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GameStop Fires A C-Suite Executive

February 19, 2018 by  
Filed under Gaming

GameStop COO Tony Bartel and EVP Michael Hogan have been let go by the games retail giant.

The news follows the imminent departure of former GameStop CEO Paul Raines, who is stepping down due to a recurring brain tumor, and the appointment of new CEO Mike Mauler – who has been part of the GameStop business for 16 years.

Bartel is one of GameStop’s longest-serving employees, having worked in various senior roles, including president between 2010 and 2015, and COO ever since.

Hogan has been with the firm for 10 years, and was EVP of the firm’s strategic business and brand development. He’s been responsible for the firm’s marketing strategy, pre-owned business and online presence.

Both were terminated without cause, which means they will receive full payments and benefits as stipulated in their contracts.

No replacements have been named.

Courtesy-GI.biz

Are States Going To Label Loot Boxes As Gambling

February 5, 2018 by  
Filed under Gaming

Just as the loot box controversy waters seemed to be calming, a Washington state senator has introduced a bill into the Legislature aimed at defining whether or not the mechanic in games constitutes gambling.

While the Washington Gambling Commission is aware of loot boxes, it has yet form an official position. Kevin Ranker, a Democratic state senator for Orcas Island, is now asking Washington officials and game developers to help reach a conclusion.

“What the bill says is, ‘Industry, state: sit down to figure out the best way to regulate this,'” Ranker told the News Tribune. “It is unacceptable to be targeting our children with predatory gambling masked in a game with dancing bunnies or something.”

The bill highlights three major concerns: firstly whether games and apps containing loot box mechanics are considered gambling under Washington law; secondly whether these mechanics belong in games and apps; thirdly whether minors should have such ready access to games and apps that do feature loot boxes; and finally the “lack of disclosure and transparency with respect to the odds of receiving each type of virtual item.”

A conclusion must be drawn upon no later than December 1, 2018. The Washington State Gambling Commission must provide written recommendations regarding how best to regulate the practice and, include options for the implementation of regulations restricting the sale of games containing loot box mechanics.

In the same way Apple recently changed its terms of service making loot box odds transparent in all games on the App Store, Ranker believes the odds for all such mechanics should be made public.

“If [parents] realised how predatory these game are then they wouldn’t want them under their Christmas tree, they wouldn’t want them going to their kids,” he said.

As the latest and arguably the most significant case of a government body or official casting a gaze towards loot boxes, it highlights the gulf of opinion between politicians and the games industry. While the Belgian Gambling Commission and Hawaiian state representatives are approaching this issue with a great deal of concern – and seemingly ready to introduce legislation – the Entertainment Software Rating Board and publishers like EA continue to fervently deny that loot boxes are gambling.

Courtesy-GI.biz

U.S. Video Games Industry Jumped To 36 Billion Last Year

January 30, 2018 by  
Filed under Gaming

US games revenue spiked to a record total of $36.4 billion in 2017, according to the Entertainment Software Association.

The report, jointly released by market research firm The NPD Group, shows an 18% growth in revenue generated by the games industry in 2017 over the year prior.

The figure combines hardware revenue, including peripherals, and software revenue from physical and digital sales, including in-game purchases and subscriptions.

Hardware revenue was up by 19% from $5.8 billion to $6.9 billion, while software revenue rose 18% from $24.6 billion to $29.1 billion.

US mobile spend data, which includes paid downloads and in-game purchases for mobile through the App Store and Google Play, was collected from App Annie.

“The spectacular growth of our industry in 2017 proves video game developers, artists, and storytellers are the brightest lights in the US economy, finding more ways to delight the world’s 2.6 billion gamers each year,” said Michael D. Gallagher, president and CEO of ESA.

“Congratulations to our industry’s brilliant creators on delivering another record year of remarkable entertainment that inspired the passion of gamers everywhere.”

Courtesy-GI.biz

With Digital Downloads Rising, Is It Game Over For Video Game Retailers

January 8, 2018 by  
Filed under Gaming

2017 ended up as a solid year for games retailers.

It got hairy at times. Earlier in the year, GAME issued a profit warning and its share price plunged to a worrying level – before a surprise intervention from Sports Direct arrested the slide (the sports retailer bought up a chunk of GAME’s shares).

Over in the US, GameStop’s profit was hit by lagging Xbox One sales – results that would have been worse had it not been for the sale of Kongregate, which added $7.3m to its bottom line.

The first half of 2017 was concerning, and it was following a disappointing Christmas 2016, which suffered significantly from the under-performance of key titles, in particular Call of Duty: Infinite Warfare.

Then things took a turn for the better.

Nintendo Switch was the hero the market needed. Strong launch sales were set back by stock shortages, but that was quickly rectified in time for Christmas. Switch has been a dream for the High Street. The lack of space on the machine’s internal hard-drive means that it has become a very physical-friendly product (IHS estimate that only 20% of Switch game sales are digital), and the variety of accessories has created a plethora of add-on products for retailers to sell.

Then came Call of Duty: WWII, which is on track to be the most successful Call of Duty of the generation.

Those two, combined with continued strong sales of PS4 hardware and software, meant that 2017 was a solid year for the market. In the UK, where physical sales had been declining, overall sales of physical software was flat compared with the year before.

Furthermore, 2017 saw an increase in downloading across the board. This was particularly notable in the AAA console space, where anecdotal reports stated that between 30 – 45% of AAA game sales were now being made via Xbox Live and PSN.

This trend is only likely to accelerate. We are already seeing publishers behave more aggressively in pushing digital retailers alongside physical ones, and we can expect that to increase.

2018 is also likely to see a decline in PS4 sales. We are now into the fourth year of PS4 and Xbox One, and Xbox (physical) sales have already begun to slide. PS4 will likely follow as this generation starts to show its age.

Talk of PS5 and Xbox ‘Two’ is already beginning to surface – with some developers already working on next generation specs – but even the most optimistic of analysts do not expect to see anything before late 2019.

So with digital adoption accelerating, the current generation showing its age and with no major hardware launches on the horizon, 2018 can look bleak for the physical retail market.

It is worth observing that physical games retailers are not oblivious to the market trends. Most major retailers have been transitioning their business models and diversifying, whether that is through events, esports, digital, content, accessories, technology and so on.

Therefore, retailers like GAME and GameStop don’t necessarily need to sell as many games or consoles in 2018 as they did in 2017 to enjoy a strong year.

However, physical game sales remain the bedrock of these businesses, and any significant downturn will have a negative effect. GAME, for one, is aware of this, which is why it has repeatedly told its shareholders of its short store leases, allowing the firm to reduce its store base rapidly if needed.

So what can games retailers bank on in 2018 to keep sales buoyant?

The most obvious product is Nintendo Switch.

The console will be heading into its second year, where sales will likely accelerate (Nintendo anticipates 20 million shipments over its 2018/2019 financial year, bringing the total to more than 36 million consoles in the market by April 2019). This creates a big audience for retailers to capitalise on.

However, there are some lingering concerns. Last year’s sales performance was boosted, globally, but Zelda, Mario Kart 8, Splatoon 2 and Super Mario Odyssey. These were the four major system sellers for the console during the year. 2018 currently lacks a killer app for Switch (with the exception of Pokémon, which only has a tentative 2018 date and may arrive in 2019). It’s common for Nintendo to limit the window between announcing a product and releasing it, and the firm is planning one of its ‘Direct’ video presentations later this month. Yet, as it stands, there is uncertainty over what software will drive Switch sales during the first part of the year.

