Fabless chipmaker AMD has come up with a mixed set of results for the second quarter. The company managed to make as much cash as the cocaine nose jobs of Wall Street expected, but missed revenue expectations.
In fact its revenues were below the psychologically important billion figure at $942 million.
We knew it was going to be bad. Last week we were warned that the results would be flat. The actual figure was $942m, an 8.5 per cent sequential decline and a 34.6 per cent drop from the same period a year ago.
As you might expect, there are some measures of this not being AMD’s fault. The company is almost entirely dependent on PC sales. Not only have these fallen but don’t look like they are going to pick up for a while.
AMD’s Computing and Graphics division reported revenue of $379m, which was down 54.2 per cent, year-on-year. Its operating loss was $147m, compared to a $6m operating loss for last year’s quarter.
Lisa Su, AMD president and CEO, in a statement said that strong sequential revenue growth in AMD’s enterprise, embedded, and semi-custom segment and channel business was not enough to offset near-term problems in its PC processor business. This was due to lower than expected consumer demand that impacted sales to OEMs, she said.
“We continue to execute our long-term strategy while we navigate the current market environment. Our focus is on developing leadership computing and graphics products capable of driving profitable share growth across our target markets,” she added.
In the semi-custom segment, AMD makes chips for video game consoles such as the Nintendo Wii U, Microsoft Xbox One, and Sony PlayStation 4 consoles. That segment did reasonably well, up 13 percent from the previous quarter but down 8 percent from a year ago.
But AMD’s core business of processors and graphics chips fell 29 percent from the previous quarter and 54 percent from a year ago. AMD said it had decreased sales to manufacturers of laptop computers.
Figures like this strap a large target on AMD’s back with a sign saying “take me over” but AMD is not predicting total doom yet.
For the third quarter, AMD expects revenue to increase 6 percent, plus or minus 3 percent, sequentially, which is a fairly conservative outlook given the fact that Windows 10 is expected to push a few sales its way.
AMD supplies chips to the Nintendo Wii U, Microsoft Xbox One, and Sony PlayStation 4 consoles and these seem to be going rather well.
The launch of Sony’s PS4 and Microsoft’s Xbox One consoles in China hasn’t attracted much fanfare, perhaps because both firms were aware from the outset of what an uphill struggle this would be, and how much potential for disappointment there was if expectations were set too high. Last week saw the first stab at estimating figures, from market intelligence firm Niko Partners, who reckon that the two platforms combined will sell a little over half a million units this year; not bad, but a tiny drop in the ocean that is China’s market for videogames.
These are not confirmed sales figures, it’s important to note; market intelligence firms essentially make educated guesses, and some of those guesses are a damn sight more educated than others, so treating anything they publish as hard data is ill-advisable. Nonetheless, the basic conclusion of Niko Partners’ report is straightforward and seems to have invited no argument; the newly launched game consoles are making little impact on the Chinese market.
There are lots of reasons why this is happening. For a start, far from being starved of a much desired product, the limited pre-existing market for game consoles in China is actually somewhat saturated; the country is host to a thriving grey import market for systems from Hong Kong, Taiwan and Japan. This market hasn’t gone away with the official launch of the consoles, not least because the software made officially available in China is extremely limited. Anyone interested in console gaming will be importing games on the grey market anyway, which makes it more likely that they’ll acquire their console through the same means.
Moreover, there’s a big cultural difference to overcome. Game consoles are actually a pretty tough sell, especially to families, in countries where they’re not already well-established. Their continued strength in western markets is largely down to the present generation of parents being accustomed to game consoles in the home; cast your mind back to the 1980s and 1990s in those markets, though, and you may recall that rather a lot of parents were suspicious of game consoles not just because of tabloid fury over violent content, but because these machines were essentially computers shorn of all “educational” value. I didn’t own a console until I bought a PlayStation, because my parents – otherwise very keen for us to use and learn about computers, resulting in a parade of devices marching through the house, starting from the Amstrad CPC and ending up with a Gateway 2000 PC in which I surreptitiously installed a Voodoo 3D graphics board – wouldn’t countenance having a SNES in the house. That’s precisely the situation consoles in China now face with much of their target audience; a situation amplified even further by the extremely high-pressure nature of Chinese secondary education, which probably makes parents even more reluctant than mine when it comes to installing potentially time-sucking entertainment devices in their homes.
