Thursday, May 03, 2012

I’m becoming somewhat pessimistic about the game industry. [Warning: these thoughts are a bit fuzzy.] Here’s what is going through my mind:

  • The demand for games has gone up dramatically in the past few years. Wii, Steam, XBLA, mobile, browser, tablet, and social games have brought in lots of new players.
  • High profile successes like Farmville, Angry Birds, and Minecraft have made more people interesting in making games.
  • New platforms and the rise of indie gaming has brought in lots of new game developers.
  • Making and distributing games is easier than ever, especially on some of the new platforms. The barriers to entry have come down.
  • Venture capital, angel investors, and Kickstarter are enabling more game developers to build games.

The demand won’t continue rising as fast as it has been, but supply, lagging behind, will continue to rise for a few years. We’ll end up with too much supply.

What happens when we have rapidly rising demand, but the supply hasn’t caught up? Profits rise and economic surplus goes to the producers (developers and publishers). That brings in more developers. What happens when demand levels off, and developers are pumping out lots of new games? Profits fall and surplus goes to the consumers.

Making things worse, in some markets there’s a “winner take all” effect. There are just too many games to evaluate them all, so I’m going to turn to recommendations. If you play Draw Something instead of Storylines, then I’m more likely to play Draw Something instead of Storylines. If you play Castleville instead of Idle Worship, then I’m more likely to play Castleville instead of Idle Worship. If you play Terraria instead of Junk Jack, then I’m more likely to play Terraria instead of Junk Jack. The games that are played most get written about the most, get on the top of the app store lists, and get recommended more by friends. Those games will get played even more. It’s a “rich get richer” feedback loop.

In a winner take all market, there will continue to be big hits — the Farmvilles, the Minecrafts, the Skyrims, the Angry Birdses. Everyone will see the hits and think they’re going to make it big too. The problem with seeing only the hits is that it skews expectations. If all you see is the head of the distribution, you can’t tell how long the tail is. How many kids expect to make it into the sports big leagues, and how many make it? How many people expect to make it big in Hollywood, and how many actually do? How many people expect to win the lottery, and how many do? How many garage bands make it big? You tend to hear about the successes more than the failures. This will draw even more people into game development.

There will be more games than anyone can keep track of. If your game isn’t succeeding, you need more marketing, more press, more paid introductions, lower prices, and more gameplay for free. You need your game to succeed over all the others, so you need to pour more money into it. This money will be raised both investors, from Kickstarter-like systems, and internally by publishers with deep pockets.

I worry that it’s not sustainable. The other guy invests more in marketing, and then you have to invest more in marketing. You end up running in place, with ever-increasing costs. Eventually the people putting money into projects will see that most of them aren’t paying off. That money will dry up. And a lot of game companies will collapse.

On the flip side, it’s going to be great for consumers. Players will get more entertainment for less money. Why play game X for $5 when I can play a similar game Y for free? There’s always another game around the corner. If you want more polished games you can find them. If you want more innovation you can find that too.

I’m looking forward to seeing a million games out there. I just worry a bit about the people making them. Three times as much revenue divided among (guessing) ten times as many developers? Some will do well; most probably won’t. Am I too pessimistic?

[2014-05-12] See this comment from Dan Cook and this article from Jeff Vogel.

[2016-11-17] See this blog post from Dan Cook

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14 comments:

Isaac wrote at May 03, 2012 8:50 PM

What makes you think that we aren't already there? That is, is there any evidence that we aren't already past the sustainability/saturation point? Are developers, on the whole, sustainable at the current ratio of supply and demand?

Justin Aquino wrote at May 03, 2012 10:33 PM

Its ok IMO, oversupply hopefully leads to pressures opening new markets. There are some cultural barriers worth overcoming and maybe it would be a worthwhile try.

Market Correction and gamblers fallacy: after the bad news, only good can come is not a very bad way to frame a situation.

Ideally the market/the industry learned its lessons and are more sustainable and predictable.

Yehppael wrote at May 04, 2012 1:17 AM

Nope, not pessimistic at all. You hit the nail on the head.
There are a lot of games today trying to be successful.
All the games in the top, are there because of something innovative they discovered and exploited. The rest of the market is split between making a successful game or a good one. As a developer, while it's ok to make a crappy game that sells, it's not ok to make a good game that can't sell.
As a gamer, I can say this, there are a lot of good games out there, but honestly, I'm having a lot of trouble finding them.
And a word for anyone who googles this, Stop trying to make X-Com sequels, it's been almost twenty years and they all suck. Badly.

