Sunday, March 15, 2009

The Game Business Is A Year From Irrelevance:Where are Our Easy Riders and Raging Bulls Edition



Every time I told people in suits and ties - or my parents - I was in the game business, they started to talk about kids. They viewed our business as the toy business. Games are for children. This was when I pulled out my silver bullet. I had The ESA's (then IDSA) latest report showing the average age of gamers. I started when it was 27. The "average age" went up a year each year, but was still a neat statistic when I could say 30 or 31. Whether it was directed at a school parent or an audience at a conference, It inevitably led to a dropped jaw and a "wow, I didn't know that." The industry instantly became relevant to their business.

I haven't really paid much attention to this number because my proselytizing for the business was taken over by outlets like the Wall Street Journal, Newsweek and USA Today, which all have a larger reach than this blog or my speaking engagements. But this past week I saw some slides for an ESA speech indicating the average age of a gamer has risen to 35, or roughly, the median age of the US population. I suppose reaching this point was inevitable, but in the back of my mind, I always thought the aging would slow down. At some point it would have to reflect the disproportionate number of people under 25 playing games. After all, our consumer used to be younger than the median age of the population, and you would think, like the movie business with an average age a full 3 years younger, our product would appeal disproportionately to the demographic universally recognized as more likely to spend money.

Those of us who have aged out of the 18 to 35 focus of media can appreciate the dwindling selection of interesting product coming from savvy media channels who know how to make laser focused offerings for the most lucrative segment of the market. We are relegated to the "Bye Bye Birdie" lament of "Kids these days" when considering the most popular content in every media but our own. I know its an old reference, that's how our kids feel about our stuff. It would be great to say we are not "our father's games" but when looking at the most recent offerings to my thirteen year old son and the upcoming blockbusters - Street Fighter IV, Resident Evil 5, Tom Clancy's latest kill the foreigners, The Godfather 2, WWE Smackdown 286, Final Fantasy 15 or so, even Guitar Hero with Metallica and other songs that were old when I tried to find a dance partner in junior high, followed by this year's big excitement The Beatles - I realize they ARE his father's games.

Over the course of twenty-five years we got really good at making games for gamers. We taught them how to play and what they should pay and then followed them through the market. Our planning stages focus on what they will buy, and if we can't confirm they will buy it with a high degree of certainty, we don't make the product. The games are so tailor made to the desires and skills of these gamers, they are about as easy for mainstream consumers of entertainment to crack as ancient Mandarin dialect. No one wants to work for their entertainment. There was a time, not so long ago - last cycle - when this audience was enough. A one million seller was extremely profitable. Two million had publishers doing cart wheels. Anything more had them taking money out in wheelbarrows. Today, two million is break even. Before it was nice to tap into a little itty bitty corner of the mainstream with something like GTA, Halo or Tomb Raider. Now it is imperative for our own survival. Our aging consumer, steady tie ratio, and consistent unit sales numbers across generations of console indicates our business is not really growing the way it could, should or has to. The initial ship of this year's Street Fighter IV was the same size as the initial ship of Tomb Raider 2 eleven years ago. In other words, we are not exceeding the patterns established by prior console generations. Like the movie industry touting box office growth when all they do is raise ticket prices, we are enjoying relative unit growth as a function of generation growth in the installed base, rather than growth in the number of game consumers. Worse yet, our audience is aging. An aging audience means less dollars spent. The Wii has the lowest number of consumers in the 18 to 24 demographic, and it also has the lowest tie ratio among the platforms.

A precious few companies float product over a consistent demographic, but not many. Look at the handoff of Nickelodeon to MTV to VH1. They can give a shit less about maintaining their audience after 14 or 24, respectively. If you are my age, you know what I mean. One day every show on the channel is great, and then the next you seem to be enjoying VH1 a lot more. It's like something invaded your brain while you were asleep and made everything on the channel repellant. MTV just doesn't care. We were their first audience, but from my point of view, there is not a single intelligible note left on the channel. If you are under 30 you don't have to believe me. Just wait a few years and you will see what I mean. The result, MTV Networks continue to go great guns and generate revenue.

Unfortunately, we seem to be falling in the category of the majority of industries with loyal consumers. The only open question is whether today's publishers will adapt or die.

