Videogames are Doomed

Within ten years, the videogames industry as you know it will be dead, and in its place will be something you hate.

In some respects, the developments in the videogames industry over the last few years have been positive. Download services for games consoles have created an unprecedentedly wide channel for the distribution of content, the iPhone has brought a gold rush for innovative game apps, social games have shown investors that digital entertainment can be profitable after all, and the power consoles have offered the most spectacular virtual worlds in the history of the planet. Yet despite all of these occurrences, the videogames industry as you and I know it is already in a death spiral that will bring it ultimately to its knees, and whatever survives it will not be videogames as we know it.

The beginning of the end happened, as it so often does, around the business tables of corporate suits. In this case, it was the media corporations who rang the panic bell. Previously excited about videogames as a potentially profitable medium, the big players in conventional entertainment like Disney and Viacom quickly realised that none of their experience in those traditional media channels was going to convert to success in games – and with the cost of console development skyrocketing and the number of successful titles plummeting, the smart money had to do what it always does: leave the risks to other companies who have no choice but to continue ploughing their traditional furrows.

But the exodus of conventional media corporations wasn’t a success story for the console game publishers, but rather a warning flag that the end of the gaming world was nigh. EA, once the unassailable king of videogames, has now been reduced to billion dollar gamble investments like their purchase of PopCap in a desperate attempt to cling onto their once impregnable fortress of revenue. Activision-Blizzard now laugh from their billion dollar cloisters about their rise to the top of the heap, unaware that both the franchises that secured their success – World of Warcraft and Modern Warfare – are standing on treacherous ground.

EA have had a bold attempt to take on Modern Warfare with Battlefield 3 but their competing title is slightly misjudged: too much of a gamer-pleasing title that doesn’t have enough of that mass market appeal that helped Call of Duty become the only franchise to seriously compete with Nintendo’s high watermark sales figures. But make no mistake, all Activision’s eggs are in two baskets. At any point, a freemium or other alternative payment model MMO could sneak in through the back door and steal away World of Warcraft’s loyal fanbase (more likely, a combination of MMO services would whittle them away). Similarly, while Modern Warfare is marketed as a boxed product, it is really a subscription package in disguise, and is just as vulnerable to service competition as WoW.

What about those social game services – surely a company like Zynga is safe? Well their billion dollar warchest will certainly help them cling onto the top of the hill for quite a while, but sooner or later fragmentation in the social games space will set in. Unlike World of Warcraft, which actually does offer some (virtual)-face-to-(virtual)-face sociality, there’s nothing in FarmVille or games of this ilk to make the communities stay where they are. With revenues in the social game spaces going through the roof, competition will explode over the next few years. It’s Nintendo’s worst nightmare – heavily funded imbeciles taking their successful designs and offering them for free (with just a little microtransaction gravy to make it worthwhile). No wonder they’re quaking in their Kyoto-based boots about the undermining of value that social games represent in the mass market for games.

Gamers are probably quite delighted at the idea that social games giants might run aground on competitive reefs, but it is they who have the most to lose at the moment. Those wonderfully detailed and absurdly expensive virtual worlds they are so in love with, whether it be Grand Theft Auto V, Batman: Arkham City or Elder Scrolls: Skyrim, are balanced on a knife edge of profitability. Tiny margins separate a successful title from disastrous losses. While the home consoles are selling to a broad mass market audience, the numbers are there – just – for titles like this to get into profit. But the ridiculous development costs now required, and the severe limits on the size of the market, create a bubble economy that must inevitably burst at some point.

The cloud, too, comes in as a threat: although cloud gaming will only work in metropolitan areas with decent internet connectivity, cloud gaming is a direct challenge to the concept of console ownership. Are mid-income families going to spring for big ticket electronics if they can satisfy their kids with identical content offered through the cloud? Without this market, Sony and Microsoft are vulnerable in the console space, and without Sony and Microsoft – and just as importantly, the retail channels they rely upon to create the marketing fever that turns a popular game into a hit – the mega-budget console game ceases to make any sense.

A collapse of the mega-developer space can only be headed off by an ingenious restructure of the publishing world. It’s not impossible, but neither is it very likely. It’s more probable that the old portfolio paradigm will persist – and with fewer titles responsible for more and more revenue, and (perhaps more dangerously) ever more revenue migrating to service models, the publishers risk losing their grip over production. We’ve already seen this happen: let’s not forget that Blizzard was a developer that merged with a publisher as a marriage of convenience.