Besides; Chinese people, teens and adults alike, already play lots of games. PC games are enormously popular there; mobile games are absolutely huge. This isn’t virgin territory for videogames, it’s an extremely developed, high-value, complex market, and an expensive new piece of hardware needs to justify its existence in very compelling terms. Not least due to local content restrictions, neither PS4 nor Xbox One is doing that, nor are they particularly likely to do so in the future; the sheer amount of content and momentum that would be needed to make an impression upon such a mature landscape is likely to be beyond the scope of all but a truly herculean effort at local engagement and local development by either company – not just with games, but also with a unique local range of services and products beyond gaming – and neither is truly in a position to make that effort. It’s altogether more likely that both Sony and Microsoft will simply sell into China to satisfy pre-existing local demand as much as possible, without creating or fulfilling any expectations higher than that.
Is this important? Well, it’s important in so much as China is the largest marketplace in the world, with a fast-growing middle class whose appetite for luxury electronics is well-established. Apple makes increasingly large swathes of its revenue in China; companies with high-end gaming hardware would like to do something similar, were the barriers to success not raised so high. Without building a market in China, the global growth potential of the console business is fairly severely limited – the established rich nations in which consoles are presently successful have a pretty high rate of market penetration as it is, and growing sales there is only going to get tougher as birth-rates fall off (a major factor in Japan already, but most European and North American states are within spitting distance of the Japanese figures, which is worth bearing in mind next time someone shares some moronic clickbait about sexless Japan on your Facebook feed). So yes, the failure of consoles to engage strongly in China would be a big deal.
The deal looks even bigger, though, if you view China as something of a bellwether. It’s a unique country in many regards – regulations, media environment, culture, sheer scale – but in other regards, it’s on a developmental track that’s not so different from many other nations who are also seeing the rise of an increasingly monied urban middle class. If the primary difficulty in China is regulations and content restrictions, then perhaps Sony and Microsoft will find more luck in Brazil, in India, in Indonesia, in the Philippines and in the many other nations whose rapid development is creating larger and larger audiences with disposable income for entertainment. In that case, China may be the outlier, the one nation where special conditions deny consoles a chance at market success.
If the problem with China is more fundamental, though, it spells trouble on the road. If the issue is that developing nations are adopting other gaming platforms and systems long before consoles become viable for launch there, creating a huge degree of inertia which no console firm has the financial or cultural clout to overcome, then the chances are that consoles are never going to take root in any significant degree in the new middle class economies of the world. Games will be there, of course; mobile games, PC games, games on devices that haven’t even been invented yet (though honestly, Niko Partners’ tip of SmartTV games as a growth market is one that I simply can’t view from any angle that doesn’t demand instant incredulity; still, who knows?). Consoles, though, would then find themselves restricted geographically to the markets in which they already hold sway, which creates a really big limit on future growth.
That’s not the end of the world. The wealthy nations which consume consoles right now aren’t likely to go anywhere overnight, and the chances are that they’ll continue to sustain a console audience of many tens of millions – perhaps well over 100 million – for years if not decades to come. Moreover, the future of games is inevitably more fragmented than its present; different cultures, different contexts and different tastes will mean that it will be a truly rare game which is played and enjoyed to a large degree in all quadrants of the globe. There’ll still be a market for a game which “just” does great business in North America, Europe and so on; but it’ll be an increasingly small part of an ever-growing market, and its own potential for growth will be minimal. That, in the end, is a fairly hard cap on console development costs – you can’t spend vastly more money making something unless your audience either gets bigger, or more willing to pay, and there’s little evidence of either of those things in the console world right now.
