... from early nineties.

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The time has come to acknowledge a fundamental shift in our industry that has been developing for some years. As I observed in an essay last issue, games are getting bigger. There's another side to this: the development cost of a computer game has increased dramatically. This is changing every aspect of our industry.

 

In the early 80's, computer games were all produced by lone wolves. Development times were three to six months. Nasir Gebelli or Bob Bishop would grind out several games a year. The development cost of such games was little more than the programmer's time, and the return could be enormous.

 

But by the mid-80's, the boom years were over and there was no easy money to be made. With each passing year, the development costs grew larger. Small teams began working on games, and lone wolves became rare. The following table summarizes my estimates of typical development costs for computer games:

 

Year Typical Development Cost

1985 $25K

1986 $35K

1987 $50K

1988 $70K

1989 $90K

1990 $120K

1991 $200K

 

The point of this table is that costs have shot up dramatically in the last two years.

 

Why the increase?

The first question is, why has this happened? The answer, I think, has to do with a variety of factors that can be summarized as the maturation of the distribution channel and the consumer. Just a few years ago, games tended to sell in a smooth distribution, with the best games selling 100,000+ units, good games selling 50,000 - 100,000 units, and weak games selling 25,000 - 50,000 units But in the last few years, that has changed as consumers gravitate more exclusively toward the hits. Nowadays a hit game will sell a quarter of a million units, while a good game will sell 50,000 units. We could put an optimistic face on this and say that the market has become more efficient at selecting the better quality games.

 

But it's more complicated than that. The distributors and retailers have become pickier. They don't want to carry good games that sell 50,000 units; they want only the 250,000 unit hits. This has created a kind of self-fulfilling prophecy with respect to games. If the big distributors and retailers decide to carry a title, it is guaranteed good sales. If not, it dies. This phenomenon has accelerated the separation of games into big hits and losers. It also gives distributors and retailers a surprisingly large voice in game design.

 

Another factor in all this is the impact of marketing costs. In the old days, marketing was simple and cheap. Nowadays, the marketing campaign for a game can cost $100K. You can't afford to spend that kind of money on a dog.

 

Bigger development budgets

Realizing this, publishers now go for the big hit. There is simply no point in wasting time on a good game. The only thing that works in this new regime is the big hit. One big hit like SimCity or Wing Commander can make a company. A dozen good products only permit you to tread water a little longer. Publishing games has thus become a huge gamble. If your game hits, you make a ton of money; if not, you lose a ton of money. It makes a lot of sense, under these circumstances, to push the odds in your favor by spending a lot of money on the product itself.

 

Unfortunately, it is possible to take this strategy to dangerous extremes. The two biggest hits of the last year, Wing Commander and King's Quest V, illustrate just how far some companies are willing to go to get a hit. The development budgets for both products are rumored to be far in excess of anything previously undertaken (and the products show it.) It could be said that Sierra and Origin simply bought market share. They've proven that, if you throw enough money at a product, you can make a real winner.

 

Problems

But there's there's a catch to this strategy: it only works in the absence of significant competition. Had every major publisher in the industry released a monster-budget product last fall, Wing Commander and King's Quest V would have had to share the pie with the other lavish productions, and it is likely that everybody would have lost money. So the question becomes, how can the industry stabilize on the ideal development budget? Are publishers going to be forced into a self-destructive big-budget war to remain competitive?

 

No more small-time operators

One thing is certain: with all the high-stakes finance, the small-time operator has been squeezed out. There are a lot of people out there who nurse dreams of creating their own games at home. Many of them subscribe to this Journal. It's time to say it loud and clear: you at-home amateurs don't stand a snowball's chance in hell of getting a game published. You might as well be using your videocamera to make a movie to sell to Hollywood.

 

The same thing goes for the lone wolves out there. Face it: there is no way that an individual can make a commercial computer game these days. The cost have risen too high.

 

Development studios

For the moment, the development studio is the only place where computer games can be made. You've got to have a team of specialists to put together a game with the quality design, graphics, sound, and animation necessary to compete in today's marketplace.

 

But even the design studio is threatened. Independent design studios prospered because of a stupid flaw inherant to most publishers. Until the last few years, most publishing executives believed that they knew as much about game design as their staff. In their view, there were no game designers, only programmers. This encouraged executives to participate in the design process. Of course, a busy CEO or marketing VP doesn't have the time to think through all the ramifications of a design change, but this didn't stop them from ordering such changes. The result was a chaotic design that advanced in herky-jerky fashion, bumbling along until reality caught up with the vanities of the executives and they put the mutant design out of its misery.

