There are some fun numbers at EDGE about the games industry and elusive profits.
only 4% of games that enter production will return a significant profit. Of games that are released to the market, only 20% will produce a significant profit.
The games industry is an all-or-nothing industry. It’s a moonshot not a marathon. And it may be getting worse.
Game sales are becoming more concentrated in the bestsellers. As an NPD analyst told Gamasutra recently, “You’re really seeing that those top hits are the most important thing in the industry. And getting into that top-tier release is more important than ever before.” The article has interesting data, such as “in 2005, the top 20 SKUs accounted for 11 percent of the total unit sales. In 2008, the top 20 SKUs accounted for 18 percent of the total unit sales”.
Games are a moonshot. You pour millions of dollars into it over the course of years. Most projects are killed before they can be released. If your game does get released, it has a few weeks or a couple of months to recoup all costs and make some profit. GamesIndustry.biz paraphrases Phil Harrison on the topic.
Essentially the problem with current development cycles, says Harrison, is that they encourage companies to continually pile on risk and cost as the project goes on, so that projects hit their "peak negative revenue" - in other words the point at which the game’s costs have hit their highest point - just as the game is released.
What’s more, it must then be hoped that the cumulative costs of perhaps two or three years of development, leading up to that peak negative revenue, will be offset by a handful of weeks in the sales spotlight - a process which puts extreme pressure on the marketing and PR teams to secure as much visibility for their titles as possible, and one that leads to a make-or-break situation.
It’s been this way for awhile. Everyone in the industry understands the problems created by this situation. No one has found a better way (yet).
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The cost of new titles to consumers is not exactly low, and there is a common perception (with some truth to it) that games developers learn how to get more from a platform over time. As a result, when its time to get a new game, whatever is currentlynew and generating buzz is what’s going to sell.
The solution is to lower prices, and generate buzz and excitement without having to complete in the current games arms-race. Easier said that done, but Nintendo seem to be making a fair attempt at doing exactly this.
@NickH, lowering prices won’t do much. You said it yourself as you state that “when its time to get a new game” you don’t mention price, just newness and buzz. Game consumers, especially the hardcore market which is the majority in dollar terms, has a very price inelastic demand.
Generating buzz is incredibly hard without something that’s new. What will the press say to generate the buzz? “Game still exists, see last year’s reviews for more.” It doesn’t work.
DLC packs, like the Lost & Damned, provide a way to extend the buzz for a game by providing something for the press to write about. That’s one reason that publishers like DLC’s.
On the other hand, thanks for the comment. The important thing I think is to continue to question the status quo, consider new business and production models, and ultimately try some out to see if they work.
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