When the movie business encountered a similar issue in the late 1960's. This was a time when Clint Eastwood was starring in the musical Paint Your Wagon and Francis Ford Coppola was directing another musical, Finian's Rainbow. The studios completely lost touch with their audience. MGM paved the way to film success with musicals in the fifties. The studios cultivated this audience and continued to provide content to the same audience, as the audience aged and stopped going to movies. The younger audience just didn't care. Films were expensive to make and audience growth was flat. The studios were taking guidance from the past rather than looking to the future. They were recreating the films they grew up on and expecting a new audience. Then, all of a sudden, almost by accident, and outside the system, Easy Rider slipped out. The film cost nothing and made a fortune by attracting a young audience. It gave the studios a much needed kick in the ass. They realized the system was broken and reengineered the pipeline from production through release. The new production process opened the door for an inexperienced crowd fresh out of film school - Steven Spielberg, George Lucas, Jon MIlius, Martin Scorcese to name a few. Their type of movie did not bet the farm on every production, allowing for greater risk with each product. The distribution process, arising from Jaws, created the blockbuster. Rather than rolling a movie slowly across the country and letting the audience find it through word of mouth, they started to market movies aggressively so people would know they were in the theater. As a result of the changes, the audience, number of revenue streams and overall market grew (this is an extremely truncated version of history. If you are interested take a look at this books about Lew Wasserman, Sony and of course Easy Riders, Raging Bulls ). Sure they have their issues today, but we are looking at the end of a single cycle that is longer than the entire life of our industry.

The US auto industry, so far, has not been so lucky. There was a time when Cadillac was the "Cadillac" of cars. From the forties to the seventies it was the epitome of luxury, technology and status. General Motors jealously guarded the jewel in its crown and maintained its status at the top of the GM aspirational hierarchy. But when it came to design, Cadillac was so concerned about alienating its core user base, it maintained styling cues and appointments well beyond their relevance. This strategy maintained their audience for 30 years, but that is all they did. As the group aged, the younger market was wide open for competition from all around the world. Worse yet, as the average age creeped up the older side started to die off, shrinking the market size. Ultimately the company realized it would need to take a risk because their customers were dying. It started selling trucks and jettisoned the old branding to focus on performance. A large portion of the audience ended up staying and the average age of the Cadillac consumer fell from 64 in 2000 to 56 in 2008. Turns out my Grandfather didn't really care about the change from Sedan DeVille to DTS and new buyers like the 600 horsepower CTS. Still a far cry from the 42 year old average consumer of BMW, but a very positive move. The entire industry down and it is still too early to tell whether the strategy save the company, but it certainly moved the 107 year old company in the right direction.

I don't believe either of these examples provide a roadmap for sustaining our industry. However, they do provide effective warnings about complacency and fetishistic attachment to existing consumers. We have to start taking risks again. We are not at the point of drastic Cadillac-like measures, but there should be a risk component in publisher portfolios. The gap between the sub USD one million XBL/PSN downloadable and USD 20 million console game is to great to have nothing in between. Traditional publishers' relevance and the premier creators of interactive entertainment is under attack by movie studios, Miniclips type sites, DVD games, Facebook apps and other social network games and a ton of others. They are using the same game mechanics and the same hooks we abandoned years ago in favor of the pursuit of "advanced technology." The audience is being conditioned to pricing models that don't demand up front investments of USD 60 or monthly subscription fees. It is not just a question of a simple interface change. The Wii mote led the horse to water, but so far they are not drinking. We need end to end revisions. Changes in production, release timing, marketing and pricing. We can continue to believe EA, Actard, Microsoft and Sony will always dominate the market operating business as usual - kind of like MGM and Cadillac - or we can look to new audience segments and determine how we can make the changes needed to remain relevant. If we don't I am afraid my son's generation will view today's games as the new polyester shirt.





10 comments:

Adrian Crook said...

Absolutely bang-on article. Your analogy is perfect, IMO. I've read 2 of the 3 books you reference (loved Hit and Run... Easy Riders, Raging Bulls was not as good but still very interesting).

In any case, your post does an excellent job of framing the issues the console/big budget PC game industry currently faces. I spent the first 13 years of my career producing games for big pubs (EA, THQ, Ubi, etc) and they were invariably all about the target market - with was really marketing's collective understanding of what sold last quarter, year, etc.

Hard to take risks with $10-20M budgets, so I suppose that's understandable.

IMO, the sooner the industry can move their new product development practices closer to something like Stage Gate (http://lostgarden.com/2007/01/project-horseshoe-report-building.html), the better everyone will fare. That more "agile" NPD process, coupled with iterative rollouts (i.e. alpha & beta releases) of tightly focused products will enable more innovation in the marketplace as budgets/timelines won't be nearly as high.

justinlassen said...

Amen...

Eric said...