The other key product is Red Dead Redemption 2. This is a major launch for Spring 2018 and may well be the biggest game of the year. The last Red Dead Redemption (2010) sold 15 million units globally, yet that was in an age before GTA V. GTA V has shifted more than 86 million games worldwide (by comparison, GTA IV – which came out in 2008 – sold around 30 million). It’s very unlikely Red Dead Redemption 2 will get close to GTA V’s massive figure, but even half-way will be a major, major boost to the market, and anticipation for Rockstar’s next open world epic is enormous.

Of course, there will likely be a strong download element to Red Dead this time around – especially as Rockstar has spent the last five years training its audience to download things through its Grand Theft Auto Online mode (a similar phenomena happened last year around Destiny 2, which performed very strongly over Xbox Live and PSN).

It’s also worth noting that the Red Dead and Rockstar names alone do not guarantee success. As we have seen with Star Wars: Battlefront II and Call of Duty: Infinite Warfare, if gamers are unhappy for whatever reason, they will vote with their wallets irrespective of the brand name attached to the product. Red Dead Redemption 2 has the ingredients to be a major hit, but nothing is certain in this business.

Beyond Nintendo Switch and Red Dead Redemption 2, Ubisoft’s big March game is Far Cry 5, Xbox has a slightly stronger slate with Crackdown 3 and Sea of Thieves, and Sony is expected to launch Spider-Man and God of War. Yet little is known about the back half of the year at this stage. Companies such as Take-Two, Ubisoft and Square Enix have teased some special projects for the year, but what they are remains a mystery.

As a result, 2018 will likely remain a difficult year for games retailers. GAME and GameStop’s new growth areas are showing signs of life, and both companies are on solid financial footing. Yet any significant downturn in physical game sales will take a heavy toll, and the market will be relying – once again – on just a handful of products to see them through.

Courtesy-GI.biz

Were Physical Games Sales Flat In The UK In 2017

January 5, 2018 by  
Filed under Gaming

23.7 million physical video games were sold in the UK during 2017, the latest data from GfK reveals.

It is pretty much identical to last year’s number of 23.8m – a decline of 0.4%.

In terms of revenue, the amount of money made by physical games has risen slightly by 2.1%. This is due to an increase in game pricing over 2017, driven partially by the higher priced Nintendo Switch games. In total, £792m was made from physical software sales in 2017.

We have requested additional sales figures for UK hardware and accessories from GfK, which will likely show some growth for the UK physical retail market overall.

The best-selling game of the two weeks over Christmas and New Year was Call of Duty: WWII, which has now scored nine consecutive weeks at the top of the charts. It equals the number of consecutive weeks Modern Warfare 2 spent at the top of the charts, and if it gets two more weeks, it will match Call of Duty: Black Ops III as the most No.1s overall for a Call of Duty game.

Call of Duty: WWII has already well passed Infinite Warfare’s lifetime sales, and was the UK’s second best-selling game of 2017. The best-selling game was FIFA 18, which was the No.2 over Christmas and New Year. FIFA 18 has been on sale for five weeks longer than Call of Duty: WWII.

Physical sales of FIFA are actually down quite notably compared with the 2017 edition. The number of FIFA 18 units sold in the UK is 16.2% down compared with FIFA 17, however, digital sales have not been taken into account.

Indeed, it wasn’t an especially happy Christmas for EA. Take Star Wars: Battlefront II, the company’s big Christmas shooter is down 51% compared with sales of last year’s Battlefield 1 (which was on sale for four weeks longer by the end of the year) and 49% compared with the first Star Wars Battlefront (the first EA one, anyway).

Sales of the new Need for Speed is also down 11% compared with its 2016 predecessor. Although, once again, digital numbers will likely have made up for some of this decline (if not all of it).

It may have been a tough few months for EA, but it was a strong end of the year for Ubisoft. Assassin’s Creed Origins is up 32% in sales compared with last year’s Watch Dogs 2, and 13% up compared with Assassin’s Creed Syndicate (which was on sale for a week longer back in 2016). Nintendo also had a strong end to the year, with Super Mario Odyssey, Mario Kart 8: Deluxe and The Legend of Zelda: Breath of the Wild all in the Top Ten come New Year. All three games sold over 300,000 copies a piece so far, with Mario Kart 8 ending the year as the No.1 Switch title (just narrowly ahead of Super Mario Odyssey).

The late release of the year, PlayerUnknown’s Battlegrounds, performed strongly. The boxed version didn’t feature a disc (it’s just a code in a box), but still debuted at No.4, dropping to No.8 and ending the year at No.11. It is likely that digital will have made up the bulk of sales, but it still performed well as a Christmas gift.

Here is the GfK/UKIE Top Ten for the Week Ending December 30th.

Courtesy-GI.biz

Are Video Games Contributing To Inflation In Great Britan

December 19, 2017 by  
Filed under Gaming

The price of video games has been highlighted as a key factor in the latest rise in UK inflation, a report claims.

Figures released by the Office for National Statistics show that the Consumer Prices Index has risen by 3.1% in the twelve months ending November 2017. This is an increase on the 3.0% recorded in October and the highest since March 2012.

While the largest contribution to this increase was identified as air fares, the ONS notes that: “Rising prices for a range of recreational and cultural goods and services, most notably computer games, also had an upward effect.”

The increase in prices for video games, toys and other hobbies between October and November was much sharper than in 2016, with the ONS adding: “This effect came from computer games whose prices are heavily dependent on the composition of bestseller charts, often resulting in large overall price changes from month to month.”

This is no doubt partially down to the sheer number of new releases over the past couple of months, traditionally the busiest time for the games industry’s release slate.

It’s also worth noting that while the biggest new releases have often been heavily discounted within a few weeks of launch in the past, there seems to have been less significant price cuts in 2017. Certainly, Black Friday appeared to have less of an impact when it comes to titles less than a month old dropping from £50 to around the £20 to £30 mark.

That said, the ONS’ declaration that computer game prices have risen to the point where they can be singled out as a contributing factor to UK inflation is somewhat frustrating.

By and large, video game prices have remained relatively static over the past decade, with new releases almost always around the £50 price point – despite the rising cost of development. This is something developers commented on when discussing the increasing need for monetisation mechanics like loot boxes, controversial though they may be.

Similarly, publishers have previously seen a backlash when trying to adjust prices to account for economic shifts. Most notably, Paradox Interactive attempted to raise the cost of its games earlier this year and was immediately met with consumer complaints – to the extent where the publisher was compelled to retain its previous price points and offer refunds to those affected.

Time will tell whether the impact on UK inflation further deters publishers and retailers from increasing the cost of games.

Courtesy-GI.bz

Can EA Learn From Rainbow Six Siege With 25 Million Players

December 12, 2017 by  
Filed under Gaming

Ubisoft has announced that two years after launch, Rainbow Six Siege has over 25 million registered players.

Now entering its third year, Ubisoft has lined-up more content to prolong the life of the game for another season, proving that games-as-a-service can be done properly in the AAA space.

When Siege launched at the tail end of 2015, critics took the game to task over its threadbare offerings, which featured a single PvP mode, no campaign, and only a handful of maps, not to mention a litany of bugs.

Since then, however, many of the criticisms have been dealt with and Siege has held a regular spot in the UK top 20.

What’s especially interesting about the success of Siege is how quiet it’s been. With each competitor that shambles onto the market, whether that be Star Wars Battlefront II or the latest addition to the monolithic Call of Duty franchise, Siege has rarely attracted the same level of controversy, despite employing the most common games-as-as-service monetization techniques.

