I have been prompted to write this by a leader column in the Economist and it is something I have alluded to in previous articles. This is something that has been brought about by changes in the technology of production and of distribution. It is something that will increase further with time. And it is something that effects all popular media. Consumers are buying massive block busters and they are buying niche products. But increasingly they aren’t buying anything else.
In video games the blockbuster are titles like Grand Theft Auto, Halo and Modern Warfare. They are primarily on current generation home consoles. And they can be the biggest media launch events on earth, now running up to half a billion dollars at retail in just a few days. They are more than just games now, they are events in popular culture that touch on many millions of people. And whilst these are good games, this is not what makes them succeed. This is easy to prove because there are equally good games that don’t become blockbusters. And the non blockbuster games sell a fraction of the numbers.
So the games that make it to blockbuster status and the ones that don’t, being of similar quality, cost pretty much the same to make. But there is an immense difference in revenues. The non blockbuster may only take a few million dollars whilst the blockbuster will take many hundreds of millions. So it has become a very high risk marketplace where a single game can make you a fortune, or a thumping loss. Which is a major reason why certain publishers are posting thumping losses.
Of course the defining factor of what makes a blockbuster is principally marketing. In this case manipulating mass conciousness to make a new game a global event of some excitement and importance. The Zeitgeist must be caught, or more correctly, manufactured. People must feel left out when they are not a part of it. And this is not about spending money to create this, it is about marketing as a craft.
If you publish a niche game you are entering a market with many thousand, maybe tens of thousands of niche games. What defines yours is, quite simply, the niche that it is in. So, having walled yourself into a niche it is impossible to attract massive launch sales. But you do have something that the old high street retail model didn’t offer. You have a long tail. As popularised in the book by Chris Anderson. Effectively your sales could continue for ever.
This requires marketing. Remember that zero marketing results in zero sales. But niche games require a different kind of marketing. You need to target the people in your niche. And you need a substantial and permanent online presence, so that people who could be interested will always find your title.
So if you are involved in the game industry in any way ask yourself the question, am I making a blockbuster or a niche title. And if the answer is neither then you are certainly wasting your time. We have seen this as middle ranking publishers with middle ranking titles flounder in the marketplace when a decade ago they could have made a respectable living.
This is really interesting stuff from Doug Creutz of Cowen Group in Gamsutra. He has done some research and analysis which has resulted in this list of the top 7 reasons people buy a video game, in priority order. But be a bit cynical here, it is very well known that people tend to tell market researchers what they think that the market researchers want to hear. But nevertheless this is important stuff for everyone in the industry to know.
Genre. If someone likes first person shooters they aren’t going to buy a needlepoint game. Makes sense to me and you can see that it applies to the older media too, such as books and films.
If players enjoyed an earlier version of the game. The power of brand. But beware, it is important that you maintain the quality of what you publish under a brand name or you can come unstuck. Just ask Lara Croft. But done well it is a license to print money, just look at Modern Warfare, Grand Theft Auto and Halo for your inspiration.
Price. Ah yes, people have to work to earn the money that they spend. And they have lots of choices about how to spend that money. Console games are probably too expensive this generation for the health of the market and people are taking their spend elsewhere. If PS3 and Xbox 360 games were cheaper the market would be a lot bigger.
Word of mouth. This is why marketeers need to create a buzz and why community marketing is so important. People trust what they are told by people they know far more than they trust what a company tells them directly.
Marketing visuals. The industry put a lot of effort into this during the cardboard and plastic retail distribution era, even if the imagery sometimes got a bit over derivative. But now we have moved to online a lot of people seem to have forgotten this. How many iPhone games have great marketing imagery, for instance.
Publisher reputation. Always was worth very little. Sometimes hardly worth printing on the pack. All the effort that went into trying to create EA Sports as a brand when they should have been working on word of mouth.
Review scores. Oh how I laughed. All those self obsessed journalists and their precious review scores and it doesn’t matter. Can Edge magazine survive this? And John Riccitiello’s obsession with Metacritic shown to be a false fixation.
There are a lot of doom and gloom headlines around at the moment. Lots of development staff being laid off, games selling far less than expected, major publishers making massive losses and release schedules that look a little thin. What is happening here?:
The industry have become even more lemming like than normal. We get a successful game like Guitar Hero and suddenly everyone thinks it is the second coming. Other people do “me too” imitations whilst the owner of the original title flogs it to death with countless variations. Then we have the inevitable, a Beatles game that flops. Publishers are just not thinking from the customer’s perspective, people really don’t want all these similar titles.
Annual iterations of popular titles. Another way of flogging a successful IP to death, try and get the customer to fork out every year for a slightly updated version. This is incredibly inefficient as you end up with lots of customers just buying alternate iterations. Or being turned off by the cynicism of the whole exercise. Leave 2 years between releases on popular franchises.
The customers are moving to online faster than the publishers are. Lots of publishers have misread just how quickly the market would change. Apple’s App Store getting one and a half billion downloads in a year and Evony getting 10 million registered users in just a few months whilst boxed cardboard and plastic retail games gather dust on the shelves is the new reality.
