Analyzing the Story of 2008

We put the wraps on 2008 over the next two weeks, and in many ways I think I speak for many when I say good riddance. Judging by plummeting stock prices and skyrocketing unemployment, I fear we may at some point need to change the name of the site to Gamers With Resumes and focus our attention primarily on handheld games you can enjoy while waiting in line for government cheese.

I’d love to say that from a gaming perspective the year has been good to us, and there’s no doubt that even as late as August I still tended the hopeful spark of optimism like the dying embers of a spent fire in a blizzard. Spoiled by the richness that was 2007, this year which promised much and delivered far less was at least rich with memorable moments of all kinds both in and out of the gaming landscapes where aliens cavort and zombies shamble.

But for me, the story of the industry itself is in many ways more compelling than the stories created within it. Looking back, these are, I think, the 10 most relevant and sometimes under-reported developments in the video game industry from 2008:

#1 Bobby Kotick is the Future of Video Games – It’s Bobby Kotick’s world, and you’re living in it. Recognized by Market Watch as one of four finalists for CEO of the year, Kotick’s name is on the rise in and out of the video game industry.

Twas the year of Activision. With EA unable to close a deal with TakeTwo and the ink on Activision’s acquisition of Blizzard still wet on the page as the year opened, the company started the year with an advantage that they never sacrificed.

As for Kotick, he is brazen, unapologetic and focused like a laser beam on one thing: the business of hustling video games at a profit. If Kotick believed that Activision could soar to the top of the heap by selling intentionally buggy games and then requiring micro transactions to purchase iterative patches, then the only question would be how many versions of Guitar Hero they could slap together with this new money making paradigm.

Let his own words stand, “There's only 100 years of stock-market history to suggest why return on invested capital is the only objective measure of the value of a business.” Is he wrong? Considering that he’s not only beating his competition but Wall Street itself in terms of weathering the financial storm, I suppose he’s not, but let’s not be fooled into thinking that innovation, creativity and compelling content are going to be watchwords for anything out of the standard Activision assembly lines.

Why this is Important: As an industry leader proving that the path to success is in thinking of video gaming as strictly a commodity enterprise that exhaustively milks any successful franchise, we can likely expect other major publishers to follow suit. Kotick may just be redefining the way the industry looks at its business and investments. That may prove to be very bad.

#2 Mirror’s Edge, Dead Space, Army of Two and Spore Disappointment – This story is the flip side of Activision and Bobby Kotick’s mercenary approach to video game publishing. Electronic Arts’ experiment in rededicating resources to innovating development of new IPs is slowly unraveling, and in the coming analysis of what went wrong part of the blame will be laid at the feet of EA management, but when they write the conclusion look for the phrase: people just didn’t want to buy into new properties.

Certainly Mirror’s Edge and Dead Space could have been of higher quality, but even with the exact same level of quality and attention is there anyone who doesn’t believe these games would have done substantially better had they had a familiar name brand slapped on the front? I’m betting EA’s investors will be asking that question.

Why This is Important: On the watch of the CEO, John Riccitiello, that said EA would be rededicated to new and innovative gaming along with a refocus on customer service, the company’s stock declined 70% and gave up significant ground to an aggressive competitor that relied on a much safer strategy.

#3 Rhythm Gaming Begins to Slip – I don’t think the effect of games like Guitar Hero and Rock Band on the way the industry does business can be overstated. Activision and EA have enjoyed two years of consistent revenue totaling in the hundreds of millions of dollars, not to mention a vehicle for building robust downloadable content sales, on the backs of these two franchises alone.

These games have been a driving force in propping up the still growing industry, but as 2008 closes on a rough holiday sales season that has seen publishers scaling back expectations, the market may either be reaching a state of saturation or exhaustion with the rhythm nation. The Guitar Hero franchise alone is down 19 percent on the year, a genuine disappointment on the heels of World Tour’s release, and while the Rock Band franchise is up the reasons may have more to do with competition last year than any genuine bolstering of interest this year.

Why This is Important: Not only have the two biggest names in gaming hitched their wagons to these franchises, but they may be a measure of things to come. These titles account for a large portion of the industry growth, and without something to replace their performance they could prove to be a catalyst in the start of a gaming slow down.

#4 iPhone Gaming – If you want to talk about it in different terms, the iPhone and iPod Touch are probably the most successful video game platforms of the year. It has long been held that cell phones were the next frontier for electronic entertainment, and funny as it may sound, it took Apple Corporation to create the proper gaming platform.