With games-as-a-service reportedly having tripled the value of the industry, and EA looking to replace annual sports games with live services, has Ubisoft laid out the framework for how to do it right?

“Player investment has been core to the success of the game with longevity being always very important to us. As the game progressed, we continued to develop it with the community in mind,” said Alexandre Remy, Rainbow Six Siege brand director in a statement.

A community-centric approach is the obvious answer to increasing the longevity of any game. Over recent months, we’ve seen a great deal of discussion around finding the “sweet spot” for monetization techniques, and we’ve also seen the fallout of what happens when communities feel disrespected. Loot boxes and season pass DLC can work, Siege has demonstrated that, but striking that delicate balance is something publishers have long struggled with, and continue to do so.

That said, it’s important to consider the particular niche that Siege operates in. Yes, it’s a competitive online shooter, but unlike many of its contemporaries, it’s a much more strategic and team-focused affair. While there is definitely a crossover between Call of Duty players and Siege players, the latter has a niche appeal the former cannot possibly hope to replicate without disenfranchising its mainstream audience.

The likes of Activision and EA can certainly learn from Ubisoft’s approach to games-as-a-service. With no immediate Siege sequel on the horizon, a further cash investment into the game is a relatively easy thing for consumers to justify.

However, when players know that the life of a game will be artificially shortened by an annual release, rather than extended by DLC, it becomes difficult to rationalize spending anything above the $60 entry price, especially when the monetization techniques are perceived to be so aggressive.

Ubisoft is not the only publisher to have successfully implemented these techniques with minimal backlash. Blizzard, for example, kept its hands relatively clean with Overwatch and only recently got caught-up in the Belgian Gambling Commission’s investigation which mainly cast its attention towards Star Wars Battlefront II.

But with Siege, Ubisoft has employed the delicate and reasoned approach that’s been missing from the industry’s clumsy, heavy-handed adoption of the games-as-a-service model. As a result, the two-year-old game boasts a large, dedicated community that numbers in the millions and is willing to spend.

Courtesy-GI.biz

Is EA Screwing Up The Planned Move To Games As A Service

December 8, 2017 by  
Filed under Gaming

Every now and then, a major publisher goes through a bit of a rough patch in PR terms; the hits just seem to keep on coming, with company execs and representatives seemingly incapable of opening their mouths without shoving their feet right inside, and every decision being either poorly communicated or simply wrongheaded to begin with. At present it’s EA that can’t seem to put a foot right, from Battlefront 2’s microtransactions to lingering bad feeling over the closure of Visceral; every major company in the industry, though, has had its fair share of turns in the barrel.

These cycles come around for a couple of reasons. Part of it is just down to narrative; once something goes wrong for a company, they are scrutinised more closely for a while, and statements that might have slipped under the radar usually are blown up by the attention. Another part of it, though, is genuinely down to phases that companies go through; common enough periods in which the balance between the two audiences a major company must serve, its consumers and its investors, is not being managed and maintained expertly enough.

Most companies encounter this difficulty from time to time, because the demands and desires of shareholders are often damned near diametrically opposed to those of customers. The biggest problems arise, however, when a firm ends up having to take a Janus-faced approach, presenting a different picture in financial calls and investor conferences to the one it tries to convey in its customer-facing PR and marketing efforts.

That’s broadly speaking the situation EA has found itself in once again; forced to be conciliatory and diplomatic in talking to customers about everything from loot boxes to its commitment (or lack of same) to single-player experiences, while simultaneously being bullish with investors who want to see clear signs of progress in the shift towards a set of business paradigms core consumers volubly dislike.

CFO Blake Jorgensen’s comments at Credit Suisse’s conference earlier this week are archetypal of this genre of corporate communication; from a blunt denial that the company’s microtransaction strategy on Battlefront 2 is changing overall to a throwaway comment about Visceral’s closure being related to declining popularity (by which, being a CFO, he meant revenue) of linear game experiences, Jorgensen spoke to investors in a way that was quite markedly different from how the rest of the company has addressed its actual customers on these issues.

You can argue quite reasonably that this approach is dishonest in spirit if not in substance; even if the words of each statement are chosen carefully so the investor messages don’t technically contradict the consumer messages, the intent is so clearly tangential that consumers have every right to feel rather miffed. I think it’s worthwhile, however, to look beyond that to the motivation and strategy behind this – not just in terms of EA’s month of bad PR, but looking beyond that to the industry as a whole, because pretty much every major publisher is undertaking a similar strategic shift in a direction they know perfectly well is going to annoy many of their core customers, and they’re all going to have their own turn in the barrel as a consequence.

At the heart of this issue lies the fact that for many investors and executives, the business model that has sustained the games industry for decades has started to look frustratingly quaint and backwards. “Games as a Product”, whereby a game is made and sold, perhaps followed up by a handful of add-ons that are also made and sold (essentially smaller add-on products in their own right), is a model beloved of core consumers – but business people point out, not entirely unfairly, that it has many glaring flaws.

Some of those flaws are very real – the product model creates a high barrier to entry (you can’t attract new customers without convincing them through expensive marketing to spend $50 to $60 on trying out your game), hence limiting audience growth, and has not scaled effectively with the rising costs of AAA development. More controversially, they dislike the fact that the product model creates a relatively low cap on spending – after buying a game, there’s only so much money a consumer can spend on DLC packs (each of which has its own associated development costs) before they hit a hard limit on their purchases.

Hence the pressure to move to a “Games as a Service” model, which neatly – if not uncontroversially – solves each of these issues. The service model can be priced as low as zero to create a minimal barrier to entry, though for major titles with a big brand attached publishers still show a preference for having their cake and eating it, charging full AAA pricing for entry to an essentially freemium-style experience. An individual player’s spending may be theoretically limitless, as purchases of cosmetic or consumable items could run to many thousands of dollars in some cases – hence also allowing the game’s revenue to scale up to match the huge AAA development and marketing budgets that went into its creation.

You can “blame” mobile games for this if you wish, but in a sense they were merely the canary in the coalmine; the speed with which the mobile gaming market converged on the F2P model and the aggression with which it was pursued was a clear sign that the rest of the industry would eventually try to move in a similar direction. The reality is that mobile games shone a light on something a few industry types had been saying for years; that there was a massive, largely untapped audience for games out there, who would never climb over the barriers to entry to the traditional market but who could potentially be immensely valuable customers of games with lower barriers to entry.

The correct height for those barriers turned out to be “free games for devices you already own”, and yet this market did turn out to be enormously valuable; and now much of the industry is eyeing up the model that works on smartphones, looking at their own rising costs and shrinking slice of the pie, and wondering how to get from over here to over there.

The problem is that making that crossing – from being a successful creator or publisher of core games to being a successful company in a smartphone-style paradigm – is damned tricky to do when the business model you (and your investors!) want to have is anathema to many of the customers you actually have right now. Not all of them, by any means – plenty of core gamers are actually pretty relaxed about these models, for the most part – but enough of them to make a lot of noise and to potentially put a major dent in the bottom line of a company that genuinely manages to drive them away.

Hence, much of the approach we’ve seen in 2017 (and prior) has really been akin to the parable about putting a frog in cold water and gradually raising the heat; companies have slowly, softly been adding service-style features and approaches to their games, hoping that the slowly warming water won’t startle its occupants too much.

