Death to the Games Industry, Part I

“The machinery of gaming has run amok… An industry that was once the most innovative and exciting artistic field on the planet has become a morass of drudgery and imitation… It is time for revolution!”

– “Designer X” in the Scratchware Manifesto

When “Designer X” wrote those words back in 2000, the industry, to the degree that it took any note whatsoever, dismissed them as irrelevant ravings. Jessica Mulligan wrote that the Scratchware Manifesto was “naive in the extreme,” and obviously written by an industry outsider – and was quite surprised to learn that I was Designer X. Of course, things have only gotten worse since 2000, and the industry – or at least, developers – have started to agree.

Two years ago, speaking at a conference in the UK, Warren Spector said “The publishers have to die, or we are all doomed” – to cheers. And this year, at GDC, I ranted on the problem – and received a standing ovation.

What is the problem? And is there any way to address it?

The Problem
As recently as 1992, the typical development budget for a PC game was as little as $200,000. Today, if you want a title that will be taken seriously by the retailers – an A-level title – your minimum buy-in is $5m, and $10m for a triple-A title is common. With the next generation of console hardware, the talk is of $20m budgets – not as something that will be unusual, but typical.

On a theoretical basis, the rise in development costs is driven directly by Moore’s Law. As hardware becomes capable of displaying better-detailed graphics and higher polygon counts, it becomes mandatory to provide them. If you do not, your competitors will – and your games will look inferior by comparison to directly competitive product. In the accompanying graph, you’ll see a huge rise in the ’90s; that was driven by the adoption of CD-ROMs. Before CD-ROMs became common, games had to be delivered on floppies – and even if you did a game with several floppies in the box, your application size was still measured in single-digit megabytes. CD-ROMs provide more than 600 MB – and once you had the capability of providing that much data, doing so became mandatory. You had to generate enough assets to fill the disc.

Today, art assets (not programming) are the main cost driver. As machines become capable of rendering more detailed 3D models in real time, the market demands more detailed 3D models – and models are hand-created by artists using tools such as 3D Studio Max and Maya. All things being equal, a doubling in polygon count means a doubling in the amount of time an artist needs to spend generating the model – and a doubling in cost. Faster machines can push more polygons; more polygons means more cost.

That’s the theory, but empirical evidence bears it out. Back in the day, a Doom level took one man-day to build. A Doom III level takes two or more man-weeks.

Now one might argue, of course, that the improvement in graphical quality improves the gameplay experience so much that the cost is worthwhile. But if that’s so, why was Doom so rapturously received, such a huge hit? And why do the critics basically agree that Doom III – well, it kind of sucks?

It’s not the glitz. It’s the gameplay.

In principle, increasing processing power also allows better development tools, which helps speed the process. But the reality is that it ameliorates, not solves, the problem. The tools don’t get better fast enough. Middleware doesn’t solve the problem, either – you might get a product to market faster by licensing the Unreal engine, say, than by building your own 3D renderer from scratch – but you’re still faced with building all the content. And the case for buying middleware is rarely open and shut; each engine is designed for specific purposes, and if you want to do a game that differs a lot from what the code was written to support, you find yourself spending a lot of programming time trying to solve the problems. Spector says he’s not at all sure that the development of Deus Ex actually benefited from using Unreal – after all, Unreal was built as an FPS engine, and Deus Ex was an FPS/RPG hybrid. They had to rewrite a lot of code.

Glitz Over Gameplay
The problem is that once something becomes technically feasible, the market demands it. Gamers themselves are partly to blame: Indie rock fans may prefer somewhat muddy sound over some lushly-orchestrated, producer-massaged score; indie film fans may prefer quirky, low-budget titles over big-budget special FX extravaganzas; but in gaming, we have no indie aesthetic, no group of people (of any size at least) who prize independent vision and creativity over production values.

But the nature of the market and distribution channel is even more to blame. When a developer goes to a publisher to pitch a title, the publisher does not greenlight it because they play it and say “what a great game!” The developer may not even have a playable demo – but what he will have is a demo reel, a non-interactive visual pitch that may work to get some sense of gameplay across, but is mainly designed to impress the marketing dweebs with the graphics. Glitz, not gameplay, is what sells the publisher.

For that matter, half of the people sitting in on that greenlight meeting are probably marketing suits who think they’re in a packaged goods industry, and are a lot more concerned about branding than anything else. Sequels and licenses, good; creativity – that’s too risky.

