Meh, a well telegraphed announcement. Merely another timeline-event in a technical industry known for evolution, at a time of major trend changes, compounded by fatal business decisions. Taking the bad decisions out of the equation, the industry is grappling with the migration of sales from retail to digital, the explosion of mobile gaming, a difficult consumer environment, increasing AAA development costs, and studios with access to crowd funding able to ween themselves off their publisher dependencies.
In the UK GAME acquired GameStation, giving them in a number of cases two retail stores in small towns often within a few steps of each other. Taking out a competitor to acquire market share is not normally a bad thing if a fair price is paid, but keeping both brands running was a poor decision. GAME went into administration and was bought privately earlier this year. They continue to face competition on the high street from the supermarkets and HMV, which itself is under attack from the migration to digital impacting it’s CD, DVD and games retail sales. Gamestop ( US ) was interested in GAME’s European operations but pulled back, which sounds like a good decision. While retail stores still have a market ( kids without credit cards, parents looking for gifts, and second-hand ), that’s been shrinking for years and it’s not a recoverable position. Smaller bricks-and-mortar operations with lower valuations are the new norm for games retailers.
The explosion of mobile gaming has presented a number of challenges for publishers. Firstly, it may have caused a downward revision in consumer pricing expectations. Instead of paying $70 for a game, it became possible to pick up reasonable gaming experiences for as little as $0.99 that you could play on the journey to work. With such a low price point being established, the freemium/IAP model was a somewhat predictable response as a means to extract greater revenue per customer while achieving maximum exposure. This presents two key challenges; firstly cash-strapped consumers will increasingly question the value of a $70 game. Secondly, publishers face a sea of low cost base competition in mobile in the form of indies. Publishers can compete either by acquiring smaller studios, or by developing mobile titles in-house with higher than usual quality and depth of content. However, that costs money, and you can already see them trying to drag the unit prices up. To grab a share of the new revenue streams, EA and Gameloft have established successful in-house mobile teams, but what of the other publishers such as THQ who have been slower to respond? I haven’t covered social gaming here because I see that as a short-term trend that will diminish to be much less significant.
Rising AAA development costs have lead to publishers adopting the Hollywood film studio mentality. Fewer, more grand high-reward launches based on lower-risk established IP. Unfortunately that reduces innovation and consumer choice ( step in indies stage left ). I’m sure if we looked at Hollywood’s development, numerous big studios have gone under after a string of weak releases. The fact remains that more people watch movies every year, and more people play games every year, supporting increasing budgets. We’re also witnessing increasingly efficient production workflows streamlined to a build-once deploy-to-many approach that grants access to more revenue streams without adding considerably to costs. And then of course there are lower cost centres around the world, China being a popular destination for mobile development ( Shanghai and Chengdu are notable locations ). So I think development costs aren’t really a challenge, and actually serve to protect publisher revenues in the form of a barrier to entry.
For indies, the removal of barriers to competition, direct-to-consumer access ( digital distributions such as Steam and Apple AppStore ), and crowd funding ( Kickstarter, IndieGoGo ) presents a golden opportunity. However, it’s a rapidly narrowing window of opportunity. Quality expectations are on the rise, and once again the majority of revenues are starting to concentrate in the hands of a few larger operators. You can already see this trend by analyzing AppStore revenues. Indies, just like publishers, need to respond to the challenge of rapidly changing trends. We either get our heads down, work hard and establish ourselves now, or we miss out. We learned one thing from our Stream Greenlight campaign: gamers remain fickle and expect high quality irrespective of the price point. Short-term they may lower those expectations when there’s something new to try ( e.g. the early years of mobile gaming ), but over time those expectations revert back.
A chapter 11 filing doesn’t mean a publisher going under ( look at GM ), nor does it mean a pot of gold is magically about to fall into the laps of every indie developer.
