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Thursday, February 19, 2015
Coping with reality
I believe that 2015 will be a difficult year for video games, if not worse. My newsreader feed is already full with stories of layoffs, games cancelled, or MMORPG's whose earnings dropped by two thirds in one quarter. I believe that a combination of factors like the rise of mobile platforms and Steam Early Access / Greenlight has made it increasingly easy to make and distribute games. To the point where there are more games being produced than there is demand for. Demand in the economic sense of the word, as in willingness to pay for, not like in demanding better games on a blog / forum.
Warren Buffett said after the financial crisis in 2008 that it is only after the tide goes out that you can see who is swimming naked. As long as making games is a boom industry, over-enthusiastic investors or developers can keep a game studio afloat even if there isn't a good business case. When there is a game industry recession and hope is in short supply, tougher business decisions get made based on financial facts. It is also possible that this year or next we will see a major backlash against the crowd-funding business model. It already made headlines when Godus failed to deliver on its Kickstarter promises, imagine what the reaction will look like if Star Citizen isn't as great as everybody believes!
I believe the overall result of that gaming recession will not be pretty. And in particular I believe that the kind of games and business model we will see surviving this recession will be the ones tailored to more casual gamers, and diametrically opposed to the wishes of the hardcore gamers. The success stories of the future will resemble the story of games like Candy Crush Saga (casual, mobile platform, Free2Play). While games like Wildstar (hardcore, PC only, subscription) will have a hard time even getting published in the future.
This is not based on wishful thinking or my own preferences (I detest Candy Crush Saga). I am simply observing what works financially and what doesn't. Both major subscription MMORPGs released in 2014 are already in deep trouble. TESO is removing the subscription, and the Q4 Wildstar revenue numbers suggest only 100K players left, and quickly reaching the level at which NCSoft shut down City of Heroes / Villains. And more and more people discover that if they save $60 on a triple A game and buy a bunch of indie or mobile games for the same money, they get more bang for their bucks, especially given the number of triple A games that disappointed over the past few months.
I don't think that complaining will help. Life isn't fair, but we knew that before. The whole "this business model is morally superior" discussion is crap; in a recession the question becomes which business model and which kind of game enables a game studio to survive. Pure and simple. To some people with a huge sense of entitlement that will be a nasty surprise. The rest of us will learn to cope with the reality of the business of making video games.
Warren Buffett said after the financial crisis in 2008 that it is only after the tide goes out that you can see who is swimming naked. As long as making games is a boom industry, over-enthusiastic investors or developers can keep a game studio afloat even if there isn't a good business case. When there is a game industry recession and hope is in short supply, tougher business decisions get made based on financial facts. It is also possible that this year or next we will see a major backlash against the crowd-funding business model. It already made headlines when Godus failed to deliver on its Kickstarter promises, imagine what the reaction will look like if Star Citizen isn't as great as everybody believes!
I believe the overall result of that gaming recession will not be pretty. And in particular I believe that the kind of games and business model we will see surviving this recession will be the ones tailored to more casual gamers, and diametrically opposed to the wishes of the hardcore gamers. The success stories of the future will resemble the story of games like Candy Crush Saga (casual, mobile platform, Free2Play). While games like Wildstar (hardcore, PC only, subscription) will have a hard time even getting published in the future.
This is not based on wishful thinking or my own preferences (I detest Candy Crush Saga). I am simply observing what works financially and what doesn't. Both major subscription MMORPGs released in 2014 are already in deep trouble. TESO is removing the subscription, and the Q4 Wildstar revenue numbers suggest only 100K players left, and quickly reaching the level at which NCSoft shut down City of Heroes / Villains. And more and more people discover that if they save $60 on a triple A game and buy a bunch of indie or mobile games for the same money, they get more bang for their bucks, especially given the number of triple A games that disappointed over the past few months.
I don't think that complaining will help. Life isn't fair, but we knew that before. The whole "this business model is morally superior" discussion is crap; in a recession the question becomes which business model and which kind of game enables a game studio to survive. Pure and simple. To some people with a huge sense of entitlement that will be a nasty surprise. The rest of us will learn to cope with the reality of the business of making video games.
