Earlier this week, Matt Richtel of the New York Times published an interesting article entitled Videogame Makers Challenged by the Next Wave of Media. Industry growth is deceptive, suggests Richtel. Many publishers are having a hard time recouping increasingly large development costs, many 25 million dollars or more.

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.

As some see it, these cheaper "casual games" are lowering popular notions about how much a videogame should cost. In addition, with a larger selection of these titles, consumers more easily easily snatch up wallet-friendly games and ignore costly releases. Yet publishers can’t reasonably raise their prices and expect to draw people into the console market who are not already avid gamers. The result is slew of developers are struggling to make a profit despire increasing game sales overall. Reportedly, even Nintendo’s largest install base does not make it immune to the changing industry:

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.)

Shortly after running this article, Nintendo contacted Richtel to correct the above statement, stating publishers can still make a profit selling less than one million copies. Unfortunately, Nintendo did not inform Richtel of a specific number or clarify their statement further. Naturally, some games cost less to make, meaning they can sell fewer copies and make a decent profit. What I care about more, however, is how many well polished games with decent production values make the cut. I would guess Nintendo’s vague response is more concerned with not scaring away third party publishers than affirming their stable sales numbers.

With developers eager for a solution, it’s no surprise there was so much buzz last week surrounding OnLive, a videogame streaming service that purports to cure eliminate all these problems. Some big name publishers have already partnered with OnLive, including EA, Take Two, Ubisoft, THQ, and Eidos. And why wouldn’t they? OnLive games are housed in a server, not on a users computer. If this works, as suggested, videogame piracy would be eliminated, used game sales would shrink, and developers could do away with retailers. Developers would be taking a much larger share of sales by selling directly to consumers regardless of their home hardware.

Unfortunately, I’m with Richard Leadbetter of Eurogame in thinking OnLive can’t possibly work. But the fact it has garnered this much attention is indicative of current industry problems and future solutions. The importance of connecting developers to consumers is growing, both through downloadable content and innovative community management.

Some publishers are also using the current economy to trim down their budget, dropping both announced and unannounced titles, focusing instead on ensuring the success of select IPs. This is also why Nintendo of America president, Reggie Fils-Aime, recently announced Nintendo’s strategy for the DSI store is quality, not quantity. I can see why EA CEO John Riccitiello is opportunistic about the future of the videogame industry. If OnLive in any indication, there are just as many ideas for new solutions as there is problems.


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Author: Jorge Albor View all posts by

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