Once considered recession proof, the video game industry has been hit hard in recent months. Large publishers like EA, THQ and Microsoft all recently posted substantial quarterly net losses despite higher year-on-year revenues.
Due to the high cost of developing games – many have budgets over $10 million – publishers are being forced to look at their portfolio of titles and rely on established franchises rather than new intellectual properties (IPs) to generate revenue.
Electronic Arts (
NASDAQ: ERTS) for example published two original titles last year that were met with critical acclaim and praise from fans, but which performed relatively poorly at the retail level. Both
Dead Space and
Mirror’s Edge were high-profile titles with multi-million dollar budgets that fell short of expectations, despite
selling over a million copies each.
Conversely,
Need for Speed: Undercover sold over five million units, despite being considered a “last gasp” for a series that has been in decline for some time and receiving a
lukewarm critical reception. No less than three
Need for Speed Titles are due for release this fiscal year, while Dead Space and Mirror’s Edge have yet to have sequels officially announced.
THQ (
NASDAQ: THQI) is another example. The struggling publisher lost almost $200 million last year despite over 4 million sales of its flagship title,
WWE Smackdown vs. Raw 2009 and over 2.5 million copies of
Saint’s Row 2. Sales of original titles like
Lock’s Quest and
All-Star Cheer Squad were stagnant, though they were released on the highly popular Wii and DS platforms from Nintendo.
THQ has a new IP titled
Darksiders set for release this year and has just shipped the Wii exclusive
Deadly Creatures, though neither title is expected to perform well at retail. One bright spot for THQ is
de Blob. This original title managed to sell over 700,000 units in 2008 on Wii and will see a DS release later in 2009.
Activision Blizzard (
NASDAQ: ATVI), whose earnings report is scheduled to be released February 11, is likely to post losses as well. The newly-formed mega publisher started focusing on trimming its portfolio early last year to focus on successful franchises like
Guitar Hero,
Call of Duty and the ubiquitous
World of Warcraft.
Activision Blizzard even dropped the highly-anticipated
Ghostbusters game from its lineup because it proved to be a risk. They also dropped
50 Cent: Blood in the Sand, a sequel to the terrible yet million selling
50 Cent: Bulletproof that was released in 2005.
Prototype from Vancouver’s Radical Entertainment and an untitled racing game from Bizarre Creations of
Project Gotham fame are left as Activision-Blizzard’s only noteworthy releases set for this year that aren’t based on existing franchises.
Wedbush Morgan analyst Michael Patcher was quoted as saying "Few companies perform well when they are focused on so many new games…We haven't seen Activision introduce that many new brands over the last few years." while recently speaking with
Gamasutra.
Microsoft hopes to buck this trend. The software giant plans on continuing to invest in new IPs in the coming years. Chris Lewis, part of Microsoft’s Interactive Entertainment Business recently spoke with
GamesIndustry.biz.
"I think you'll see some [IP under threat], yes - but I also think, and I can only really speak with authority about our own games development work, be very confident we'll continue to innovate, and focus on exciting IP for the future," he said.
"Be very confident that we see that ultimately as central to our ability to continue to be successful, because I think if you batten down the hatches and simply work where you know you're already strong, that doesn't give you the future growth that we're all hungry for."
Microsoft released some new titles aimed at the growing casual gamer audience during the past holiday season. The karaoke title
Lips and camera-based
You’re in the Movies both tanked at retail, while its blockbuster
Gears of War 2 saw sales in excess of 3 million units.
As consumers tighten their spending habits, one of the first things to get sacrificed is the amount that they spend on entertainment products like video games. It’s of no surprise that many gamers are leaning towards established franchises when making buying decisions because they feel safe buying a brand they know.
The industry is at a cross-road of sorts. Companies obviously need to earn more than they spend on developing and publishing games, but core gamers will only purchase sequels and spin-offs for so long before they become bored and crave new experiences. The companies that are able to balance safe choices and innovation will be the ones that thrive, or just survive the next few years.