When things spill over as they have done for EA in the past month, it tends to indicate that someone got impatient; that investors were too demanding or executives pushed too hard, and the water started to heat up too rapidly. The course will be corrected, but the destination remains the same. Short of a really major pushback and some serious revenue damage across the board from these approaches – which bluntly seems unlikely to materialise – the move towards games as a service is inexorable, and 2018 will bring far, far more of the same. Whether you view that as the industry’s salvation or its ruin is really a matter of personal perspective, but it’s a new reality for AAA titles that we’re all going to have to make some kind of peace with.

Courtesy-GI.biz

Disney Very Protective Of IP and Brand

December 1, 2017 by  
Filed under Around The Net

A decade or two ago, a common topic of speculation in the games business was which of its giant publishers would be the one to topple Disney from its position as the world’s most important warehouse of intellectual property. EA, then the industry’s big beast, was comfortably the favorite, especially as it seemed set on weaning itself off its reliance on licensed sports titles in favor of building new IP. Activision was on the radar for some; Nintendo, though the industry’s most obviously ‘Disney-like’ company, seemed slow to produce and capitalize on new IP at the time.

History didn’t play out that way. EA became embroiled in a decade long turnaround and restructuring effort; Activision, though boosted massively by its merger with Blizzard and the success of games like Call of Duty and Destiny, has fumbled in its management of properties outside the high-spending core. Nintendo’s library of IP has grown and thrived, of course – but none of these companies can come close to matching what’s happened at Disney. Since the time when we speculated over when EA might overtake them, Disney has absorbed first Pixar, then Marvel, then Lucasfilm, placing itself beyond any reasonable challenge. It is the world’s most valuable IP holder, and will be for years to come.

Along the way, Disney has largely given up its ambitions of being a game developer or publisher – at least for now. It shuttered studios. It shut down internal projects in favor of licensing its properties to other developers and publishers. There is a slight twist of irony to the fact that, in the process, Disney has gone from being a second- or third-tier publisher to being arguably the most powerful company in the games business; a licensor absolutely aware of the value of its IP, and willing to protect that IP and its development regardless of the cost to any partner company.

This month we’ve seen two examples of Disney flexing that muscle. The company severed ties with Gazillion Entertainment, developer of licensed Diablo-esque RPG Marvel Heroes; what happened behind the scenes to precipitate this is unclear as yet, but there were signs that Disney was dissatisfied with the developer or with its relationship for some time, and the company ultimately pulled the plug on the game. Just a few weeks later, a much bigger firm, Electronic Arts, also got a taste of Disney’s willingness to exercise its power; the controversy over pay-to-win loot box mechanics in Star Wars Battlefront 2 took an abrupt turn when pressure from Disney forced EA to remove premium currency from the game before its launch, pending a re-engineering of the game’s monetization systems.

For Gazillion, the consequences are stark; the firm has shut down, with staff claiming on social media that they are not receiving severance pay or PTO. The chances of refunds for players who bought expensive items in the free-to-play game seem slim. EA, of course, won’t face anything remotely that drastic as a consequence of the changes to Battlefront, but that’s more to do with the scale of EA and its capacity to absorb losses than anything else.

The company’s financial projections for Star Wars Battlefront 2 were based on the assumption of a premium currency and loot box system that worked in a certain way and attracted a certain amount of revenue. It set its development budget based on those projections, spent money on marketing based on those projections; Disney has now unceremoniously dumped those projections in the bin.

Entirely independent of the conversation over whether EA’s monetization model was ill-conceived or not, there can be little doubt that the company’s bottom line for this project will be hit by the removal of premium currency, even temporarily. Without seeing the company’s internal figures it’s hard to say, but it’s not beyond the realms of possibility that, given high enough costs for licensing, development and marketing, this change could even leave EA struggling to stay in the black on what should have been one of its most profitable titles of the quarter.

For Disney, these decisions no doubt make absolute sense. To a large extent, Disney’s choices about games are based on the same rationale as Nintendo’s have been; an understanding that preservation of the value of the IP needs to come ahead of short-term profitability of any one product based on that IP. Just as Nintendo will severely delay games and leave its release schedule looking anaemic at times in order to ensure quality of its finished products and preserve the value of the IP, Disney will shut down, delay or change games that look like they pose a threat to that value – even at risk of damaging business relationships and thoroughly screwing over partners.

Disney has a dual objective with every licensing deal it signs for a major property, such as a game or a TV show. It wants to make money, of course, but it also wants to support the IP it’s licensing; keeping it relevant and in the public eye, preferably boosting its appeal, and whatever else, no matter what, absolutely not damaging or devaluing it.

This makes working with Disney – even for a company as big and powerful in its own right as EA – into something of a risky and challenging business. It’s natural that any developer or publisher would jump at the chance to work on Star Wars, a property tied in to the Marvel Cinematic Universe, or something related to a major Pixar movie, but these deals are not the license to print money they may look like at first glance.

Disney’s willingness to aggressively protect its IP and flex its muscle in these arrangements makes it vital to bear in mind that Disney and the companies that license its IP to make games have different objectives; of course both parties want to make money, but for Disney that comes with a powerful and often overruling caveat. It will sacrifice profit for long-term health, and a developer or publisher, with no financial interest in that long-term health, may be hung out to dry as decisions made in service of profitability are reversed.

In a sense, Disney’s position in the games industry has become similar to Apple’s in the hardware business. Apple makes some of the best-selling high-end products in the world, but for a manufacturing firm to join that supply chain is actually a double-edged sword, because the company is famous for micro-managing the processes of its suppliers and shaving their margins down to the knuckle. Working with Apple can mean enormous contracts to supply high-end parts for globally famous products; it can also mean paper-thin margins, constant supervision and tough contract terms from a company whose business objectives do not always align neatly with those of its suppliers.

Of course, the lure of working on Disney IP will not diminish. These are among the world’s most valuable brands, and for game creators they’re a treasure chest. But before diving into those waters, even the biggest of companies would do well to think about whether their intentions actually align with what Disney will permit. This is a company at the peak of its power; the rewards for working with it may be great, but no publisher should fool itself that Disney will ever put a business relationship ahead of its own central interest in the protection of its IP.

Courtesy-GI.biz

Did The Star Wars Battlefront 2 Fiasco Hurt The Franchise

November 27, 2017 by  
Filed under Gaming

The run-up to launch for Star Wars: Battlefront II has been, to put it bluntly, a fiasco. I would suggest that it has also provided a model for publishers to follow in the future.

When Electronic Arts announced at E3 that it was scrapping the Season Pass model for Battlefront II, the move was met warmly by players. After all, the Season Pass split the player base into people with the DLC and without, preventing them from enjoying new maps and game modes together. At the time, the understanding was that EA would introduce a system for unlocking content within the game, where progress could either be earned through gameplay or purchased through microtransactions. And for the most part, people were fine with that.

But as the company revealed exactly how the system would be implemented, details like how long it would take to unlock things without paying and what sort of advantages paying players could expect in multiplayer matches rankled players. EA’s repeated insistence that it was taking the feedback seriously and changing the system in response did little to appease the angry fans. The uproar seemed to gain more traction as the game’s release approached until, on the literal eve of launch day, EA announced that it was shutting off the game’s microtransactions, reinstating them at a later date when the progression system had been properly fine-tuned.

You could characterize it as a desperate move to salvage the launch of a massive publisher’s holiday lynchpin release, or you could point to it as a new standard, a potential solution to a problem that has dogged the AAA industry since Oblivion’s horse armor first debuted over a decade ago. Why don’t more AAA games launch with a microtransaction-free grace period?

