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Is Gaming Headed for Another Crash?

Today’s editorial comes thanks to a listener (@Ares_0926) who posed the following observation: “…THQ and Atari, cyclical market consolidation or victims of the economy?  [What about] Acclaim and Midway?  [Is there a connection] to the crash of ’85 and the post-NES consolidation[?]”  Again the sentence structure is extracted from tweets so I had to fill in the gaps a bit, but he brings up a great thought.  Where is gaming right now?  As companies downsize, disappear, and things start to look a lot like the marketing term “big fish, little pond,” are we seeing history repeating or is this something different.

acclaimAt the top of this year, troubled publishers THQ – whose properties have now been sold piecemeal out to various companies – and Atari, Inc. filed for bankruptcy.  In actuality Atari is just in need of $1 million or so, which is honestly not a large sum, to restructure and will most definitely live on, but filing for bankruptcy is never a good thing and Atari has been down this road before.  When we’re talking about publishers going down it’s important to note that unlike developers, who can close from time to time and take down sometimes hundreds of employees with them, publishers often own and operate multiple developers and are often not saved at the zero hour like most of THQ’s studios.  A publisher is the monetized backbone of any successful studio and also the gatekeeper as to whether a project lives or dies.  When this ship goes down no one rushes to save it, it’s left to sink until the other publishers can come in and pick the leftovers clean.  In some cases those leftovers offer very safe passage to a new opportunity – Relic moving to Sega seems like a great move and they sold for the most money in the bankruptcy – but others that have seen less solidified investments, such as Darksiders developer Vigil Games, who was abandoned and closed down completely.  I don’t care what anyone says, it’s not good for the industry to have a publisher of any kind close, despite the real fact that it’s often none other than an administration’s inability to make smart business decisions, and as of late the number of closed publishers is far too great.  Acclaim, Midway, THQ, Atari – these are publishers that ushered in the beginning of video games and in many cases survived the video game crash of 1983 (it’s near the bottom of the article) and thrived moving forward.  These fossils of golden age gaming are now going extinct and the market is consolidating more and more.  These days the two giant publishers out there are Activision (Blizzard) and Electronic Arts (EA), both companies that started as small indies to give appreciation and thanks to those that make video games.  Oddly enough they have made some of the most poor decisions in streamlining gameplay, genre, the need to sequelize properties, and pathetic marketing all with the developer as the only thing to gamble with.  As you gaze upon the contemporary landscape it makes you wonder: are these market conditions or is it something more?

Market Status

This is just a basic overview of the current gaming market and factors as to why we are seeing the trends we do.  Since it’s not my job or the focus of this article to speculate, it will run dependent only upon conditions, factors, and releases from the end of 2012 going back.  It’s a very different world than it used to be and everyone is just trying to figure out where gaming is supposed to fit.  Unlike previous console cycles, several factors differentiate the current market and help to explain these companies closings:

  • Consoles are no longer distinct:  Let’s face it, there’s not a whole lot of difference between an Xbox 360, a PS3, and a PC.  In fact, now that WiiU has released, the signature Nintendo diversity in gaming (that 3rd party publishers were never really on board with anyway) has somewhat dwindled.  Despite numerous editorials, articles, and businesses devoted to differentiating this version of Borderlands 2 and comparing screenshots of Sleeping Dogs, the hard fact is that it doesn’t matter what console you own anymore.  For the most part everything is everywhere, which from a publisher standpoint is how it should be.  The hardcore gamer these days just has to consider simple factors based on preference (ie: online network, graphical integrity, budget), but in truth you’re not missing out on Far Cry 3 if you have a 360 instead of a PS3 or visa versa.  No publisher views exclusivity as a good thing anymore because the gamble is just too great, and this in turn pushes the industry towards a single “console” future, which I assure you just means that PCs will start having generational standardization once consoles disappear.  On the other hand, console manufacturers (and subsequent software publishers under the same umbrella) Sony, Microsoft, and Nintendo need to be solely focused on exclusive properties.  I can’t fathom why Microsoft closed so many publishers as of late, although they are in a unique position with other business ventures, because as the console concept falls these publishers will need to switch focus like all other publishers to protecting the money-making properties they want mass distribution on.  Ares touched on this when he referred to “post NES consolidation,” which was a time in the late 80s where everyone seemed to consolidate as they all descended upon one console: the NES.  This will happen again, only this time it will be a single console, what we think of today as the PC platform.
  • tabletMobile is King: During this generation we became obsessed with mobile properties.  Not only that, technology finally caught up and for a reasonably low price you can now have a portable computer that is almost as strong as your home computer, that also makes calls, and is a necessary purchase these days.  It has nearly destroyed the portable gaming market and for the first time since the Gameboy, portable consoles are no longer for the regular commuter or the businessman who both have cell phones with Angry Birds. They are for kids and hardcore gamers once again.  Not only that, but with no strong reason to justify needing another console cycle, the current cycle has overextended and made manufacturers nervous.  It’s a battle for your budget and your living room, and just ask any host on our show, mobile is winning.  That $600 I spent on a Playstation 3 in 2006 is now for an iPad and this holds true across a majority of the US population.  The budget is (and always has been) the same and the decision has to be made on what it is to be spent on, which is not a new console.
  • Price is no longer fixed: Ironically few publishers seem to get that even today.  Is it really true that Ignition’s Shane Bettenhousen, who had a past in games journalism before business management, is the only person who gets why Deadly Premonition is a massive success at $20 and a pathetic failure at $60?  Games should not all be on a fixed price point anymore and publishers need to get over this concept of marketing budgets, major tangible releases, and single price points for consideration.  If we see a more free-formed marketplace that emulates the movie industry so that the focus is bottom line dollars in gross sales as opposed to units sold at a fixed price, we might start seeing everyone benefit.  It’s not a suggestion, it’s what is happening, and if publishers don’t get a better business development team on the case that understands this soon, they will suffer the same fate as those that have already fallen.
  • Digital Distribution: I’m tired of hearing that the country doesn’t have Internet, that the digital format doesn’t work, and that there’s no way to get those without constant online connectivity, access to products.  This is simply not true.  Apple doesn’t seem to have a problem at all and with a GameStop in every square inch of the US to the point they are starting to rival Starbucks (and yes, I know they just dropped all plans at new locations), surely a solution may lie there.  Furthermore I know for a fact that there’s a Wal-Mart within 30 miles of most of this country, so figure out how to get distribution. It’s not that hard.  Putting that foolish argument aside, digital distribution has forced companies to make way for instant sales, fluctuating prices, infinite stock, cheap publishing, pre-release installs, and online store fronts.  When Sega moved to digital distribution we feared it was near the end for them, now it appears they may have just been thinking ahead of the curve.  There are still some kinks to work out – DRM, file size, and streaming media for example – but it’s getting there and the publishers must be prepared.
  • Emulation of Capitalism:  You know how the news media likes to talk about how the middle class is getting screwed constantly?  That’s because the endpoint of capitalism results in the disappearance of the middle class.  I know, it sucks, but eventually you’re going to have 95 percent of the population belonging to the lower class with five percent of the wealth, and five percent of the population with 95 percent of the wealth.  Gaming is doing the same thing, only faster.  This is simply just evolution of the market and all of these defunct companies were clearly middle class citizens at the time of their demise.  In short, I think their market conditions and market status are solely responsible for why they cease to exist today.


Is it Another Crash?

The crash of 1983 was actually about a market getting flooded with tons of software and no focus.  There were so many consoles on the market, each with unique games that were almost nowhere else, and everyone releasing them at varying prices, that it all imploded.  It was chaos, anarchy, and it doesn’t work.  We even saw this again to a certain extent in 1995 with CD media, and again, it’s the only time I ducked out of gaming for a while and I know I’m not alone.  Nowadays that’s far from the case, at least on store shelves.  Everything we buy is, for the most part, at the same price, available on all platforms, and from a trustworthy source.  On the other hand, the Apple and Android (plus any indie game store) are exactly what led to the crash.  If the market were to migrate to those platforms solely overnight, then you can absolutely expect this to happen, but console gaming isn’t there yet.  Without speculating on the future, these digital storefronts that are all about spitballing properties and seeing what sticks will ruin the industry in the long run and dethrone the stable publishers.  Hopefully everything gets figured out over the next 10 years as we celebrate what I think will be the final console cycle and the market will be better prepared moving forward.  So I guess, Ares_0926, to answer your question, it’s currently market conditions but it can quickly lead to another crash if the industry isn’t careful.

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