Would Another Industry Crash be Such a Bad Thing?

Playeressence’s second community opinion piece is here. Ricard Julianti is back to bring another well written, formulated opinion on the gaming industry. Check it out past the link. It’s a must read. 

Ricard Julianti here and before I get started, I would just like to thank you all for the support you have shown towards my first article here on Playeressence. I honestly didn’t expect it to be as well received as it has. I guess I am just used to the usual attitude towards anything Nintendo related. If you haven’t read it, you can check it out here. I hope I can continue to provide you all with high quality opinion articles in the future, even if they are lengthy..

Before anyone flies off the handle at the title, I am not claiming that I want the gaming industry to crash for a second time. Quite the opposite really, I love games and a crash would mean less of them for everyone and people losing their jobs. Instead of providing a doom and gloom look at what the future could hold, I want to try and take a look at the brighter side of things, should it happen.

It is no secret that studios are in trouble. EA recently laid off around 10% of its employees, THQ shut down entirely, 38 Studios was formed and filed for bankruptcy in a matter of 6 years and Square Enix performed two rounds of layoffs in less than a month, not to mention any number of other studios closing. So what’s to blame for all of this? Is it the economy, low quality games, a shrinking market, or low sales? No.

This generation has seen the market grow immensely and has gotten some of the highest rated, highest quality, and highest selling games ever, but it has also seen a great increase in budget size. Large, mishandled budgets that require more sales than some games generate in a lifetime just to turn a profit is likely the biggest component. That’s not to say other things aren’t a factor of course.

Let’s take 38 Studios’ “Kingdoms of Amalur: Reckoning” for example. The studio was formed by World Series veteran and 3 time champion Curt Schilling, twenty-two time “New York Times Bestseller” author R.A. Salvatore, and famous comic book writer and Spawn creator Todd McFarlane. 38 Studios also acquired the studio Big Huge Games from THQ since they needed some development talent. Office space was rented in Massachusetts for the studio, but then the company was moved to Rhode Island before development started.

Already we start to see a problem, big names such as Salvatore and McFarlane certainly don’t work for free or even on the cheap, and it seems extremely irresponsible to purchase an entire studio before you have an ounce of revenue. They would have been better off hiring individual developers and put them to work making the game, adding talent when it became necessary. Not only did buying the studio cost them more money than it should have, they then had to start paying the entire dev team for the work they were doing instead of hiring people as they need them.

38 Studios took out a $75 million loan from the state of Rhode Island, claiming it would bring 450 jobs to the area. This was to be the main funding for Reckoning, and ultimately its downfall. Previews of the game were generally positive, but a demo was released that was “…way more buggy than anything anyone should ever release” according to Schilling. This, coupled with mixed reviews for the game, likely destroyed customer confidence in the product. Personally, I can’t recall seeing a single ad for the game either. Sales were decent, reaching 1.2m in the first 90 days but it wasn’t even able to turn a profit. 38 Studios subsequently fired all of its employees, declared bankruptcy and has since been sued by the state of Rhode Island for the money they were loaned. Granted, this is probably the biggest horror story as far as studio closures go, but it does paint a grim depiction of how budgets are easily mismanaged when ambition gets in the way. But when a game generates over $72m in revenue and doesn’t turn a profit, you know something is wrong.

Lately, studios seem to be trying to make games like Hollywood films. Since the games are protected by the U.S. Constitution as a freedom of expression, many have felt that they should be more cinematic like a movie. The problem is that when you try to make a game feel like a movie, with all of the realism, set pieces, visual effects and complexity, it takes more people to make the game. More people means more salaries, more disagreements about what should be done, potentially longer time to complete the game, the risk of going into “development hell” and it makes the budget swell.

If the practices of this generation continue and development budgets continue to rise while games make less and less of a profit, where will that leave us? We will likely have more mobile games, microtransactions, even more DLC than we know what to do with, higher prices on games, and “games” that are more like interactive movies. The market could very well crash because the people who have sustained the industry for over 30 years will only put up with so much before they stop buying games that essentially mime each other.