 

Independent design studios worked because they were more resistant to the jerking around. They could get a game done on time and under budget because they could stand up to the pressures emanating from the executive suites. That is why most publishers during the mid-80's reduced the size of their in-house development staffs and relied more heavily on outside development studios.

 

The pendulum is now swinging back. Budgets have risen so high that publishers are becoming reluctant to commit huge amounts of money under highly risky circumstances where they have little control over the product. A publisher might be willing to risk $100K on an outside studio, but not $500K. The rising costs of software are enticing publishers to return to in-house development.

 

Less Diversity

The most insidious effect of rising development budgets will be an increased reluctance of publishers to take chances on unconventional games. The penalties for failure being so much higher, publishers simply cannot afford to take big chances on untried concepts. The dilemma we're in is that such prudence guarantees our doom. We are an entertainment industry; creativity is our lifeblood. We desperately need the SimCitys and Railroad Tycoons pumping new blood into our industry's consciousness.

 

Future trends

This process can only continue. I expect some short-term re-adjustment to come. Our industry has yet to produce a monster-budget flop like Hollywood's fabled Heaven's Gate &emdash; but you can be sure that we'll have one pretty soon, and that will instill a greater sense of prudence in publishers with respect to monster-budget products. Over the long run, though, the trend towards steadily higher development budgets will continue.

 

CD-ROM will hasten the process. Brian Moriarty was the first to observe that the prime effect of CD-ROM will not be so much to permit better graphics as to mandate higher costs. Moreover, an increasing percentage of development costs will go towards graphics rather than game design and programming; this will shift creative control away from the game designer and towards a new breed of multi-media producer.

http://www.erasmatazz.com/library/JCGD_Volume_4/Modern_Times.html

This is a really interesting article, I commend thee!

I'm just posting so that when I have time I can come back and read the article.

wow, that guy was a genious, he anticipated perfectly the trends of videogames and the risks it has right now.

I wonder if someone will say "see, the sky wasn't falling back then and it's not gonna fall now".

Unfortunately that's not the way it works. Exponential budget growth can't go on forever, there are limits since the gaming population isn't growing as fast as budgets are. As evidenced by the recent losses at big publishers, even when some of them are getting moneyhatted, we're approaching a breaking point.

Wow.

This applies so perfectly to today's market, it's almost scary.

By the way, that data about development cost jibes well with that famous graph from Factor 5:

 

One of the most interesting segments to me.

Retailers seems to be a major factor inhibiting the success of third parties on Wii. How many times have we experienced or read of difficulties in obtaining a third-party title within a week of launch? Some of them don't seem to show up until a week after launch day. They're present at some retailers, but not at others. They get ordered in small numbers and sell out quickly.

These issues rarely arise in the case of Nintendo titles, with the exception of mega-hits like Mario Kart Wii and Wii Fit. Lots of supply is available and retailers promptly stock it in confidence that it will sell excellently.

Third party Wii games, with their modest production and marketing budgets, inspire far less confidence, and their distribution suffers because of it.

looks like gaming is headed for the gallows. We'll see how things play out

Another interesting piece from the same author wrote around 91/92
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Repent! The End is Near!

Note written Jan 15, 1998: This essay, written in 1992, was a bit premature. Nonetheless, the predictions made here eventually came to fruition. See Computer Games are Dead, written just four years later.




Actually, repenting won't do any good, so you can skip that part. But the era of disk-based computer games is drawing to a close, and it's appropriate to consider the ramifications of the demise of the medium that has dominated computer game design for a decade.



First off, I want you to understand that we're not talking about some sort of "every day in every way, better and better" evolution from the disk-based environment to something even better. I think what we're facing is more along the lines of one of those great extinctions that have occasionally punctuated the history of life on earth. That is, don't look for disk-based computer games to be slowly replaced by better and more profitable games on other platforms. Expect instead to see computer games grind downward, with accompanying agony in the industry as companies fail and layoffs accelerate. In other words, we're not talking transition here; we're talking collapse and rebirth.



Why should disk-based games face a dark future? I think that there are four primary forces working to doom computer games.



Creeping senility

The first and most important factor, I think, is the slow decline in the creative energy of the industry. Let's face it: we as an industry haven't been very creative over the last few years. During the 80's there were a slew of innovative games, but the 90's have seen a stultifying sameness in our product. The last truly refreshing game I've seen is SimCity. That came out in 1988. Since then, we've seen almost nothing but sequels, clones, and incremental improvements. Worse yet, most of the original products have been commercial failures. Most of the big hits have been sequels or clones.



