Death to the Games Industry

1. Death to the Games Industry

Long Live Games
Greg Costikyan
[email protected]

2. The Problem

3. Empirically: Rapidly Increasing Development Costs

Millions
2004
2003
2000
1995
1990
Budget
1985
$5.0
$4.5
$4.0
$3.5
$3.0
$2.5
$2.0
$1.5
$1.0
$0.5
$0.0

4. Theoretically: Driven by Moore’s Law

Machines get better quickly
– Processing power
– Display capabilities
– CD-ROMs permitted (and demanded) application
bloat—two orders of magnitude over a few short
years
– Today, art assets are the main cost driver—more
polygons = more cost; and faster machines can
push more polygons

5. From the field…

A Doom level took one man-day to build; a
Doom III level takes 2+ man weeks.
Tools not advancing as quickly as hardware
Middleware doesn’t always help (Spector not
sure whether using the Unreal engine for Deus
Ex actually saved him anything)

6. You have no choice

Audience expectations
–
No “Indie game” aesthetic
Marketing demands
–
–
–
–
Games often sold on basis of ‘demo reel’, not gameplay
Distributors/retailers buy on the basis of look
Graphic glitz acts as a first barrier; gameplay may determine
eventual sales, but you need a level of media quality to get
there
“Feature list” approach to marketing (particle effects, check…)

7. Demand for ever-increasing media drive by…

Narrowness of retail channel
– Most stores stock <200 SKUs
– Thousands of games released yearly
– Typical shelf-life: <4 weeks
– “Compressed sales” vital to hold shelf space
Industry belief that technology sells…
– So your game has to take advantage of the latest

8. Empirically: Sales increase too, but not as fast

100,000
80,000
60,000
Median unit
sales
40,000
20,000
0
1985 1990 1995 2000 2003

9. Theoretically: Sales growth is a linear curve

Increasing game penetration in the population as a
whole
–
–
–
Leisure time activities set as an adolescent, followed as you
age
Anyone who’s been a teenager since 1982 has been exposed
to games (that’s why almost no one over 35 plays games—but
many 35 and under do)
In 30 years, demographics of game players will match
demographics of population as a whole
Population growth (a few percent annually—by
comparison to doubling every 18 months)

10. …Average game loses more and more money….

$1,000,000
$500,000
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
Profit/Loss
1985 1990 1995 2000 2003

11. Caveats

All numbers off the top of my head
Not like I’ve actually done any actual research
Assumptions:
– Unit price = $40 throughout period; gross margins of
50%; COGs + marketing equal to development cost
(doubling investment)

12. And it’s going to get worse…

Moore’s law drives increasing power of
machines…
– an exponential function
Sales increase with penetration of games of
games into population and size of population…
– A linear function.
$20m+ typical of budgets for next-gen
consoles….

13. Market Implications

Field more and more hit-driven
– Few hits have to carry 90+% of games that lose
money
– At any time, 80+% of sales generated by top 10
games

14. Implications for Publishers

Industry consolidation
–
–
–
The more titles you publish, the better your chance of having a
hit to carry the firm
Medium sized publishers disappearing (Interplay, Acclaim,
Midway all in trouble)
…And even big publishers aren’t immune (“Atari”, VUG, Sony)
‘All Games should be like Sports Games’
–
Minor annual updates, stable & predictable development

15. Implications for Publishers (con’t)

Desperate search for way to cut costs
–
–
–
Desperate search for way to alleviate risk
–
–
Overseas development (particularly for lower-cost titles)
Pressure on developer margins
Increasing use of middleware (but everything starts to look
alike)
Licenses
Version Six in a franchise
All games must be AAA titles
–
No point unless you have a chance at a “hit”

16.

“There’s no point in publishing
a game that isn’t attached to a
brand.”
--Edmond Sanctis, former COO of
Acclaim, speaking at Games & Mobile
Entertainment conference
<snark>(Is there a reason Acclaim is now
dead?)</snark>

17.

“We always look for something
unique and innovative.”
--Tom Frisina, VP & General Manager, EA,
speaking @E3
…But don’t you believe it. Tom is one of the good guys, but
they want “checkbox innovation”—a selling point to
differentiate your game, but not whole cloth innovation.