Lessie wrote at May 04, 2012 8:51 AM

(Just pasted here the response I wronte on my personal blog. By all means, don't take this as me trying to get more pageviews)

Yes, too pessimistic indeed. Also, while your market model would work on other products (more specifically, phisical, consumable products, which have a “stock” of identic instances of the same idea, that is depleted by demand and must be refilled), it does not apply to games. Why, you ask? Simply because games are not a consumable, but rather an intellectual, nonconsummable product (if I play a game, am I preventing someone else from playing it? NO), and, in my humble opinion, even classifies as an art form.

People say games are part of our culture now, but actually, they are the culture ITSELF. They bring forth powerful emotions in people, inspire them to do different things and may even approach subjects that may prove themselves too difficult/controversial to talk about in other mediums.

Additionally, you talk about demand, supply, surplus. That’s all and well, but then I ask of you: has there ever been an excess of supply of art? Of culture?

The answer is “no”. No, there has never been an excess of supply of artistic depictions of our world and anything that is beyond it, and there will never be, as long as humankind is still humankind. That happens because people always crave for more culture, even when they have already seen so much of it. People tell stories, retell them, repaint paintings over and over in their heads and then run off to find something else to look at, only com come back shortly after with a new idea, something formed from every single sensory input they have ever received. That is how creativity works, and people will keep looking for sources of creativity. Not only artists, but everyone, because it enriches them, and they know it. People’s thirst for culture and knowledge is infinite, and that creates a neverending demand for new art to portray it in different contexts and points of view.

At the same time, there is the “winner takes all” issue. Yes, it would be nice if every single game developer could take a fair share of the success pie and be able to work on producing games with heart, and not just to try and make a living. Yes, that is unfair. But, at the same time, we see that recently we are slowly, but surely, moving towards that big, great utopic dreamworld. Before the popularization of the file-sharing culture and the technological boom that made it possible to download even the most massive of games in only a few hours (for those blessed with a truly high-speed internet connection. Totally not my case).

Sure, you still have the Minecrafts and the Skyrims, but, at the same time, you DO have the Minecrafts. There you have, a game truly born out of independent development, made into one of the greatest hits the game industry has seen in recent years. No big companies backing it up, no paying for advertising, no expert administrative conselling, nothing. Its reputation only fueled by the game quality, and, most important, the very same thing you portrayed as an issue: the “friend factor”.

Minecraft it big because everyone talks about it. Everyone talks about it because everyone’s friends talk about it. Everyone’s friends talk about it not because Notch poured thousands or millions of dollars in traditional advertising, but because SOMEONE thought the game looked like a good idea, and decided to talk about it with other people. Slowly, but surely, it gained momentum as it became the subject of many people’s conversations.

Sure, there are a lot of details to work out, but I think the main point is that if anything, we should be optimistic about the future of gaming. As far as I can tell, things ought to get even better in the coming years.

Scott wrote at May 04, 2012 11:00 AM

You know whats starting to really suck as a consumer(gamer) with all this high demand and all these selections to choose from, I think the quality of games get lower and target the casual gamer meaning less complex and in depth gaming. Right now I think 90% of the games suck. I still play Roller Coaster Tycoon 2 because I cant find anything better for that genre. Fun stuff.

As a programmer, it is good because of all the API's coming out, cross-platform is getting better and developing between different mobile operating systems is getting easier.

As a game seller it sucks because of marketing and getting noticed. But minecraft somehow took off like fire and I think the game sucks, addicting but stucks.

Amit wrote at May 04, 2012 11:32 AM

Thanks everyone!

Isaac: true, I don't know if we're already there. I suspect we're there for games currently in development and you're right, maybe we're already there for released games.

Justin: good point — as the “long tail” gets explored that will open up new types of games that previously could never have been explored. Even if we have new markets though, aren't they “substitute goods” (in economic terms)? The more I play browser games, the less time I have to play console games, etc.

Yehppael: yes, finding games will get harder as the number of games go up. Good game with marketing & promotion could win over great games that nobody knows about. On the other hand, with people blogging, tweeting, facebooking, etc., it's easier to build communities around niche games that would've not had a chance in the retail world.