I’m not saying that the industry will absolutely crash but really, would it be so bad? When a volcano erupts, it is a horrible destructive force that takes lives, ravages the plantlife and rains ash on the mountainside; creating a seemingly desolate wasteland that will never recover. But, from all of that molten rock and ash comes nutrients. Those nutrients help fertilize the area and new plants grow, animals return and life flourishes once again. It cleanses the landscape and things start anew.

When the industry crashed in ‘83, fans of video games were questioning whether or not it was a viable form of entertainment. A company known for a few arcade hits and Hanafuda cards didn’t give up and learned from the mistakes of their predecessors. Other companies saw the success Nintendo was having and decided to bring in some competition. Games were developed, consumer trust was earned, money was made, this continued on over the decades as companies rose and fell when more competition was introduced. The gaming industry rose from the ashes like plants from a volcanic eruption.

If the industry were to crash again, it wouldn’t be in the same manner as before. Consumer trust in all video games won’t be lost, but large “AAA” developers and publishers might cease to exist. Nintendo will surely be around and have the easiest time of it, Sony might face some issues if they don’t reign in their other divisions but will likely still be around, and Microsoft admittedly entered the console business in order to steal market share of the entire home away from Sony. Gaming was the easiest way to get a foot in the door, but I still suspect they will produce hardware as long as people keep buying.

However, publishers such as EA, Ubisoft, Square Enix, Take-Two, Capcom etc would be forced to be broken up, much like THQ was. Their subsidiaries would be parted out to the highest bidder or the studios would fund themselves and seek help from the “Big 3” in developing games. There’s always the possibility of the developers leaving the industry entirely or joining up to make smaller development houses that would be easier to manage and fund.

The playing field would be leveled. Indies and “mid-tier” developers would flourish, innovation and artistry would become more important than ever, developers wouldn’t have to resort to things like micro-transactions to earn our dollar, “AAA” titles would still exist but they wouldn’t crush everything in their path; they would become novel experiences rather than the norm, development costs overall would shrink to more manageable levels and things would become much more sustainable.

Instead of focusing on the negatives and assuming your least favorite company will go 3rd party, look at what would come from another crash. It doesn’t look so bad does it? I’m not saying there will be another crash or want there to be one because the thing is, it shouldn’t take an industry crash for those things to happen. It has been proven time and time again that a game with a smaller budget can become a massive success story. Just look at Minecraft, Journey, Wii Sports, Terraria, and quite possibly Shovel Knight judging by its Kickstarter success. Big budget titles have their place in the gaming industry, just like the summer blockbusters do in the movie industry. But if those were the only movies that were ever produced, would we even go see movies anymore?

Just something to think about as we enter a new generation where a budget increase is almost a certainty. Things have to change.

-By Jonathan Suedmeyer a.k.a. “Ricard Julianti”

Check out Ricard’s first article here.

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34 Responses to Would Another Industry Crash be Such a Bad Thing?

  1. jesgrad07 says:

    This article made me think of this video http://www.youtube.com/watch?v=XZxXEidtxHk

  2. Sid says:

    More exclusive games for the Big 3 and less 3 party games in the near future?, great article Ricard

  3. Intel says:

    Great job Richard on another insightful article. Hope to see more in the future. Furious your articles rock.

  4. gameflow says:

    Interesting to read and always a great topic. I don't think we will have this kind of "crash" like we had back in the 80s. I see it more as a slow “drowning” process and I go even further saying: we are already in it.

    It reminds me a little bit of the music industry. In earl 2000s there were some big changes in the market and the market structure itself. But not many people outside the music biz really realized that. EMI was gone, Virgin as well, Sony bought BMG and so on. And now we just have three big companies dividing the market under each other (and yes there are still some small labels, but most of them belong to one of the big 3). This process was really slow and not this kind of big bang. Even I am not a big fan of "semi-monopoly" situation where only a few companies control the market, I think this slow process was better for the industry. They had the time to react and time was what they needed the most. I think almost everybody still remembers the headlines how mp3 will kill the music industry and how the big labels "hated" this new technology in the beginning.