The real figures from China, if and when they’re finally announced, will be interesting to see – but it’s unlikely that Niko Partners’ projections are terribly far from the truth. Whether any console company truly decides to put their weight behind a push in China, or in another developing country, over the coming years may be a deciding factor in the role consoles will play in the future of the industry as a whole.
AMD is losing ground against Intel and it is not just because of poor PC sales.
It is true that both Intel and AMD have been suffering from a decline in PC and server sales lately, but figures from Amercia’s markets show that AMD is being eaten alive by Intel
Firstly AMD’s results show a dropoff compared with Chipzilla, which continues to pull ahead. AMD’s revenue has been headed in the wrong direction.
AMD’s revenue of $5.5 billion last year is essentially flat with 2012 and down 14% from 2010. And while Intel hasn’t been exactly growing like wildfire, it’s been steadily increasing revenue.
When you compare the two with each other the gap gets worse. In 1990 AMD had revenue that was more than a quarter of Intel’s. That ratio climbed back to about 15 per cent on AMD’s resurgence in the mid 2000s.
Now, AMD’s revenue is 9.9 per cent of Intel’s.
According to a note to clients from Christopher Roland at FBR there is little reason to buy a new PC with this version of Windows.
New versions of Windows give PC makers a boost as consumers bought new machines – but that’s not likely to be the case with Windows 10 since Microsoft is writing the software to run perfectly well on existing PCs. Windows 10 is also free upgrade to current
Windows users. AMD is expected to lose an adjusted 37 cents a share this year.
This means that Microsoft’s free Win10 could be the nail in AMD’s coffin. Historically, consumers have overwhelmingly upgraded their PC operating systems through the purchase of new PC hardware.
“While this was our original outlook for the Win10 upgrade cycle, we recently reduced our 2H15 and 2016 PC outlook as Microsoft is offering consumers a free Win10 cloud upgrade for all Win 7 and 8.1 owners,” Rolland said.
AMD’s Project Quantum PC system, with graphics powered by two of the new Fiji GPUs may have got the pundits moist but it has been discovered that the beast has Intel inside
KitGuru confirmed that the powerful tiny system, as shown at AMD’s own event, was based upon an Asrock Z97E-ITX/ac motherboard with an Intel Core i7-4790K ‘Devil’s Canyon’ processor.
Now AMD has made a statement to explain why it chose to employ a CPU from one of its competitor in what is a flagship pioneering gaming PC.
It told Tom’s Hardware that users wanted the Devil’s Canyon chip in the Project Quantum machine.
Customers “want to pick and choose the balance of components that they want,” and the machine shown off at the E3 was considered to be the height of tech sexiness right now.
AMD said Quantum PCs will feature both AMD and Intel CPUs to address the entire market, but did you see that nice Radeon Fury… think about that right now.
IT is going to be ages before we see the first Project Quantum PCs will be released and the CPU options might change. We would have thought that AMD might want to put its FinFET process ZEN CPUs in Project Quantum with up to 16 cores and 32 threads. We will not see that until next year.
The Fiji GPU behind the AMD Radeon Fury line of graphics cards is definitely a one big chip with 8.6 billion transistors, but during our short chat with, Raja Koduri, Corporate Vice President and CTO, Visual Computing at AMD and we learned that the number is even higher.
Raja tells us that when we add the number of High Bandwidth Memory transistors that are sitting on the interposer, you get to more than 10 billion transistors for the Fiji GPU interposer chip.
This is a lot of transistors but again, the Fury graphics card is much smaller than the one based on GDDR5 memory, and this is what enables new form factors such as Fury Nano that fits on 6-inch (15.24 cm) size PCB.
The Fiji GPU packs 4096 Stream Processors and this is the highest number we saw until today and with aggressive prices, AMD will certainly put a lot of pressure on Geforce GTX 980 Ti sales. We still have to see what happens with the actual real-world performance as we expect to see the actual Fury X graphics cards in our systems before the end of this week.
