AAA Games are DEAD?: Not Dead Yet Edition

You thought I was going to write about West and Zampella. If I did, I would probably say something positive, like “it is great the guys were recognized and like Activision's hire of the Visceral guys without a specific team or project in mind, EA is putting its money where its mouth is and truly recognizing talent.” If I were to say something negative I would say “this was EA's tat for Activision's tit in hiring the Visceral guys and we are all merely pawns in a giant pissing match between two over grown adolescent companies.” I could also reference Activision's complaint, and if true, wonder what kind of numb nuts representative would fly his client up to meet with a competitor while the client is still employed and in line to receive a very large bonus? But everyone else is talking about these things and its been analyzed and interpreted by more people in more directions and than an Allan Greenspan speech. While it is always fun to provide commentary on the wildly entertaining albeit completely unproductive intercorporate sniping, let's just get back to games. Let us cross our fingers and hope everyone follows through. If they do, West, Zampella, Schofield and Condrey will all get paid and we will get some great new games. Big games. Big games initiated at a time when many publishers said they were dead.

I hope you are all sitting down when you read this, and you may want to close your doors so no one sees you reading this insider secret. I am about to share something shocking and secret: Game publishers are reactive. No, really, they are. We all think their halls are teeming with forward thinking entrepreneurial executives chomping at the bit to take advantage of the free reign they are given to sign deals with developers and designers of innovative and ground breaking games - but they are not. They know what makes games great and love to talk about it – shortly before they talk about all the reasons their company would never buy those games. Unfortunately these heroes and heroines are lorded over by the evil bean counter run forecasting department who must be able to empirically prove that a Natal driven game about a four headed penguin who farts missiles will move 8 million units in 2014. When in reality, if Mr. Forecasty pants was able to make these kinds of predictions accurately he should be making a billion dollars working for a hedge fund rather than sitting in a windowless office making phone calls to game buyers and poring over NPD reports that only come close to approximating the sales of games when the installed base was smaller, the games were worse and the world was in the worst recession in eighty years. Because the greenlighters are fighting last year’s war, game starts – I’ve never heard those words put together before but they say it on the news all the time when referring to housing – were down dramatically in 2008 and 2009 and were on the verge of confirming a self-fulfilling prophecy. Here is my favorite publisher response of the past year. It came up in connection with a small budget/high quality XBL/PSN game, you know, the thing they are all saying they want now:

“The good news is we love the game.

“Great, when do we start?”

“Well, there is more to the story.”

“Ok”

“We feel the game is exactly the type of game we want to play and has the hooks and originality we have not seen in any other pitch.”

“Great, so do you want to send a short form or a full agreement.”

“Well, we can’t do that. You see there is nothing else like it on the market.”

“I know, you just said that.”

“With nothing else on the market, we can’t benchmark it for a forecast.”

“But you should not have to. You said this is what you want to play and you have not seen anything like. The budget is exactly what you asked and you break even after selling about a dozen units or something.”

“I know, but we still have to build a model, supported by sales of similar product.”

“So how are things selling on XBL/PSN.”

“Well, that’s another problem. The numbers aren’t released, so all we can do is use the information we have from developers and a bit from our own sales to try to triangulate sales. We think we are accurate though.”

“So you are taking the forecasting requirements of the high budget, heavy market testing, high risk sector of the market and applying it to the low budget, hard not to break even, throw shit against the wall and look for a break out opportunity?
“I think that sums it up fairly”

They started down this course because a very rough 2008 and 2009 led many publishers to believe the market for big games is gone. Going into the end of last summer, they were saying there is no more demand for USD 60 shiny disks and we have to focus on the smaller, sound bite like, short attention span XBL/PSN games consumers are buying. This coupled with the growth of freemium and facebook games and a publisher mindset that success on the various platforms is mutually exclusive, slowed game starts to a crawl, when in reality, the different platforms are complimentary distribution channels not businesses. Rather than seeing them as a threat, we should get down on our knees and kiss the feet of these platforms, before rising to thank our lucky stars for their acting as the crack vendor in the school yard. Providing the gateway game to tens of millions of people who did not know they liked to play games they are opening vast new markets for us. 83 million people are playing a bit of Farmville. They are checking their farms, gaining status, p’wning their friends – in their own special way – and starting to get hooked. They are getting that little rush of control in their otherwise uncontrollable world. Given the right opportunity, they sill step it up to a flash game, maybe a bit of Wii fit and some Wii sports with the kids. Before you know it they are mainlining Halo multiplayer and justifying their lost weekend in Mass Effect. Like film relative to stage plays and television relative to films, these channels provide an opportunity for market expansion, not cannibalization. Publishers were flat out wrong. The success of these platforms was not the cause. The fall off in sales in 2008 and early 2009 was not because the people didn’t want big games. It was because they didn’t want bad games. Publishers were only off by two letters, but it was very hard to see.