    What I am trying to say is, that I see a lot of parallels in the games market. Just think about what happened the last year. How many studios have been closed or been bought by big companies…or IPs have been sold for almost nothing (see THQ)? Even with all that bad things surrounding a situation like that (people losing jobs), I hope that this maybe have the same impact as it had in the music industry. What the market needs is more carefully thinking about strategies and not jumping onto every bandwagon. Because the last couple of years every (big) company thought that games need to become bigger in production and this led to this insane explosion of production costs. And with a oversaturated market everybody was surprised that games sold so "bad" and even selling millions of copies was still a disaster.

    About your point with mobile and free2play: Yes we will see even more stuff happening in this area. Especially big companies trying to fit in that. For example some rumors say that Ubisoft is working on 8(!) free2play/mobile games. As working in the free2play market myself I see some problems surrounding this hype. I feel like the industry is always aiming for the "promised land" where everybody can make tons of money and they are extremely surprised when suddenly this turns out to be a market as any market before (with the ups and downs). As an example I talk about Social Games. Anybody how attended at any (european) Game Developer conference a few years back, "facebook" was the next big thing. And now some years later "facebook" is suddenly not that great, but mobile will be…and I can tell you: In the 3-5 years mobile will be oversaturated as well. But this is a totally different topic :)

    • Titan64 says:

      So many different parallels yet it all falls in line. I compare this crash as more or less different individual castles where the graphic whores keep knocking them down. And I seriously think we need to have a topic on mobile gaming.

  5. koopzilla says:

    Nice article. We were just discussing this a day or two ago on another story, so I'll try to keep this short. But, I have been saying for years now that Sony and Microsoft are pushing the graphics too far too fast, and Nintendo actually has made a smart move stepping back from that a little. Of course, developers could simply not try to squeeze every ounce of power out of the systems to make them look as pretty as possible, but that doesn't happen. Why? so many people demand this of them, if the graphics aren't bleeding edge, it is crap (and if it is not over the top violent it is for kids.)

    (Warning: I'm about to go off on a rant about "hardcore gamers" here) This generally comes from ones who call themselves hardcore gamers, and anyone who doesn't exclusively play graphic heavy FPS games with plenty of guns, killing and explosions are not hardcore, I have plenty of games that are pretty violent, but I don't feel that makes a game good, or that that is the only thing a real "mature" if you will, and "hardcore" gamer should play. I have a huge problem with this whole hardcore vs casual thing that has only popped up since about when Microsoft entered the console business coincidentally, not that I'm saying Microsoft is responsible for this, just an observation, I have been playing games since the Atari 2600, and never heard of this until about that time, in fact I own over 600 games and over twenty systems (that's not counting ones I own multiples of or different models of the same systems etc) however I don't seem to fall into the category most have of Hardcore Gamer because I DON'T play FPS's or war games and the such, and don't give a shit about the graphics as long as the game is good and fun to play, I'll take Super Mario Bros. any day over Call of Duty. To be honest, I feel most of these "hardcore gamers" are really the casuals, they haven't been around long and almost exclusively play one type of game. But, I don't care and don't categorize and look down on different types of game players. Well, except these types who piss me off, because they think they are some master race of real gamers, while I know way more about the history of games, have spent more time in my life playing games, play games from many different genres, etc. I could go on and on about this, but I'll just leave it at that. Sorry about the rant but that is just something that annoys me to no end.

    Anyway, this demand for the best graphics ever is what I feel will cause another crash. Budgets skyrocket, other things (which I feel are much more important to a good game) like gameplay, story, etc fall to the side and suffer. These games must sell multiple millions to break even. This forces them to make games they consider a safe bet, and narrows the types of games we get. Just look at all the FPS's we have gotten in the past 10 years. And all this for marginally better graphics, because lets face it, the difference just keeps getting smaller and smaller, and is costing more and more to do.