Just for reference, Nvidia’s Titan X as well as the Geforce GTX 980 Ti both have 8 billion transistors, some 600 million less than the Fiji GPU.
Samsung Electronics has told the world that owns the largest number of patent rights essential for long-term evolution (LTE) technology in the world.
Writing in its official blog “Samsung Tomorrow” that it has more than 3,600 standard essential patents (SEP) for the LTE and LTE-Advanced (LTE-A) technology. That is 17 percent of all LTE-related SEPs.
We guess this means that if someone buys an LTE phone more than 17 per cent of the money which goes to buy patents should end up in Samsung’s bank account.
Samsung Electronics Digital Media & Communication Laboratory’s intellectual property application team head Lee Heung-mo said Samsung Electronics has established a solid foothold as the global leader and the first mover in the fourth-generation mobile telecom market.
“This also means that the company has become able to provide more convenience to customers by developing the latest technologies.”
The Taiwanese patent office conducted market research for the nation’s state-run National Applied Research Laboratory based on about 6,000 patent rights listed at the Patent and Trademark Office in the United States during the last two years.
LG Electronics and Qualcomm followed Samsung Electronics in second place with 14 percent of SEPs, each. Ericsson, Panasonic, Nokia and NTT DoCoMo hold the third spot with 5 percent, each.
Pantech, the nation’s third-largest handset maker which currently faces bankruptcy, held only one percent, while Korea’s state-run Electronics and Telecommunications Research Institute owned less than 1 percent, the report showed.
During the patent dispute with Apple, the U.S. International Trade Commission said Apple had infringed on Samsung Electronics’ SEPs though they had to be shared under a “fair, reasonable and non-discriminatory” principle.
Samsung Electronics said it has pushed for securing the SEPs in this sector during the last 18 years and has competed with global telecom giants including Qualcomm, Nokia and Ericsson as a relative latecomer. It said securing leadership in SEPs may change the crisis of facing patent disputes to diversifying income sources.
By examining trends between the digital and physical ecosystem, EEDAR has found the digital space to be increasingly driving the future of new console game publishers.
In recent years, the physical games market on consoles has been experiencing a consolidation of publishers and a downturn in the number of games released. From 2008 to 2014, the number of games released on the physical format across Microsoft, Nintendo, and Sony consoles declined from 383 (in 2008) to 145 (in 2014).
Conversely to the physical games’ market, the digital space has been growing considerably within this same time frame. Thanks to the growing focus of online digital ecosystems on consoles, more publishers than ever are releasing console games. In 2008, there were 102 digital-only games released across all consoles; in 2014, there were 279 digital-only games released, according to release data taken from EEDAR’s internal database which tracks all physically and digitally released games on these platforms.
EEDAR defines the Digital Only category as games that do not have a simultaneous (within 90 days) physical release. The Physical + Digital category encompasses most AAA game releases which see simultaneous physical and digital releases, and the Physical Only category consists of games that do not also appear on digital storefronts. Nearly every title released today on consoles also makes an appearance on the console’s digital storefront. The Digital Only category by itself accounts for 66 percent of total game releases. This digital ecosystem is not only reinvigorating game releases, but the number of active publishers has been increasing considerably.
Since 2011, the Traditional Market (defined as Physical + Digital and Physical Only releases) has seen a decline in the number of active publishers. In 2014, there were only 46 different publishers releasing new games compared to the 82 publishers active in 2011. While the traditional market continues to be more dominated by the few larger AAA publishers, the digital space has become a hotspot for numerous smaller publishing companies.
The 8th generation of consoles has caused a resurgence in publisher activity in the digital-only space. Thanks to the growing digital ecosystem and more robust digital storefront experiences on the 8th-gen consoles, publishers continue to flock to the digital games space. In 2014, the total count of publishers releasing digital-only games in the console gaming space was the highest in history at over 146 different publishers.
In the Digital Only market, game releases are more spread across the active publishers. For each active yearly publisher, games released per publisher has been decreasing within the digital-only space. This represents a market with a diverse range of publishers where the larger, more established publishers do not overshadow the presence of other publishers.
