I have written on here many times about game piracy and how damaging it is. And yet again, right now, another gaming platform is being destroyed by software thieves. Once the technique for stealing games becomes common knowledge for a machine most of the public are reluctant to pay for games that they can steal for free.
The genie is out of the bottle and it is game over. Ubisoft and others will desert the DS and apply their resources elsewhere. New DS titles will dry up and there will be nothing to steal.
What is happening to the DS has happened to lots of other platforms in the past. When it hit the PS1 it caused massive redundancies across the industry. Yet when the good times are rolling many game industry bosses ignore piracy and treat it as an insignificant side issue. Which is pretty stupid as it could very easily and very rapidly destroy their businesses. If people are stealing your games you can’t pay the staff who make them.
Firstly you may well have heard that most console games make a loss and it is only the occasional hit that pays to keep the industry going. I have to tell you that this is absolutely true. Here are what the problems are for these games:
What you pay for the game doesn’t go to the publisher. The retailer and distributor take their margin (say 40%), the platform holders want their license fee, the actual plastic and cardboard of the game have to be paid for, there is the cost of shipping and finally there is the tax man’s share. I haven’t done the maths recently but you can see that the publisher is going to end up with between a quarter and a third of the money. Out of which they have to pay the developer, the marketing costs, their staff, etc etc.
This generation there has been a massive jump in the amount of content in games. Part of this is HDTV, part of it evolution and part of it bragging rights. Game content is ridiculously labour intensive and therefore expensive. This has rapidly brought us up to movie level budgets.
Also this generation, Sony and Microsoft both moved to completely new CPU architecture. This put game development on a very expensive learning curve. And many development assets that had been used in previous generations of console had to be replaced.
Whilst the current generation of consoles are powerful, they still can’t run the sort of middleware needed to really simplify game development.
Unlike movies games only have one revenue stream, the sale of the plastic and cardboard item. Movies have cinema income, rental, pay per view TV, non pay TV, in flight movies, DVDs, etc etc. A whole plethora of revenue streams some of which go on for ever.
When you buy a game you aren’t just paying for your use of it. You are also paying for the use of it enjoyed by the person who buys it secondhand off you, and the person that buys it off them. And so on. The initial purchase has to compensate the publisher for all the users of the game. And each of those users can’t complain because they get part of their initial purchase price back.
Piracy. Currently only the PS3 isn’t cracked. On PC piracy levels for boxed games are 90+% and at times it gets just as bad for console games. So the honest people have to pay for the thieves.
Currency fluctuations, these have been massive over the last year or so. If your costs are in euros and your income is in dollars (for instance) then your business has changed completely and a healthy profit could well have become a substantial loss.
Marketing has become difficult as the media has fragmented. Television advertising is no longer the universal panacea. Now there are a huge number different media that have to be used. And used properly. This takes a huge jump in the skill and knowledge required of a marketing department. Which can lead to far higher costs.
Against this background we have the release, this autumn, of Modern Warfare 2, developed by Infinity Ward and published by Activision. This looks like being the defining game of this generation of consoles. Surpassing Grand Theft Auto, Bio Shock, LittleBigPlanet, Halo, Braid and everything else. The level of anticipation out there is beyond belief. Activision have done a brilliant marketing job.
Now, Activision are in business to make money, so this is an opportunity to make shipping containers full of the stuff. And they are doing some clever stuff to make sure they get every cent possible. Activision aren’t the biggest game publisher in the world by accident. Her is some of what they are up to:
They have looked at the price elasticity of demand and realised that Modern Warfare 2 has such a high perceived value that they can charge a premium price. They would be fools not to because they won’t lose any sales. In fact it would be very interesting to know the price/demand curve for this game because I reckon that the most profitable pricing point is even higher. This game is a must have purchase to so many people.
Which is exactly why Activision are selling three different editions at three different price points. They call them Standard, Hardened and Prestige. In reality they are Premium, Super Premium and Super, Super Premium. This is clever stuff.
Finally, why just make a profit with the software? As is the fashion these days they are making a hardware peripheral to go with the game. This time it is night vision goggles, which are bundled with the Super, Super Premium version of the game. Activision could make a lot of money from selling millions of these.
This is fascinating stuff. The reaction out there in the community is begrudging acceptance. They know they have no option but to buy the game and the extra price over a “normal” game is not too high a price to pay. Activision have been extremely clever in challenging the industry pricing norms. Too many marketing people are guilty of “me too” pricing without ever really thinking about what they are doing.
Ed Vaizey is a front bench Conservative politician, he is Shadow Arts Minister and part of his brief is the video game industry. In less than a year the Conservatives will be forming the British government and Ed could well become the most important and powerful person in Britain for the games industry.