The benefits to the players are fairly clear. By not having microtransactions turned on at launch, publishers know they have to provide an experience that is fun and engaging for non-payers, and ensures that in-game systems won’t be designed around an intolerable grind pushing people into spending more money. It dissuades developers from locking content that players would consider essential (like, say, playing as Luke Skywalker or Darth Vader in a Star Wars game) behind unreasonably high progression walls. In short, it “keeps them honest,” while the early adopters who pay full price (or close to it) for a new release get to enjoy a premium, limited-time experience without the constant pressure to spend more money.

At the same time, it provides publishers with plenty of upside as well. For one, they get to monitor how paying customers are behaving in their game under real-world conditions for a length of time to help with balancing the microtransaction system. And assuming they design the game to be fun without the microtransactions, they’ll almost certainly benefit from better word of mouth and review scores at launch.

And most crucial of all, publishers who adopt a grace period before instituting microtransactions will be mitigating some of the harmful effects of the AAA marketing hype cycle. It’s no coincidence that the backlash to Battlefront II’s microtransactions has grown as the game has neared launch, even though EA has apologized and downgraded the aggressiveness of its approach multiple times in response.

The company’s successful marketing campaign was designed to generate interest and excitement and passion in such a way that would crescendo at launch. And it did. But as we’ve seen too many times in recent years, “passion” in the player base is not an exclusively positive thing. Passion is a multiplier of other emotions. It makes those who love a game get tattoos, and those who hate it lob death threats online. Waiting until after the launch window to turn microtransactions on allows publishers to benefit from the passion they’ve spent so much time and money building, while putting off one obvious source of potential backlash until people have cooled down a bit and the monetization scheme of last holiday’s big shooter release just doesn’t seem like something worth grabbing a pitchfork over. This is especially true given how many members of the pitchfork mob will have purchased the game, played it, and traded it in or redirected their enthusiasm to the next big release in the meantime.

And what would it cost the publishers to do this? A couple months’ worth of microtransaction revenues in games that are designed and intended to be live services. For a successful live service game, the first months of revenue are well worth sacrificing if it might buy you the traction you need for the long run. (Grand Theft Auto Online is four years old and just had its most lucrative quarter ever.)

Microtransactions are a powerful force for the games industry these days, opening up a slew of alternative business models and providing potential answers to many of the problems that have long dogged publishers. EA may have unwittingly showed us a way to finally bring balance to the Force.

Courtesy-GI.biz

Belgian’s Decide Star Wars Loot Boxes Is A Form Of Gambling

November 24, 2017 by  
Filed under Gaming

The Belgian Gambling Commission has decided that loot boxes in Star Wars Battlefront II constitute gambling, and the practice should be banned.

Last week the gambling authority turned its eye towards the issue and since concluded that loot boxes present a danger to children.

VTM News reported that Belgian minister of justice Koen Geens said the gambling commission will take the matter to Europe.

The Dutch authorities joined the recent investigation too, and while a decision has yet to be reached, arriving at the same conclusion as Belgium doesn’t seem unlikely.

Accompanying the news was an announcement that Hawaiian legislators are also considering action against loot boxes in games.

At a press conference, Hawaiian democratic state representative Chris Lee described Battlefront II as a “Star Wars-themed online casino,” warning that it was a “trap” for children.

“We’re looking at legislation this coming year which could prohibit access, or prohibit sale of these games to folks who are under age in order to protect families, as well as prohibiting different kinds of mechanisms within those games,” he said.

“We’ve been talking with several other states as well, with legislators there who are looking at the same thing. I think this is the appropriate time to make sure that these issues are addressed before this becomes the new norm for every game.”

At the same press conference, fellow representative Sean Quinlan draw comparison to ’80s and ’90s cigarette mascot Joe Camel.

“We didn’t allow Joe Camel to encourage our kids to smoke cigarettes, and we shouldn’t allow Star Wars to encourage our kids to gamble,” he said.

Writing recently for GamesIndustry.biz, Rob Fahey warned against interference from legislators if publishers overstepped the mark with loot boxes.

“There’s a real chance that companies involved in this are on the hook for permitting minors access to a gambling platform,” he suggested.

“If the games business doesn’t figure out where the sensible limits to this kind of business model lie, they risk a public outcry leading to regulators stepping in.”

Avoiding a moral panic has never been a strength of games, but with politicians across the world diving into the fray, the industry could find itself facing another assault from the mainstream media and outside pundits.

Courtesy-GI.biz

Did EA Screw Up SW Battlefront II With Microtransactions

November 22, 2017 by  
Filed under Gaming

EA has suspended microtransactions in Star Wars Battlefront II following a furor over loot boxes, hours before the game’s launch earlier today.

Loot boxes have been increasingly controversial in recent months but the backlash towards Star Wars Battlefront II has eclipsed the debate.

While other developers and publishers have been embroiled in the controversy, EA has taken the brunt due to the imbalance potentially caused by randomized loot in a competitive multiplayer shooter.

“We hear you loud and clear, so we’re turning off all in-game purchases,” said DICE general manager Oskar Gabrielson in a statement. “We will now spend more time listening, adjusting, balancing, and tuning.”

The option to purchase in-game currency will be taken offline until a later date while the team make changes to the game. Until then, all progress will be earned through gameplay.

“Our goal has always been to create the best possible game for all of you – devoted Star Wars fans and game players alike,” added Gabrielson.

launch, it’s clear that many of you feel there are still challenges in the design. We’ve heard the concerns about potentially giving players unfair advantages. And we’ve heard that this is overshadowing an otherwise great game. This was never our intention. Sorry we didn’t get this right.”

Just yesterday DICE took to Reddit for an Ask Me Anything session which was met with derision from the community due to the the developer’s vague, non-committal answers.

The news comes just days after it was announced that the Belgian and Dutch gambling authorities are investigating whether loot boxes in Battlefront II and Overwatch constitute gambling.

 

Courtesy-GI.biz

 

 

Is The Olympic Committee Beginning To Take eSports Seriously

October 31, 2017 by  
Filed under Gaming

Esports’ battle for mainstream acceptability has yet another endorsement, this time from the International Olympic Committee.

In a statement following a summit of the IOC, it was announced that esports “could be considered a sporting activity.”

According to the IOC, “the players involved prepare and train with an intensity which may be comparable to athletes in traditional sports.”

While acceptance comes with certain caveats – esports must not “infringe on the Olympic values” and there must be “an organization guaranteeing compliance with the rules and regulations of the Olympic Movement” – the announcement is a huge coup for the rapidly expanding industry.

The decision by the IOC is the latest in what is slowly becoming the prevailing consensus. The first major development came in July 2013 when the US State Department recognized professional League of Legends players as athletes, with a number of other nations following their lead including Finland and the Philippines.

Additionally, the 2022 Asian Games in Hangzhou, China will recognise esports as a medal event, and the Paris bid for the 2024 Olympics is considering a program of esports.

From here the IOC will work alongside the Global Association of International Sports Federations “in a dialogue with the gaming industry and players to explore this area further and to come back to the Olympic Movement stakeholders in due course.”

While the IOC has conceded that there is room for esports in the Olympics, there is a notable apathy toward the idea from esports fans.

According to a recent report from Nielsen, only 53% of fans from the four largest markets (UK, France, Germany, and US) consider esports to be an actual sport, and only 28% felt that esports should be included in the Olympics.