Now that Intel and Altera have tied the knot, speculation is rife that AMD is going to merge with Xilinx.
The speculation appears to have come from Steve Casselman, the CEO of Reconfigurable Computing but since then others have started to also think it is a good idea.
Thing is that onces Intel has its claws into the Altera product line, it will be able to cheaply produce the chip and drop the price, drastically undercutting Xilinx.
Xilinx get any help from AMD, since AMD is fabless, but it would open up the opportunity for Xilinx to have an x86 and FPGA option. AMD’s server position is pretty pants these days but it would give Xilinz a way in.
What is more likely to interest Xilinz is AMD’s GPUs where it still has some relevance at least in the short term.
Gus Richard, formerly with Piper Jaffray and now with Northland Capital Markets feels AMD is a takeover target and Xilinx is a suitable buyer.
“Investors have decided that AMD has hit the iceberg and they are waiting for the ship to sink,” he said, he told Barron’s. “However, we believe that AMD still has time to avoid the collision, and if all else fails investors will be bailed out by the lifeboat of M&A.”
Xilinx could use AMD as a server/data center play. Again, that overlooks AMD’s pitiful position in the data center, but even that could change with Zen.
Richard thought it possible that the Chinese could buy AMD, which is unlikely because Intel holds a license agreement with AMD on x86 patents which can’t be shared with a Chinese company. Intel and the DoJ would scream blue murder.
Amazon has looked at the gaming market and felt that it is an area it can make a pile of dosh.
So far its games have been restricted to mobile devices. But it looks like that’s about to change: Amazon Game Studios is currently hiring for what it describes as an “ambitious new PC game project using the latest technology.”
It looks like this will be Amazon’s first ever PC release. Amazon hired notable developers like Kim Swift, designer of Portal, as well as Clint Hocking, who previously worked on franchises like Far Cry and Splinter Cell.
It has spent a small fortune licensing the CryEngine, the same one used to make high-end PC games like Crysis 3 and bought the game streaming service Twitch last August for $970 million, and made gaming a big focus for its Fire TV media box.
In a statement Amazon said: “We believe that games have just scratched the surface in their power to unite players,” the job posting reads, “and will produce some of the future’s most influential voices in media and art.”
MediaTek wants to grow its 4G chip market share in China during the second half of 2015 with the aim of scoring half the market.
According to Digitimes the outfit currently has 20 per cent of China’s 4G chip market and is looking to push its 4G chip market share in China to more than 50% in the second half of 2015.
This is a step up from earlier targets as MediaTek president Hsieh Ching-chiang remarked recently that the company is aiming to reach a 40 per cent share. That comment was only a few months ago, and so any 50 per cent target means that its ambitions must be being more than met.
MediaTek just released the P10 series of its Helio family for mid-range 4G smartphones. The Helio P10 is a 64-bit SoC based on eight Cortex-A53 cores and clocked at 2GHz, and will be available in the third quarter of 2015.
MediaTek said that using TSMC’s 28nm HPC+ process, the Helio P10 can save up to 30 per cent more power compared to existing smartphone SoCs manufactured using 28nm HPC process.
MediaTek previously announced its 10-core Helio X20 series, which integrates a multi-mode Cat 6 LTE modem.
ARM has announced a new subsystem of its Cortex-M processor line specifically designed for the Internet of Things.
ARM IoT for ARM Cortex-M uses a specifically reserved set of IP addresses that allows manufacturers to create system-on-a-chip (SoC) devices including sensors and other IoT mainstays.
The resulting products should, it is hoped, have a power consumption of 1W, which the company points out can make a 60 percent improvement in battery life over 1.2W, and means that product life can be measured in years. The optimization process is the TSMC 55ULP, first revealed by TSMC last September.
The resulting SoC uses the Open Innovation Platform to exploit a range of disposable IP addresses and provide communication systems that can offer anything from Flash NAND to Bluetooth to LTE. It’s up to the licensee of the chip to find the best combination for their product.
