide in the shadows, wrangling unnamed labor teams in unknown countries. I’d like to see an article on that, just as well researched. That would probably require talking to studio employees under conditions of anonymity, because the jobs are vanishing and people are clinging to what they have.
Pingback: El coste de las “HD” con mas de 120 empresas cerradas… | chipsandnews
good stuff
Pingback: The Unsustainable Gaming Industry « I Am Only Myself
Good article overall but, there were some points I thought were a little sketchy, using games like angry birds as a an example for the increasing size of AAA production teams is a little incongrous for example. While there is a lot of truth in this article it fails to look at what changes are going on in the industry to adjust for the rising costs. Digital downloads, mobile, F2P and social games are all areas where smaller teams and more incremental releases work. The serial release model could be applied to AAA Console titles to both reduce costs and increase revenue but will require some flexibility on the console manufacturers part and some ingenuity (read courage) on the parts of production houses and publishers. Clearly ballooning budgets are a problem.
Emily: Your method of estimating dev budgets is to take a $60 price point and multiply it by the stated unit sales required to break even. So 3M units * $60 = $180M dev/mktg budget. This is wrong.
I read through all the comments and couldn’t find a single person that picked up on this mistake. The wholesale price is what ends up in the publisher’s pocket – usually about half that $60 retail price or less. Meaning your dev budget estimates are overestimated by at least 100%.
I’m not saying the problem the article cites doesn’t exist (because it does), but this is a pretty fundamental error for an article as extensive as this.
Nobody picked up on this mistake because the calculations aren’t meant to portray budgets. When editing this we knew it was too much of a simplified figure and not the true budgets hence we changed it to ‘revenue to break even’, which is just the unit number times the retail price. However, it is correct that comparing these numbers directly to film budgets without caveats is inaccurate.
I seriously delight in your posts. Many thanks
If the wind comes from an empty cave, it’s not without a reason.
Outstanding read. Thank you very much for putting this out and the numbers in relation. Absoutely awesome, you’re hookmarked!
You can add THQ San Diego to your list of defunct studios.
Is it just me or is this article a little bit amateur. Certainly correct me if I am wrong but this guy is just regurgitating information without a proper analysis.
Let me clarify a very glaring contradiction in this article.
His argument is that gaming is in decline due to HD, development costs and cinematic gameplay. Yet he ends this article saying that this is evidenced by the decline of hardware and software sales since 2008. Further he says this is evidence that such types of games cannot support the market.
But spike of 2008 and leading up to it was all caused by the massive and overwhelming success of the Wii. The massive decline in sales is also directly related to the Wii’s steady decline over the years. Looking at it from an individual console perspective, gaming has been relatively steady since 2008 for the PS3 and 360.
This is a gross misinterpretation of data caused by the shallow way in which this article approaches the issue.
As for breaking even on big titles, that is up to the developer to make games at an appropriate budget. There are many instances of failures throughout the history of gaming and someone has always come to take their place. This also has no account of digital distribution and assume such sales are irrelevant. Plenty of developers are also making good money as well so I have no idea how the gaming industry could possibly decline.
I just don’t get this article. It has some examples for sure but there are examples in the other direction as well indicating that consumers are spending record amounts on gaming and where there is demand, there will surely be supply. Even if THQ died tomorrow, a month later we would just be seeing people filling up the void they left behind.
My last point of irritation with this article is his arbitrary claim that games will cost three times as much as last generation. How much does a PC game cost to make? As I understand of the specs that will be in the next xbox, it isn’t even gonna match a low level gaming PC yet Crysis costs a fraction of how much Kingdoms of Amalur cost to make and that includes building a brand new graphics engine (correct me but I thought it was 10mil).
This seems like a lot of pandering to the popular opinions of the internet but I don’t see any information of real worth here.
This is a great piece of reading material. You could probably add to this and create an ebook with very little effort. I am impressed with your writing skills, attention to detail and fresh views. http://www.samsung1080phdtv.net/
great article. There is no denying the point this article is making.
This was really interesting to read, though I have one thing to say: This article treats big-budget Hollywood movies like as if they’re doing fine. In fact, the movie business is in deep financial trouble–you just tend not to see it because most Hollywood movies are made by a few major studios that have plenty of reserve money to spend. They’re not immune to this predicament either. Time Warner (AKA Warner Bros. to the movie business) has not had a profitable year since the turn of the millenium. Disney has had to rely almost entirely on Pixar to turn a profit. Universal has been tossed around like a hot potato. MGM just folded a few years ago (taking the James Bond rights with it).
And for a specific example that parallels this article, the 2005 remake of King Kong’s budget is said to be $207 million, but another $200 million went into marketing and distribution, and along with the theaters’ cut of the ticket prices, the movie’s box office gross of $550 million is actually a LOSS.
The budgets for movies have ballooned while, adjusting for inflation, the industry is getting less and less money each year in tickets and home video. It’s become a high-risk, low-reward business.
I’ve noticed the game industry wants to be like the movie industry. Plenty of other industry spectators have noticed too, not the least of which include Sean Malstrom and the Extra Credits people. It completely baffles me as to why they’d want to take for a role model a business that, too, is in danger of total collapse, and, without a think-small bigwig like Nintendo, may be in an even worse shape. Do they want the sort of glamor that comes by becoming a big name in Tinseltown? Because they walk on eggshells too–Peter Jackson hasn’t been back to directing since King Kong.
(I work in a Hollywood movie studio–a small one, but one close enough to feel the effects. I know this is an anecdote and nothing more, but I just wanted to say that I come from the other side, whereas most everybody here would come from the video game side.)
I was thinking the same thing but… It’s the holidays, and this website has gone through a lot recently. It might need time to reconstruct but, in my opinion, it might as well need our help. (And I still haven’t wrote that article that I promised…)