And glitz, not gameplay, is what sells the retailer. Retailers don’t have the time to play every title that comes across their desk and, in many cases, they don’t play games anyway. They look at a video, they look at the materials provided by the sales guy, they make a decision. And that decision is ultimately based on concerns like branding, how much money the publisher will spend on product placement and stocking fees (what the industry calls “market development funding,” or MDFs) – and whether it looks pretty or not.

And finally, there’s the industry’s attachment to “feature list” marketing. Online play? Check. Dozens of levels? Check. HDTV support? Check. You can often tell a game has nothing new to offer just by reading the backcover text: If it’s basically a list of features and numbers (five of this and a hundred of that), you know they’ve really got nothing to say.

In other words, graphic glitz is the first barrier you must surmount. If you don’t have it, you won’t get greenlit; if you don’t have it, you won’t get distribution. Maybe, someday, way down the road, the actual quality of the game will matter to someone – a reviewer, an actual gamer – but you don’t even get a chance to get to them if you don’t have the graphic right stuff. In other words, gameplay may affect ultimate sales – but it won’t get you shelf space.

The reverse isn’t true, though – poor gameplay and great graphics will work just fine, as far as the market is concerned. 80% of all game sales occur in the first two weeks that a game is available; all you need to do is blow through your inventory before word of mouth catches up with you. The industry is full of best-selling, lousy games. Can you say “Driver 3?” I knew you could.

In other words: Pretty + bad = financially successful; good + not pretty = fuhggedaboutit. Of course, pretty + good would be nice – but neither the publishers nor the retailers have an incentive to care.

The Narrowness of the Retail Channel
Step into a typical record store – even a small mall location – and there will be thousands, possibly tens of thousands, of different titles in the racks. Step into a typical bookstore, and the story is the same. Step into a typical game store – and you will be lucky to find 200 titles.

In film and publishing, plenty of people make decent, middle class livings by catering to niche audiences – they’re not going to get rich, they’ll never make as much as Stephen King or 50 Cent, but they reach a market. And in both industries, a product has time to build word of mouth and an audience – several months, typically, before either music or hardcover books get returned (and even six weeks for paperbacks).

In the games industry, you get one shot. You have two weeks. If you haven’t achieved sales velocity, you are dead. It’s the bargain bin for you, buster. Thousands of games get released each year, they only have facings for 200, and they need the shelf-space for the next piece of over-hyped crap.

I want you to think about this, a little bit. Dozens of people have worked for, typically, three years to bring a game to fruition – and two weeks is all they get. Compressed sales is vital to staying on the shelves, 80% of all sales are in the first two weeks – and if the publisher has botched the marketing, it doesn’t matter how good the game is.

Oh, by the way… Go buy yourself a copy of Freedom Force vs. The Third Reich. If you can find it. Nice game. Too bad about the marketing.

But Sales are Up!
Yes, they are; the games industry is the fastest-growing entertainment industry on the globe and unit sales increase year by year. There was a time that a million-seller was considered extraordinary, and now there are several every year. And if you believe, say, Michael Pachter at Wedbush Morgan, we can anticipate soaring growth for decades to come; surely all is for the best, in this best of all possible worlds?

Why is it that sales are up? The answer is very simple: Demography. Fifteen years ago, almost nobody over 20 (and almost nobody not male) played games. These days, almost nobody over 35 plays games. In other words, a much larger percentage of the population as a whole plays games.

Not because more people have become gamers, exactly – rather, because people’s leisure time activities tend to be set in their teenage years, and they pursue the same activities as they get older. Thirty-five year-olds play games because they’ve been playing them since they were teens. Fifteen years from now, 50 will be the cut-off – and 30 years from now, the demographics of game players will match the demographics of the population as a whole. (And, by the way, we won’t have idiot senators attacking games any more – everyone, regardless of age, will know how dumb that is.)

So the growth in game sales is driven by two factors: The growing portion of the population that was exposed to games when young – and, of course, the growth of the population. But what we’re talking about, when you get down to it, is growth on the order of 7-10% annually.

Compare that to Moore’s Law: 100% growth in processing power over 18 months.

In other words, the growth in processing power, which drives the cost of game development, is enormously faster than the growth in the population of gamers – and while technically both are exponential curves (at least until the global population levels off), the disparity is so great that you can treat the growth in sales as a linear curve, and the growth in cost as an exponential one.

And what’s the upshot of that?

