Video Game Makers Challenged by the Next Wave of Media
SAN FRANCISCO — Booming video game sales are masking a serious concern for game makers: their economic model is in peril. Game companies are taking in more money, but, in many cases, not profits.
he market has expanded greatly, with more women and older gamers playing. People are playing on consoles, computers, cellphones and hand-held gadgets. But a proliferation of free or low-cost games on the Web and for phones limits how much the major game publishers can raise prices. It also diverts attention from the game consoles, like the PlayStation 3 from Sony and the Xbox 360 from Microsoft.
“The model as it exists is dying,” said Mike McGarvey, former chief executive of Eidos and now an executive with OnLive, which delivers games from the Internet. He said consumers were looking at games for consoles and saying, “This is too expensive and there are too many choices.”
Industry sales grew 19 percent in 2008 compared with a year earlier, the kind of sales growth that would thrill many industries during a deep recession. And yet the list of money-losing companies includes top names in gaming: Electronic Arts, Take-Two Interactive and THQ. Dozens of smaller game studios selling games for download and the mom-and-pop companies offering ad-supported “casual games” on the Web are still trying to figure out how to turn their millions of players into profitable customers.
On Monday at the Electronic Arts headquarters in Redwood Shores, Calif., executives and managers will gather to discuss how the company can adapt more quickly and effectively to the emerging media.
Jeff Brown, a spokesman for Electronic Arts, the biggest game maker, said the company was trying to stay ahead of a curve. It took in $4 billion in revenue last year, nothing to sneeze at, he pointed out, but the company sees potential trouble ahead if it fails to adapt. “The smart companies are mindful of what’s on the other side of this thing,” he said.
The problem is a marked shift in the economics surrounding the PlayStation and Xbox consoles. Makers cannot charge enough or sell enough games to cover the cost of producing most titles. As with the Hollywood movie studios, video game makers have to hope for a blockbuster.
The cost of making a game for the previous generation of machines was perhaps $10 million, not including marketing. The cost of a game for the latest consoles is well more than twice that — $25 million is typical and it can be much more, industry executives said.
Games sell for about $60, but the sales of most games do not come close to covering development costs or the additional costs of licensing fees to the console makers, marketing and the merchants’ cut.
The industry might be in better shape if it could sell a million copies of each title. But the majority of games, analysts said, sell no more than 150,000 copies.
Reggie Fils-Aime, president of Nintendo of America, said publishers of games for its Wii console needed to sell one million units of a game to turn a profit. He said that was a lower threshold than for the other consoles. Only 16 out of 486 games for Nintendo Wii game machines have sold more than one million units as of March 1, according to NPD, which tracks the sales of consumer products. (Nine of the best sellers are made by Nintendo.)
Mr. Fils-Aime said Nintendo recognized the economics were changing when it developed the Wii. He said the company deliberately did not add high-definition capability to the Wii so games would be cheaper to make.
“Budgets are well outpacing the cost of games on shelves,” said Shaun McCabe, production director for Insomniac Games, which makes the popular game Resistance 2.
Industry analysts said that if the user base of the PS3 and the Xbox 360 were larger, then more games would be sold, giving publishers more revenue to cover their costs. About 20 million PS3s and 28.5 million Xbox 360s have been sold. Nintendo has sold about 50 million Wiis worldwide.
But game companies say there is a bigger force at work: the proliferation of consumer choice in the game industry prevents them from raising prices on console games. Games for iPhones are considerably cheaper; indeed, many are free. Crash Bandicoot Nitro Kart 3D, a racing game that has been a longtime favorite on the iTunes App Store, costs $5.99. Zombieville USA, another top seller, is only $1.99. Games made for downloading onto the Xbox 360, PS3 or Wii cost $10.
“Video games used to be the type of entertainment that sucked dollars from TV, music and the box office,” said Evan Wilson, an analyst with Pacific Crest Securities. “Now, inside the video game industry, it’s having its own internal distraction issues. There are lots of options.”
Companies are adapting in different ways. To reduce the cost of production, some are laying off staff or hiring cheaper staff overseas in China or India.
Some game companies, like Disney Interactive, are building games around familiar characters to make the games easier and less costly to market.
Another company, Gazillion, plans to experiment with subscriptions to games inside virtual worlds based on superheroes from Marvel Comics. The games will be part of a broader blitz that will include animated TV shows, free online games and other properties. Other companies are displaying in-game advertising or selling virtual goods to wring out more revenue.
One site owned by Nickelodeon, AddictingGames.com, offers free, casual games for the teenage market and attracted 11 million users last month. Dave Williams, senior vice president for the Nickelodeon Kids and Family Games unit, said casual games and even the more graphically rich games were heading toward an ad-supported business model.
“We see this notion of games as a media rather than as a product that you sell,” he said, comparing the model to TV. “You consume media on television, you don’t buy it.”
Источник: nytimes.com
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