None of this is going to reach the high street any time soon, but as use cases start to emerge, licences change hands and the manufacture kicks in, you can expect to see a lot more gadgets using this configuration.
“With industry expectations of hundreds of billions of new smart connected sensors by 2030, we see a growing demand for highly customized chips,” said James McNiven, general manager for systems and software at ARM.
“Creating a highly tailored SoC is complex. The ARM IoT subsystem for Cortex-M enables companies to simplify the process and improve time to market. It enables our partners to focus finite design resources on the system functionality that differentiates them in their market.”
The system is available for immediate licensing from today, with optimization for the company’s IBM-backed mbed OS and Corio Bluetooth Smart Radio. Other radios such as WiFi and 802.15.4 are available.
Inking a deal with TMSC couldn’t come at a better time for the fabrication specialist after it was revealed recently that Qualcomm was planning to ditch it as a supplier.
ARM has bought in a new assurance standard to work with embedded devices.
The ARM mbed Enabled program aims to increase the deployment rate of Internet of Things (IoT) products and supporting technologies by giving partners the ability to label them as interoperable mbed-based devices.
Arm said that the accreditation program will cover solutions entering a broad range of developer markets; from silicon and modules to OEM products and innovative cloud services. Accreditation will be free of charge.
ARM Zach Shelby, vice president of IoT business marketing, said that ARM mbed Enabled accreditation will assure the diverse IoT ecosystem that they are using technologies backed up by an expert community of innovators,.
“This will also instill confidence in end markets where interoperability, trust and security standardisation is required to unlock commercial potential.”
Since the ARM mbed IoT Device Platform was announced in October 2014, the mbed Partner ecosystem has continued to grow from the initial 24 launch partners. Today, 8 new partners are being announced including Advantech, Athos, Captiva, Espotel, Maxim Integrated, MegaChips, SmeshLink, and Tieto.
The Helio X20 is expected to make its way into devices in early 2016, and will “revolutionise” mobile processors, according to MediaTek.
This is down to its ability to reduce power consumption significantly by altering the number of cores working at any one time depending on the power needed to complete tasks.
MediaTek said that this has been made possible by the firm’s new Tri-Cluster CPU architecture that has three processor clusters each designed to handle different types of workloads more efficiently.
“If a user needs heavy performance, [the Helio X20] will invoke 2, 4, 8 cores, intelligently looking at the workload to decide how many it needs,” said MediaTek’s senior director of corporate sales for EMEA, Chet Babla, in a briefing with The INQUIRER.
“There will be a dramatic drop in power consumption compared to big.LITTLE architecture because of this.”
The Tri-Cluster CPU consists of one cluster of two ARM Cortex-A72 cores running at 2.5GHz for high performance, and two clusters of four ARM Cortex-A53 cores, one running at 2GHz for medium loads and one running at 1.4GHz for light activities.
MediaTek has also integrated a CorePilot 3.0 heterogeneous computing scheduling algorithm which controls which threads are allocated to the cores.
CorePilot 3.0 schedules the tasks for all CPUs and GPUs while managing power and thermal effects so that extreme performance can be attained while creating less heat.
This is said to reduce power consumption by 30 percent compared with conventional dual-cluster architectures on top of the increase in energy efficiency thanks to Helio X20′s supported ARM Mali-T880 GPU.
“With the integration of MediaTek’s WorldMode Category 6 LTE modem with carrier aggregation and upgraded CorePilot 3.0 advanced scheduling algorithm, the Helio X20 is set to revolutionise the mobile processor industry and address the global demand for flagship mobile devices,” MediaTek said.
The Helio X20 also has several features designed to increase device display performance and multimedia experiences.
These include support for dual main cameras with a built-in 3D depth engine for a faster shot-to-shot experience, multi-scale de-noise engines for higher quality images, a 120Hz mobile display refresh rate for crisper and more responsive browsing, and an integrated ARM Cortex-M4 low power sensor processor to support always-on applications such as MP3 playback and voice activation.