Unwillingness to experiment with new IP. This is just pathetic. So many publishers now are just sitting there flogging their old IPs to death because they think it is safe. It isn’t safe at all, those IPs will not deliver for ever. Publishers need to build value in their business and the only way is with new IP. Sure it is risky, but publishing is about risk. And these days you can experiment on a cheap to develop platform and then if it works move the IP to the expensive to develop platforms. And the Apple App Store has loads of brilliant new ideas for IP.
Awful marketing. By and large the industry markets incredibly inefficiently with advertising that preaches to the converted. Instead they should be trying to engage with the public so as to switch their spend from other pursuits. Nintendo have done this incredibly successfully but the rest of the industry have failed to take this on board.
Mid generation lethargy. Most publishers have now released all their franchises for this generation of platforms. So they are waiting for the next generation platforms to release them all again. In the meantime they can’t think of anything for their developers to do.
Piracy. The 360 is being hit quite hard with this now. Microsoft really to need to put a whole pile more IP protection into the Xbox 3/720/phoenix, especially if it is a mainly, or all, online machine.
Recession. A convenient excuse. Most of the world is out of recession now (except for the UK, which has the worst run major economy). And even in recession people give up paying for their entertainment last.
So it is the management’s fault. And the few well managed companies are making hay.
Inevitably, and for reasons explained many times on here, the Wii bubble has finally burst. In the half year to the end of September sales were down by 40% compared with the year before. Nintendo president Satoru Iwata has no option but to admit: “Wii has stalled” he even admitted that the price drop has failed to arrest the decline: “With the price drop, sales returned to a certain level, but they just did not reach the level of last year around this time”. Which was all as inevitable as night follows day.
A lot of the success of the Wii was fad. People becoming lemmings under the onslaught of peer pressure. Just like the Hula Hoop and Rubik’s Cube for previous generations. And fads have very sudden endings as the zeitgeist moves on to something new.
The Wii is a very strange and paradoxical device, its hardware capability is mainly last generation yet it boasts an innovative and compelling gesture interface. Most Wiis are bought as family toys and are little used yet it has some amazing games including possibly the stand out title of this generation, Super Mario Galaxy.
The Wii has had its popularity and life massively extended by the Balance Board and Wii Fit, but there are only so many overweight middle aged women willing to pay so much in a feeble attempt to assuage their vanity. So it looks like this market is exhausted, much to the dismay of the many publishers who thought that this was a bandwagon they could jump on. The reality is that the Balance Board is panning out as being the Reebok Step mark 2.
It doesn’t help that you can buy a vastly better machine, the Xbox 360, for less money. Even Sony have tried to be more price competitive and have improved their act in many other ways. Both these machines are introducing gesture interfaces that will finally remove the Wii’s main trump card.
We have known for a long time that the Super Wii is in the way with HD graphics and a rumoured Bluray disk drive. But this is thought to be coming some time after the middle of next year and the market needs it now. Nintendo have got their timing very wrong this time.
It has to be said that the Wii has done video gaming a massive amount of good. It has taken the medium to new markets and new demographics, vastly expanding it for everyone’s benefit. They have introduced new genres of games and extended old genres in a prodigous burst of creativity. And they have continued in their fine tradition of production values that put most of the rest of game publishing to shame.
I am very, very glad that I am not in competition with Microsoft’s Xbox division. They really are grinding the opposition down. And it is not as if they are attacking on one front. No, Microsoft believe in being better in every single possible way. The Xbox 360 is now, by a huge margin, the gamer’s choice of consoles from this generation. It is cheaper to buy, has far more games available and has the best online gaming service on earth, Xbox Live. Little wonder that in September Microsoft sold $404 million of Xbox 360 hardware, software and peripherals in North America alone. A phenomenal result.
Part of the success is down to platform exclusives. Halo is massive and Halo 3: ODST has done the business again through this summer. But there is also Tom Clancy’s Splinter Cell: Conviction, Forza Motorsport 3 and Left 4 Dead 2 with Mass Effect 2, Gears of War 3, Crackdown 2, Halo Reach and Alan Wake to come. Relentless and formidable.
There is the constant upgrading of Live to become a media hub, with HD movie rental, Facebook, Twitter, Zune and Sky Player on the way. This makes the 360 by far the most powerful entertainment hub that you can connect to your television. And it is a lesson to everyone that Microsoft are a software company, they see the Live service as being infinitely more important than the 360. The 360 is just the current box of choice, there will ultimately be far more that can use the service.
Also, quietly but persistently, Microsoft are moving content distribution away from the physical plastic and cardboard sold at retail. Online is the future and Microsoft are already there. They keep adding to the number of game titles that can be directly downloaded with a new batch just released including Army of Two, Midnight Club: Los Angeles, and Sonic Unleashed. Microsoft are making the transition gradually so as to wean both retail and consumers to the new reality. But the rumours are that the Xbox 3/ Xbox 720 / Project Phoenix will be a download only device.