Ed has a BA in history from Oxford university, he has practiced as a barrister and was a partner in the public relations company Consolidated Communications. He is Conservative Member of Parliament for the constituency of Wantage.
In this exclusive Bruceongames interview Ed gives an insight as to how video games will be treated differently under a Conservative government:
Firstly to get started, are you a gamer yourself? No, I haven’t played video games since I was a teenager.
Your responsibility covers all the arts so do you think that the idea of video games as art is valid?
Well, I tend to divide between the arts and the creative industries – and put something like film in the creative industries bit. But yes I would see video games as art, they are creative, and they have by now their own heritage and cultural significance, which is one element of art.
In recent years the UK game industry has slipped from being third in the world to being fifth, or even sixth. Do the Conservatives have plans to stop or even reverse this slide?
We think video games have not been taken seriously by this Government. They are a huge industry for us, we are world-beaters, and we should be looking at imaginative policies to support the industry as much as possible.
Keith Vaz has said some very negative things about video gaming in the House of Commons. Do you think that understanding of the industry is increasing amongst politicians now?
It’s getting better – Tom Watson is a great cheer leader for the industry, and he is a former Labour minister. Read digital Britain, and there is more about the games industry in it than I expected. I think there has been a change, and I’d like to think I played a part by banging on about it for so long.
In other interviews you have said that the industry would be better served by having just one trade organisation, instead of both ELSPA and TIGA, as we have now. Would you give encouragement for this change?
Yes – though they would argue they have different interests, I think a single trade body putting across the industry’s view would be a good thing.
You have previously supported the idea of a Games Council to promote gaming. Much like the Arts, Film and Music Councils. After the Olympics there will be lottery money available. Would a Games Council be a good cause? Possibly – I don’t want to create another quango, with all those overheads and self-serving agendas. I’d like to explore whether the Film Council’s remit could be extended to video games. And the Film Council doles out money to independent movies via the Lottery, so there is no reason in principle why Lottery money could not support some aspects of games development
Are you happy with the level of protection given to children by the PEGI censorship system?
Yes , it seems a pretty straightforward system
How can we get the British mass media, like the Daily Mail, to better understand gaming and support our games industry?
You can’t – the media love bad news stories. But I do think the industry has made real strides in the last couple of years. You see many more Wii type stories, emphasising the industry’s contribution to health and education, than you used to.
Video gaming is expected to be massive in education and confers many advantages. Do the Conservatives have plans to promote this?
Yes – we will take the way technology is transforming teaching much more seriously. Hitherto, we have simply given teachers the latest gadgets, and never asked – how does this change the way you do your job. Michael Gove is going to revolutionise teacher training so that technology is at the heart of what teachers do
The gaming industry and the country as a whole are massively short of maths and physics graduates. Do you think that gaming could be used as a carrot to help solve this problem?
Yes absolutely. It’s one of the reasons I got into the area so much – it ticks so many boxes for politicians such as having a regional presence. And then it is a huge attraction to get kids to take the sciences seriously.
Copying of digital works is a big problem. What would a Conservative government do to protect creative workers from the online theft of their work?
We will work with the ISPs to ensure that people who are ripping off games are held to account, we have to take tough measures to ensure this becomes much less of a problem. But the industry has to adapt as well, and change its business models to account for the new era.
When I first started this blog Rupert Murdoch, via his mouthpieces like Fox News and The Times newspaper, was anti gaming. Some of the stories they came up with were ridiculous. You can understand why he was doing this, gaming represented a threat to most of what he owns. Movies, TV channels, newspapers, magazines etc. There is a lot of old media in his portfolio at News Corporation.
Now he appears to be making a big move. MySpace was a Murdoch purchase in 2005, for $580 million. Since which it has gone steadily downhill compared with Facebook and the new upstart, Twitter. You wonder why he bought MySpace in the first place, social networking sites are not exactly cash cows. Now it looks like he has come up with a plan that will get him a massive presence in gaming and a return on his investment in MySpace.
MySpace is still massive, 125 million unique users a month is substantial. If he can capture this audience for gaming we will have something a lot bigger than Xbox Live or Steam or anything else in gaming for that matter. We will have a half billion dollar gaming monster.
Of course Rupert was forced into this. Old media is dying at some speed world wide whilst gaming is growing rapidly. Gaming has the three technology advantages of interactivity, connectivity and non linearity. Old media stands no chance against this. And gaming isn’t just for recreation. Already it has massive uses in education, business and the military. These will grow to be many times bigger than the recreational uses.