    This is where I think Nintendo has it right. The games cost less to develop, however still look really good. I also don't feel that solely making better and better graphics is going to sustain the industry, and Nintendo are the only ones I see trying to innovate and come up with different ways to play games (you know what everyone cries about being gimmicks). Of course, the other companies see what Nintendo does, makes sure it is well recieved and later implements that, either in their own way (Kinect), or blatantly imitating (Move). But without Nintendo around what would change besides the graphics? Now I guess maybe Sony or Microsoft would step up in Nintendo's absence, but they aren't doing it now, and there's no way of knowing if they would. For these reasons, although so many people constantly claim Nintendo will be going third party, I think they are the ones that would survive a crash and revitalize the industry once again. Third parties should be all about developing for Nintendo systems, but they seem to be blinded by the pretty graphics.

    Well, so much for keeping this short, but that's the way I personally feel about the situation.

  6. AaronB says:

    The huge success of a few franchises like Skylanders and CoD are helping to prop up their respective companies. If people get tired of their next versions, they'll be hurting – perhaps even into Square Enix territory, with how expensive those will be to produce and market.

    The latest installments of series like God of War and Gears of War don't seem to have sold that well. Victims of consumer fatigue, perhaps. Bottom line: there's a shrinking list of (virtually) sure-fire money-making series left. It wouldn't be shocking if more big developers go under. Nintendo still has its franchises, but the next Mario Kart can't sell 30 million like the last one did with the Wii U install base being under 4 million.

    The indie market is kind of encouraging, in that you know there will always be creative things coming out. Profits will be squeezed, though, as that market gets flooded so badly it makes the Wii library look like every title was a gem. I personally am getting sick of .99c games, or freemium games that are a pain unless you keep spending money. They always seem to leave me thinking I would have been much happier spending that time and money on a real console game.

    I'm still confident that the Wii U should do at least as well as the GameCube, and have at least a dozen real classics (mainly first-party). I also think quite a few other very good games will come out in the next few years. However, I think profits will be tight for most and a lot of developers will fold.

    • RicardJulianti says:

      The Wii U will most certainly have an install base of larger than 4 million by the time Mario Kart comes out and I fully expect Nintendo to bundle it with the system at launch. It will help boost sales and profits as Nintendo will likely be making a profit on every Wii U sold at that time as well. If Mario Kart came out tomorrow, I would agree with you wholeheartedly as the video game market slumps in the summer months.

      Not saying that it will sell 30m units , but it will certainly make a profit for Nintendo and it is the kind of game (much like NSMBU) that will continue to sell over the course of the console's life. None of that "First 90 days" garbage that you see with other franchises.

      I think the indie market will suffer the most on something like Ouya or the 720 (if the rumor about MS allowing development on the platform for a $60 fee is true). With such a low barrier for entry, anyone who is anyone can make a game. I can't code, or draw, or know anything about balance in a game, but I can write music and it would cost next to nothing for me to try, so why not? On the Wii U, there is at least the barrier of somewhere between 3-5 thousand dollars and there has to be an actual game there, and I think maybe a slight history of published games…nothing major but none of that first timer poorly coded stuff. There is still and approval process.

      Lots of indie games are being pushed through Kickstarter which is a bit of a boon for indies as well. The backers get their game for "free" since they funded the development of it, but literally every sale that isn't from a backer is pure profit for the indie. Something like Shovel Knight could easily make loads of money for the developer.

      I believe personally that the Wii U will pull at least N64 numbers (32m), maybe SNES numbers (just under 50m) but possibly more if things go in a particular way. All Nintendo needs to do is get the value of the console up to the less-hardcore/casual market (the ones who buy the majority of systems, regardless of company) and it will start to sell quite well. It will also be easier for Nintendo to drop the price of the Wii U in the future as Sony and MS will likely be taking $100-$200 losses on each console sold, so unless sales REALLY tank, they won't want to take much more of a hit, especially Sony.

      • Furious Francis says:

        I feel Nintendo could do more than the NES (60 million) if they released a full scale Pokemon game on the Wii U. That would force everybody is Japan to buy a Wii U.

        It's just a matter of getting the big games out there. Wii Fit U, Wii Sports 2, Mario Kart, new 3D Mario, these 'evergreen' titles will continue to push units years down the line.

