Selling one million units is no longer enough

Modern video games need to make over $50 million just to break even, claims analyst

Analysts predict fewer 'Triple A' big budget games in the industry's future

Analysts predict fewer 'Triple A' big budget games in the industry's future

Signal Hill analyst Todd Greenwald issued a commentary this morning about Take Two Interactive's prospects for 2010, noting (with a firm grasp of the obvious) that Bioshock 2 was the company's best bet for success next year. "The original was one of the best-rated games when it first came out in August 2007 and sold nearly 3 million units," he points out. "Bioshock 2, due out on February 9, has great brand awareness, should be supported by a huge marketing campaign, and is one of the most highly anticipated titles of 2010." No arguments there.

He went on to question the viability of Take Two's other confirmed offerings for the year, however, speculating that Red Dead Redemption is "challenged to sell more than 1-2 million units." He went on to cast doubt on the whole Western genre, noting that Red Dead Revolver sold "only" 1.5 million units while Ubisoft's Call of Juarez sold "just" 900k units. It remains to be seen how realistic his expectations of Red Dead's potential are. From what we've seen so far, it appears to be a very impressive title. Furthermore Hill also challenged the possible success of both Mafia 2 and Max Payne 3 citing sales of "less than 2 million units" for Electronic Arts' Godfather games as an indication for expectations of the former, and "just over 2 million units" for Max Payne 2 "despite the popularity of the original."

A game selling 2 million units these days is generating, conservatively, $100 million in retail sales. Once everyone gets their cut; the retailer, the platform holder, and the people that actually made the thing, the amount that goes back into the publisher's coffers is just a fraction of that figure. Many games these days cost well in excess of $10 million, and often $20 million or more - something that is usually paid up front (details of which emerged earlier this year in the dispute between Activision and Double Fine Productions regarding the rights to Brutal Legend.) With large marketing budgets factored in on top it's not hard to see why publishers are increasingly gun shy, and analysts are increasingly dogmatic about the prospects of all but a few games.

How will the industry respond to this in 2010? It's already becoming clear. We'll see fewer big budget games from the likes of Electronic Arts, Take Two, Activison, and Ubisoft, and we'll see more games developed with smaller teams and smaller budgets relying less on the latest technology and more on fundamental gameplay qualities. We'll see even more iPhone games, and more Facebook games, and we'll see big name franchise emerging as browser games and social media games. The big risks will be taken in small projects undertaken by "spec ops" style teams living within larger organizations. Group's like Electronic Arts' EA 2D will become less of an anomaly, and products like Sid Meier's Civilization Network will show us the way that a lot of games will evolve. As gamers we'll eventually end up spending less before we play and more while we play. A year ago, speculation of this nature would have seen many thinking "yeah, but that's not going to happen for years." In the current financial climate though, we're going to see this sooner than you think.

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John Davison

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