The Rise of Costs, the Fall of Gaming

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.”

Sourcehttp://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

 

 

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102 Comments to The Rise of Costs, the Fall of Gaming
    • Furtin
    • Outstanding read. Thank you very much for putting this out and the numbers in relation. Absoutely awesome, you’re hookmarked!

    • Collin Lee
    • 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.

    • Ophelia
    • 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.)

    • LTS
    • 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…)

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      I mean The Rise of Costs, the Fall of Gaming | NES – notenoughshaders.
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    • Very impressed with your work Emily. All so thoroughly researched and written in a way that it is easy to digest for someone who is not as familiar with these concepts as you are. This site should be bookmarked by any mature adult gamer and I’m so glad I stumbled upon it.

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