Insert Coin to Continue

 Posted by on July 2, 2012  Add comments
Jul 022012
 

Insert coin to continueThe video game bubble is about to bust.

I know, video games are exceedingly popular. As a society, we spend more hours (3 billion of them) playing video games today than ever before, and that is amid a myriad of distractions and entertainment options from other sources. But console video game sales have declined 19% over the past four years. Call of Duty: Modern Warfare 3 reached $400 million in sales in a single day, 4 times the highest single day gross of a movie. And while people can’t see to get enough gaming time in, video game developers are going bankrupt left and right.

Part of this disconnect is how we define video games in each case. Social games on Facebook, indie titles and other browser-based games count as playing video games. But they don’t count for video game sales. While the population grows, and inflation rises, the market for $60 console games has actually shrunk. A few blockbuster games succeed while the rest of the market suffers.

The common complaint from consumers is that $60 is simply too expensive for a video game. Value is all about perception, but consider for a moment that NES games cost $50 back in 1985, which is over $100 in today’s dollars. Games are relatively cheaper, but we feel that they are more expensive. What has gone up sharply is the cost to develop games.

As I get into numbers for a minute, please bear with me. Box office revenue for movies is well documented. Music sales are documented to an extent, like books. Video game sales (and the economics of the video game industry) are largely kept under wraps. The following figures are educated guesses.

It costs roughly $15 million to develop an entry level AAA title. The average AAA title costs closer to $25 million and some games like Max Payne 3 and GTA IV cost north of $100 million.

Very few console games sell more than 1 million copies. For instance, only 25 titles have ever reached that mark on the PS3.

To recap, we expect far more from a game now while we’re willing to spend far less, and yet consumers constantly complain that games are too expensive. Are you starting to see where the bubble eventually has to burst?

Many seemingly successful (popular but not necessarily profitable) game developers have already gone bankrupt, but the bubble has been prolonged with additional revenue models such as DLC. But some consumers feel alienated by DLC and people have started to rail against it. It may not be a sustainable model in the long-term.

In many ways, the issue comes back to perceived value. In a tighter economy, there is less disposable income to spend. And given the emergence of cheap mobile and social games, a $60 console or PC title is compared (unfairly) to a 99 cent mobile game.

Developers can continue to find new revenue sources to delay what appears inevitable. Valve invented Steam as a distribution platform, and EA is following suit with Origin. But given that consumers feel prices are too expensive today, developers can’t easily raise prices to meet inflation or rising development costs.

We’ve already seen layoffs from Blizzard, EA, iD, Sega, THQ, Silicon Knights, Obsidian, Relic, Vigil, 38 Studios and Slant Six in the past few months. Video game publications are folding. I’m shocked that no one else seems to see the writing on the wall.

That isn’t to say video games will disappear completely, or that the situation can’t be salvaged. There are alternatives, such as episodic games, subscription models, in-game advertising, micro-transactions or simply higher prices. Community generated content (such as Skyrim mods) could replace developer-produced content to lower development costs.

Either way, the traditional model of AAA development and $60 games will have to change at some point. Some of that concession will have to come from consumers as well. They may feel that games are too expensive today, but we may be coming full circle to our arcade roots, faced with a dreaded game over screen, and left with no option but to insert another coin to continue.

Editor’s note: Check back Friday for a very different take on the gaming industry from Allan Schumacher.

Avatar of T. J. BrumfieldT. J. is a human being residing on the planet Earth. He enjoys converting oxygen to carbon-dioxide and carbonated beverages to urine. He is tolerated (barely) by a wife and child. If you can't tell by the snark, he doesn't like writing bios. He feels real people aren't easily labeled.
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  6 Responses to “Insert Coin to Continue”

  1.  

    I would not be surprised to see console games, which now have extended content and life via online connectivity, move highly into gaming that follows the social media gaming and MMORPG formats of in-game content advancement, character upgrades, level additions and even overall content expansion by way of actual purchasing during game play.

    We have seen this to a simpler and smaller extent already but I could really see it become more integrated into the overall game’s spirit and playability where you cannot access the best content and have the complete gaming experience without purchasing that content as it comes and as you advance your game/character. You might purchase Call of Duty 6 but it will be a base software that gives you the framework/platform of the game but any character/level/map/accessories/weapons/skills and other unlockables/upgrades will be tied to both in-game achievements and actual purchasing through the online store.

    I also believe this will keep the base price of the host software down (perhaps even lowering it) and basically allow the player to determine the content they wish to invest in, how much of it they want to etc. This would allow the buyer to purchase a game they are interested in for what they feel is reasonable then if after playing the base/initial content they do not like the game play, the story of the game and are genuinely not entertained by it, they got what they paid for, they didn’t have to pay “full price”. However, for those gamers that buy it, play it and like it, they can add to the experience by buying content to add to the game. This would also mean “sequels” could turn into “expansions”. So to me, we would see console gaming resemble more of a PC software/social media gaming model rather than the console gaming model.

    All of this also will effect the trade-in market, something gaming companies have been battling, something that was born and a derivative of the cost of games being “high”, their target market not having the funds to purchase multiple titles at those prices as well as gamers not being satisfied with the “dry” stories, poor game AI, and multitudes of other negatives that come with poorly envisioned and developed games that are made because these companies have to make their money back and try to profit somehow, so they keep making games but have to top the last one driving up the production price but not being able to raise the purchasing price. It is much like the film industry in that regard and how they rather invest resources into films and release films that have had a proven model. That is why we see genres become popular and remakes and copy cats at such high volumes. But that is another discussion for another post.

    It will be quite interesting to see what happens to gaming, to game developers, consoles, what they look like, how they operate and how the gamers’ experience becomes more customized if what I foresee actually becomes reality.

    •  

      Publishers are doing their best to kill the used/trade-in market, but I think they’re going about it the wrong way. You don’t get consumer buy in by annoying consumers. You get consumer buy in by presenting them something convenient that they want.

      For example, many new games now come with codes for online play that can only be activated with the first purchase. Used copies aren’t as valuable. Sony and Microsoft have both discussed requiring constant internet connections for their new consoles where games can only be activated on a single console and you need the constant DRM to authenticate them.

      Anyone remember Playstation Network going down for a month? Imagine if when that happened, you couldn’t play any games, period?

      Instead of punishing consumers, provide value. I can’t resell my Steam games on the PC, but I don’t care because Steam provides me a convenient platform. It is easy to buy games. They’re cheap. I don’t have to patch them. I get Steam achievments, friends, etc.

      If I replace my computer, I can download all my Steam games as many times as I want. And I can even play offline.

  2.  

    This is just a test comment. If it were a real comment, it might be witty or insightful. Alas, it is neither.

  3.  

    A very good and very relevant article here:

    http://www.theverge.com/gaming/2012/7/2/3125866/the-state-of-games-state-of-aaa

    Thankfully I tend to play PC games and a lot of indie games, which will be far less affected by any crash.

    •  

      Thanks for the link. It was a good read.

      I think the profitable blockbusters will keep chugging along, but other titles won’t get published. There will be fewer jobs through traditional developers, which will flood the indie scene and Kickstarter scene.

      Can the success of Doublefine Adventure, Wasteland 2 and Shadowrun Returns continue? Now that people have spent big money on those projects, can they continue to support other projects?

  4.  

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