The result is that the average game (not the industry as a whole) loses more and more money. The publishers make up the losses on the few games that hit.

In other words: There is no room in this industry for niche product. There is no room for creativity or quirky vision. It’s hit big, or don’t try.

Implications for Publishers
The field becomes more and more hit-driven. There is no mid-list. You only want home runs. And those home runs have to cover the losses on everything else.

As a result, you need size to survive. It’s what the finance folks call “portfolio risk;” if you invest in a single stock, you’re doing something very risky, because you’re tying your fortunes to a single company. That’s why it’s prudent to diversify, to invest in a lot of different financial vehicles with different risk profiles.

Similarly, being a small publisher is like making a high-stakes, low odds gamble – it’s like betting all your chips on number 32. As a small publisher, you can afford to produce only a handful of titles every year – and if the ball lands on 32, you can make big money. But if you go a year or two without a hit – you are screwed. Goodbye Acclaim. Goodbye Eidos. Goodbye Interplay. And tomorrow – maybe Goodbye Rockstar.

This is why Sumner Redstone has been building up Midway’s studios; Midway needs to get big, or get out of the game. They need a bigger spread of product. They need to spread their portfolio risk over more titles.

This is why there are only four stable publishers in the field – EA, Microsoft, Sony, and Nintendo. The latter three are mainly in the hardware business (and Nintendo is not immune – Revolution could easily go the way of Dreamcast). They’ll do okay, they have deep pockets and a diverse portfolio, and anyway make money off the bets of others via the platform royalty.

EA is stable for a different reason: It is big. More than double the revenues of Activision, its closest competitor. EA has the broadest, most diverse portfolio of anyone.

And they know it. And they’re the villains in this piece, because they’re the ones who keep raising the budgets and the costs. Everyone else has to stretch to keep up. Raising the development bar has, for more than a decade, been a conscious corporate strategy for EA, a means of squeezing out less capitalized competitors. And it works.

So the big get bigger, and the small lose out – is that a problem?

It is if you’re a developer, because it means you have fewer and fewer potential publishers to pitch to. Ten years ago, you had a couple of dozen plausible places to take a game. Today, you’re lucky if you have six.

And when you pitch them – those increasing budgets breed conservatism. Ten million dollars is a lot of money to risk. The publishers are averse to risking it on anything they don’t view as a sure thing – or as close as they can come to one, in this uncertain world.

That’s why you get sequel after sequel. That’s why any crap media license gets a game (Dukes of Hazzard, anyone?). The promotional spend by the movie studio is viewed as a way of generating interest in the game without additional cost to the game publisher.

The publishers would like all games to be like sports games. With sports games, all you have to do is improve the graphics incrementally and throw in the new player stats – and the little drones will go out and buy the new version every year. They’re basically buying the same game over and over, but the players are wearing different jerseys and have slightly different behind-the-scenes data.

Publishers would love all games to work the same way – and they’re trying to make it happen. That’s why they look for franchises – not for good games.

The publishers (other than maybe EA) aren’t immune to cost pressures, of course; they look for ways to save money. Development in lower-cost places like Eastern Europe and Asia is on the rise, particularly for lower-budget titles and games for handhelds. Pressures on developer margins are also intense; it’s very hard to negotiate a developer royalty over 15% today. And there’s increasing use of middleware – which has the problem that all games start to look the same, because they share the same engine.

And everything has to be a brand.

I was at the Games & Mobile Conference (a small one, in New York) two years ago, when Edmond Sanctis, then COO of Acclaim, said something I could not believe he’d said in public (and that made me want to throttle the living daylights out of him, of course). He said, “There’s no point in publishing a game unless there’s a brand attached to it.”

Do you buy games for the brand? Or the gameplay?

Of course, maybe there’s a reason Acclaim is dead.

Another quote that made me sit up and take notice was from Tom Frisina, VP and General Manager at EA – he runs their external developer program – at GDC last year. He said, “We are always looking for something new and innovative.”

I’d like to believe that – but of course EA’s product mix belies it. Tom is one of the good guys, but in essence what he is really saying is that they want checkbox innovation – a little something to differentiate your RTS from every other RTS on the market. They still want an RTS, though – God forbid you should do something really innovative, like try to offer a whole new gameplay experience.

It Sucks to be a Developer
The implications for developers are even more dire. You will not sell a publisher on a title unless the marketing weasels know how to pitch it to the retail channel. If it fits into an existing, established game category – an RTS, an FPS, an RPG, action adventure, driving, sports – then they know how to sell it. But if you’re doing something novel – forget it.