Courtesy-GI.biz

Are Loot Boxes Good For Video Games

October 24, 2017 by  
Filed under Gaming

The loot box debate rages on, but very few members of the industry have joined in the discussion.

As games sites become awash with reports and opinion pieces on each blockbuster’s new monetization system, picking apart the model with which publishers are attempting to retain and monetize players through this Q4’s biggest releases, the consensus seems to be that loot boxes are another attempt to nickel and dime the unassuming consumer.

Attempts to sell in-game items through full-price titles such as Middle-Earth: Shadow of War, Star Wars Battlefront 2, Forza Motorsport 7 and Destiny 2 have triggered discussions as to whether AAA gaming has become akin to gambling, and driven thousands of people to sign government petitions as they demand that action be taken.

While ratings boards have agreed the use of loot boxes does not technically class as gambling, it’s easy to understand the upset that surrounds them. Having already paid $60/£60 for a AAA title, consumers are indignant at the idea of having to spend more money in order to fully enjoy their purchase. Implementation varies between each game, with some examples – such as the Star Wars Battlefront 2 beta’s implication that multiplayer progression will be locked behind loot boxes – prompting more ire than others.

Getting an official response as to why these systems are becoming more prevalent is nigh on impossible – GamesIndustry.biz received a polite ‘no comment’ from Activision, Warner Bros, Microsoft, Electronic Arts and several other publishers we asked to weigh in on the subject – but those who do point the finger of blame squarely in one direction: the rising costs of both development and marketing.

This is something we already discussed at length last week, and it seems to ring true for developers across the industry. In the case of Battlefront, this has dramatically increased since EA decided to forego the usual Season Pass model and provide maps and extra content for free, but it still needs to fund development.

But according to one studio director – who wished to remain anonymous – it’s not just that costs are increasing, but that the disparity between how much publishers are charging and what consumers are spending is also growing.

“Development costs of AAA titles are five to ten times the price they were in the ’90s,” the person told us. “As technology moves forward, costs go up and teams get larger. Salaries also go up in that time both for starters and people employed for those periods of time.

“But sales and prices have remained pretty static – especially given the ‘sale culture’ nowadays.”

Ben Cousins, CEO of The Outsiders and a former EA and DICE exec, agrees: “The number of full-priced games console gamers are buying a year is dropping and the cost of developing games is increasing, while the actual audience for console games remains static. They need to find ways for full-priced games to continue to be profitable. Big publishers have been working on plans like this for over a decade.”

In recent weeks, UK sales of Shadow of War, Destiny 2, FIFA 18, Forza 7 and The Evil Within 2 are all trending below their predecessors, and this is likely to be the case in other markets. Digital downloads may be making up for some of that shortfall, but not all of it – and there’s certainly no sign of significant growth in terms of audience’.

Meanwhile the ‘sale culture’ is also likely to be impacting revenues. Last year’s Black Friday promotions saw sales of recent releases soar once available for £30 or less, many of which had been at full price just a few weeks before – and no doubt this will be repeated with this year’s Q4 hits next month.

Jason Kingsley, co-founder and CEO of Rebellion, emphasises that loot boxes don’t even need to convert every player into a payer in order to help offset those costs.

“Some big games are just not selling enough copies to make the development and marketing costs viable,” he says. “Loot boxes mean more revenue from those who are interested.

“For the biggest games that are made by thousands of staff, then yes the simple boxed copy sales may not be enough to make the economics work.”

Larger teams and more advanced technology aren’t the only things driving this increase. Hidden Path’s Jeff Pobst, who previously discussed this subject with us, says the audience has contributed to escalating costs.

“What players may not realize is their expectation that each game in a series gets bigger and better and has more content and looks more modern than before… means it is likely going to cost more to make. The creators are going to want to find a way to cover those new costs as well.”

Then there are the sales expectations of the publishers bringing each game to market. Just yesterday, in the wake of Visceral Games’ closure, former Dead Space level designer Zach Wilson tweeted that the second game in the series cost $60 million to make, and another $60 million to market. The title sold a seemingly respectable 4 million copies, but Wilson reports that “wasn’t enough.”

Again, this emphasizes the damage the aforementioned ‘sales culture’ can have; if all 4 million copies had sold at the full price of $60, EA would have received $240 million. While this may seem to be double the combined marketing and development cost, once you take into account the retailer’s share, distribution and manufacturing costs, plus tax, the publisher’s share actually diminishes (In the comments below, analyst Nicholas Lovell estimates closer to $150m than $240m). The lower the sales price, thanks to promotional discounts and so forth, the lower the publisher’s take.

Still, the dominant element of the loot box debate seems to be the consumer outrage and the notion that greedy publishers are simply trying to extract every last penny from customers already paying for their products. Naturally the most extreme reactions are amplified by social media, but are they in fact the minority? Does the very presence of microtransactions in full-price games really affect that many people, especially when so many publishers stress that they are optional?

“I don’t know the numbers, but my experience tells me this is probably the case,” says Cousins.

He continues: “Until we have hard data that the presence of loot boxes in a given title is negatively affecting sales and profitability, rather than just being a thing people talk about on the internet, we should not worry about messaging issues.”

Kingsley adds: “That’s hard to quantify but it’s clearly an issue as it’s getting coverage. Whether it’s an issue for most or even the majority is not as relevant as it being a big issue for some I suppose.

“The reactions to them seem to be based largely on how they are handled and whether the contents are game changing or just cosmetic.”

Pobst suggests that the source of the anger is not, in fact, the transactions themselves. Instead, it stems from the changing perception of the game: initially purchased as a piece of entertainment, but starkly highlighted as a commercial product by the immersion-breaking call to spend real-world money.

“Personally, I’m not sure that individual game mechanics or features such as loot boxes are themselves the driving issue for players when you see outcry or concern about the fairness of a game, its feature set, or its monetisation,” Pobst explains. “Typically if you go looking, one can find examples of where those same features or mechanics are used in other games and the players there are happy and enjoying themselves. 

“I think the underlying issue is really about the relationship between the product and the players, and how the expectations are set by the people making and marketing the product: the “promise” to the player by the product, as Gearbox President Randy Pitchford likes to say.”

The problem most often comes, Pobst posits, when firms add monetisation mechanics to a title or series where they were previously absent. Certainly this was the case with Bungie’s Destiny 2 – the earliest example in the recent wave of microtransaction controversies – where shaders that were previously reusable became one-time consumables, with the game offering to sell more to players in exchange for real money.

“Sometimes publishers and developers don’t recognize that changing the monetization can be a more significant impact in changing the promise of the game to the player than they may expect,” Pobst continues. “The gameplay and content promises are still there, but the monetization part of the promise has changed in that case. And depending on the game and the monetization changes, players may or may not feel like the promise they are excited about is being maintained.”

Equally, some consumers seem to have an entirely different view on how the relationship between themselves and the publisher or developer works. Fundamentally they seem to forget that while games are indeed provided as both art and entertainment, they are also commercial products and subject to inherent pressures.

“Regardless of development costs, developers and publishers are going to attempt to make money – it’s a business,” says Niles Sankey, developer of first-person psychological thriller Asemblance. Sankey previously spent ten years working at Bungie on both Halo and Destiny, although he stresses that he was not involved in monetization.

“Developers have retirement to save for and families to feed… If people don’t like loot crates and microtransactions, they shouldn’t support the game by purchasing them. And I’d suggest not buying games made by companies that have previously demonstrated insincere business practices.

“I stopped developing investment heavy games and I no longer play them. In my opinion, there are better ways to spend your time and life. There are so many great non-addictive/investment games to play.. and there’s so much more to life than video games.”