Here, then, is the writing on the wall: if you are currently enjoying the high quality, high budget console titles delivered to Sony and Microsoft’s consoles, your problem is that fewer and fewer developers can afford to operate in this space, and fewer and fewer franchises are able to compete in this marketplace. Once the number of viable titles falls below a certain threshold, retail collapses, and with it the boxed product model that these platforms depend upon. Microsoft and Sony may be able to offer a future console that avoids this catastrophe by gearing hardware around cloud gaming or games-as-service – but either way, the incredibly high production value boxed product you have come to love is an endangered species, very much at risk of disappearing within the next two cycles of consoles. It’s not impossible, as Dave Perry has predicted, that the next generation of power consoles will be the last of their kind.

Meanwhile, in a nearby marketplace, Nintendo’s casual-friendly software faces incredible competition by the social games space – their boxed products face exactly the same problems as their competitors, and mass market content goes up against the profusion of internet-capable handheld or tablet devices capable of offering similar games on a free-to-play model. Nintendo will probably still be the best at what they do, but whether this is enough to make console manufacturing a viable business proposition for them remains to be seen. It’s quite possible their specialist hardware will be edged out by generalist computers able to offer everything Nintendo can along with standard PC fare. With social games copying their best ideas and offering them essentially for free, Nintendo’s margins will crash, and something will ultimately have to give.

Can this apocalyptic doomsday scenario be averted? Perhaps the better question is: who has anything to gain by avoiding this calamity, and do they have the influence necessary to prevent it? The dedicated gamer hobbyist, currently enjoying the outputs of drastically inflated development budgets, have the most to lose. It’s not that games of this standard won’t continue to be produced – it is rather that they must inevitably move to a service model the gamers don’t want to accept. As it happens, they are already paying on a service model of some kind – whether $10 a month for World of Warcraft or $5 a month for Modern Warfare, Assassin’s Creed or the like (admittedly paid $60 at a time) – so for those who enjoy the most obvious game content the future might look only a little different. However, anyone interested in innovation or creativity in big budget games might as well abandon hope now (if they haven’t already).

Conventional game publishers also have a great deal to lose – but most will either follow Activision-Blizzard into the games-as-service space, or burn up on re-entry during the attempt. Unlike the gamers, they don’t really care about the games anyway – only about making money off the sale of game content, and this process will continue indefinitely in one form or another. Some, like EA, might manage to straddle two marketplaces by keeping a foot in big budget games while striving to profit from the social games space via parallel divisions. It’s not impossible, however, that even a giant like EA will be brought down by specialist competitors running rings around their generalist strategy.

Within ten years, the videogames industry as you know it will be dead, and in its place will be something you hate. But it won’t matter that you loathe the new way games are offered to you, because in ten years time the producers of content will view you as nothing more than a secondary market, someone they’d like to pull into their fiscal nets but only if they can catch those younger, more easily influenced players as well. Ever wondered why they “don’t make ‘em like they used to?” – both in games, and in films, books, TV shows, music and anything else you’d care to mention? It’s because you’re getting older, and the corporate money that funds almost everything you adore is forever in love with younger audiences, those that are more susceptible to marketing, and less prudent with their money.

Perhaps it’s not videogames that are doomed, but just videogames as you have learned to love them. Prepare to meet the inherent obsolescence of the contemporary market economy head on in a game of chicken that you can only lose.

Comments

[translucy]

Chris: thank you for sharing these somewhat bold assertions here in public - makes me wonder how your immediate peers / business partners react to these claims?

Anyway, as we seem to live now officially in uncertain times (one German philosopher once made infamous use of the word "Ausnahmezustand" to describe similar developments) I'd just like to add that in my shelf of philosophy texts there still is some room left between Arendt and Burke - two commentators of human calamities in there time. So all the best to you!

[Chris]

translucy: There's a certain amount of irony behind what I wrote here. :) But I do believe we're going through a major change to the way the entertainment software industry functions - this was just a (hopefully) entertaining way of presenting that sea change. 'Apocalypse' is more fun than 'refurbishment', right? ;)

"I'd just like to add that in my shelf of philosophy texts there still is some room left between Arendt and Burke - two commentators of human calamities in there time. So all the best to you!"

*smiles* Thanks, I appreciate it!

[Rcpaskus]

It's comforting, in a miserable way, to finally read an opinion by someone with some perspective.