Does anyone seriously think anyone other than Will Wright could have gotten EA to publish a game like The Sims? And actually, EA tried to kill The Sims many times before it was finally released. From what I’ve heard (and this is definitely hearsay), Bing Gordon’s comment at the meeting where publishing was approved was: “Well, it’ll only sell a hundred thousand copies, but it’ll get Will off our backs.”

We’re only talking about the best-selling PC title of all fucking time.

The truth is that unless your last name is “Wright” or “Miyamoto,” the odds of getting anything innovative published today are nonexistent. In fact, the only thing you can get funded is something that’s based on a license or part of a franchise (can you say “Coasters of Might and Magic?”), and incrementally innovative at best.

Does this mean that developers self-censor, not even bothering to bring their best ideas to publishers because they know they don’t have a prayer of getting sold?

You bet your ass.

There are a lot of very bright and creative people in this field – no lack of them. But business realities trump passion every time.I’m going to bring up that Scratchware Manifesto quote again:

“An industry that was once the most innovative and exciting artistic field on the planet has become a morass of drudgery and imitation”

Doesn’t sound so naïve now, does it? And we’ve only talked about the imitation aspect – you can talk to EA_Spouse about the drudgery.

So being a developer is creatively frustrating – but from a business perspective, it sucks worse. If you are relying on publisher funding, you are highly unlikely to achieve a royalty rate of more than 15% (which is based on wholesale price less MDF – typically more like 7% of the actual consumer dollar). And your entire $5m budget (or whatever) is recoupable against your royalties. Thus, to recoup that advance, you need unit sales of well over a million.

In other words, barring a miracle, you will never see a dime beyond your initial funding. And no, you will not make a profit on the funding alone, unless you cook the books, because the publishers want to make damn sure that every dollar they spend winds up in assets on the disk. And since you are utterly reliant on them for both money and access to market, they have the leverage to ensure that it does.

Developers live from contract to contract – and if they don’t land the next contract, they’re out of business. Happens all the time. It’s happened to me, in fact, and I’m hardly alone: Work like a dog, get to gold master, have a party to celebrate – and file for unemployment.

In fact, you may not even get to gold master. Publishers are increasingly willing to kill projects midway – or even after going gold. The cost of advertising and promotion can double the total cost – and if they don’t have confidence in the game, there’s no point in throwing good money after bad.

Basically, as an independent developer in the games industry, you’re just fucked. Back in the day, a company like id could generate a surprise hit, rake in the royalties, and buy its own independence – today, they’re sitting pretty, they aren’t reliant on publisher funding because they have the resources to fund their own development, they own two franchises, and they’re in the catbird seat when it comes to negotiating leverage.

But it’s virtually impossible for that to happen today – both because royalty rates even for established developers are under pressure, and also because you don’t get to own your own IP. You’ll sign it away just to get published, and as far as the publishers are concerned, that’s non-negotiable. If Doom were to happen today, the id-equivalent wouldn’t own it – the publisher would. And if id got obstreperous, they’d just have the next version developed by someone else.

In other words, not only are business conditions harsh for developers – but there is no upside. Your only possible win, in fact, is to develop enough of a rep that a publisher buys you out. And then, more likely than not, the publisher guts you. Goodbye Origin. Goodbye Microprose. Goodbye Westwood. Goodbye Kesmai.

Why This is Bad
I’m one of the rare gamers over 35. That’s because, unlike most people my age, I was exposed to games as a teen. When I was a teenager, there were two sorts of games in this country: conventional board and cardgames, which I played enthusiastically as a child, and the board wargame. (Yes, I predate D&D.) I was a wargamer, a hardcore gamer before there was such a thing as a home computer.

In those days, there were perhaps a few tens of thousands of hardcore board wargamers, and perhaps an equivalent number of people who, like Sid Sackson and Phil Orbanes, were passionately involved with conventional boardgames. And the two industries, together, grossed under $100m at retail.

Today, the figure $8b gets bandied about for the games industry, but actually, that’s an undercount. It doesn’t include subscription fees for MMOs (on track for $1b+, US alone, this year); casual downloadable games ($50-$100m, depending on who you believe); mobile games ($100m+ domestically this year, $1b+ worldwide); the hobby games market (RPGs, TCGs and the like – no hard data available, but quite likely $200m+ at retail); the conventional board and cardgame market (Hasbro doesn’t break out the numbers, but I’d believe close to $1b); or the arcade game coin drop (I’d guess still over $500m). Not to mention advergaming, and the advertising spend on sites like Pogo.com or RealArcade.