Call me a selfish consumer, but I actually like having the gaming industry cater to my wants as I age. I can't imagine growing out of gaming now, and would hate to think of the model shifting to an MTV-like focus on a specific target age. It might not best for the gaming industry, but it is the best for me.

I suppose you might make a case for gaming to divide itself into the equivalent of the music video channel ladder. This has already happened to some degree, with Playstation and XBox falling somewhere between MTV and VH1, and Nintendo some ungodly merger between Nickelodeon and VH1.

Marcus said...

This is so much baloney that I don't even know where to start. You don't follow the game industry much for a gamer, you seem to just focus on the blockbusters. Kids are eating up XBox 360, Wii, and DS, but unlike you, I don't like to talk about what I don't know about so I won't mention PS3 cause I have no idea.

All I know is that you login to XBox Live today and you'll find yourself fragging bazillions of pimply faced teenage boys and younger.

Perhaps you haven't noticed that pet games fly off the shelves for the DS. Or that kids (yes kids TODAY) love Mario. They don't care that Mario was invented more than two decades ago, all they know is that he is fun AND up-to-date to SOME of their tastes today.

I think what you're suffering from is selection bias mostly, but whatever. I've got two daughters 11 and 13 who love Rock Band and don't care about Metallica (neither than I at 36), and who care about Mario and so on. And my girlfriend has two boys and all they live and breath is Halo, Pokemom (Pokemon!!! Still! They must be 30, but no, they are 9 and 11.)

I can't believe something so far fetched as this made it onto hackernews, but then again, more selection bias.

Sorry to be rude, I'm sure (hoping) you are an honestly wrong pundit, but bull has to be fought stridently with facts when its being spread this far.

Maybe what you should be looking at is why creativity somewhat stagnates when companies have a choice between a sequel of something they know works vs something new and untested, but even there I think that's an over-generalization, that's just human nature anyway.

Anonymous said...

The industry is evolving. It is true that margins are tighter for some types of games, but others are doing amazingly well. PSP, DS, XBLA, ... offer indy developers more freedom.

A few majors:

Grand Theft Auto - open world designs
Geometry Wars - changed things (back)
Tony Hawk - changed sports games
Pop Cap (all titles) - opened the casual gaming market
Audition - advanced casual games (300 million reported users), free-to-play model
World of Warcraft - MMO design
Halo - 1st successful console FPS

Risks are taken and smart risks are rewarded. There is no problem with a polyester shirt while its the cool shirt. And, game developers are smart enough to switch to cotton when there is hint of a possibility of a market for it.

wonderpunts said...
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Anonymous said...

I think your analogy with the US car industry works for the big players like EA, they are just as fixated on things that sold well in the past.

But there are also a bunch of independent developers that do either original stuff, or dare to make more complex games that require a bit of a learning curve. An example for "complex" would be EVE Online, made by CCP in Iceland.

And like the Big Three in the car industry, the established industry will one day wake up and see that a lot of their customers have gone elsewhere. But that will just be the death of the dinosaurs, not the death of the gaming business.

Mike Brothers said...

Wow. Great, impassioned plea here Keith. IMO, we (the traditional gaming industrial complex) risk irrelevance in many ways, and you've spoken to several here. You're spot on about refining the product for the same old reliable people over and over again. That's what Nintendo saw when it looked at lifetime sales of its first four consoles up to the Wii, and why they decided to change course.

I truly hope that the walls of initial investment, distribution, marketing, target demos and all that come tumbling down. But I do have to ask - as others have pointed out here - Haven't they already started to come down?

You cite the average age. While it makes me feel warm and fuzzy to think that gaming has "grown up," I just still have a hard time really buying into that average of 35 thing. Yeah, lots of people that age and older play games (like me). But we all know younger people do represent a disproportionate chunk of the gaming audience. You said it yourself. So what's with this discrepancy? Not sure I know the answer. Maybe the industry is shaping these kids into the kinds of consumers it WANTS them to be, rather than chasing a potentially larger audience by catering more to what they COULD be? Maybe that's why the audience is so broad early on, and yet the ones who stick with it turn into the predictable consumer that the EAs of the world have always relied on???

Regardless, you are right about what the next step should be. The industry (especially the development side) has to find ways to get all those Wii owners and free-to-play people to take that next step into the world of immersive and meaningful games we all know are possible - but without the barriers to entry we see today: $400 hardware, 16-button input devices, bald space marines no cares about, bullshit storylines, etc.

Pascal said...

bravo Keith, belle analyse
Hope all is well - Pascal

SCORPIO said...
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