This is also a message that sometimes gets lost in the outrage: in most cases, microtransactions in full-price games are entirely optional. Following the initial outburst, Shadow of War design director Bob Roberts told our sister site Eurogamer that the team had developed the entire game without the loot boxes activated in order to ensure balance.

Our anonymous developer has no qualms declaring that he has spent money on such items, adding: “It’s normally to accelerate my progress. I don’t have as much time to play now as I did 20 years ago.”

Emphasising that loot boxes are optional seem to do little to assuage consumer concerns. Common arguments range from accusations that developers have slowed normal in-game progress in order to sell boosters, or that the very presence of microtransactions psychologically draws players into what Cousins refers to as the “compulsion loop”.

There is also an inconsistency to player reactions, albeit driven by the different implementations of monetization. For all the flack Electronic Arts has received over the proposed monetization system shown in the Battlefront 2 beta, it still generates $800 million per year with FIFA’s Ultimate Team mode – a prime example of successfully monetizing a full-price game in the long term.

Similarly, while Shadow of War and Forza 7 have been virtually crucified on Twitter, titles such as Rainbow Six Siege and Overwatch escape unscathed, despite the presence of loot boxes – although Cousins says, “Blizzard get a free pass on pretty much everything, as do Valve. Never try to get learnings from them, as they are outliers.”

The consumer reaction (particularly in the run-up to launch) has the potential to be highly damaging, further preventing publishers from recouping costs and exploring new methods of monetisation. Our anonymous developer pointed to one particular practice that has hindered the debate around loot boxes.

“Review bombing exaggerates issues and causes damage to everyone,” they say. “Which is why most won’t talk about it as they don’t want to be targeted unfairly next.”

And, ultimately, such tactics are a fruitless endeavour. Despite the controversy around recent titles and their microtransactions, publishers will inevitably continue to experiment with new business models. Especially as a recent report proves that games-as-a-service systems have tripled the industry’s value.

Just today, Activision was granted a patent for a matchmaking system designed to encourage more consumer spending; a system the publisher stressed has not been implemented in any game, but is something it may well consider in future. And experimentation is fine – it’s essential the evolution of any industry – but as our own Rob Fahey warns, publishers need to be careful to cross the line, no matter how poorly defined that line may be.

 

Courtesy-GI.biz

Are Rising Game Development Cost Hurting Some Studios

October 18, 2017 by  
Filed under Gaming

Making games is expensive. Let me rephrase that: making games is really, really expensive.

Obviously, that’s no secret, but the numbers involved are even surprising to those of us who follow the industry every day. Last month, Kotaku reported many studios budget around $10,000 per person per month to cover salaries plus overhead. Considering that many of the more polished games on the market can take years to create, budgets can spiral out of control very easily and this has a impact on the entire ecosystem.

Moreover, that $10,000 figure is actually lower than many studios spend, industry veterans Brian Fargo (inXile Entertainment) and Jeff Pobst (Hidden Path Entertainment) tell me.

“I used $10,000 per man-month [for budgets] when I was a producer for Sierra online in 2000,” Pobst notes.

Fargo concurs: “I would say [$10,000 is] on the low side. I think Tim Schafer pointed out a couple of years ago that this is why these things cost so much to make. There’s a big difference between small developers cutting their teeth that have no overhead versus a team of people who’ve been in the business for two decades. They have families and expect medical insurance, and so it’s not going to be something that costs less than $10,000 on average for my people.

“That’s on the low end by maybe 20% or 30%. I don’t think we’re seeing double that, but certainly it’s the trajectory we’re all going towards. I think that’s a fair number. It’s always been a funny disparity. We talk about making a game with a budget of, say, $10 million and the smaller developers tend to look at it and go, ‘How do they waste so much money?’ And then the triple-A guys say, ‘How do they do it for so cheap?’

“That seems to be the perpetual argument on these budgets when you want to do something that is ambitious, and that’s ultimately what we get rewarded for. Any title that comes out that is ambitious in some way is more likely to be rewarded than one that isn’t.”

Ambition is a wonderful thing, and most developers have ambitious visions for their games, but then they meet the reality of what ambition costs. The double-A space is now having to invest more than is reasonable for small or mid-sized studios.

“The industry continues to get more binary between the haves and have nots,” Fargo continues. “When I see something like salaries going to as high as $20,000 per man-month in San Francisco, that really only affects the smaller to mid-size companies. The big companies – take Blizzard, for example – they can drop $70 million on a project, kill it and then start all over again. Rockstar can spend five years on a game.

“The extra salaries really don’t affect them, in my opinion, as much as it does the smaller to the mid-size companies. So yeah, it definitely puts pressure on us.

“Also, what I’m seeing recently is that there was the single-A and double-A indie space that was sort of ripe for opportunity for a while – us included, and we’ve been doing well – but that’s getting more competitive. And the budgets of the double-A products are starting to approach triple-A budgets of 10 years ago.”

Citing Ninja Theory’s Hellblade and Larian’s Divinity: Original Sin 2 as recent examples, Fargo laments that expectations for games coming out of the double-A space are rising too rapidly.

“All of a sudden double-A developers are spending in excess of $10 million,” he says. “And it’s only a matter of time before this rises to $20 million. In fact, I wouldn’t be surprised if there were some at those values already. So now what you’ve got is the triple-A people who are unaffected by the salaries and they’re going to be spending hundreds of millions of dollars between production and marketing, and then you’ve got the double-A companies now starting to spend significant money. What that’s going to do is to create an expectation from a user’s perspective of what the visuals should look like.

“It creates a harder dynamic for even the smaller companies, because some product is at $39 or $44.95 that doesn’t have a multi-million dollar marketing budget. It’s still going to have production values that are incredible, and so what will people expect out of a smaller developer? That’s the cascading effect of all these different things, and of course you layer on top of that the discoverability issue we’ve all got with an un-curated platform and it makes it very tricky.”

While the major publishers like Activision or EA still manage to reap massive profits, other studios are certainly not getting wealthy by making games. California, where so much of the industry is based, makes the cost equation even more difficult.

“Consumers don’t fully understand how truly expensive it is to put out a AAA game now,” says Turtle Rock GM Steve Goldstein. “If you start looking at what it costs for someone to be employed in southern California, working in the knowledge industry, it’s a lot. And the most frustrating thing actually, and it’s something I complain about at the studio all the time, is that we got people here that are working their butts off, who do well, but still can’t afford to buy a house in southern California. It’s ridiculous. The cost of doing business in tech is so high, especially in California, [that] unless you are the biggest of the biggest, there’s a real risk of being able to continue in this medium.

“For us to make a new IP that’s AAA and that’s a boxed product just doesn’t make sense. Because the publisher’s going to have to spend $50 to $100 million, which, as your math just points out, isn’t making anybody rich over in development. They’re going to make that investment… They’ll release [that IP] during the holiday season so they can get that additional sales push, but it’s going to be coming out amidst a ton of other titles and established franchises, so you have to try to get above the noise level just to get the IP known – it just doesn’t pencil out.”

When you combine the continued escalation of costs with the challenge of getting above the noise upon release, it can feel like a Sisyphean task for a small or mid-sized games studio.

Fargo offers, “It feels like the budgets for the double-A products have doubled to tripled just in the last five years. Back in 2012 when Broken Age and Pillars [of Eternity] came out, I know what our budgets were then [for Wasteland 2] and I know what the budgets are going to now. I have a sense of what Larian and Obsidian are spending, and I know these numbers have gone up significantly.