MediaTek has established itself as the world’s second-largest maker of Long-Term Evolution (LTE)-enabled cellular baseband processors in 2014.
Beancounters at market research firm Strategy Analytics have added up the numbers and divided by their shoe size and worked out that the industry has a new number two.
While everyone knows that Qualcomm, has near total dominance of the high-growth LTE baseband segment in the past and had a 95 per cent share in 2013 a battle has been going on behind the scenes.
Other LTE baseband suppliers had too little of a share to be ranked behind Qualcomm, MediaTek had enough of an impact in the market in 2014 to get a second-place ranking from Strategy Analytics.
The research firm predicted that MediaTek will continue to gain shares in the LTE baseband segment thanks to increased traction in China, the world’s biggest smartphone market.
“Growing revenue contributions from LTE basebands will lift MediaTek’s baseband revenue share over the next few quarters,” said Christopher Taylor, director of the Strategy Analytics RF and wireless component service.
In 2014 revenue from LTE baseband sales overtook revenue from 3G baseband sales for the first time, thanks to a strong push from the industry, the research firm said.
The global market for cellular baseband processors, which are used in mobile devices to process wireless communication, grew an impressive 14.1 per cent year-over-year to reach $22 billion in 2014.
Qualcomm, MediaTek, Spreadtrum, Marvell and Intel grabbed the top-five cellular baseband revenue share spots in 2014, the research company said.
Qualcomm had a 66 per cent revenue share of the cellular baseband processor market, followed by MediaTek with a 17 per cent share and Spreadtrum with a 5 per cent share, according to Strategy Analytics.
Valve is no stranger to its ventures having a somewhat rocky start. Remember when the now-beloved Steam first appeared, all those years ago? Everyone absolutely loathed it; it only ever really got off the ground because you needed to install it if you wanted to play Half-Life 2. It’s hard now to imagine what the PC games market would look like if Valve hadn’t persisted with their idea; there was never any guarantee that a dominant digital distribution platform would appear, and it’s entirely plausible that a messy collection of publisher-owned storefronts would instead loom over the landscape, with the indie and small developer games that have so benefited from Steam’s independence being squeezed like grass between paving stones.
That isn’t to say that Valve always get things right; most of the criticisms leveled at Steam in those early days weren’t just Luddite complaints, but were indeed things that needed to be fixed before the system could go on to be a world-beater. Similarly, there have been huge problems that needed ironing out with Valve’s other large feature launches over the years, with Steam Greenlight being a good example of a fantastic idea that has needed (and still needs) a lot of tweaking before the balance between creators and consumers is effectively achieved.
You know where this is leading. Steam Workshop, the longstanding program allowing people to create mods (or other user-generated content) for games on Steam, opened up the possibility of charging for Skyrim mods earlier this month. It’s been a bit of a disaster, to the extent that Valve and Skyrim publisher Bethesda ended up shutting down the service after, as Gabe Newell succinctly phrased it, “pissing off the Internet”.
There were two major camps of those who complained about the paid mods system for Skyrim; those who objected to the botched implementation (there were cases of people who didn’t own the rights to mod content putting it up for sale, of daft pricing, and a questionable revenue model that awarded only 25% to the creators), and those who object in principle to the very concept of charging for mods. The latter argument, the more purist of the two, sees mods as a labour of love that should be shared freely with “the community”, and objects to the intrusion of commerce, of revenue shares and of “greedy” publishers and storefronts into this traditionally fan-dominated area. Those who support that point of view have, understandably, been celebrating the forced retreat of Valve and Bethesda.
Their celebrations will be short-lived. Valve’s retreat is a tactical move, not a strategic one; the intention absolutely remains to extend the commercial model across Steam Workshop generally. Valve acknowledges that the Skyrim modding community, which is pretty well established (you’ve been able to release Steam Workshop content for Skyrim since 2012), was the wrong place to roll out new commercial features – you can’t take a content creating community that’s been doing things for free for three years, suddenly introduce experimental and very rough payment systems, and not expect a hell of a backlash. The retreat from the Skyrim experiment was inevitable, with hindsight. With foresight, the adoption of paid mods more broadly is equally inevitable.
