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Monday, August 11, 2008

Warnings from Chris Deering

From Gamasutra this morning, from former Sony Europe boss and current Codemasters chairman Chris Deering:

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Despite all this growth, however, Deering warns that current development costs, currently in excess of $10 million for major titles, are unsustainable, given that less than 3 out of 10 games actually recover their costs.

Moreover, he says software sales may decline even as hardware proliferates. "Traditional revenue sources will not be sufficient to fund games development," he says. "Especially as global retail sales will be 20 percent lower in 2011 than in 2008."

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We're still a hit-driven industry (where a profitable game will pay for a larger number of unprofitable ones), but the margins of profit for the hits are declining. This is due to higher development costs and what he refers to as a decline in software sales.

I hadn't considered the decline in software sales part, but if fewer games are made that leads to fewer choices for the consumer which leads to the consumer buying fewer titles overall then that makes sense.

2 comments:

Diogo Neves said...

Good post Clinton!

I think that the video game industry has to change and fast!
My personal opinion is that soon everyone will start to discover "new" revenue sources.

We live in a Web 2.0 world. I'm not only referring to the fact that today we want to create things and be known, but to the fact that we want to play new titles knowing that if we doesn't like them we can stop playing anytime without loosing much or even any money.
The problem is how to "unleash the monster" and make it profitable...

We can get some clues in the flash market, that suffers from the "YouTube" syndrome. These games use ad-supported systems to make some profit even if the user is just playing the game for 1 min. Ok, although some small dev teams can make a living from that, it is unfeasible for a big production to get profitable with this model, but it can help!
Another revenue source is the micro-transactions, I believe that this one will be the main revenue source for online-enabled games in the near future, but first we need to stop seeing a game as the "whole product" and start seeing it it as a service.

I'll give an example: I'm not the kind of person that plays Singstar but my girlfriend is, the problem is that I'm the only one who buys games in my house. Imagine that instead of Singstar being a game, it was a "special" music player that I could download from PSN for free (or even for $10 at the store). Now it looks that even me would buy the game :)
Now you think: "Yah right, why should they give it if they can sell it and it sells good?". The answer is that they could make a cross-media digital music business instead of just selling the game. Look at iTunes... now imagine an iTunes service that lets users sing or play (like rockband) their musics. Cool, right?

Ok... It's easier to make content that sells in a music game than in other kinds of games. That can be a problem! A possible solution is to make some content as "stock limited" and find a way of letting players show each other what they bought. That way they'll feel special!
I think that, in this aspect, video games are more like the clothing industry and less like cinema.

Just to finish this long post, don't forget that half of the solution is cutting some development costs, starting by contracting someone like Clinton to optimize your development team and process! :)

Clinton Keith said...

That's a great vision Diogo...and thanks!