An entertainment medium that has lost its creative juice is marking time before it dies. Our industry simply cannot survive by stamping out the same old games with more colors and faster animations. We've got to come up with new ideas, and the sad truth is, we're not. The creative energy that drives this industry has been sapped by the rising costs of development, the conservatism of the retailers and the timidity of the publishers.



Big budget products

The second villain in this story is the big-budget game. These are the monster products that cost $500,000 or more to create. Big budget games can't make money in a stable marketplace. There's a reason why most games are budgeted in the $200,000 &emdash; $400,000 range: that's about the most that you can prudently afford to spend and still have a reasonable chance of recovering your investment. So howcum some publishers have seen fit to spend more?



The answer has to do with a concept called "market share". The basic strategy is to "buy market share". That is, you spend a lot of money to make a product that will sell very well. You still lose money on the product, but the huge sales you make put you in an excellent position to make money with a followup product.



The concept is sound and has been proven to work in many markets with different products. Unfortunately, there's an unintended side effect of such products in our industry: they raise the expectations of the consumers to levels that simply cannot be sustained. Once a customer has been dazzled by a money-losing yet fabulous product, he'll turn up his nose at a normal product delivered on a normal budget. And this is precisely what is happening to our customers. Nowadays, if you don't spend a half-million-plus on your product, it won't sell.



If you do have a half-million-plus budget, you've got to justify every aspect of your design to every beancounter, salesperson, and marketing executive in the company. Which makes it more difficult to take big creative risks. Which is another reason why we have Creeping Senility.



Games Aficionados

18 months ago I wrote an editorial for this Journal entitled "Portrait of the Gamer as Enemy". In it, I pointed out that the aficionados who love our games could well be our worst enemies, because they demand ever-increasing complexity that pushes our games further and further away from the mainstream of "real people".



I didn't realize how right I was, or how fast events would move. Already the ghetto-ization of games that I speculated might come to pass is well underway. The most popular games with the games aficionados are, let's face it, absurdly complex products. Some of these games have rules manuals several hundred pages long, and that's not background material, that's rules! Does anybody really believe that normal computer owners will play games whose manuals are longer than those of their database managers?



Of course, there's nothing wrong with absurdly complex games. If some players enjoy those games, that's fine with me. But this is not some minor subset of the gaming community, happily playing with its complicated toys that nobody else can understand; this is the group that has established itself as the artistocracy of gaming, the opinion leaders for the buying community. These people are dedicated gamers who spend a lot of time and money on their games. They dominate the discussions on national networks like CompuServe, Prodigy, and GEnie. They write long letters to publishers, demanding more complexity and power. They hang around retail outlets, telling the clerks what's good and bad about every game on the shelves.



This little group, a few tens of thousands of people, determines what succeeds and what fails in our industry. Their tastes are sophisticated (in the strict sense of the word) and narrow. They have steadily pushed this industry into a corner from which it cannot escape. In order to satisfy their expectations, all computer games must be big and complicated. Yet, if we do build such games, we chase away the beginners who are needed to keep the industry alive. The inevitable result is an industry that slowly erodes away.



Videogames

The cartridge-based machines were once so much inferior to personal computers that consumers could make a clear distinction: video-games were cheap but crummy, while games for personal computers were superior. Moreover, videogames were simple-minded shoot-em-ups, while games for personal computers had more variety and substance. Over the last few years, these distinctions have been narrowed. Videogame hardware has improved substantially, with 16-bit processors, better display chips, and more RAM. The big break will come with the introduction of CD-ROM drives for the cartridge-based systems, which will give videogames machines a decided advantage over the average personal computer. Another important trend has been the increasing sophistication of the software available for the cartridge-based platforms. We're starting to see some of the most interesting personal computer products ported over to the cartridge environment.



The effect of this is to reduce the competitive advantage of personal computers for game-playing. If you can get some pretty good games on a $200 videogames machine, why do you need a $2000 personal computer for games? For more and more people, the answer is: you don't. Of course, this is largely a matter of perception. A cartridge-based system simply can't support a flight simulator as fast or complete as those on personal computers. The very best role-playing games are on PCs, not cartridge-based systems, and the same thing goes with almost every other area of gaming. But customers don't know that. As they turn towards cartridge machines, the market for disk-based products withers.