Why? Why must an area which has thrived for so long without being a commercial field suddenly start being about money? There are a few reasons for the inevitability of this change – and, indeed, for its desirability – but it’s worth saying from the outset that it’s pretty unlikely that the introduction of commercial models is going to impact upon the vast majority of mod content. The vast majority of mods will continue to be made and distributed for free, for the same reasons as previously; because the creator loves the game in question and wants to play around with its systems; because a budding developer wants a sandbox in which to learn and show off their skills to potential employers; because making things is fun. Most mods will remain small-scale and will, simply, not be of commercial value; a few creators will chance their arm by sticking a price tag on such things, but the market will quickly dispose of such behaviour.
Some mods, though, are much more involved and in-depth; to realise their potential, they impact materially and financially upon the working and personal lives of their creators. For that small slice out of the top of the mod world, the introduction of commercial options will give creators the possibility of justifying their work and focus financially. It won’t make a difference at all to very many, but to the few talented creative people who will be impacted, the change to their lives could be immense.
This is, after all, not a new rule that’s being introduced, but an old, restrictive one that’s being lifted. Up until now, it’s effectively been impossible to make money from the majority of mods. They rely upon someone else’s commercial, copyrighted content; while not outright impossible technically, the task of building a mod that’s sufficiently unencumbered with stuff you don’t own for it to be sold legally is daunting at best. As such, the rule up until now has been – you have to give away your mod for free. The rule that we’ll gradually see introduced over the coming years will be – you can still give away your mod for free, but if it’s good enough to be paid for, you can put a price tag on it and split the revenue with the creator of the game.
That’s not a bad deal. The percentages certainly need tweaking; I’ve seen some not unreasonable defences of the 25% share which Bethesda offered to mod creators, but with 30% being the standard share taken by stores and other “involved but not active” parties in digital distribution deals, I expect that something like 30% for Steam, 30% for the publisher and 40% for the mod creator will end up being the standard. Price points will need to be thrashed out, and the market will undoubtedly be brutal to those who overstep the mark. There’s a deeply thorny discussion about the role of F2P to be had somewhere down the line. Overall, though, it’s a reasonable and helpful freedom to introduce to the market.
It’s also one which PC game developers are thirsting for. Supporting mod communities is something they’ve always done, on the understanding that a healthy mod scene supports sales of the game itself and that this should be reward enough. By and large, this will remain the rationale; but the market is changing, and the rising development costs of the sort of big, AAA games that attract modding communities are no longer being matched by the swelling of the audience. Margins are being squeezed and new revenue streams are essential if AAA games are going to continue to be sustainable. It won’t solve the problems by itself, or overnight; but for some games, creating a healthy after-market in user-generated content, with the developer taking a slice off the top of the economy that develops, could be enough to secure the developer’s future.
Hence the inevitability. Developers need the possibility of an extra revenue stream (preferably without having to compromise the design of their games). A small group of “elite” mod creators need the possibility of supporting themselves through their work, especially as the one-time goal of a studio job at a developer has lost its lustre as the Holy Grail of a modder’s work. The vast majority of gamers will be pretty happy to pay a little money to support the work of someone creating content they love, just as it’s transpired that most music, film and book fans are perfectly happy to pay a reasonable amount of money for content they love when they’re given flexible opportunities to do so.
Paid mods are coming, then; not to Skyrim and probably not to any other game that’s already got an established and thriving mod community, but certainly to future games with ambitions of being the next modding platform. Valve and its partners will have to learn fast to avoid “pissing off the Internet” again; but for those whose vehement arguments are based on the non-commercial “purity” of this corner of the gaming world, enjoy it while it lasts; the reprieve won this week is a temporary one.