Lessie: true, most games are not “rivalous goods” (from economics), but the player's time and attention is. There's a lot more music and videos out there than ever before, but I don't have time to experience most of it. I agree with you that culturally, people won't stop wanting entertainment; I just worry that with so much availability, the prices will go down to the point where many game developers won't be able to make a living doing it, at least until the market stabilizes.

Scott: Ha, yes, I love Roller Coaster Tycoon 2. I play lots of Transport Tycoon. It's true that a lot of these new games target the casual gamer, but I would also expect that niche games can do well too, because the audience is there.

Chad wrote at May 05, 2012 1:06 AM

We are far and beyond past this point. If anything, things are getting BETTER. Here is my reasoning.

Only 4% of games are profitable. 96% of games are market failures. Let that sink in a little. For every call of duty, there are 24 complete failures. Also, these number are only for games that have a signed publishing deal. If you include indie games, that number will get MUCH worse.

However, the industry still carries on. As long as that 1 call of duty game can carry the costs of 15-30 failed titles we will be ok. Think of the failed titles like you would and Research and Development decision. Each failed title provides the entire industry with design lessons in what does and doesn't work. Plus, while those 24 failed games don't make it huge, people made a salary making them.

JB wrote at May 08, 2012 10:37 PM

Hello

I have played ganes since the end if the 80' and I have always wanted to do my own games. In fact I learned basic without owning a pc but made games with a friend Spectrum...

Game companies have always been there. some succeded while others got forgotten I mean there has always been a."fight for survival" it's not something new at all.

Probably market is saturated with game titles, thats true but. How many people expect to make the next WOW here? a thousand WOW clones are lurking out there but only the ones with something good will atract customers and thats true after testing a game for five minutes: you like it or not so at the end 1000 crap clones wont compare with a real GOOd game..

If you think in movile phone game market things become insane there are probably hundreds of thousands of games. but 99.99% are worse than space invaders.

And how about simpler game development? I had a good time when somebody told me that "made" a game with Rpgmaker... come on uf you dont have an idea of coding cant make a real game, engines, sdks? frameworks do NOT make a game. You make the game coding yoir player X and Y cooirdinates. .

Sorry for the typo working with a 2 inches android cell phone

Game Development wrote at May 15, 2012 4:06 AM
This comment has been removed by a blog administrator.
Anonymous wrote at May 29, 2012 8:58 AM

Is the quality speaks loudly, the rules of engagement will be ignored. Worry less about the industry, more about the quality of your output.

Bruce Williams wrote at June 15, 2012 7:04 PM
This comment has been removed by a blog administrator.
Bruce Williams wrote at June 15, 2012 7:06 PM

I have worked a a professional game designer and programmer for Atari and Williams Electronics ( Joust, Sinistar ) I have seen numerous game resource sites over the years. I am very impressed with this site.

Daniel Cook wrote at June 30, 2012 6:53 PM

If the patterns go as they have in the past, we'll see the following:
- Increasing quality
- Increasing costs
- Consolidation and larger teams
- Increased manipulation and monetization of distribution channels to benefit a few publishers / platform holders / developers
- A slow but steady decrease in developers taking risks at the top end of the market.

What differs is that cheap tools and open (though often anemic) distribution channel exist and are currently too fragmented to be easily destroyed by a dominant platform like we saw happen with the console take over of the late 90s. How do you remove 10,000 little website with download links?

So, small development will survive with artists and hobbyists making poverty wages from their work. Much like musicians, painters or any low entry barrier creative market. Occasionally you'll get a break out, but the majority will do it for the love of the craft or deluded dreams of stardom, not any realistic business plan.

This is less pessimistic than it might sound. Is being a musician a noble profession? Certainly. So is being a painter or writer.

I much prefer this future where it is possible for game developers to make games at the edges of society instead of being completely locked out of making games at all.

Danc.

Amit wrote at July 01, 2012 8:04 AM

Hi Dan,

Yes, I'm pessimistic about the business aspect but optimistic about interesting games being made and played. It's possible that we'll end up with a “1000 true fans” model as described by Kevin Kelly: http://www.kk.org/thetechnium/archives/2008/03/1000_true_fans.php

However unlike music and painting there are also interesting games that require larger teams. I think a closer model is video. The technology (cheap digital cameras) and distribution (youtube) has allowed for a great deal of creativity. Most of these get by fine on the poverty wage model. But if you want to make Doctor Who or Game of Thrones you probably do want a bigger team and a business model.

I don't want a world in which only big games or tv shows get made, but I also don't want a world in which only small games or videos get made.