Tobold's Blog
Monday, June 03, 2024
Video games dreams and reality

Scott Galloway, a professor of marketing and internet personality, repeatedly pointed out that in the last century the mantra of advertising was that sex sells; this century, with an internet economy built on grabbing attention and then converting it via advertising into profit, the mantra has become that rage and negativity sells a lot better than sex. That might have to do something with there being legal limits on how much sex you can show on a non-porn website, compared to how much negativity you can show. But if you follow any subject, in the case of this post video games, you can't help but notice that the overwhelming majority of stories is negative. While positive hype is still a thing, the fact that some developer made a half-decent video game, which is fun to play, and is not too expensive, doesn't merit a headline. The headlines are full of rage about video games that failed to deliver on their promises, companies trying to milk customers for too much money, and game studios closing with developers losing their jobs.

If we take a step back from the headlines, and connect the dots to arrive at some sort of picture of reality in developing video games, the problem appears to be rather obvious: Most of the cost of making a video game and market it is paid before the game is released, while the marginal cost (the cost of selling 1 more game) is close to zero. On the first day of sales, when you get the first idea of how much money a game could make, it is too late to adjust the cost. The cost of making a video game is mostly the salaries of the people making it: There are a few games which have been made by a single person, and thus were incredibly cheap to make; but a game like Skull and Bones is reported to have cost $200 million to make, because there was a large studio with lots of people behind it, and it took years for them to make the game. Now as Skull and Bones is also reported to have less than a million players, including free players, Ubisoft lost a huge amount on money on that game. On the other end of the spectrum, Palworld this year sold over 25 million copies, and was presumably a lot cheaper to make than Skull and Bones, thus publisher / developer Pocketpair made a huge profit on that game. Video games have the potential to make hundreds of millions of dollars in revenue, but they can also make very little, which makes spending hundreds of millions of dollars in development cost on them a very risky business.

Warner Bros. Games, which according to their own financial reports made a loss of $200 million in the first quarter of this year, and blamed that loss on the lack of success of Suicide Squad: Kill the Justice League, is back in the (negative) headlines with MultiVersus. That is a PvP brawler game which doesn't interest me at all. It is free to play, but players are complaining that it takes 38 hours of grind to unlock a typical character (that is in the long run, because at first the game is more generous with handing out currency), and that it costs something like $250 to buy all the characters that you can't get through just playing. It is impossible to say whether Warner Brothers are making money or losing money on this, as with free to play games the player numbers don't easily translate into dollar numbers. But we can strip away all the guesswork, all the negative headlines, and all the rage about company greed to arrive at a rather fundamental reality: In the end a company needs to make more money with the average game they produce than it has cost to make the game. Which means that the number of players multiplied with the spending per player needs to be higher than the development plus marketing cost multiplied by a factor of at least 1.2 (for a 20% return on investment), probably more due to the high risk and unpredictability.

Players want the largest number of different games possible, at the lowest cost per game possible, and the highest quality of the games possible. But a larger number of available games and lower cost per game mean lower revenue per game for the developer, while the demand for higher quality is increasing cost (although a game that was costlier to make isn't necessarily better in quality). Most of the negative headlines about game studios closing were the direct result of overinvestment during the pandemic; and yes, that has to do with bad, too short-term management, companies could have known that the rapid growth of the industry during the pandemic would at least stop, if not reverse, after the pandemic was over. But this is just reality catching up with too optimistic spending on game development.

There are many different ways in which things can develop to make video game development more stable, and players aren't gonna like any of them. There could be fewer games developed each year, at least fewer of the very expensive AAA titles. Games could become more expensive, whether that is for games that you pay only once, or continued costs for DLCs, battle passes, and not-so-micro-anymore micro transactions. Or companies could right the balance by significantly reducing the cost to make games, for example by replacing human artists with generative AI. Companies can operate at a loss only for so much time, before they either close down, or balance revenue with costs. In aggregate, the sum of what all of us players are spending on video games needs to be more than what it costs to make all of those games, and there is no long-term solution that would avoid this.

Or they could keep making games using someone else's money, have them fail, then move on to make more using a different someone else's money...

That seems to work.
From what I understand about the industry, it was the smart move to spend a lot of money during the pandemic. Not doing it would just leave money on the table.
The human cost is horrible, but still at least the developers were well paid during this time.
I prefer a lower but stable revenue, but that might not be the case for everyone. !
Post a Comment

<< Home
Newer›  ‹Older

  Powered by Blogger   Free Page Rank Tool