Going (for) Broke

It is no secret that America’s economy has been reeling for the better half of the decade. Although the gaming industry has been referred to as “recession proof” thanks to regular growth and expanding revenue, the pockets of gamers and game makers alike are ever tightening. Consumers are looking for the best value for their dollar, and studios are looking for the same. A quick glance at the news feed of one’s choice would reveal layoffs nearly across the board for major game developers and publishers. It’s hard for consumers not to equate such developments with an inevitable drop in quality, but this sudden restructure within the industry seems to be leading to just the opposite.

There’s no denying that the gaming industry has been an economic force for the past ten years.

There’s no denying that the gaming industry has been an economic force for the past ten years. While the United States economy has sat nearly stagnant since 2005, the gaming sector has seen a 10.6 percent growth. The problem this has caused, though, is oversized companies. It’s the same issue that brought the dot com boom and bust in the late nineties, and the effects are starting to show. Even successful game developers have been unable to maintain their staffs under the current model. Companies like Electronic Arts have been seen profits in the red despite over $3.5 billion in revenue last year. Some major developers have cut staffs by over 25 percent in attempts to keep their heads above water and their profit in the black. Nearly every press release that announces another desk emptying or door closing contains a common phrase: “Restructuring.”

If there is any clear indication that the old model of game development isn’t working, it’s the events of LA Noire developer Team Bondi. The group created one of the top-selling games of 2011, the fastest selling new intellectual property of all-time in Europe and a chart-topper in the United States for over two months. Now the company is being liquidated for parts while their employees wait to receive over £1 million in unpaid wages. If one of the best-selling games of the year can’t recoup enough to pay the employees who made the game, how does any company expect to maintain this failing model?

To put it simply, they can’t. That’s where the restructuring is taking place. The model of spend big money to make big money doesn’t apply any longer. Gamers are starting to make decisions with their wallets. When they do make the decision to open their billfolds and fork over their money, they want to make sure they’re getting the most out of what they’re spending. If the past few years have taught anything, it’s that the best way to loosen the pockets of gamers is to give them quality content and value. There’s perhaps no better indication of this than the success of downloadable content. It’s something that all gamers are familiar with at this point, whether they have made a purchase or not. It explains why the average Call of Duty: Black Ops player has spent $76 on the game and FIFA 10 generated more revenue from downloadable content than sales of the physical disc. It should come as no shock to anyone that if gamers like a game, they usually want more of it.

The best part for developers is that DLC makes perfect sense financially. Take-Two Interactive’s CEO Strauss Zelnick perhaps explains it best, as he stated to the ThinkEquity 8th Annual Growth Conference, “Once we do the core development, which takes a long time and is pretty hard, doing the development related to the DLC in a high-quality way is a lot easier and a lot quicker.” Having more content made available quickly is an ideal situation for gamers, who are often left wanting more of a game and forced to wait for sequels to go through the development process. No longer is the case with DLC, which involves just building atop an already established world on existing hardware and engine. There’s less cost associated with creating the content, and most fans of a product are willing to drop an extra $10 for a few more hours of game play. However, there is another area that gaming companies are beginning to focus on.

While DLC will no doubt be a force for console and PC gaming, the financial future of gaming as a whole may lie with a different realm all together.

While DLC will no doubt be a force for console and PC gaming, the financial future of gaming as a whole may lie with a different realm all together. Social networking platforms and iOS devices are beginning to take their positions as the focus of the gaming industry. Game developers are taking notice. Disney hit its games division with a massive layoff, cancelling major console projects along the way, in the name of focusing on social gaming. Electronic Arts bought up PopCap Games in hopes of turning big profits by bringing PopCap’s proven franchises to new platforms. It may be hard to believe, but the financial foundation being laid to continue with the development of massive undertakings like Battlefield 3 is coming from things like The Sims Social and Peggle. And it’s happening because of where gamers are investing their time and money.

Take a look through the news feed on any social network site and odds are good that a friend will be playing some sort of game. There are millions upon millions of people actively playing games every month, so the likelihood of not being friends with any of them are extremely slim. The likelihood of not being made aware of friend’s gaming habits is even slimmer, as social games have a knack for talking for the player. An immeasurable amount of posts from social games are made every day, but what can be tracked is how much gamers are plugging into the games. Zynga pulled in $850 million in revenue in 2010 from people who paid to maintain virtual farms and cities. Social games keep gamers talking and spending, as interaction drives more to play (and pay).

Perhaps just as pivotal as social games are iOS developments, which have a knack for disguising addictiveness in the form of simplicity. Apple’s mobile operating system plays host to some of the current largest gaming franchises, including the international hit and media powerhouse that no one can quite explain, Angry Birds. The model for iOS games is simple: Make something easy enough that anyone can pick up, create some sort of system that adds a little competition or incentive for playing, and watch everyone in the world buy the game and compare scores. The final step in Angry Birds developer Rovio’s business model includes somehow becoming the next Pixar and getting grown men and women to wear shirts with cartoon birds and pigs on them, but not every company can make that leap.

One can’t take the game out of gamers, even when they are away from the traditional platforms. In an economy where buying $60 games every month may be out of the question, spending small increments and still getting a gaming fix seems to be a more reasonable solution. The biggest change that this is bringing about, it would seem, is the introduction of these games to an entirely new audience. People who spend time on social networks, but don’t game, see posts from their friends’ latest game and click to join in. Apple happily promotes games that are top sellers in the App Store and on commercials, giving them exposure to those who are looking for new ways to entertain themselves through their boring business meetings. These are people that were otherwise untapped in the gaming market that are now spending a few extra dollars each month to get into new games.

If there is one thing that gamers should remember, it is that game companies cannot profit without their support.

Despite changes that have come based on where and how players are spending their money, some companies haven’t totally caught on quite yet. For example, because of its regular promotions and support for independent game makers, gamers almost universally revere Valve Software’s Steam distribution system. Electronic Arts tried to throw its hat into the same ring with a similar platform called Origin, but has found its fair share of detractors and boasts a less-than-friendly Terms of Service agreement. In a similar public debacle, EA Sports’ Tiger Woods PGA TOUR 12 for the PC operated with a micro-transaction system that required the player to spend real life money to upgrade in-game equipment and clothing and has its online play is only available through a pay-per-play or pricey subscription service called Tiger Woods Online added onto its initial $39.99 price tag.

If there is one thing that gamers should remember, it is that game companies cannot profit without their support. By choosing to spend money on downloadable content, social games, and handheld games, gamers have set a precedent for what it is they want from developers and publishers. They have made their demands clear through their willingness to spend on games that are bringing value, interactivity, and addictiveness. It’s now time to watch how the industry will respond. The business of videogames has proven to be a profitable one, with plenty of room for growth. It’s not just a matter of the industry growing with its clientele.

AJ Dellinger is a freelance writer from Madison, Wisconsin. His work can be found on various sites across the web and on his personal blog. He also occasionally writes bylines about himself in the third person.