It’s hitting the point where companies are turning over their financial years, meaning that for those publicly traded we get a nice look at how healthy they actually are. For a lot of the big name companies, those finances aren’t looking too good. SquareEnix posted a massive loss for the year, EA’s finances were bad enough that their CEO resigned, companies are falling all over the place, and the picture’s only going to get darker as more and more companies report in. But what’s the problem, exactly? Their games do seem to be selling well. Where is all that money going?
Do you remember when it was considered a major milestone for a game to sell a million copies? I remember. Seems like it was a long time ago. I was a mere teenage heartthrob then, I wonder what I’d think of the market now. Just on Square Enix’s side, we have Tomb Raider selling an expected 3.4 million copies, Hitman Absolution 3.6 million, and Sleeping Dogs 1.75 million of physical copies alone, and they’re all considered failures, enough so to tank the company’s finances. AAA games are selling very well. Think of all the developers who would kill for 3.6 million sales. Yet they’re still losing money like a salaryman in Vegas.
Dead Space 3 famously had to sell 5 million copies to hit its break-even point, a mark it now seems certain it’s going to miss. It does highlight the source of the problem, though. AAA games, the games developers are throwing all their development and marketing dollars behind, are getting waaaaaaaay too expensive. Sales may be great, but the amount they need to sell to cover costs is just getting ridiculous.
I had occasion recently to join some of the production crew of a feature film as they surveyed some of their locations. One thing that stood out to me was how they kept bringing up the budget as they discussed what they could do there. I’m sure it was pretty annoying for the crew, but it did signify that they always kept the budget in mind. I’m not so sure that video game production is held to quite the same standard, though. Granted, we don’t generally know of the specifics of a production budget unless the company tells us, but given how often video game releases are delayed, which has to be a very costly measure, I wouldn’t be surprised if the budget was the last thing on the average employee’s mind.
Video games, no matter what people might say about the artistic merit thereof, are a creative industry. And creating, marketing, and selling a creative product is very different than most standard products. No amount of marketing, production quality, features, or anything else is going to have as much effect on the work’s reception as its central concepts. Most creative industries understand that. That’s why movies and television have so much review on their scripts before they even go to production, it’s why editors exist in the first place, it’s why artists value true inspiration so much. I don’t think that a lot of video game companies quite get that, though. That’s one way being such a young industry works against them. Most of the top executives of the biggest companies, the ones who set the tones and cultures the whole organization follows, didn’t cut their teeth in the video game industry. Instead, they’ve been lured from other large companies in other industries. EA’s former CEO John Riccitiello came from companies like Sara Lee, PepsiCo, and Chlorox. Former Square Enix CEO Yoichi Wada was part of the finance industry before joining Japan’s office of foreign affairs. And so on down the ranks.
The thing about managers from other industries is that they tend to treat their products just like they would in those other industries. And generally, you can add value to you product by throwing money at it. Whether it’s by increasing the quality of your supplies, adding more features to the product, putting more money into marketing, generally, each dollar you spend goes some degree towards getting an additional sale. Of course, there’s a point of diminishing returns, hence why budgets and projections exist in the first place, but generally, if you’ve got a dollar, there’s some way of putting it towards improving your product and increasing sales. Not so with creative works. As I stated above, concept is king, and money isn’t going to be able to change the quality of your concept. It can change how it’s implemented, sure, and how much polish is on top of it, but the core of it is always static. Yet we have these executives constantly treating games as if they’re a non-creative product, and expecting that more money will naturally lead to greater sales. It won’t. Nor is there any formula for accurately predicting how a creative work will be received. In fact, with creative works, there’s not a lot of hard facts you can use for projections. But managers from non-creative industries don’t think like that, they have to find whatever hard facts they can to latch onto. Money spent is one of the few, so that gets overemphasized.
This is going to have to change. Gaming can’t go on like this, with budgets ballooning as the customer’s willingness to buy falls. Luckily, this is going to change, eventually. It’s going to be ugly, and it’s going to hurt some people, but the surviving gamemakers will be stronger afterwards. Markets have a way of doing that.
Lost to the Aether 
I wouldn’t be surprised if day one prices go up. Modern day graphics cost a lot to animate and its tough to make a profit when prices drop so fast. It’s not unusual to see some games go on sale after a couple of months.
I kind of wonder about that. There may be some ways to mitigate the costs, there. After all, there are more people buying games than there used to be (although there’s more competition in the market too) and digital sales save on costs, so that helps as well. Also, the slate of revenue enhancing maneuvers, otherwise known as stupiddumb DLCs and, occasionally good DLC too, I suppose, may help in making up the revenues that the sales prices aren’t bringing in. But still, it doesn’t seem sustainable, having gone so long without a price increase in games. Not that I’m complaining mind, but still. Food for thought.