Why the video game industry is in such a mess

I thought that with the way things are going in the video game industry just now it would be good to give one person’s view as to what is going so badly wrong.

Just two years ago the game industry seemed to be booming, rapidly growing sales, lots of new titles, exciting leaps in technology, popular new platforms. It looked like the place to be. Then look at it now, moribund, going nowhere and , frankly, pretty boring. So what has gone wrong? Well the fact is that during the boom far too many products made a loss and for the last few years far too many games publishers have run at a loss (we all know who they are) and this is mostly down to the sheer ineptitude of many of the people who run the industry. There are plenty of customers out there with plenty of money who want to spend it on interactive entertainment but our industry has failed to give them compelling reasons to spend it.

So let’s look at what is causing the problems.

Platform proliferation. Not so long ago if you were a game developer you made games for the Playstation/ Playstation 2. That was the market. An occasional PC title added a little bit to the mix, but the real market was with Sony. So business models were easy, put about 20 fairly gifted people together for 18 months and you had a good chance of actually making a profit. Now there are more than a dozen viable, thriving, gaming platforms. So knowing where and when to apply assets has taken a lot of skill and that skill has been conspicuously absent.

Barriers to entry. In the Playstation/Playstation 2 days the barriers to entry were just perfect. It cost a handful of millions to develop a game. This was sufficient barrier to keep the hordes out but it was low enough to make risks acceptable. Now the barriers to entry are either too high or too low. To make a profitable hit for current generation platforms now takes a £100 million plus punt and there are not that many people with the balls and skill to do this. At the other extreme iPhone and Android games can very easily be made for a few thousand pounds, so anyone can and is putting products on these platforms. There is such a plethora of titles that it is difficult to stand out and attract custom. This dichotomy of high and low development costs has really caught out most of the world’s well known game publishers, they have not known how to deal with it.

Poor development tools. The way we make games is still very primitive, between the creative talent and the finished product there is just far too much mindless, repetitive slog. This really needs to be fixed if we are to go forwards with ever more powerful platforms. The number of man hours that the development process consumes can be radically reduced.

Industry pathetically slow at going online. The customers have been well ahead of the industry here, many big name publishers are trailing two years behind what the market is really doing. Video gaming is no longer about cardboard boxes in retailers, it is about interactive online entertainment. Just read the gaming forums and see what the real customers are doing in the real world. I could name names here, but there is no need, the spectacular failures are very evident.

Microsoft’s pricing policy. This is an epic fail. Sony with PS3 made a platform that was too expensive to manufacture and Sony as a company was on the ropes. Microsoft, with the Xbox 360 had a platform that was cheap and elegant to make, and they had the riches of Croesus to invest in it. They could have, should have, taken the market by the scruff of the neck and driven it. Instead they have dilly dallied around with no obvious purpose. The prime example of this is their pricing policy on the console. This has always been far too high. It is too high today. We are in a razors/razorblades market here, what is important is getting volumes of platforms out there, whatever the cost. The proven mechanism is price elasticity of demand and Microsoft have failed to use it, they just haven’t had the drive to break out and become mass market.

Sitting round waiting for saviours. The big platform manufacturers and most of the big publishers are equally guilty here. “Just wait till we have 3D and everything will be OK” or “Just wait till we have a gesture interface and everything will be OK”. This really, really doesn’t work, if you are not making a profit out of what the customer is actually buying today then you have made some big mistakes.

I could go on, but you get the idea. Now I thought I would highlight two people who have massively outperformed the herd by having the brains to see what is going on and the balls to do something about it. The first is Bobby Kotick at Activision. He saw clearly that the console market was going to consist of two sorts of games, blockbuster and loss makers. When so many chose the latter he chose the former. A small number of huge hits with no distractions allowed has proven him right time after time. Secondly Kristian Segerstråle, who has been absolutely on the button at making money from where the market actually is, I have heard him almost angry at the stupidity he saw all around him in the industry.

The really frightening thing is that both of these guys quite openly said what they were doing and why, yet so much of the game industry management thought they knew better, ignored them and then made massive losses.

8 comments ↓

#1 David on 11.11.10 at 10:23 am

Nice to see a new post!
About the point, “Poor development tools”, don’t you think that with the advent of tools like Unity, Shiva, etc, that problem is starting to get solved? I mean, other middleware companies have awakened and see that their production pipeline is not even close to those examples and started improving it right away (e.g Torque)

#2 Tim on 11.11.10 at 10:26 am

Good article, thanks a lot for writing in this blog after a long pause.

#3 Kuranes on 11.11.10 at 2:20 pm

Nice to read you again!! Really missed your insights.

There are too many developers writing blogs without such a clear understanding of what’s going on.

#4 roger on 11.11.10 at 3:00 pm

A post for a change!
Interesting as always Bruce.

#5 King Krak, All-Seeing, All-Knowing on 11.11.10 at 4:47 pm

“So what has gone wrong?”

How about the trend of the year: clone every successful Facebook game and be sure to keep them all dumbed-down so that they bore 8-yr-olds.

That’s where gaming is in 2010, with Freemium as the economic model.

P.S. Someone still plays platformers?!

#6 Andy Hughes on 11.19.10 at 3:03 am

No, the reason why the gaming industry is in such a mess is people like you – marketers.

#7 Mike on 11.21.10 at 6:57 am

The game industry keeps putting out the same crap over and over again. There are too many FPS games and developers are too lazy to think outside the box so they clone, clone, and clone. They are killing the industry with this garbage an so are the dumb narrow headed consumers who keep buying it.

#8 Jimmy on 11.25.10 at 1:23 am

Nice to see you back Bruce.

Looks like we will it be playing all the same old rubbish games just in 3d? People programming disguised as a “game”.

Kickabout in the park anyone?

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