Tuesday, November 25, 2008

Giving Thanks?

It's easy to have a gloomy outlook about the games industry right now. The global economy is reeling from a series of financial crises that, although the actual causes of which are poorly understood by except a few, are inflicting serious damage in ominous reports of layoffs and closures. This week brings news of the ironic death of Google's Lively, as well as the impending shuttering of NCsoft's Tabula Rasa MMO (just a week after the departure of creative visionary Richard Garriott).

Escalating game development costs have far outpaced sales - the former has grown exponentially while the latter has plodded along at a near linear pace. A recent widely-quoted article in Forbes reveals that only 4% of games actually make a profit. Geoffrey Zatkin of EEDAR clarifies that "only 20 percent of games that start production will end up with a finished product. And of that percentage of finished games, 20 percent will make a profit.”

With such risky financials, it's not surprising that publishers are so risk averse, preferring to publish sequels and games with attached brands over original innovating designs, though this no doubt contributes to the dismal success rate.

Is the video games industry (or more importantly, the online games industry) insured against the slings and arrows of recession? Conventional wisdom says that it is, although, as any investment prospectus will remind you, past performance is no guarantee of future success. Even industries that have historically been recession proof experience turmoil during times of financial stress. Consumers alter their buying habits, and although they'll still spend their wages on entertainment, they might be more inclined to spend it on games that seem like a better value proposition.

In this era of doom and gloom, what reasons do we have for optimism?

As it turns out, online games might end up significant winners this holiday season. A fifteen dollar per month MMO subscription seems a lot less expensive than a one-off retail game. A purchase of a digital game download from Steam or Xbox Live Marketplace seems more economical, even if the only savings are at the gas station.

On November 13th, Blizzard's Wrath of the Lich King broke previous records with sales of 2.8 million units within 24 hours of launch. Actual dollar sales for the first day are not available, but if we average $30 (price varied by region), we get roughly $84M, far more than the highest grossing film opening of all time (The Dark Knight, $67M).

On the console side, NXE has refreshed the potential for the Xbox 360 as a platform for digital content distribution, including online games. The interface update clearly accomplishes two goals: 1) it provides a more accessible interface for non-hardcore gamers (cute and customizable avatars have replaced the toxic waste theme) and 2) it clearly acknowledge Xbox Live Marketplace as a fundamental cornerstone of the player experience.

For US citizens like myself, this week marks Thanksgiving, a traditional holiday in the form of a harvest festival. The centerpiece of the occasion is a large, sumptuous meal, accompanied by praise and remembrance of all the things for which we can give thanks. Thanksgiving is not going to represent a cornucopia of unlimited abundance on a silver platter for all game developers this time around. That doesn't mean there are not opportunities waiting to be picked for those with the intelligence and foresight to make the most of a stay-at-home vacation economy. Online game developers will have no difficulty in remembering the other tradition that Thanksgiving week heralds: Black Friday and the start of holiday shopping.