It's larger than Hollywood, its virtual stars may live happily on a diet of bits and bytes, but the video games industry has not been able to insulate itself from upheaval.Yes, gamers are snapping up the new generation of games consoles - Microsoft's Xbox 360, Nintendo's Wii, and Sony's Playstation 3 [PS3], but at huge cost to the industry.
Hardware makers are losing hundreds of dollars on every console sold, and games publishers face an "increasingly difficult environment, as rising development costs and small user bases [mean] that return on investment in next generation games development is unlikely to be achieved before 2008," according to media analysts Screen Digest.
More importantly, though, the video games publishers are facing a revolution of their business model.
'Volatile' industryEven the industry's undisputed giant, Electronic Arts (EA), is not immune from turmoil.
It's a "volatile" industry, acknowledges Gerhard Florin, executive vice president at EA and the general manager of its international publishing business.
More than double the size of its nearest competitor, the Redwood City, California, based company employs 7,200 people; 5,200 of them work on games development.
Titles like Fifa Soccer, Need for Speed, The Sims, and Command and Conquer games underpin the company's success.
The sequel syndrome"Scale does matter" in this industry, says Mr Florin, because "the more complex games become" the more tools are needed "to keep costs under control".
And selling software in a shrink-wrapped package just doesn't bring in enough money anymore.
The market for computer games is stagnating. Screen Digest predicts their sales to fall to $3.7bn this year - although they at least provide a stable stream of income, says Mr Florin.
The real money spinners are console games, but subject to the ups and downs of the hardware cycle as consoles launch or go out of fashion.
To ensure steady revenues, says Mr Florin, games publishers therefore have to build strong brands.
It may not be original, but no video games executive has yet been sacked for commissioning the annual upgrade to popular franchises like Fifa Soccer or Madden NFL.
Ed Barton, games analyst at Screen Digest, calls it "a common syndrome in the video games industry".
"Wonderful innovative titles are sometimes ignored [by consumers], while some repetitive titles with minor improvements in game play and graphics provide much better returns to the games publishers," he says.
He compares it to music publishers, who have Madonna or Elvis Presley "to keep the home fires burning," but also invest to freshen up the catalogue.
Read the full article here...Tim Weber
April 11, 2007
Source: BBC News