After years of consistent and persistent growth and profit based on the massive installed base of a single console, we entered a period of confusion. As much as I like to say history just keeps repeating itself in the console cycle, this time it did not. Historically, one player got to one million units first, declared dominance and rode out the rest of the console cycle. Anyone who tried to sell an Xbox only title in the last cycle, or Gamecube before that, knows that what I am talking about. Nintendo
stood alone with NES. Sega grabbed and older audience and dominated with Genesis. PlayStation handed N64 it's lunch and PlayStation 2 made Xbox all but non-existent to publishers. In this cycle Wii took an early lead, but consumers did not buy software. 360 jumped ahead in the US but PlayStation was relevant, and some times surpassed 360 in Europe - and Japan disappeared from everything. For the first time publishers could not pick a clear winner. Once they decided to develop for both, they found it was really, really, really hard. Not really hard like making games for other consoles was hard. Hard like making Italian trains run on time hard. Publishers were forced to make the most expensive games ever, on more skus than ever before, into a still very small base – all while they thought consumers did not want them.

Product was not bad for lack of trying. It takes a while to figure out how to build to a new console. When one of my clients was developing a launch title for N64, they described the first slate of titles as "waffle products." Like the first waffle out of the iron, they would be a bit burnt on one side, a bit under cooked somewhere else, and probably leave a bit of itself in the iron. You could say the same thing about PS2 and Xbox titles. After one round of development, publishers and developers understood what they were facing and started to crank out titles of an even consistency. But then we hit this generation.
My best description would be apple fritter. It is the king of donuts and the complexity overlord of the donut case. The creation of one apple fritter has no correlation to the next. You have to balance dough, apple volume, timing, and oil temperature just right to make the perfect fritter. There is no consistent shape, no format and not even a hole to make sure cooking is even. One factor out of balance, and you are off - not by a little, but a lot. Burnt outside, uncooked middle, too thin, clumped glaze, so many things can go wrong. They can even all happen on a single fritter.

With a few exceptions that were rewarded with outlier status sales, the first games were not great – in fact many were bad - and more expensive than prior generations' games. Publishers responded to the lack of interest by reducing marketing budgets. Consumers responded by not buying them in droves. Publishers extrapolated 2008 and 2009 market data and determined console games are dead. They had to rethink the types of games they were making because people did not want what they were making. Sure GTA and COD Modern Warfare sold, but that was because they are franchises, or so they thought. September 2009 provided a hint of what was confirmed Q1 2010. These games did not sell because they were franchises, they sold because they were good. Consumers expected value for the dollars spent and they raised the bar. When publishers released a great game and told them it was out there, it sold well. Not just well, but really well. Arkham opened their eyes at the beginning of the fourth quarter. Then Call of Duty:Modern Warfare 2, Assassin's Creed 2, Darksiders, God of War 3, Final Fantasy XIII, Bioshock 2 and Battlefield Bad Company 2 all turned a profit. They are all high quality titles. Fortunately, reactivity operates in both directions. Publishers who stepped out of the market two years ago - three Japanese publishers have not commissioned a game from an external developer since November 2008 - are starting to get back into the market and almost all publishers are engaging developers in discussions surrounding big game development. Unfortunately consumers will have to wait because the shift does not help the empty 2011 or 2012 slates.

Publishers are not dealing with an educated consumer. The audience is smarter and communicates better than ever before. Game quality is identified immediately and rockets around the social networks at the speed of light. They are forcing publishers to step up their game and it is good for all of us. Publishers are reacting to an educated consumer. After being beaten over the head in 2008 and again in 2009, they realized it is better to spend the same amount of money on fewer better games than to throw a bunch of shit against the wall. Trying to profit from a low budget bad game is akin to pissing money down a rathole. James Cameron understood our consumer when he raised money for Avatar. He was successful because he convinced his investors of the need.

“I was really impressed by their understanding of the business, that there is so much competition these days for people’s leisure time that you have to create something you won’t find on TV, on computer games, the Internet, to draw audiences into the theater,” [Avatar Investor] Clayton says. “This wasn’t purely a creative process for them, like it is with some producers. Jon and Jim absolutely understood the need to cater to audience tastes.”

Let’s hope the trend continues and publishers realize games are entertainment luxury goods. We’ve now seen big investment rewarded with big sales in this cycle. Sony showed us they could make a profit on USD 44 million spent on God of War and the publishers of the other titles mentioned in this post could not have spent an awful lot less. If you read the posts on this blog about distribution, marketing, used games and everything else I whine about you know there are plenty of things to be fixed, but in spite of all of these short comings, wise publishers will be back in the money – somewhere around 2013.

Coming Soon – why publishers are so very, very wrong about Xbl and PSN . . . . .