Game capable smartphones, and their application stores, are one of the hottest and fastest growing areas of technology at the moment. And the growth potential is pretty close to infinite. They are a perfect synergy of abilities that will bring as yet unimaginable capabilities to huge swathes of the human race.
There are two ways to be a platform holder in this market. You can manufacture a device yourself, as Apple do with the iPhone. Or you can license the platform to others, as Google do with Android. Microsoft do both and they do them both badly.
So Microsoft are making excuses. Shane Kim, Microsoft Corporate VP, says: “For us, it’s a matter of focusing on ‘when’, because if we chased after a mobile or handheld opportunity, we would not have the resources and ability to do things like..Project Natal. So we’ve chosen to focus on the living room experience from a hardware standpoint, if you will, but we’re building a service in Live that will… will extend to other platforms. No question about it.”
This is pathetic. Microsoft has about 90,000 employees. And they can’t develop a decent mobile platform because they are all too busy with Natal. When a decent mobile platform is worth billions in profits. Just ask Apple.
What makes this doubly pathetic is that Microsoft, above every other company on planet earth, are sitting on the technology to do this. The have the Surface gesture interface, the Xbox Live portal, the Office applications, the Explorer browser, Outlook for email and the Windows Mobile operating system. What more do they want?
So the mobile device train is leaving the station and Microsoft aren’t on it. But their fiercest competitors, Apple, Sony and Google are. What is even more surprising, Nintendo, who have dominated mobile platforms for years, are missing the very same train.
It is strange how the game industry has evolved over the years, taking unexpected twists and turns. Who would have thought, for instance, that text based fantasy games would evolve from their niche pre computer form to the MMOs we have today, played by tens of millions of people all around the world?
And one of these revolutionary twist is happening right now. It is one of the biggest ever to hit the industry, positively seismic in fact. And it all came from the humble MP3 format.
The Motion Picture (hence MP) industry in the early ’90s brought together a number of techniques to compress digital music to about a tenth of the file size. This then made it very practical to transmit music around the web using the slow dial up modems of the time. Which meant that the business model of the music industry was broken. Portable MP3 players entered the market and fairly quickly replaced the old Walkman devices.
The next step in this chain of events was for Apple to see an opportunity here and to thus bring out the iPod. They then brought about one of the biggest revolutions in publishing in the history of mankind. What they did was to go to the record companies and offer to sell their music on line for them. If it hadn’t been for the high level of piracy the music industry would have told Apple to get lost. In fact some companies did, to start with. But once the business model proved viable they had no option but to join. So in January 2001 iTunes was unleashed on the world.
It is very easy to underestimate how revolutionary iTunes was. For the first time we had instant mass market distribution to the whole world. An artist could create a work and just minutes later it could be in the hands of millions. And because of the business model the artist was rewarded for their endeavour. As ever with enabling new technology it takes a while for the effects to be felt. But sure enough iTunes brought about a number of revolutions:
No need for plastic and cardboard to publish and distribute IP. This is massive. From the days of cave paintings through the Caxton printing press publishing has always needed a physical medium. Now it was gone.
Explosion in diversity. To distribute a song costs Apple nearly nothing, it is just a small file on a hard drive. So they can maintain an infinite catalogue. They can make available every piece of music ever recorded. Which makes the physical stock in the world’s biggest music store look pathetic in comparison.
Total globalisation. A song can be recorded in Lithuania one day and be listened to in Western Samoa the same day. The whole world has access to the whole world’s music. A defining moment for the global village.
A fair and workable business model for everyone involved. Apple, the artist and the customer all benefit massively from iTunes.
No need for publishers. When iTunes started 100% of its content came from publishers. With the passage of time that percentage has steadily reduced. The artist can reach the entire world market without needing a publisher.
What followed was the biggest and most successful uptake of a new platform in the whole history of the video game industry. More a nuclear explosion than a revolution. 1.5 billion downloads in the first year.
So the business models of the big three console manufacturers, Sony, Nintendo and Microsoft are under threat. The reality is that they are just about as relevant as the cave paintings mentioned earlier. It is only content availability and momentum that is keeping them going. And if Apple produce a home console repeating the same business model as the App Store then the established players will be in big trouble. And they are half way there with Apple TV.
The AppStore idea is so brilliant that it has been very quickly copied. By Google for Android, by Sony for the PSP, by Nokia for Symbian and also by LG, Samsung, Blackberry and Pre. Everyone is at it. And quite rightly too, the AppStore is currently the optimum method for distributing IP to its users.
A year ago nobody would have predicted this. The video game industry has been hit with the biggest revolution in its entire history. And it is massively to our benefit. Our IP will increase enormously in diversity and reach far more people than was possible before. It is making us truly mainstream.
