2012/08/24

2013 - enjoy 2012 as long as it lasts

You might have noticed that the frequency of layoffs in the game industry is increasing. Popcap, EA, THQ, Funcom, Sony and many more are firing people on all fronts.

Why? As noted in the last post the current sales of the consoles are declining. There are several reasons for it:

The technology becomes old
Remember the 360 has only 512MB memory while your PC already has 4GB upwards. Most current graphic cards have more memory than the current console generation. Hell, your iPhone has more memory and CPU power than the current console generation.

The market becomes saturated
That's harder to prove but older generations showed that new market segments can be penetrated by lowering the price. Now here is a problem: while older generations could be lowered as low as $99 the current one is too expensive to build due to the hard drive inside. Mechanical devices do not scale down in price as digital chips do. Of course they could put Flash memory inside - time will tell.

The $99 segment doesn't buy software
That's a fact which was learned by the PS2. As some of you know the PS2 lived longer than any other console system. It was still on sale while the PS3 already reached its peak. EA was still releasing new software on PS2 last year! The problem of course is the user base: if you save money to buy an old $99 system the reason usually is spendable income. So spending half of the console price on games is out of question. So that user base usually trades games, buy used or rent them.
No fun for software sales :(

PS1 sales by price reductions

Initial Development
So when the old generation behaves like this there is a new one, right? Well yes, but what it takes to develop software on them is rich: you need to redo your tool chain, rewrite a lot of code, optimize your engines to a new hardware setup.
Worse: as the hardware of the development kits isn't final the console is constantly changing underneath your game engines forcing you to rewrite a lot of code on constant basis.
Speaking of dev kits: these are very expensive at start, we speak of $10.000 upwards for one. If you need a team of 100 for a big game franchise you just spend 1-2 million  US$ without even having coded a single line yet.
So here we are, having spend millions on dev kits and have roughly a burn rate of 500.000 US$ per month for the ramped up team. But the consoles launch really late, maybe even get pushed late, costing us even more money.

These are all reasons why investing in new consoles is risky. But why do pubs do it then? Because the rewards are high. At start there are only a few games so you are all alone on the shelf in your genre if you are lucky. And your game will sell for 5 years - generating profit long time after the usual lifetime. And the start of a console generation is a perfect place to start new IP's which you can reiterate every year. One of these huge IP's can carry one publisher for years.

Whats why the publisher invest in the risky start of a next generation console. That is why they play safe on all the rest, reducing risky projects, firing people to save burn rate and betting safe by releasing sequels only.

But don't worry. Thats normal. And healthy. This pattern repeats everytime the console generation changes. I survived through 5 of these cycles so can you.

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