As if the weren’t enough we have Project Natal on the way. An implementation of gesture interface technology that is a quantum leap beyond anything else. This will bring infinite new possibilities to how humans interact with video games and the whole online world. New levels on immersiveness will transform the potential of the medium. We are about to make a paradigm shift of epic proportions.
There is increasing anecdotal evidence and deductions from news items indicate that there is currently a big slowdown in games under development worldwide. Development staff are being laid off in quite a few studios. Yet the industry at retail is bigger than it ever was before and is booming like crazy, so what is going on?
A lot of it has to do with the console cycle. Each console has about 5 years life as the premier platform from a manufacturer then a further 5ish years life as the second string platform to the replacement premier platform. When a console is new to the market it is sold at a premium price to early adopters. This is a good time for game publishers to experiment with new products, it is easier to get new ideas and IPs accepted early in the cycle to a more geeky customer base. The blockbuster titles are held back till there is a big enough installed base to get the volume of sales needed, so they tend to arrive around the middle of the 5 year cycle. Then when the console becomes cheap, after 3 or 4 years, we get more family and children’s titles.
So in this generation most of the blockbusters are pretty much done and dusted. And the experimentation phase is well over.
Another major factor in the market is the catalogue of titles available for each console. You only need so many racing games, so many FPSs, etc. In other words there is little point developing games when there are plenty of similar games for the same platform out there. And we have reached this stage on the current platforms.
What about the non console platforms? Well the PC, DS and PSP are ripe with piracy so most publishers tend to largely avoid them for retail games, they have broken business models. The PC is still good for casual games and MMOs, but the competition in both these areas is now extremely intense. Which brings us to the iPhone, which just has too big a catalogue now to be a sensible target platform unless you have a very strong USP and good marketing.
So what the industry needs is the next generation of console platforms. And they are due, the Microsoft Xbox 360 is coming up to four years in the market. But it will be different this time, all three new machines will almost certainly be backwards compatible with this generation, they will just be scaled Super versions of what we have now. So all the current generation games will run on them, which vastly reduces the impetus for new titles. More doom and gloom.
So what is going to get development booming again? The answer is gesture interfaces, like Microsoft’s Natal. And 3D displays. Both of these massively enhance the gaming experience, they bring new levels of immersion and new possibilities. They may well each create bigger booms than the release of the next generation platforms does because they bring so much more to the table.
The fact is that EA would be very cheap to buy, because they have been making big losses for some time whilst the industry around them booms. These losses are because something is wrong within EA, fix that and you have bought a bargain.
Expert Wall Street analysts are saying that EA would be a bad fit for Microsoft. They are wrong and here’s why:
Microsoft are a software company. EA are a software company. So Microsoft would be buying more of the same.
Microsoft have lots of platforms they need content for. Live (which will ultimately support many hardware devices), Zune, Windows, Windows mobile, the upcoming tablet, the 360 and the upcoming 720 (phoenix) that will run alongside it. Also they must be working on thin client smart TVs. That makes at least 7 platforms.
EA own a truly formidable portfolio of studios that can be bought cheaply here. Put in harness and properly managed they are an outstanding resource in the industry.
EA also own a fair amount of original IP. Once again this can be leveraged massively onto all those Microsoft platforms.
If Microsoft don’t buy EA then someone else will. And that someone else could be Apple or Nintendo, either of which would put Microsoft at a massive competitive disadvantage across many product areas.
Microsoft have Natal coming. This has future potential beyond that even of Windows. By buying EA they would create a commitment to Natal that would help ensure that this potential is realised.
So how did EA get into the position where their stock market value is a small fraction of their real worth?
EA traditionally made games using other people’s IP. James Bond, Harry Potter etc. As the industry evolved the consumers moved away from this towards original IP which better used the technical advantages of gaming as a media (non linearity, interactivity and connectivity). EA moved too little and too late to follow the market.
The boxed retail console game business model on which EA depends is largely broken in this generation of platforms. Only blockbusters work. EA were too late in seeing this and persisted with products long after they should have been dumped.
Management of an organisation can be done efficiently at minimum cost. The British ran Imperial India with few civil servants, for instance. However it is also possible for management, because they have the power, to become self serving and overly expensive for what they do, with empire building, secretaries, bloated expenses and a pile of other ills. I think that perhaps EA are not quite the mean, lean management machine that they could be.
EA launched products onto the market that would not work because product quality made them uncompetitive. Warhammer Online is a prime example.
EA has a long history of buying studios which then went downhill when the EA bureaucracy was imposed upon them.
Any behavioural expert will tell you that working long hours, especially at something creative, is unproductive. Enlightened game developers realise this and get the best out of their workforce. EA have been long time proponents of development crunch, which surely cannot be a good thing.
EA marketing owes more to the 1960s detergent industry than it does to modern best practice. They continue to spend massively on TV airtime instead of matching their marketing effort to the behaviour of their customers. Also they seem not to have adapted well to the brand building necessary when you create original IP.
For a long time I thought a global media company would buy EA. News International would be a very good fit, but Rupert seems to be a long way behind the market these days. So now we are in a position where EA seems to have more economic advantage to a platform holder than to a media company. One thing is for sure, they are a very ripe takeover target indeed.