And instead of a handful of people who consider themselves hardcore gamers, we have tens of millions.

And instead of just three types of games – conventional boardgames, cardgames, and wargames – we have dozens. RTS, RPG, tabletop RPG, MMO, action-adventure, shoot-em-up, platformer, driving games, dancing games, hunting games, sports games, LARPs, ARGs, “big urban” games, freeforms, text adventures, graphic adventures, computer wargames, 4X games, god games, flight sims, trading card games … and on and on.

Every one of these game styles has its passionate fans. And every one of them has been invented in the last 30 years. And the last 30 years have seen huge growth in gaming.

There is a correlation here.

The growth in the games industry has been spurred by an enormous ferment of creativity. Each new successful game style spawns its own audience of fans, expanding the overall size of the market. The hardware guys would have you believe that there’s a direct correlation between hardware capability and the size of the market, but that’s false; people buy games for the gameplay experience, not for cool hardware, and the way to grow the market is to create new experiences – not to release game seven in a franchise.

If you look at the biggest hits in the field, you find that a high proportion – not all, but a lot – are games that came out of left-field, that did something novel. Doom created the FPS genre. Warcraft and Command & Conquer created the RTS. Sim City created the sim/tycoon genre. GTA and The Sims are spawning their own genres, too – they don’t have names yet, but call them the simulated world and the virtual dollhouse.

Yes, in all cases you can point to precursors that had some of the elements of these games – Wolfenstein for the FPS, Little Computer People for The Sims – but in all cases, these games combined things in a new way.

Think of the space of all possible games. Most of the games in that game-space will be uninteresting. But here and there, in that probability-space, are local peaks, places where some combination of mechanics produce compelling gameplay – and around that peak, there are lots of possible variations on the theme. Finding a new, successful game style means finding a local maximum in the space of all possible games – and a new audience.

The publishers would have you believe that “we know what works.” In other words, that all of the local maxima possible for “the video game” have already been discovered.

But this is insane. Innovative, compelling novels are published every year, and that’s a medium that’s 300 years old. We’re only 30 years into the gaming revolution. Additionally, games are an enormously flexible form: They’ve been created with every technology from the Neolithic to the modern. And software is an enormously flexible medium, too; if you can specify it, you can implement it. We’ve gone from three genres to dozens in a few short decades, but we’ve charted only the merest coastline of a vast, virgin continent.

And we need to keep exploring it, or we’re going to get stale.

All creative media get stale, at times; it’s happening to mainstream film right now. But film, music and comics have something the game industry doesn’t have: They have parallel distribution channels for independently created product. They have a path to market for quirky, oddball, innovative, creative work. And that path to market not only allows creative people to support themselves in a modest way – it also provides a way for the larger conventional market to discover new talent, and new genres. It provides a lower cost way to experiment – and that very experimentation reinvigorates the larger field.

The nightmare scenario for gaming is that we become like comics in the 60s and 70s – a niche, repetitive field limited to a handful of genres with no real opportunity for growth. It might even be starting to happen: Video game sales in Japan have been declining for years, and even in the US, publishers are struggling to match their 2004 revenues this year.

We Have to Blow This Up
For the sake of the industry, for the sake of gamers who want to experience something new and cool, for the sake of developers who want to do more than the same-old same-old, for the sake of our souls, we have to get out of this trap. If we don’t, as developers, all we will be doing for the rest of eternity is making nicer road textures and better-lit car models for games with the same basic gameplay as Pole Position. Spector is right. We must blow up this business model, or we are all doomed.

What do we want? What would be ideal?

A market that serves creative vision instead of suppressing it. An audience that prizes gameplay over glitz. A business that allows niche product to be commercially successful – not necessarily or even ideally on the same scale as the conventional market, but on a much more modest one: profitability with sales of a few tens of thousands of units, not millions.

And, of course – creator control of intellectual property, because creators deserve to own their own work.

Read Death to the Games Industry, Part II in the next issue of The Escapist.

Greg Costikyan has designed more than 30 commercially published games in various genres and platforms. He has written about the game industry for publications including the New York Times, Salon, and Game Developer magazine. At present, he works for Nokia Research Center’s Multimedia Technologies lab as a games researcher.