        However, a full scale Pokemon game on Wii U would be the tipping point for many people to purchase a Wii U. Hopefully Nintendo releases one at some point in the Wii U's lifecycle.

        • RicardJulianti says:

          I will be curious to learn how Pokemon Rumble U does in Japan. It's a download only title so we won't get Media Create or Famitsu numbers for it so it'll have to come from Nintendo. They have been surprisingly open about digital sales recently.

          If they reissued the cards with NFC, had an open world with a Stadium where you could do battle…..it would explode and be extremely profitable. You could either catch and train Pokemon in the main game, or buy cards. Trained Pokemon will be stronger, but you could get a rare Pokemon in the card pack and depending on the level of the opponent or maybe have a level class type system, the card Pokemon would be scaled to match with stock moves avoiding a "Pay to Win" model. The trainer could overcome with brute force, but the purchaser could win by using strategy.

          They could also include healing items in the card packs so that it isn't a deck of all Pokemon. You could still buy them from the main game and use them as you wish, but still be able to use the cards to heal if you wanted. Maybe with only the ability to use each card once in battle or a set number of times so you don't end up with hundreds of healing items that you'll never use because all you need is one of each.

          …..why don't I work for Nintendo? They would make so much money off of that idea.

          Edit: Also, this might help a little if brand confusion really is such a problem as people suggest: http://kotaku.com/wii-owners-nintendo-really-want

          Kotaku is blowing it way out of proportion though. Kotaku bein Kotaku I guess.

          • Furious Francis says:

            Sorry, I won't follow the link, I refuse to give Craptaku hits.

          • RicardJulianti says:

            Haha.

            Nintendo has pushed out a message to all Wii users that says,
            " It's Time to Discover Wii U.

            Wii U is the all new home console from Nintendo. It's not just an upgrade—it's an entirely new system that will change the way you and your family experience games and entertainment"

            There is more to the message, but whoever took the picture in didn't include the rest. The question is really how many Wii's are connected. I'm sure Nintendo has those numbers and wouldn't just shove a message out there if 85% of Wii's weren't connected to the internet (as I've seen some people suggest)

            They could probably take it a step farther and send out messages about Nintendo Directs so they watch them, get enticed by the awesome looking games and then buy a Wii U as a result. It's an interesting strategy and I mean….it's relatively free.

        • AaronB says:

          I think the last thing Nintendo should do right now is try to make money off the Wii U console itself. Sure, they should make the manufacturing as efficient as possible, but then they should take advantage of those savings to price aggressively. Wait till MS and Sony release their pricing schemes, and then come out with bundles (yes, preferably including Mario Kart) that offer far superior value. Offer more goodies to reward early adopters (things that will be valued but won't cost Nintendo much; like the ambassador program). They'll make their money with the increased sales of games later; but they've got to get the console into homes.

          It's odd to me that Pokemon is still such a big deal, when it seems like the peak of popularity with the tv show was so long ago. I hope we get something that has that effect of driving sales through the roof, but I don't know if the new Wii Fit, Sports, or Party can do it. Certainly they should put out those games and market them, but it will be hard to recreate the numbers of the original ones.

          I think Nintendo should really make a strong push into RPGs ("X" looks great, but it might take multiple titles to persuade RPG non-Nintendo fans to buy the console); keep seeking out partnerships (get the new project from successful small studios, like the strategy game the guys from Minecraft are doing). They could sell the most consoles this gen, especially if MS and Sony stumble (really early to tell what will happen with them; especially MS).

          Thanks for the replies, Francis and Ricard. I like reading your stuff.

      • Titan64 says:

        "I think the indie market will suffer the most on something like Ouya or the 720 (if the rumor about MS allowing development on the platform for a $60 fee is true). With such a low barrier for entry, anyone who is anyone can make a game." This part made me sick. The cellphone mobile gaming market would crash and burn if that were to happen.

        • RicardJulianti says:

          I think the SDK for Ouya is a free download…..so I could start coding tomorrow if I really wanted to.

          Ugh.

          • Titan64 says:

            I dont want to sound like I hate the Ouya but at this point in time, I am not enthusiastic about it.

