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Video Game Development

Profitability in video game industry

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BBC’s recent technology article questions the profitability of the video game industry. The shift to the next generation consoles has placed the market into a low point during the transition, and “games developers are unlikely to make a profit on new titles until 2008″. Based on Screen Digest’s report.

The abundant hardware power that came with Xbox 360 and PlayStation 3 are driving up game requirements and game development costs. In an excerpt from the report:

Games publishers face development costs up to 50 per cent higher due to the step change in processing power and graphics capabilities of the new consoles – this applies in particular to Xbox 360 and PlayStation 3. PS3 games are expected to cost an average $20m to develop over a 25 month period, with Xbox 360 titles averaging $15m and 21 months— according to Screen Digest research.

$20 million is certainly quite a stretch over the comparatively zero-cost indie game development. Diminishing profit margins are forcing video game publishers to reduce risks of such financially huge projects. The resulting trends are a rise in sequels to already popular games, and titles based on films – both attempting to leverage off the previous exposure and popularity.

So it is an odd trend to see a rise in exclusive platform titles. Though the initial reaction of “why would a game publisher limit their audience” is explained by obvious financial backing of console manufacturers. Both Microsoft and Sony are in pursuit of quality exclusive titles to strengthen their own position in console wars. Video game developers welcome such financial assurance, and epic titles might even require such support to proceed with development.

Sony, that also develops their own games, is scaling up its internal development resources. Sony is now employing over 2000 developers across 14 game studios. This makes for a 140 staff game studio, burning through $20 million to publish a game title for a single platform, once every 2 years. Sounds huge, but if you do the math, an average employee in such studio still earns less than a programmer in other high tech industries.

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  1. Posted by Martin | February 27, 2007, 1:50 am

    It’s not fair to call indie game development no cost, unless you consider your time as worthless. Likewise, if you want to actually sell this game and make money that you developed, you need at the bare minimum money for marketting. On top of all that, there are the legal costs if you want to have some recourse to stop people from ripping your game off. Chances are you’ll also want money to pay for professional art, sound effects and web design.

    In the end it’s cheaper, but it’s also riskier (think of how many indie games we don’t hear about). Although it might cost $20m to make, the next Gears of War is guaranteed to bring in much more than that.

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  2. Posted by Tony | February 27, 2007, 2:07 am

    I’ve said comparatively zero-cost. Even if you spend your entire University tuition to finance your own indie game initiative, it will still be a fraction of a per cent of a professional project. The point was to establish the scale between what most students are familiar with, and what’s it like out there in the “real world”.

    And yes, you are absolutely right – the next Gears of War will prove to be a very profitable venture. On the other hand you could spend 4 years developing the next StarCraft: Ghost to ultimately just cancel. Thus the dilemma: it will take $20 mil for the expected level of art, media, buzz, development… wanna try something new and innovative?

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  3. Posted by Keith Casey | February 27, 2007, 9:21 am

    Personally, I wonder about the Wii and the development costs that go along with that. Sure, it does have a pretty good amount of processing power, but realistically, the graphics of a bunch of the games are of a much lower quality… which works for many of them.

    Oh, and the Boxing is great. ;)

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  4. Posted by Tony | February 27, 2007, 3:20 pm

    Good point Keith. From the same report:

    Nintendo is gambling on a different strategy with its Wii console: avoiding complex graphics and focusing instead on gameplay innovations with a new controller. This is reflected in much lower anticipated development costs: $12.5m per title, taking 18 months.

    I think that strategy is working out well for now.

    Though the bottom line is: “game play, graphics, affordability – pick two”. Well actually the costs are somewhat locked in place, as all the console games sell for about the same price. And innovation just introduces extra risks, as the market has not been researched.

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  5. Posted by stan | February 28, 2007, 9:41 am

    Where will the savings ultimately come from? This $20m cost seems to be prohibitive in the potential of creating great new games from “independent” sources. I imagine that even “original” concepts, need to be sold or licensed to the major publishers in order for their final executions and marketing support to be competitive.

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  6. Posted by Tony | February 28, 2007, 11:01 am

    Of course you indie game is not going to make it to the store shelf, next to major publishers. Though that is what makes your “independent” in the first place..

    Another interesting mention is that one needs to be a licensed game studio to get a hold of console’s SDK and open (read “unmanaged code”) hardware for development and testing (which is incredibly expensive). Previously a hack was required to get your own software running on a console. Now Xbox 360 offers the XNA platform for independent development – if that comes with a good distribution system, there’s potential to reshape the game development playfield. We will see.

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  7. Posted by Jacob | March 17, 2007, 6:55 pm

    I read that the costs to make a game for the Wii is $8- 15 million. Microsoft is in the best position currently to win the console war. However, the others could win, as it depends on many variables, and each of their respective consoles have different advantages and disadvantages from the comsumer, developer, publisher, and other perspectives.
    If the costs of game development keep rising by around 50% each ganeration, there will be a point where publishers will not be willing to spend that much money and will start to not want their games to be “cutting edge” graphicly and such. They will start to make games not on par with what the hardcore market wants.
    Nintendo is setting an example of where the industry should go. Not only innovation but in the market to please. Do most “gamers” really care about graphics? NO! Most players just want to have fun.

    I do have a question though. I remember reading that Sony, with the PS3, was going to make it so owners could buy upgrades ( like more RAM or a new processor and such). The PS3 would (if the market likes it and buys the upgrades) have a much larger console life-span like 7-10 years than the normal 4-6 years.
    I have NOT heard any news about this in almost a year. Please tell if they are or not doing this?

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  8. Posted by Tony | March 18, 2007, 12:12 am

    @Jacob – I do not work for Sony, so I can’t have a definitive answer. Though to me it seems that if such upgrades were the case, one is much better off buying a full out PC – this way you can upgrade all of the hardware, not just select parts.

    The reason for consoles is that game development is more cost effective. Developers know exactly what hardware the game will run on, and how it will perform. On PCs one is expected to support every processor/graphics card combination across multiple Operating Systems. PS3 is already the most expensive platform to develop new games for, it would be a really bad move on Sony’s part to make developers guess if the system has A or B amount of memory.

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