Why I don’t work in the gaming industry

As a self avowed gamer and gaming enthusiast with a true passion for games and clear game design ideas, I often get asked why I don’t pursue that passion professionally.

The reason I am not in gaming is that economic dynamics don’t favor startups:

  • As Moore’s law and Metcalfe’s law continue unabated consumers expect ever richer gaming experiences. This leads to rapidly increasing game development costs in all segments – from low end online and mobile casual games to hard core games.
  • Gaming is inherently hit driven and a few hit games (for which there is no recipe) generate the bulk of the revenues in the industry.
  • Startups cannot easily raise the $100+ million necessary to develop some of today’s high end games – and even if they could they would have all their eggs in an incredibly risky basket. A large company like EA can easily finance multiple large projects knowing that even if most fail its hits will likely pay for the failures.
  • Very few game companies successfully transition from being low-end casual game makers to multi-billion gaming behemoths (though Netease and Shanda in China successfully made that transition).
  • In many ways what I describe above is reminiscent of Hollywood. The large studios are the only ones capable of bankrolling $100+ million movies hoping that the hits pay for the flops. The “startups” are the smaller independent movie studios which develop lower budget movies. The risks are lower but so are the rewards as they can’t create billion dollar revenue movies such as the Lord of the Rings trilogy or Titanic.

    That is not to say one cannot build a small successful gaming business – especially in the short and medium run. I know many companies such as Boonty or Jamdat who have become successful building online or mobile games. But despite those successes, I don’t like the long term dynamics of the business – even the supposedly low cost casual online and mobile game segments.

    In both of those markets, a few years ago it cost less than $50,000 to make a game. Licenses were cheap and most of the games made money. In many ways this was reminiscent of the PC gaming industry in the 1980s. However, as the devices grew in complexity and the market grew, licensing and development costs increased dramatically moving the market in a hit-driven direction. I am sure that by now several mobile games have cost over $1 million to make. That’s why it made so much sense for Jamdat to sell itself to EA to leverage its licenses and balance sheet.

    Conclusion: I love games, but for now I will remain a gamer on the sidelines of the gaming business.

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  • Gaming is inherently hit driven and a few hit games (for which there is no recipe) generate the bulk of the revenues in the industry.
    True, but must it be that way?

    For each of the three first statements I’d repeat that question: “Does it need to be that way?”.

    What if you could develop games at a budget that would break the mould, like fun little games that are easy to pick up for anyone and just play, and that may be good for parties etc?

    I have an Xbox 360, but I suffer from Attention Deficit Disorder when it comes to gaming, todays games have marvelous graphics, but most of the time very little soul.
    Sometimes I yearn for the days of “Super Mario Kart” (greatest party game ever!), or the original “Ice Hockey” for the NES. They where simple games with very little in the way of fancy graphics, but boy did they have soul, and they still put many of the contemporary games to shame in terms of gameplay.

  • ..maybe to elaborate on my previous comment: If you could develop simple, social games on a budget, you could develop more games, each with hopefully a perhaps small, but passionate user base.

  • Fabrice,

    You’re right about the games biz being “hit driven” and that the budgets for high end games are beyond the reach of many smaller studios. Game development projects are also notorious for going well beyond their initial budgets – both timewise and financially.

    In my opinion the level of creativity is going down, especially in the U.S., as companies play it safe by licensing the rights to create a game based on a hit movie e.g. Lord of the Rings or Star Wars, or by doing a sequel to an existing game. Developers in places like Japan and Korea are coming up with some creative stuff, some of which will have appeal in the west as well.

    However I do think that will always be the opportunity to come up with simple, entertaining game concepts that don’t require flashy graphics.

    BTW, to clarify about your examples of Netease and Shanda. Netease was already a Nasdaq-listed Chinese portal before it got into the games biz but has been very successful at developing and publishing 2D MMORPG games. They are currently beta testing a 3D game and it remains to be seen if they will be successful at developing higher end games. Shanda went all the way to a Nasdaq listing by licensing a mediocre game from Korea (Legend of Mir wasn’t very successful in Korea) and then … umm … “borrowed” some ideas from that game to develop their own game called “World of Legend”. Where both companies have excelled is by coming up with a business model that works in China – publishing online games (and therefore reducing piracy issues), prepaid cards for payment collection, marketing through Internet cafes and providing good customer service etc.

  • Fabrice,

    I do agree with you but not on everything. Gaming is an hit driven industry? I agree. A similar industry is Hollywood, you say and I cannot agree but still there are little studios able to make 5/10x return on the money the spent on a movie development and get traction for other movies. What would you say about healthcare industry? It’s a game for 1 bln worth companies as drugs’ development is extremly costly and long but why are there a lot of startups in the bio-tech? You never know what scientists, engineer or developers can do…

    To summarize: many industries are getting concentrated and scale is increasing its importance but mankind as always shown its abiity to innovate and create something from scratch and there aren’t evidence to say that this innovation process as come to an end.

    Ciao

    A.