          • RicardJulianti says:

            Agreed. It may have "discovery algorithms" to help keep garbage at the bottom, but algorithms cant tell if a game sucks simply because it exists. People have to play it (bumping it up on the popularity scale) and then remember to leave a negative review (which would drop it back down) If people don't rate it, the algorithm fails and the game is listed as popular, so more people buy it and so on.

            There is nothing to prevent people with malicious intent from writing a "game" with malicious code that could be used to steal passwords and banking information. The system is advertised as hackable for crying out loud. I'm not sure there is even an approval process for games…….they have over 10k developers signed on (possibly meaning they just downloaded the SDK) which means there will be at least 10k games available from the get go/early on. Yikes. With the lack of an approval process, malicious people could include the line of harmful code in the trial version (if that is a thing) so it wouldn't even matter if they spent money on it.

            I don't think the thing would be carried at Walmart or Target or maybe even Gamestop (because what's in it for them without disc based games?) so people might not even know about it at all or will have a hard time finding it if they do want it.

          • Titan64 says:

            I don't even think Steam has that many games and I do have some problems with Steam sometimes.

  7. xx598ghxx says:

    awesome totally agree but 4 me I wish for an industry crush to let some companies learn and return gaming to where it was 8 years ago 2005 was the last year I think was soo awesome after that the gaming industry was ruined by shooters

  8. sergio111293 says:

    I wholeheartedly agree with this. Graphic whores need to disappear lol.
    Don't have much more to say, Nice work. :)

  9. NS3210 says:

    These so called hardcore gamers are nothing but fakes. Judging and looking down upon any game that is not M-rated, bloody, or overly violent with guns. If anything I predict a shift in the industry as the Wii U will be the choice due to the cheap development costs. I also predict that Japan will once again rise to the top, this year alone there has already been highly acclaimed Japanese titles such as Ni No Kuni, Fire Emblem Awakening, and Luigi's Mansion: Dark Moon. The reason why I prefer 6th gen over 7th gen because there was an overall balance in genres and both western and Japanese titles. Not only that but the focus on graphics were no where near as bad as it is now. Like I said in another article, the crash is gonna occur in the west just like it did back in 1983. Gaming trying to be like Hollywood is one of the worst things to have happened in the industry. If the west crashes, alot of these hardcore gamers will flock to PC or just quit gaming at all because they think that touching a Nintendo console will give them AIDS. The less mainstream gaming is, the better.

  10. gigantor21 says:

    Great post, Ricard.

    At this point, I'm just assuming that this "correction" or "pruning' is not only inevitable, but will happen next gen for sure. Despite having nearly 8 years, the industry never did figure out how to make the numbers work this gen, and I fully expect the biggest players to pull average budgets up even further anyway.

    Something has to give. And budgets won't even have to go up that much for the reckoning to happen.

  11. Ogya says:

    Well written Ricard. Maybe we need a mini crush to reign in the increase in development cost while increasing the Indie and mid tier developers :).

  12. MrSilver says:

    Its great to see this article, since we were basically talking about this very thing a couple days ago. Congratulations on another masterpiece!

  13. timg57867 says:

    Great article Ricard. I really blame all this on all the "hardcore" gamers who feel any game that doesn't have guns and blood in it isn't worth their time. I don't want the industry to crash, but if it did, then maybe those rotten gamers would move on and allow a new of wave of more accepting gamers to allow the diversity that characterized the industry prior to this generation.

    • Titan64 says:

      I said the same thing. I would've said PC games but I know a couple of PC gamers who don't act like that. Some people think that 30 FPS is unplayable. Its a sad state affairs if gamers walk out if their game is not 60 FPS.

  14. Amigaengine says:

    Great read Richard.

  15. Frank Urbanski says:

    Completely agree. I fully expect there to be a "crash", but I suppose I should call it a "pruning". The companies dragging the industry down will be weeded out, and the companies and games worth our time will get more attention. The industry will be in a good place eventually (within 5 years, maybe?), but only because we'll have to go through these bad times.

  16. RicardJulianti says:

    Excellent picture choice, haha.

    Look forward to hearing comments and discussion!

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