18. Implications for Developers

You won’t sell a pitch unless the marketing
weasels know how to sell the game
– RTS, FPS, RPG, action adventure, driving, sports—
it had better slot into an established marketing
category
Innovation can be on the margins only
– Unless you are Will Wright—and EA tried to kill The
Sims many times before it went gold

19. Implications for Developers (con’t)

Virtually impossible to sell a title unless it is…
– Based on a license, or
– Part of a franchise (Coasters of Might & Magic)
– At best incrementally innovative

20. Implications for Developers (con’t)

Margins are squeezed
–
–
–
–
–
Impossible except for top tier developers to make a deal with
royalty >15% (of gross, not retail)
Virtually impossible for advance to be recouped
You live from contract to contract, and if you don’t land the next
deal, you’re out of business
Publishers increasingly willing to kill games even after
substantial development (better to eat dev cost than throw
good marketing dollars after bad)
Publishers want every dollar on the disc—developers rarely
net anything from a deal (and often lose money)

21. Implications for Developers (con’t)

Basically, you’re fucked.
– Very hard today to establish yourself as an “id”
– Increasingly being acquired by major publishers
– Harder to land deals at all
– Hard to land any deal that isn’t attached to a license
– Even if you do an ‘original’ title, publisher owns the
IP

22. Why This is Bad

Games industry was built on a ferment of
creativity
In PC games particularly, the most successful
titles have generally been creative leaps
– SimCity
– Doom
– WarCraft/Command & Conquer
– GTA
– The Sims

23. Why This is Bad (con’t)

Entertainment media get stale unless
reinvigorated…
– Role of independent music and film: cheaper
creative laboratories for the mainstream field
– Games industry has nothing comparable
The “comicization” of gaming?
– Narrowing of field to superhero books = narrowing
of audience = marginalization

24. Ridiculous, Anyway

Software is enormously plastic
– If you can imagine it, you can code it
So are games
– Literally hundreds of different game styles, many styles
successful in paper games or older digital games that are no
where seen in the market today
We’ve explored only a tiny portion of the possible in games
Doubtless dozens of commercially feasible styles not yet
discovered
Innovative novels published every year, and that’s a medium ~300
years old
…And in the long term, you’re better off developing your own IP
than paying for someone else’s

25. We Have to Blow This Up

This sucks
We’re all doomed under the current model
We’re all going to be doing nothing but making
nicer road textures and better lit car models for
games with the same gameplay as Pole
Position for all eternity unless something
changes.

26. What do we want?

A market that serves creative vision instead of
suppressing it.
An audience that prizes gameplay over glitz.
A business that permits the success of niche
product (profitability in the tens of thousands
rather than millions of units).
Creator control of IP.

27. How do We Get There?

Attack the business model
Attack the distribution model
Change the audience aesthetic

28. Attacking the Business Model

The Value Chain:
Developer
Development
Publisher
Funding
Marketing
Retailer
Distribution
Sales

29. What about…

Developer
Development
Publisher
Funding
Marketing
Retailer
Distribution
• Higher royalty, continued ownership of IP
• Tell publishers’ internal producers to fuck
off – ability to sustain creative vision
Sales

30. But where do you get the cash?

From VCs?
– Historically hard, but a lot of VC interest in the
games industry at the moment.
– Highly risky from a VC perspective.
– Worked for Mythic

31. Getting the cash (con’t)

Project Funding?
– Shorter time horizon to liquidity
– Possible to arbitrage over multiple investments
– Lower reward but lower risk
– Comfortable model for film investors
– Some of this happening in the casual games space
– Obvious business opportunity here.