Computer Games Versus Videogames



Optical Media

Even as videogames undermine disk-based games from below, the CD games press down from above. I am on record as one of the few skeptics about CD games on the planet, and in fact much of my skepticism has been borne out by the ongoing failure of the technology to make serious headway. But I've always agreed that the final outcome is beyond question: optical media will replace floppy disks someday. The question is, when? My hunch has been that 1995 will be the first year that sales of CD-based entertainment software exceed those of floppy-based entertainment software, and I think that hunch is still on the mark, so long as we don't mix the apples of videogame CD-ROM sales with the oranges of PC CD-ROM sales.

Why CD-ROM games won't work (yet)



Whatever the exact timing or relationship, the basic fact remains undeniable: CD-ROM product will steadily become more important, and it will take sales away from disk-based product. Sad to say, this is not a zero-sum game. I suspect that, in the first few years, the existence of CD-ROM product will make developers unwilling to invest in a has-been medium like disk-based games, which will result in lower-quality products that won't sell as well. For a transitional period, overall sales of entertainment product will go down.



The Extinction of the Independent Developer

Another sad development is the slow elimination of independent developers. Some years ago, I observed that the lone wolf developer was on his way out. Nowadays, not only are lone wolves gone, but even independent studios are endangered. The primary force behind this is the high cost of developing games. Back when a game cost under $50K to develop, publishers could treat advances for such products as a kind of venture capital; some advances would yield hits and some would fail. Now, though, a game costs perhaps $250K, and nobody can afford to gamble with that kind of money. Publishers who advance that kind of money insist on micromanaging the product and the developer to death. For every dollar of advance a publisher puts on the table, he expects two dollars worth of product delivered &emdash; which drives independent developers to bankruptcy.



A more insidious effect of rising development costs is the way they induce publishers to screw the independents. Publishers must constantly make decisions about allocating resources to products, some developed in-house, some developed out-of-house. The in-house products cost more up front, but have no royalties liabilities. Under these circumstances, it always makes financial sense to give preference to the in-house products. If it's a month before Christmas, and your manufactuting people are booked solid, you'll build your in-house product first, then build the out-of-house product, and if the out-of-house product misses Christmas, that's too bad.



The upshot of all this is that the independent developers, who are the primary source of innovative product, are being squeezed out of existence &emdash; which in turn feeds into the Creeping Senility factor.

Auteurs versus Teams



The Shape of the Future

We're not going to experience a smooth transition from disk-based products to something else. The two primary alternatives to disk-based games are radically different in many ways. They appeal to different audiences, different age and income brackets. The kinds of games that will work in these other media are different. The cartridge-based systems have more of an adolescent flavor to them, while the CD-based systems will probably have a stronger educational odor about them.



So let me boldly trace the future of our industry as I perceive it for the remainder of the decade. As we emerge from the recession later this year, things will look up. Christmas 1992 will be bright and cheery, and everybody will feel good, rich, and optimistic. But the respite will be brief. Disk-based games will remain in the doldrums through 1993, and by 1994 the decline will be undeniable. Sales of cartridge-based and CD products will increase, but not enough to compensate for the loss. Thus, a mood of gloom will spread over the disk-based portion of the industry, but the cartridge-based and optical media people will remain optimistic. By 1995 or 1996 we'll have settled into a new regime, with disk-based gaming relegated to "geek games", complicated, hairy concoctions with lots of rules and exceptions, and "lite games", breezy nothingburger-games to while away a ten-minute break from an intense work session. The overall market for disk-based games will be much reduced, perhaps a third the size of the current market.



I think that CD consumer software will be bimodal. The largest market will be the adolescent games on videogame consoles. These will emphasize sound and graphics, in that order. They will be souped-up versions of current games, with the CD used to bring in backgrounds as scenes change and play music during gameplay. The other side of CD software will be more serious educational stuff. Marketers of this product will never allow the ugly word "game" to be applied to their products. They'll instead prefer bastard terms such as "edutainment."

Revolution and Apocalypse



Wrap up

Our industry has enjoyed pretty smooth sailing for the last five years. The wild and roiling early and mid-80's gave way to the placid times of IBM-PC ascendancy. The platform evolved smoothly, our games grew better each year, and sales marched upward. Perhaps some of us have come to expect such tranquil growth as the normal course of events. Don't count on it. The next five years will surely be more chaotic than the last five years.

http://www.erasmatazz.com/library/JCGD_Volume_5/Repent.html