- posted by Tobold @ 1:22 PM Permanent Link
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It's been 11 years now since WoW came out. During that time, how many sub MMOs came out, got a bunch of hype, then got dropped within 3 months?
But this is NCSofts 12th MMO? In 2012 they had 686 million in revenue, and made a 137 million dollar profit. That's a 20% profit margin.
And that's what they made on a bunch of games that have all followed the collapse model. Fun com is still around (though barely). Mythic got killed by a crappy Dungeon Keeper remake, not Warhammer. Just saying. We can conclude that all these companies are insane and trying to chase the WoW dragon, or we can conclude that even a failed MMO can be pretty lucrative. Get a bunch of box sales from people who wish they still liked Warcraft, sit back and collect a million or two a month in revenue for keeping the servers on, rinse and repeat.
Or at least it used to be.
But this is NCSofts 12th MMO? In 2012 they had 686 million in revenue, and made a 137 million dollar profit. That's a 20% profit margin.
And that's what they made on a bunch of games that have all followed the collapse model. Fun com is still around (though barely). Mythic got killed by a crappy Dungeon Keeper remake, not Warhammer. Just saying. We can conclude that all these companies are insane and trying to chase the WoW dragon, or we can conclude that even a failed MMO can be pretty lucrative. Get a bunch of box sales from people who wish they still liked Warcraft, sit back and collect a million or two a month in revenue for keeping the servers on, rinse and repeat.
Or at least it used to be.
# posted by 
: 19/2/15 15:13
: 19/2/15 15:13
You know what is the funniest? The only graph that grows on the NCSOFT quarterly income is the old Lineage, while Lineage 2, Aion, GW2 and the rest are constantly decreasing.
The reason why there is no financial demands for hardcore games is that they are already existing and growing or at least holding their position.
The reason why there is no financial demands for hardcore games is that they are already existing and growing or at least holding their position.
I love your line about morally superior business models Tobold. Very quotable.
I don't think free to play games will be immune from the impact of a video game crash. A very small number of companies seem to have taken permanent residence at the top of the app store revenue lists and everyone else is fighting over a very small piece of the pie. I guess there is only a limited number of whales out there and they are already fully committed to one of a handful of games.
I don't think free to play games will be immune from the impact of a video game crash. A very small number of companies seem to have taken permanent residence at the top of the app store revenue lists and everyone else is fighting over a very small piece of the pie. I guess there is only a limited number of whales out there and they are already fully committed to one of a handful of games.
I like your article up until the recession comment, which ended awhile ago. It's no longer an excess for a failing business model and a Company's inability to adapt to the current market.
# posted by : 19/2/15 16:39
: 19/2/15 16:39
IMO, the SOE->DBG with layoffs including high-profile ones, could be an example for your second sentence.
The non-playing commenters have always been quite harsh on SWTOR, so I like to point out that the only game I have recently heard of with increased funding is SWTOR where a lot of the resources from the cancelled SoM are going.
The non-playing commenters have always been quite harsh on SWTOR, so I like to point out that the only game I have recently heard of with increased funding is SWTOR where a lot of the resources from the cancelled SoM are going.
Hagu: That couldn't possibly be to try and cash-grab for a movie that is coming out that the game had zero control over but will profit via proximity? Cash shop already has a movie-based 'mount', and that's just the start of it.
If the movie wasn't happening, would the dev team be increased?
If the movie wasn't happening, would the dev team be increased?
# posted by : 19/2/15 18:39
: 19/2/15 18:39
I was just thinking about how Steam has turned into such a cesspool of garbage products lately that it was starting to remind me of some of the old grim days of the industry's past. Still...many gamers won't truly feel the sting of a collapsing game industry until or if the online platforms like Steam start to croak. When your collected library disappears one day, that's what's going to be a huge red flag. The problem with the industry (imo, and not looking at MMOs only) is that it's in direct competition with its own past. Almost every game of the last two decades is on sale and available somewhere, and a metric ton of crap churn games keep spewing forth on top of that.....we're so over-saturated that it's beyond disgusting. I buy new games, but honestly I could keep playing my existing Steam library until the apocalypse and I wouldn't run out of content....and I am clearly not unique in this regard.
