Thursday, May 03, 2012

I’m becoming somewhat pessimistic about the game industry. [Warning: these thoughts are a bit fuzzy.] Here’s what is going through my mind:

The demand for games has gone up dramatically in the past few years. Wii, Steam, XBLA, mobile, browser, tablet, and social games have brought in lots of new players.

High profile successes like Farmville, Angry Birds, and Minecraft have made more people interesting in making games.

New platforms and the rise of indie gaming has brought in lots of new game developers.

Making and distributing games is easier than ever, especially on some of the new platforms. The barriers to entry have come down.

Venture capital, angel investors, and Kickstarter are enabling more game developers to build games.

The demand won’t continue rising as fast as it has been, but supply, lagging behind, will continue to rise for a few years. We’ll end up with too much supply.

What happens when we have rapidly rising demand, but the supply hasn’t caught up? Profits rise and economic surplus goes to the producers (developers and publishers). That brings in more developers. What happens when demand levels off, and developers are pumping out lots of new games? Profits fall and surplus goes to the consumers.

Making things worse, in some markets there’s a “winner take all” effect. There are just too many games to evaluate them all, so I’m going to turn to recommendations. If you play Draw Something instead of Storylines, then I’m more likely to play Draw Something instead of Storylines. If you play Castleville instead of Idle Worship, then I’m more likely to play Castleville instead of Idle Worship. If you play Terraria instead of Junk Jack, then I’m more likely to play Terraria instead of Junk Jack. The games that are played most get written about the most, get on the top of the app store lists, and get recommended more by friends. Those games will get played even more. It’s a “rich get richer” feedback loop.

In a winner take all market, there will continue to be big hits — the Farmvilles, the Minecrafts, the Skyrims, the Angry Birdses. Everyone will see the hits and think they’re going to make it big too. The problem with seeing only the hits is that it skews expectations. If all you see is the head of the distribution, you can’t tell how long the tail is. How many kids expect to make it into the sports big leagues, and how many make it? How many people expect to make it big in Hollywood, and how many actually do? How many people expect to win the lottery, and how many do? How many garage bands make it big? You tend to hear about the successes more than the failures. This will draw even more people into game development.

There will be more games than anyone can keep track of. If your game isn’t succeeding, you need more marketing, more press, more paid introductions, lower prices, and more gameplay for free. You need your game to succeed over all the others, so you need to pour more money into it. This money will be raised both investors, from Kickstarter-like systems, and internally by publishers with deep pockets.

I worry that it’s not sustainable. The other guy invests more in marketing, and then you have to invest more in marketing. You end up running in place, with ever-increasing costs. Eventually the people putting money into projects will see that most of them aren’t paying off. That money will dry up. And a lot of game companies will collapse.

On the flip side, it’s going to be great for consumers. Players will get more entertainment for less money. Why play game X for $5 when I can play a similar game Y for free? There’s always another game around the corner. If you want more polished games you can find them. If you want more innovation you can find that too.

I’m looking forward to seeing a million games out there. I just worry a bit about the people making them. Three times as much revenue divided among (guessing) ten times as many developers? Some will do well; most probably won’t. Am I too pessimistic?

[2014-05-12] See this comment from Dan Cook and this article from Jeff Vogel.

[2016-11-17] See this blog post from Dan Cook

Labels: future