Dare to do it for less!

by Fred Hasson Executive Director Redbedlam, and Chair EGDF OnLine Grouping.



As wide-eyed newbies cotton on to the industry they not long ago turned their noses up at, statements such as, ‘Its bigger than the film industry’ get trotted out with repetitive cringeworthiness.

Judgements based on a little bit of knowledge can often be worse than none, and for 8 years British civil servants and government have been the first to prefer to swallow hubristic rhetoric than believe the evidence placed in front of them, particularly if it gave them a neat way out of showing any support for an industry that is still pilloried in the press for cheap sensational headlines. The combination of this and the bare knuckle wing of the UK games industry has meant another rendering of the charge of the UK industry light brigade.

But the tide is turning, and the sudden exposure of the dangers of industrial and economic policies anchored in unabated mass consumption and various services based on gambling, plus evidence that the UK’s 3rd position in the global development stakes back in 2000 was about to be downgraded to 5th by 2009-10, plus an opposition party that has been brave enough to grasp the importance of the industry to providing modern jobs with skills that produce something and that will extend into other walks of life, is tipping the balance in favour of the industry being taken seriously.

So watch out Quebec and Ontario, because UK tax breaks for the industry to match what we were told for years were your illegal ones, are very much on the political agenda.

And yet who knows whether these can really make a difference? For sure in Canada, a significant number of jobs and investment have been created, but tax breaks on their own may not make much difference. The palpable migration of European developers to Canada is without doubt linked to these but to other fiscal measures too such as personal tax breaks and external factors such as the quality of life in which Canadian cities did very well in the recent Financial Times quality of life survey, are also part of the picture

But there is another angle lying behind the hubris inducing industry sales figures which is perhaps more important, and that is the vulnerability of the current dominant value chain in the sector which is responsible for more than 80% of these revenues, and which is based on the relentless destructiveness of the console cycle.

In this very real scenario, the players in the console hardware stakes offer the product at a subsidised price to grab market share, and together with publishers make games for these by gambling a lot of money on content for the new machines that have a cat’s chance in hell of making a profit due to the low installed base. The prize they all  chase with too much eye on their competitors and less on thinking out of the box (pun intended), is the evolution of a new franchise that will repay the losses on the majority of games published for years to  come (and if they backed the winning console). Repeated every 5-7 years.

The astronomic rising sales revenues hide a deep malaise in this part of the industry that is only just being recognised and articulated, as it was with the comments made by Bobby Koteck, Activision boss at E3 recently, who is quoted as saying that launching a game that one wishes to become a perennial franchise on console and high end PC now costs $45-50m to write and a similar amount in marketing at launch.  Even if prices hold at $60 and Gross margin per unit holds at $30 after reserves, breakeven units exceeds the 2.5million unit mark.
 
So except for sequels, "gesture games", subscription games, puzzles, and casual games on consoles, it is extremely expensive and risky to greenlight any "new concept" game in the console sector.  And brand new front line game units per installed console are dropping as heavy users discover the abundance of free games on Facebook,  i-phone and on various portals and second hand games sales at retail.  Koteck is not the only console dependent publisher coming to similar conclusions.

So can tax breaks make a difference as the development community that underpins the industry now faces a major challenge, to defend these colossal revenue figures whether it is in Canada or in UK?  And can the part of the  games industry dependent on console boxed product, like the TV, film, and music industries now also facing its own digital disintermediation challenge, take the new opportunities available through digital distribution by going direct to users, and to get it right? Who knows?

At present it looks like the legacy of testosterone fuelled budgets lingers with developers who have at least had the nerve to move into MMOGs (the natural successors to the epic console game) but not to build for smaller budgets with several  recent and current MMOGs a victim of the ‘throw money at it’ school of practice.

We at Redbedlam we are well positioned to help those who have the nerve to come to the experts and spend less on building  and maintaining MMOG’s, to avoid risk and make more money, check us out by mailing me on fjh@redbedlam.com.