Analyst Opinion - Making games differently – from production, to financing and distribution: Many have noted that the gaming industry seems to be recession-proof. Monthly sales figures continue to show growth in the market. Even though NPD’s figures for March are off 17% from the same period last year, NPD themselves noted that Easter generally provides a spike in sales, which fell in April this year and March last year. If you look at overall Q1 08 figures, there was 0% change from Q1 09, while software was down just slightly at 2% for the quarter, hardware and accessories were up 1% and 3% respectively.
So even though the industry seems to be maintaining its position at retail, established publishers and studios are crumbling under the weight of swollen overhead and development costs. Development costs for current generation consoles have ballooned to $15-$25 million for two platform SKUs and $25-$30 million for all SKUs. That is twice as much as the last generation of consoles, with much of the cost increases attributable to the graphics complexity of consoles themselves.
When companies are faced with mounting market pressure the short-term strategy is to announce layoffs, which is precisely what many game companies have done. EA estimates they will save $120 million with their layoffs. From July 2008 until now there have been over 60 companies that have publicly announced layoffs, with the majority of these layoffs coming just in the past four months.
I have tallied up these figures and a staggering 8450 game industry professionals have been laid off since July. Of these, roughly 6300 or 75% are from North America, with the remainder coming from the UK and Asia. Game Developer Research’s latest Game Developer Census 2008 Report published November 2008 estimated the North American gaming workforce to be 53,900. That puts the current game industry layoffs in the North American market at 12% of the total workforce.
On top of the layoffs, at least 13 studios including Microsoft’s ACES Studio and Ensemble Studio have announced they were closing. A handful of others are on life support, operating with a skeletal workforce and actively looking for buyers. Yesterday’s news that 3D Realms closed its doors make it just another casuality.
There is a silver lining here. These layoffs have provided a shift in the industry. Most notably it has motivated change. People are looking “outside the box”, contemplating new business models, production models, and distribution models.
The Talent
The real story here is there are 6300 industry professionals in North America alone looking for something new. Many people are looking at the current market dynamics and starting their own small development studios. With this desire to branch out on their own, they are part of what I am calling the Gaming Renaissance Movement.
What these new studios lack in financing and slick marketing, they are making up for in creativity, vision and sheer grit. Many of these startups are self-funded by groups combining their severance packages. However they get going, these talented individuals are making up a next wave of independent studios and are the future of renaissance gaming.
The talent is there. Companies like Oceanhouse Media, already a successful new iPhone game studio was started by Michel Kripalani, previously of Autodesk and Presto Studios. Earlier in 2008, the creative directors from Naughty Dog started Big Red Button Entertainment to make console games.
There is also Appy Entertainment, started by a group of executives from High Moon Studios who are building games and software toys for the iPhone and iPod Touch. Appy’s CEO Chris Ulm says, “Despite the economic meltdown, this is an incredibly exciting time to be creating new projects. It’s the Wild West right now – no one can say with certainty exactly what will catch on with this rapidly growing market. Apple’s App Store is a total game changer that demands fast development times, frequent updates and extremely focused experiences that tie into an understandable brand identity.”
“We’ve really had to radically rethink every aspect of development,” Ulm continues. “We can’t afford to be just game developers – as a micro-publisher, we have to be constantly thinking about marketing, sales, public relations and - God help us - even merchandising! The best and worst thing about this new model is the freedom to do projects that would never be considered in larger organizations. The flip side is the marketplace is highly volatile and extremely crowded (there are now over 40,000 apps on Apples App store). But the installed base is growing very fast: well over 30 million today and almost certainly double that by the end of 2009, so if you can stand the chaos, it’s a once-in-a-lifetime opportunity.”
Obviously these new companies have some hurdles. Mostly they are entering the market at a financially volatile time. Some would say it is during these downturns when new opportunities emerge. There are certainly several components that are playing a deeper role.
Read on the next page: Tools and Funding