Unless you’ve been living under a rock, you might have noticed that there’s a bit of a financial crisis going on. Companies, especially in the financial sector, are falling over, laying off staff, selling off smaller subsidiary companies. Many industries are starting to fall suit. But as we watch the dominoes fall, its reasonably rare to see any corporations in the gaming industry make headlines. Is gaming, as a few market analysts and economists have stated, recession proof?
It’s not too difficult to see the casualties. Sony took a 95% profit hit in the last quarter of 2008. Midway is trying to dump Mortal Kombat to refresh its bottom line and make a health profit at the end of it. Microsoft could be doing better. But, to be honest, these tend to be more injuries then casualties. All 3 companies are still profitable, and considering how much they spend on a given year, that’s pretty admirable.
So why aren’t entertainment companies running to world governments and begging for bailouts? First of all, the profit margins are some of the widest in any industry. While consoles are usually sold at a lost, (except for Nintendo, who makes $6 on every Wii), software is almost certainly not. The average mainstream game can cost anywhere between $5-$20 million to make. This includes labour, equipment, marketing and licensing costs. This makes it one of the cheapest entertainment mediums in the world.
In comparison, a blockbuster movie can cost ten times that. But you aren’t going to see returns on a movie like you would on a game. Halo 3, for example, cost around $30 million to develop. Microsoft spent almost the same amount on advertising and marketing. Subsequently, it went on to make $170 million in 3 days. That’s almost 6 times the amount it cost to make. Even the biggest movie on the planet isn’t going to break even for months after it releases, sometimes not until the DVD has been released down the track.
Now let’s compare all this to a struggling industry – the automotive one. Developing a new model of car costs billions of dollars. Concepts, designs, testing, R&D, the lot. Now, because of the development costs, car companies need to sell lots of that model at a reasonably high price to a reasonably small market. You can see why a company with 6 lines of car is in a little bit of trouble.
Game designers are smart. They save time by utilizing other companies’ game and physics engines. They reuse textures and backgrounds, thus saving time and money recreating them. They hire large staff and work continuously. Instead of re-inventing themselves, they recycle elements that they or others have used before and incorporate them into their titles. All of this, even for the most expensive games, pays off. Most game companies will at the very least break even, if not make a small profit, on most of their releases.
That said, it’s all based on risk. Be warned that in the coming years that innovation will suffer since the larger developers will be taking safer bets. Indie developers will be in their element – with interesting gameplay tactics and smaller cost-to-fun ratios, people will snap up the cheap offerings. The same goes with casual games, cheap and instant gratification avoids disappointment when investing small amounts of money, rather then saving (remember that?) up for a title that ends up being terrible.
So with all our complaints of paying high game prices, we’ve actually fostered a culture that is grateful for its existence. If we didn’t pay so much, we wouldn’t have an industry. It’s because of the explosion of mainstream gaming that the industry has gotten as massive as it has, grossing larger profits then the movie industry. This has created a soft, comfy cushion that protects our passionate passtime from being taken down by the falling economy. I mean, look at Japan, it has the worst economy on the planet, but all the game designers are still in business.
So that leads us on to the other part of the equation. You, the gamer.
The average gamer is no longer a kid. It’s an adult. And unlike kids, obviously, adults have complete control over their entertainment options. In a recession, when money is tight, value for money becomes a large issue. So when you’re looking at two options for entertainment, say, Paintball Skirmish (AUS$120) or Valkyria Chronicles (AUS$80), where one is for an hour or two and the other is 40+ hours, you’re probably going to be leaning towards the games.
But at the same time, it’s not all rosy and sweet. People are still spending less, which means less takeup of multiple consoles, and less new release snap purchasing. People will be more likely to wait till games are cheaper or even bundled together before they’ll consider a purchase. On the flipside, one might hope that this sort of purchase habits might convince developers to spend more time develop titles more thoughtfully.
Consoles are always going to be winners in a recession environment. You don’t need to upgrade a console, so you can focus your funds on new games. PC game makers will suffer, especially if they are pushing the barrier, since less people are going to be likely to spend thousands on GPUs as they were when times were good. But time will tell. The PC has lived longer then all of its competitors, though both bust and boom, developers will learn to develop for their market.
So will gaming survive? Of course. Just be warned, you may end up seeing less game releases over the next few years. But in the end, they’ll always be a new experience to enjoy.