“Curation has always been a hot topic. One might argue there’s a greater risk of a game being lost in a sea of products, than that of a great game not making it through the quality bar to be in the store. The stats of more and more and more games hitting Steam have not been favorable for any of us… You’ve got kind of a one, two, three-punch against the smaller publishers/developers.”

The shift to digital storefronts and the rise in the sheer number of titles flooding those digital shelves is not ideal, Pobst agrees, and it’s making life hard for the really small indies out there.

“For a period of time… we could sell games that were not $60 top price games, and we could make good money… and we could get the opportunity to make more games,” he says. “That opportunity is being challenged because there is such a large number of games at low prices in the marketplace. That takes the market, which gives lots of people choice and is really good for gamers in the one sense, and it splits the amount of money against a large number of people.

“I know a large number of individual indies who are closing up shop because they aren’t now even making enough money to pay for their own well-being. And that used to be a pretty sure thing. If you had a three-person shop or a four-person shop, you could sell enough to actually make a living. Now that’s becoming challenging with so many games available for purchase.”

One way to alleviate the sting of rising costs has been to use crowdfunding sites like Kickstarter, and while that has been a boon for the mid-size studios like Double Fine or inXile, in some ways the crowdfunding phenomenon has been a double-edged sword when it comes to setting expectations on budgets, says Pobst.

“If there’s a financial pressure, it’s really hard for people to get together and actually make great entertainment. So this is hard; this is really hard. And the only reason I think that there is a surprise is in part because of the Kickstarter phenomenon, where people were looking to raise the last $500,000 of a $2 million game, and people thought the game was made for $500,000… Games are really expensive to make, especially the kind that the consumer really desires.

“What we saw with the crowdfunding experience, that we went through ourselves as well as many others, is that the average experience where you get a certain amount of money or you just make your minimum, becomes an expectation of what it takes to actually create product, and that’s pretty much not true. You’re typically investing some of your own money or another investor’s money into the product and, often, people are using crowdfunding to complement that so that they can have enough to make the whole thing.”

The $10,000 man-month figure, while scary, is not necessarily universally applicable. Location of your studio and cost of living certainly is a factor in how much employees get paid, and smaller indies aren’t going to have the same overhead as double-A teams filled with veterans. Beyond that, there are different approaches to what kind of team to build.

Pobst explains: “If you visit a development studio there are going to be several different models. The model we [use] at Hidden Path, and I’ve heard places like Crystal Dynamics, is to try and favor a smaller staff with more highly compensated people… The philosophy is that, if you have people who know each other really well and work together really well, their output is going to exceed what the other model [yields].

“The other model is a few highly experienced people that you compensate very highly because they’re your leadership, and then [you hire] a larger number of younger and more inexpensive people. You tend to have more of those people to do the same amount of work, and there’s a lot more management overhead. That can work, and there are many companies that use that model. In fact, if you start looking at successful titles, you’re going to find examples of both. There is no one right model.”

While the cost per head may not compare perfectly on a project-to-project or company-to-company basis, the budgets for games continue to go up no matter what. What can the mid-size studios do to compensate for this worrying fact?

“It depends on the genre you’re in, but the scope and scale of the thing is what you really need to keep an eye on,” Fargo advises. “The visual and audio expectations are rising as the budgets for the double-A games has risen… I would tell developers to keep a really close eye on the scope of the product; better to have something that’s very small and tight and polished than something that’s overly large… and hits a lot of different things but don’t quite visually hold up to the others.”

The other issue to contend with is how games are transforming to games-as-a-service, which could be a positive in terms of generating more revenue or a negative because of the need to support staff year-round.

“As I look out towards the future, we are most definitely looking to incorporate aspects of that business model,” Fargo notes. “The plus sides of it, of course, is that there’s no piracy, and you’re able to do better business in some territories where piracy is extremely high. But also it allows you to build a community and have a live-ops team and do [fewer] products, but keep people on it everyday and make it better – doing tournaments and all of those things… It’s a very compelling thing to have [but] it does put pressure on a single-player experience game.”

Turtle Rock’s Goldstein sees the games-as-a-service model going one step further, effectively becoming Netflix-like subscriptions to access content; something big publishers like Ubisoft and EA have predicted is on the horizon. Subscription revenue could be a way to help mitigate rising costs.

“I can absolutely see something like that happening down the line,” he says. “Netflix is now playing with budgets that are approaching blockbuster films, so I could see those numbers working for each of the publishers, where they have their users paying a subscription and they release a certain number of really high-end titles as well as a bunch of indie titles… I could see that in five years.”

Rising costs have been putting the squeeze on mid-sized studios, but that’s not to say triple-A developers and publishers are immune. As Pobst points out, “There used to be a lot more publishers than there are now.” As the saying goes, the bigger they are, the harder they fall, and smaller companies have a chance to succeed by being more nimble.

“Adapting is part of the game industry,” Pobst continues. “You try and find the areas to adapt to that match your skill set. If you’re a great narrative designer and your team makes great narrative games, you probably don’t go into mobile and focus on free-to-play monetization. It’s not really playing to your strengths.”

Being nimble allows a studio to try new things. VR is the perfect example of that. Both Hidden Path and Turtle Rock are taking a chance on the emerging medium in the hope that it does become a growth market, and their respective experience should set them up well for the future if VR truly goes mainstream.

And if a studio manages to create a hit, suddenly you have a built-in audience that’s more likely to purchase your next title, based on studio reputation alone.

“You’ve got to give Bungie credit for creating Halo after several other games before that, and then creating Destiny after Halo – that’s a big challenge to do,” Pobst says. “And then the folks as Blizzard, they’ve created multiple different hits, which is fairly rare in our industry. If you can build trust with an audience and they can really buy into the anticipation of whatever you’re going to do, your ability to spend more to get it right is there.

“Once you do cross over that threshold, Bungie or Blizzard, their budgets are going to be much, much larger than anything you or I have talked about. Their per head rate or the amount of money they’ll put into a game is much, much higher for two reasons: one, they know that if they deliver something quality, people will buy it because of the reputation they have. And two, by spending more money, they are putting a greater distance between them and the next competitor. And that greater distance will pay off in the long run.”

If a studio does manage to cross that threshold, a huge advantage is unlocked. Suddenly, you’re not worried as much about the money to achieve your creative vision, Pobst says.

“If I’m really focused on the dollars…then I’m not actually focused on the best entertainment I can possibly create. If you know that the audience is going to come in a disproportionate way to what you spend, spending stops becoming the problem. A lot of these [bigger] studios are really focused on: ‘How do I execute the best? How do I have my team work well? How do I know exactly which features to invest in and which features not to invest in?’ You get to a whole set of problems that are far beyond the money problems.”

Some have made comparisons to Hollywood and the drastic divide between indie film labels and behemoth studios like Universal, but for all the talk of haves and have nots, Fargo concedes that game creators have a chance at success for lower investments – for now, at least.

“You look at PUBG, that would be considered a smaller Hollywood film and it sells 15 million copies, but that’s more profitable than most of the Hollywood blockbusters,” he says. “I don’t know that there’s a parallel in the film business where people on a semi-regular basis are spending under $10 million on a movie yet it’s producing blockbuster Hollywood profits. The games business does continue to do that – Rocket League, for example.

“There’s enough cases where these smaller titles have just nailed it, but the effect of that is their next ones are going to see a huge difference in budget.”

Courtesy-GI.biz

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