Wednesday, July 8, 2009

The Market - She's Dead, Jim. Or is She?

You may have noticed Digital Stardust has gone mute for several months now. This is no accident. The intent of DiS is to comment on the game industry as a whole, with a focus on trends and topics affecting large portions of the community - developers and gamers alike - but when the industry stagnates, there is only so much you can say before you have become a broken record. Rather than become a site riding a dead horse, we've simply gone quiet in the meantime. Plans are in the works to change the situation and provide engaging content, however these things take time, so your understanding is appreciated.

The time has come to momentarily break the silence and speak to the staleness that is slowly creeping through the industry, and possibly discover who could hold the blame for the situation the industry sits in. The results may surprise you, they may anger you, but they'll certainly get you thinking, even if you don't agree.

What is causing the video games industry to stagnate? Before you can answer this question it is important to note the industry as a whole has not come to a grinding halt. Companies such as PopCap Games are doing very well with their famous casual titles such as Peggle and Bejeweled. The stagnation does exist, however, with powerhouse companies such as EA and Activision reporting slower sales and releasing fewer blockbuster titles this year as compared to years past. But what is causing this? Console and software pricing? The poor economy? Or is it something else entirely?

The first argument in our discussion-gone-monologue sits squarely at the console price. Console price has become a hot topic of discussion among developers as available dollars to purchase consoles and increase total number of potential software buyers has decreased due to the poor economy. It just makes little sense to the unemployed consumer to purchase a pricey console, so the cost of entry has become of increasing importance to developers. Yet, the cost of entry has sat squarely in the same position since each of the current-gen consoles launched. The sorest point is named "PlayStation 3", exacerbated only by the moves of Microsoft as they position the Xbox 360 as the biggest bang for the buck on the block. Microsoft has done a good job of managing the 360 SKUs available to the consumer from the get-go, charging less for systems with fewer accessories and more for systems with more accessories, but keeping the basic console playability the same. Sony by comparison has removed functionality from their system in an effort to reduce cost, something the consumer is less concerned with when they see the system they've been eying does less for the same price. Nintendo makes a profit for each Wii sold, but they've attracted a market segment previously not known to exist, which allows the Kyoto-based developer to keep console prices the same due to their current market segment not being accustomed to price drops.

No matter where you sit in the console interest matrix, the fact remains the fun boxes are pricey machines. Developers know this and have been increasing pressure on manufacturers to drop the price, especially Sony. It is no small potatoes when the president of the company known for Guitar Hero and World of Warcraft delivers a clear threat of stopping console development for the PlayStation 3 if the console does not become more accessible to the average gaming consumer. Square-Enix has taken notice in North America and Europe, by developing the upcoming Final Fantasy XIII for the Xbox 360, breaking the PlayStation 3's exclusivity on the title and marking the first time in the franchise's history a title will launch on multiple consoles. The Land of the Rising Sun is also showing troublesome signs for the market, as console sales in general are down 25% year over year, with a large portion of this being attributed to the high cost of the PlayStation 3. Sony may have billions to recoup from the Cell processor, but their current strategy is strangling the market in general. To cope, current console lifecycles are being extended (newer hardware over time becomes older hardware, which becomes less expensive to produce and develop for) and older technologies are being extended (case in point, the Wii is a souped-up GameCube).

What about the global economic recession? Without a question this is a factor in the current equation adding up to the market situation. The average consumer is seeing a decrease in work or the same pay in a market where prices are higher than they ever have been, in effect creating less buying power power per dollar. What you could buy with a $1 now requires $2 or you get less for that same $1 (14oz. Coca-Cola, anyone?). Console prices are higher than they ever have been, but even those with the same total dollars available from before the recession are seeing their overall total effective buying power decreased, reducing the market's accessibility to them. This reduced buying power manifests itself through stronger sales of software for consoles already owned and fewer pieces of software sold for newer consoles. In short, consumers are getting more choosy about their games because they want the biggest bang for their buck. Developers often develop "throw away titles" - titles created with a small budget and a big license to generate sales with a high profit margin, which they use to fund their AAA-class blockbusting titles, however sales of "throw aways" are through the floor, reducing available R&D resources. This explains why only a handful of established franchises are turning out titles in the current market, as opposed to a more balanced mix of new franchises and established ones - with less money coming in developers are not as willing to risk their limited capital on a new franchise. Fewer new faces on the shelf create the impression of a stagnating market in the consumer's mind, leading to a circular effect of reduced interest in spending money on gaming as a whole.

So is the market stagnating? If you count the slower pace at which flashy new gaming consoles and technology driving them is being trotted out, the strategy of developers to "play it safe" by sticking to established franchises and invest in fewer new ones, and reduced console and software sales as a whole, yes. There are a few shining examples where the recession has not hit, such as the iPhone App Store and casual gaming provided by companies such as PopCap, but the market in general is down and slowing. Consoles are pricey, dollars buy less, and software sales are on a slow slide. But is there a possible underlying cause to even these reasons? Did something sew the seeds of market slowdown even before the global recession hit?

There might be.

What is this possible underlying cause? Us, the consumer. Let's back up to 2004, when the PlayStation 2 was in an intense battle with the Xbox. The PlayStation 2 was an established powerhouse with a massive install base in the millions and heavy hitting titles blowing even the highest expectations out of the water. The Xbox was making waves in North America by releasing titles so gorgeous, yet playable, even though it was never expected the console would beat the PS2 (that honor was saved for the 360 vs PS3 race). Developers were releasing titles to great, beautiful success coated in a layer of eye-candy.

If you have a good thing, doing more of it will be even better, right? This became a persistent cry from gamers - we want MORE beautiful titles, we want MORE powerful systems, and we want MORE fun. Manufactures responded by doing just that, creating powerful multi-core processors requiring billions in investment dollars. Gamers got what they wanted, but they had to pay the piper for it, and a lot of them weren't ready. The development investments needed to be recouped and the consoles were priced accordingly, bringing us into the pricey console era that exists today. The $400 console is a result of the demands of consumers and gamesmanship of the previous era, but at $400.

So the next time you're visiting your local game retailer, take some time to consider where you're going to vote with your money. Do you want the $60 title, or might it be worth waiting for the title to become less expensive? What console do you want to purchase it for? The less expensive ones, or the more expensive ones? Digital download or physical disc? Memory unit or hard drive? In an era when developers are watching the market closely, they have, they can, and they will know when sales increase due to price drops. If it becomes a recurring trend, developers will have to rethink what the public is willing to pay for their gaming fix. Instant gratification has its short term expense, for sure, but the long term effects may be more important than ever.