The online digital sales of games, as well as the need to stretch out potential sales in content through the long tail of MMOs and F2P titles has turned the market for games into its own worst enemy.
The online digital sales of games, as well as the need to stretch out potential sales in content through the long tail of MMOs and F2P titles has turned the market for games into its own worst enemy.
To add to what Nicholas was saying, there was an interesting article a while back about the exponential nature of graphics. Meaning, as graphics get better, it takes more and more resources for smaller and smaller improvements. In 2005, a five year old game looked like garbage. Today, a game from 2010 looks just fine.
And those are the games on sale for less than $10 on Steam.
And those are the games on sale for less than $10 on Steam.
"We can conclude that all these companies are insane and trying to chase the WoW dragon, or we can conclude that even a failed MMO can be pretty lucrative. Get a bunch of box sales from people who wish they still liked Warcraft, sit back and collect a million or two a month in revenue for keeping the servers on, rinse and repeat."
I tried to argue this at the time of each failure. I even brought out plenty of math showing the box sales of even the flops more than covered the cost of making the game. All I got in response was a bunch of people insisting that "box sales don't matter" and that ongoing subscriptions are all any MMORPG cares about. Like that money doesn't count somehow?
I can assure you, to game companies, that money counts. They are more than happy to shut down a "flop" a year after pulling in a big profit. With WoD being a pretty big disappointment to non-raiders, I see WoW returning to their significant decline and plenty of opportunity for more of these "three month games."
I tried to argue this at the time of each failure. I even brought out plenty of math showing the box sales of even the flops more than covered the cost of making the game. All I got in response was a bunch of people insisting that "box sales don't matter" and that ongoing subscriptions are all any MMORPG cares about. Like that money doesn't count somehow?
I can assure you, to game companies, that money counts. They are more than happy to shut down a "flop" a year after pulling in a big profit. With WoD being a pretty big disappointment to non-raiders, I see WoW returning to their significant decline and plenty of opportunity for more of these "three month games."
It's odd, but I've purchased more games in the past year or two than in the previous 6-8. There are just so many more games out there in the genres I prefer than before. And games have gotten so cheap that I can buy a game, play it for 2-3 hours, never touch it again and still feel like I've gotten my money's worth.
Even with online gaming, it used to be I was stuck playing one or two mmo's for years and years, but now there are 3-4 new mmo's coming out each year to play through.
I know I shouldn't be all extrapolating from just my own experiences, but it's really disconcerting to see all this gloom and doom when to me everything is golden.
Even with online gaming, it used to be I was stuck playing one or two mmo's for years and years, but now there are 3-4 new mmo's coming out each year to play through.
I know I shouldn't be all extrapolating from just my own experiences, but it's really disconcerting to see all this gloom and doom when to me everything is golden.
Well most of the companies seem to specialize in flop MMOS seem to still be around, Mythic aside.
Sell a million box copies @ 60. 100000 x say $40. 4000000 million. Get a few months of $15 with 600000 subs. Another 9 million. Get a few million a month for a year or two.
I never really bought into the story that the budget for these thing was 100 or 200 million. The fact that people keep doing it indicates there's a pretty good chance of a reasonable ROI.
Sell a million box copies @ 60. 100000 x say $40. 4000000 million. Get a few months of $15 with 600000 subs. Another 9 million. Get a few million a month for a year or two.
I never really bought into the story that the budget for these thing was 100 or 200 million. The fact that people keep doing it indicates there's a pretty good chance of a reasonable ROI.
# posted by : 19/2/15 22:13
: 19/2/15 22:13
Like I said several weeks ago, the gaming industry's structure is beginning to remind me of the music industry. In both cases, we see a shift to a system where a small handful of AAA, casual-friendly, repetitive products get the lion's share of sales and attention, and everything else is marginal. The middle class of games with moderate production values is being hollowed out.
