Thursday, June 7, 2012

E3 proved the games industry is headed straight towards a crash

One of the things we learned from E3 is that the games industry has an appetite for hyper violence. It’s also going to collapse the entire industry. In business circles, what is going to happen very soon is something that sounds decent enough – “consolidation” – but that’s merely a nice way to dress up the following truth: The industry is about to hit a wall.

Anyone who reads this website regularly knows I have an affinity for business, and this translates into a support for developers and publishers to turn a profit. This isn’t because I’ve been compromised by publisher PR agents being nice to me, or any of those other accusations I typically get slammed with every time I post an opinion piece (usually by people who can’t even string together a coherent, grammatically correct sentence, and yet apparently know more than a career business journalist about business, but that’s a story for another day). No. I’m not biased against consumers. The reality is that a profitable developer – and by extension a profitable publisher – has a direct benefit to the consumer. Conversely, when I write about how used game sales and games being sold at deep discounts are a bad thing, it’s because you’re literally shooting yourselves in the foot. E3 2012 has made this painfully clear. Here’s why:

The reason that E3 is so filled with hyperviolent games is because hyperviolence is a proven way to sell a game. The numbers are there – people buy Call of Duty. People buy Resident Evil. God of War is, along with Uncharted, Sony’s biggest property. It is therefore safe to take one of those games, copy it down to the finest detail, and then package it off to the shelves. Is it creative to be one of those Call of Duty clones? Of course not! Everyone understands that, but they simply don’t have a choice. The games industry is a low margin one, hampered by an audience resistant to premium pricing, a second hand market pulling down the prices of new games quickly, and high production costs. It’s becoming increasingly difficult to be a medium-sized publisher – see THQ – the only way to survive is to be either a tiny team working on mobile platforms, or making big, expensive blockbusters. And those blockbusters are not games the publishers can afford to have fail.

So, when an industry is low margin, it becomes hard to take risks. Or in layman’s terms – you’re not going to greenlight a project if it’s not going to return a profit. The risks involved in developing new IP are substantial (and hats off to Ubisoft for actually doing that), and when you’ve got a stable of reliable franchises that are proven sellers, they’re what you’re going to rely on to keep you afloat.

The problem is that consumers eventually get tired of this. Call of Duty was massively successful, the clones are successful, everyone’s been wading in gore for years now. Judging the reaction of many on twitter over E3 though, people are now thoroughly sick of hyperviolence. The more tired people get with a product, the closer you come to a crash. All it takes is one really high mega-failure for the entire industry to fall to bits. This is what happened to the games industry once before, and that wall is rapidly approaching again. Then it was E.T. Now it might be the next Call of Duty game, or something of similar scale. If any of the mega franchises genuinely fails, it will pull its owner down with it, and the ripples will affect every single other organisation in turn – investors will lose confidence in the market, share prices tumble, and no one is buying the hyperviolent games that everyone relied on previously.

The only way out of this is for the publishers and developers to become genuinely profitable again. Not breaking even, but being profitable. A profitable publisher is one that can invest in developing new IP, taking creative risks, and finding new popular franchises and services. That’s the only way any healthy creative industry can survive.

And then, finally, we might get a bit of relief from this endless supply of hyperviolence.
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