32. Getting the Cash (con’t)

Even partial funding gives you leverage
More likely for developers with proven track
record
Get the money however you can.
Don’t fear failure: “I’d rather invest in a failed
entrepreneur than a proven corporate
manager.” – John Doerr (a VC)

33. What about…

Developer
Development
Publisher
Funding
Marketing
Retailer
Distribution
Blowing up the retailer?
Sales

34. The Casual Game Space Proves it Can Be Done

90+% of sales through online portals
With broadband, even multiple 100MB
applications can be downloaded in reasonable
time
Technology not a problem: any number of
cheap ecommerce suites that can handle sale
of direct downloads
DRM issues solvable

35. Niche Publishers Doing it Today

Many PC game styles still have a following…
– But not enough to justify distribution through the
retail channel
E.g., computer wargames, flight sims, graphic
adventures, 4X, turn-based fantasy…
– Most sales of Galactic Civilizations (Stardock) and
Gary Grigsby’s World at War (Matrix) via direct
download… 100k+ units in both cases…

36. Marketing is the problem…

Review media don’t take “download only”
products seriously.
No box to serve as a billboard on the shelf.
Hard for consumers to find
– If you’re a fan of computer wargames, you have to
visit a half dozen sites to see what’s new.
Changing consumer behavior is hard.

37. We need a new kind of business…

Developer
Development
Online Portal/Marketer/Community Site
Funding
Marketing
Distribution
Sales

38. A New Kind of Business

“The portal for indie games for core gamers”
–
Don’t compete with Yahoo! Games/Real
Arcade/Shockwave/etc. for casual games—aim at the hard
core.
Marketing driven!
–
–
–
Developers suck at marketing
Figure out how to get exposure for niche/indie product
Spends the bulk of revenues on advertising & promotion

39. A New Kind of Business (con’t)

Benefits for consumers:
– Single place to find everything
– Community support
Benefits for developers:
– Continued ownership of IP
– Path to market for niche/indie product
– Access to community
– Bigger share of retail price (30-60% vs. <15%)

40. An obvious business opportunity?

…But relies on changing the audience
aesthetic…
Still, relies on demonstrable trends: developer
search for alternatives, spread of broadband,
success of the casual games market….
PC-only today…
– But hints from both Microsoft and Nintendo that they
may permit direct download of some games to
360/Revolution.

41. And….

Why the hell are we shipping boxes full of air
and a metal platter when what we’re selling is
bytes?
Online, COG = Zero
Screw paying platform royalties on
manufacture.
Death to retail!

42. But it’s not just a business problem…

We need to reengineer our consumers
In film, comics, music, there is an “indie
aesthetic”…
– Individual creativity prized over production values
– The hipness factor
– Acceptance of quirkiness and niche appeal
– Audience passion.

43. We Need to Establish an Indie Games Aesthetic

How?
– Rage
– Manifestoes
– Brickbats
– Rabble-rousing
Make gamers believe that they and developers
are on the same side—that publishers and
retailers are the enemy.

44. It can be done…

Because we, like gamers, love games.
Publishers and retailers are blind, tasteless
corporate drones—obviously, given what
they’ve done to the industry.
We need:
– Slogans
– Manifestoes
– Ways to promulgate the meme.

45. Slogans

Corporate games suck!
Aren’t you tired of getting Xbox’s sloppy
seconds?
Gamers of the world unite! You have nothing to
lose but your retail chains!

46. Manifestoes

“The machinery of gaming has run amok… An
industry that was once the most innovative
and exciting artistic field on the planet has
become a morass of drudgery and imitation…
It is time for revolution!”
–”Designer X” in the Scratchware Manifesto
http://www.the-underdogs.org/scratch.php

47. We Need to Enlist the Old Farts AND the Young Turks….

In any medium, the pioneers one day look up,
and see what has become of their field, and
say “This is not what I intended….”
In any medium, young turks one day look at
the field they wish to conquer, and say “This
sucks! We can do better…”
But in other media, the old farts have died off
before the young turks arrive…

48. Old Farts + Young Turks

Gaming today is at an historically unique
moment: Old Farts and Young Turks have both
reached that critical point.
We can capture the experience of the past
AND the vigor of youth…
Chris Crawford PLUS Eric Zimmerman…
World at War PLUS Ragdoll Kung Fu…

49. The Game Industry is Broken

It’s up to us to fix it.
From now on, we must all strive resolutely to
bring about the overthrow of the existing order.
We have a world to win.