The fundamental issue driving this change is that the average consumer can't get even close to following the sheer volume of new releases anymore, so they just give up doing anything other than looking at the top 10 in the online store. Titles that would have thrived coming in at #20 on sales aren't anymore.
The fundamental issue driving this change is that the average consumer can't get even close to following the sheer volume of new releases anymore, so they just give up doing anything other than looking at the top 10 in the online store. Titles that would have thrived coming in at #20 on sales aren't anymore.
If you are right, which I am not saying that I think you are, I fail to see how it would be bad news for players. A surplus in supply is good for the consumer, is it not? And if the surplus leads to the weaker suppliers withdrawing from the market should that not in turn lead to a rise in quality?
Add to that the simple fact that enough video games already exist to meet the needs of all but the absolutely obsessive consumer. All game production could cease tomorrow and we would still have more games than we would ever need. Certainly more than I will ever need anyway.
Add to that the simple fact that enough video games already exist to meet the needs of all but the absolutely obsessive consumer. All game production could cease tomorrow and we would still have more games than we would ever need. Certainly more than I will ever need anyway.
I think "hardcore" games can and will still be viable and succesful thanks to crowdfunding. TB RPGs are one of my favorite types of games and up until recently they were extinct, since no big studio will make them. KS really saved this niche, and already had some succesful kickstarters (D:OS, WL2, SR:DFDC). Just a few days ago the second SR kickstarter (HongKong) was funded (12 times the asked amount). I think the future for "serious" / non casual gamers isnt that bad, its just that their games arent made by big studios anymore, but by small and lean outfits working together as it were with their customers through crowdfunding.
@Bhagpuss I think the problem for gamers will be that the surplus of supply now is going to be followed by a crash and a drought. Feast/famine cycle. And in the drought, it looks like all we'll have to play are freemium games. Which is an unpalatable idea, let alone reality.
On the plus side, my pile of shame is already bigger than I can complete in the rest of my lifetime, and I don't even own everything I'm interested in, so even if 'core' gaming turns into an unserviced wasteland, between my Steam library and GoG, I can basically sit in a bunker and game happily until the end of days.
On the plus side, my pile of shame is already bigger than I can complete in the rest of my lifetime, and I don't even own everything I'm interested in, so even if 'core' gaming turns into an unserviced wasteland, between my Steam library and GoG, I can basically sit in a bunker and game happily until the end of days.
@Bhagpuss
Yeah, the pros probably outweigh the cons, but it's certainly a different outcome than books like The Long Tail predicted a decade ago. It looked like tons of creators would be empowered to break out without having to pay fealty to entrenched systems. Now it's becoming clear that those same systems are the only way to stand out from the clutter.
Hardcore gaming has the same niche future as indie music, I expect. Like Phantasmagoria said, lots of lean & mean operations. The number of indie musicians making enough money to go pro is actually far higher than it was a decade ago (~6x, according to a Techdirt article). This is offset by the number of major label artists has declining tremendously (~1/4th). Most of those indies aren't making *good* salaries, mind you, just enough to get by. But the overall production rate of new music seems to be ever increasing.
Yeah, the pros probably outweigh the cons, but it's certainly a different outcome than books like The Long Tail predicted a decade ago. It looked like tons of creators would be empowered to break out without having to pay fealty to entrenched systems. Now it's becoming clear that those same systems are the only way to stand out from the clutter.
Hardcore gaming has the same niche future as indie music, I expect. Like Phantasmagoria said, lots of lean & mean operations. The number of indie musicians making enough money to go pro is actually far higher than it was a decade ago (~6x, according to a Techdirt article). This is offset by the number of major label artists has declining tremendously (~1/4th). Most of those indies aren't making *good* salaries, mind you, just enough to get by. But the overall production rate of new music seems to be ever increasing.
Does anyone here not consider that content delivery methods have re-defined the role that publishers hold over the industry? We're in the middle of a massive shift in terms of a developers ability to retain their IP rights. If anything, publishers will continue to lose their dominance in the marketplace as their portfolios shrink due to their existing IP's fading in popularity. Honestly, how long can CoD and other sequelitis titles continue to prop up earning reports?
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