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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.

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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.

  1. It’s always been said “games are recession proof”. We shall see.

  2. Games largely are recession proof, during the end of last year Microsoft saw, I believe, their largest hardwares sales in a single month for the 360, and despite the recession flooding the news around November, Blizzard went on to sell one or two copies of Wrath of the Lich King.

    I think a problem is in developers being so closely tied to publishers, who often have their hands in many pies as it were. So despite gaming not seeing much of a hit, the large companies who took a big loss in other areas cut back across the board, and as such developers got hit hard.

  3. As long as there are people like me who every week seem to forget they live in the real world, with house payments, bills, student loans, and go out and buy the new releases along with a few older titles, the industry will be fine. I blame Granholm!!!

  4. I’ve wondered how people can still call the industry recession proof with all the companies going into the red, or undergrounds recently. Maybe it’s just less than other industries

  5. avatar Doc

    “Expect many sequels a retreads in the coming months/years.”

    Haven’t that been the main trend in the last countless amount of years?

  6. The returns that you’re seeing on Halo are really an exception to the rule. Halo is a well established franchise with a company willing to spend an arm and a leg on marketing. Frankly, this is something that very few companies have at their disposal.

    The truth is, game studios are closing left and right and these aren’t companies putting out Halo 3 or Gears of War. There’s more to the industry than the big 3, and the ones who aren’t them, are the ones who are definitely feeling this recession.

    Nothing is recession proof, everyone is feeling something, just some more than others.

  7. I think the sales of consoles may slow, and the sales of software will rise through this tough time. I’d also wager that this recession is going to stall the release of the next set of consoles.

  8. First arcades….now this. I keep seeing the mention of “Games are recession proof” …I would argue that to an extent. Electronic/digital gaming may or may not be affected. It’s impossible to really tell right now, but yes, ways to entertain ourselves will always be there, but videogames have a very uncertain fate right now.

  9. avatar Danielle

    So here’s the thing, dear. I rlaely, rlaely don’t like Disney Princesses at all. Call it a personal objection, but if you pull up stats on how much Disney makes on its Princess line of products (or even go to a department store, where you can find backpacks, lunchboxes, clothing, costumes, toothbrushes, toys, etc. and ad nauseum) it’s blatant commercial exploitation of little girls. That’s only my first objection, though. I have more!Second, I don’t think that any of them are particularly strong role models: Snow White’s essential function is to look pretty and do chores; Aurora looks pretty, falls asleep and dances with animals; Cinderella is a pretty drudge; Ariel looks pretty and sings a lot (alright, she has some episodes of bravery, but these are rlaely downplayed in the film); Belle is pretty, and, nominally a reader, but is shown exactly once with a book during the course of the film: it’s a children’s fairy tale and she lets a sheep eat half of it, and so on and so forth.Okay, so you might point out that some of the Disney princesses aren’t all spineless, I mean, come on, there’s Mulan, right? Well, yes, except that whenever she’s marketed, she’s always shown in her matchmaking attire: a dress which in the film makes her absolutely miserable: she’s naver in her liberated warrior gear, because, let’s face it, she’s not pretty when she’s a warrior.Besides, she’s only an honorary princess: Two of the princesses you see most consistently are, quite frankly, a bit anti-feminist: Aurora and Cinderella their films make it very clear that their function is to become pretty wifelings who don’t actually *do* much of anything.And I won’t even go into Pocahontas, because, good gods, the sheer amount of stereotyping and historical abuse that went into that movie is embarassing.Still, I’ll probably go and see it. Who knows, it might actually be palatable (but, you know, I have my doubts).

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