Economics in the Development World

I have always contended that making games is a business. This doesn’t mean that I like the decisions that companies like Activision make but I feel that at least their actions seem justified to them. They’re not out to deliberately harm or enrage their customers, they just want to make as much money as possible. That may mean pricing aggressively or introducing new incentives like EA’s “Project Ten Dollars” but I don’t believe these are done with any particular malice, they’re done because after market research they believe the majority of consumers will buy it.

So yes, creating games is a business albeit one that you and I have a heavy emotional investment in. However, even coming at the industry from this angle the current raft of closures and rumours of companies that are in trouble (like THQ) makes me sad, genuinely upset and concerned about the future of the industry that many of us have so much tied up in.

[drop]I want to make it clear that I don’t think gaming will ever completely die, I think it’s now gotten to a point where it would be exceptionally weird if it collapsed entirely. It will certainly change and evolve, grow and shrink, and the way that games are made may change completely but I firmly believe that it will continue to exist. We may not like whatever games, and the industry in general change into, but it will still be there.

Snapping back to right now though, the problem seems to be one of giving and taking chances. We don’t know the financial situation of studios that go bust, typically the ones that do go under are either privately held or operate as part of a business unit within a publisher; for all we know, many of them may have been haemorrhaging money for years. However, it does seem that developers aren’t being given second chances sometimes, one poorly received game and that’s it, you’re done for.

The core of this is obviously in the scale of the games that we as gamers have come to expect from the industry now, we want huge titles with breath-taking production values and we seem to want this for all (or at least the majority) of games. Building games like this obviously costs money, vast stacks of the stuff. That money has to come from somewhere, and it’s usually from a publisher. Many of the closures we see, the money generally comes from the publisher that owns the studio.

The thing with handing someone a few wheelbarrows full of cash is that, typically, they’re going to want it back at some point. That means your game has to sell enough units to generate your own wheelbarrows full of money to take back to the publisher, if you don’t then someone is not going to be pleased.

Now that is, of course, understandable. If I was investing in a game I’d almost certainly want the money back, plus a good chunk on top. That is, pretty much, the point of investing. Where it seems to fall down is that games now cost so much to produce that one poor game can be enough for a publisher (or whoever your investors are) to declare your business unsustainable and pull the rug out from under you. The sheer quantity of money involved has made anything less than perfection seem like a non-option.

I think this is where the downfall of the current epoch of gaming will come from, we’re already starting to see elements of concentration around known quantities appearing. I mean, look at it from the perspective of those putting the cash into games. They have project A which is a series that those who follow gaming heavily, as well as some elements of the general public, are aware of. It will probably sell a few million copies without breaking a sweat. On the other hand, there’s project B, something that’s not been seen before with a more niche audience. Its sales are much harder to predict. In all likelihood, both games will cost a troubling amount of money, so which one would you fund in their position? Be honest now.

[drop2]This is why developers like thatgamecompany seem like a likely future for the industry, niche titles with a much, much lower budget. Less of a risk, easier to fund, probably developed for less than the catering budget on Modern Warfare 3; why not go for it?

I honestly don’t know if we’ll continue to see more consolidation, more studios collapse under the economic pressures of creating games in this climate. I’m fairly certain that the production values we see in many games are starting to become unsustainable for anything that’s not a guaranteed seller but I don’t realistically know that, all I can do is hope that some technology comes along which drastically lowers production costs.

The future is not bleak though, far from it. We’ve moved from games developed by a team of one or two that were distributed by actually printing out the code, to studios made up of hundreds of people with games that you can pick up at the same time as you get bread in just a few decades. Whatever direction the industry takes next, I’m almost certain it won’t be one I’ll expect.



  1. What you’ll find is probably something similar to the film and car world. The major publishers will keep on picking up more and more studios/developers so that there will only be a handful of major players. Each super-sized company will then be able to handle failures (internally) as it’ll often be offset by roaring successes with the likes of BF3, Uncharted (series), MW3, etc.

    Sure, the likes of PopCap succeed and get bought out but there’s a raft of new developers nipping at their heals and this is the great circle of video-gaming life.

    Not only that but we’re seeing such a wonderful array of devices/platforms and method of delivery that anyone looking to start out can pick and choose with how they go about it.

    My above opinion ignores the current state of the economy (both nationally and internationally).

    • *heels

      • yes I agree with that, happens in all industries pretty much.

  2. i pretty much agree with everything said.

  3. I think there is hope. I’ve played some amazing games on the PSN over the years and Journey is one of my most anticipated games of this year. My point is that niche games can still exist (hopefully) even on a tight budget, and nearly zero production cost due to digit media. Not every games has to have a huge lifespan or multiplayer – I now find such games more enjoyable since I don’t have the time for huge games like GTA and RDR regrettably. It doesn’t always happen but if something’s good, it should get the recognition and success it deserves.

    With regards to the monster that is Activision/CoD and your point about them making money. I don’t blame them for making money, but that comes at a price (bad pun I know) – I’m referring to their integrity. I’d like to think (if I were them) that I’d remember what made the series so great. It seems the people who made CoD4 wanted to make an incredible game, and were probably very passionate about it. Whilst I’ve enjoyed the sequels I do think MW3 (in particular), with Elite (that still doesn’t have all the promised features functioning); 9 months worth of DLC; and the same engine from 4 years ago, certainly appears more of a money spinner than anything else. Maximum profit with minimum amount of effort. And this could eventually be their downfall.

    • *digital media.

    • The only thing I see is the effort required to work with new hardware. Cutting edge graphics takes time. Avatar teaches us that (the film, not the game ;-)).

      All the hardware makers need to make sure that each developer has the most incredible software/middleware to help them achieve their vision. Sony should be utterly-fu**ing ashamed of their attitude in the earlier days. I don’t want developers to have to learn your system the way you do. I want great looking games from the off you arrogant, corporate tosspot.

      When this is in place, work flow and productivity soars and means we have better looking games made in less time.

      Rant over. Whoosh. Feels good. Happy now.

      • Are you saying there should be a more even playing field, and Sony/MS should assist all developers, regardless of size, in bringing the best possible games/software to their consoles? And that larger developers can currently adapt to Sony/MS’s systems easier, due to their larger resources?

      • You make it sound like a bad thing. Ha! :P

      • Lol, I didn’t mean to, just wanted to understand exactly what you were saying…..yep, I agree! ;)

      • It’s going full circle. Less about multi-million dollar budgets and more about indie gameplay-is-paramount developers that cost pounds or yen to create. I’m not bothered about RL quality graphics, vectors or text will do the job as long as the narrative & gameplay rock.

      • Thing is Mikey, the only reason XBox/MS is easier to develop for is because they monopolised/blackmailed IBM and the PC revolution in the first place. Therefore we’re all up-to-speed with MS_DOS programming & derivates therefore off…

  4. While I understand the need to turn a profit I feel that some of the tactics used to maximize profit from a game can only be described as malicious.

    If they think the asking price of a game does not cover their costs they should increase the asking price, instead of artificially decreasing the value of the product they sell.
    If they feel that they are at a disadvantage when competing against used copies of their own game they should create incentives to keep the game, instead of disincentives against buying it used.

    • Or do both, even.
      The carrot AND the stick, as neither work by themselves in the long run…

    • They will take as much money as we are willing to give. After that they’ll realise certain practices and methods start to fail. Sadly, because of the competitive nature of gaming (and the consumer whores that we are), I feel that we’re still going to be taken advantage of more than this.

  5. Good read! Although a problem im seeing starting to occur with some games, mainly shooters like cod and battlefield, is that because the developers are focusing on making the games so ‘good’ graphically and gameplay wise, we’re not seeing such good plotlines anymore as its getting less attention. I dont know if its just me but im not getting as drawn into the stories of the games anymore, guess im just growing up.

Comments are now closed for this post.