Why This is Important: Cashing in on the casual gaming movement and the desire by developers to release games with low development costs to a large market, the iPhone offers hundreds of titles for as low as a $1. It is an ever-present sales platform with a very satisfied consumer base. It is the best of all possible worlds, and you can expect that every company that likes money has taken notice.

This may be a significant look at the future of video gaming.

#5 Apple Pulls Out of MacWorld – Apple ending its attendance at MacWorld would be like having the NFL pull out of Monday Night Football. Sure you could keep the show around for laughs, but really what would be the point.

If we needed a nail in the coffin to suggest that trade shows are no longer marketing events, this may be it. Certainly E3’s embarrassing decline has been the discussion of much conversation, but the idea that it may have been an indication of a larger trend is less explored.

Why This is Important: This seems to be confirmation for the changing marketing model offered by the major companies that have abandoned E3 and slowly been trickling out of the ESA. Rather than having to work around an artificial timetable dictated by a third party in an environment where these companies have to compete for attention, many of these companies now have the leverage and capital to dictate their own messages through whatever medium they like. The era of the massive technology trade show is dead, and while Tokyo and Leipzig may not have gotten the memo yet, the writing is definitely on the wall.

#6 Recession-proof … ? — Video gaming sales are up for 2008, but you wouldn’t know it from the mood of the businesses that actually make and publish these games. Reduced forecasts, lay-offs, closures and disappointment are the watchwords of an already difficult year.

Historically entertainment media has been nearly impervious to economic slowdowns, and the video game industry has already weathered three recessions (1981, 1991, 2002), but things may have changed. You can no longer compare the costs of gaming in the same breath with the cost of going to a movie or buying music, and this year seems to have left businesses wondering whose party might be coming to an abrupt end next?

Why This is Important: There has been an illusion of invulnerability in the industry and if we’re not careful they’ll be using the phrase ‘video game bubble’ a lot on the radio next year. A struggling industry, should it not prove recession proof after all, will mean fewer games, smaller budgets, more focus on established franchises and lots more closures.

#7 Sins of a Solar Empire – Stardock and Ironclad broke all the conventional rules. They created a strategy game for the PC with virtually no DRM protection, and managed to be rewarded by a grateful, if desperate, PC gaming fanbase. An outstanding game on its own, it is also a slap in the face to companies too lazy or too jaded to believe that this kind of market still exists.

If you were to hold a gun to my head and make me pick a Game of the Year, this is it for a variety of reasons.

Why This is Important: Large corporations with the resources to risk tens of millions of dollars in the hope that they will collect revenue in the hundreds of millions are timid juggernauts. With that kind of scratch on the line, these companies must play it safe at every opportunity, and like financial hypochondriacs, the more risk averse they become the more they see risk in every option.

With a more modest budget comes the ability to be successful with more modest sales, thus opening up the opportunity to tap otherwise untapped markets. Ironclad proved that you can still create a strong product from humble means without sacrificing quality or integrity.

#8 The End of Print – Honestly, can you believe it’s only been since April that Games for Windows Magazine was put to pasture?

The trouble began in 2007 with some of the less established magazines finally giving up the ghost, but now we’re looking at flagship brands like EGM potentially folding. Even the European magazine market, which has relied more on subscription based revenue rather than advertising pressure, is showing disturbingly deep cracks in the foundation.

Why This is Important: By itself, the loss of print isn’t that critical. What is concerning is that the talent that made a home in the pages of our favorite magazines aren’t making the decision to move online in the same way. A look at just the list of talented writers that have shoveled off from Ziff-Davis alone is a disappointing and discouraging role call.

#9 Netflix, Home and NXE – My wife has already watched a half dozen movies through the streaming Netflix service, and my PS3 has become a really cool Blu-Ray player that has the added bonus of occasionally playing games. In many ways, this is the dream that console manufacturers had for the industry at the launch of this generation, changing these boxes into multimedia centers, and as it becomes more successful the question must be raised of what that means for the future of console gaming.

Why This is Important: The constant investment into infrastructure and content delivery methods makes it less and less easy to roll into the next generation. As these machines become a fixture in all kinds of content delivery, Sony and Microsoft are slowly backing themselves into the corner of not being able to take the next step. If the PS3 struggled with questions of backwards compatibility before and the Xbox with DRM related issues for Live games, what does that mean for their ability to manage all that content on a generational shift. One must begin to wonder if all the eggs are in this basket.

#10 No Sign of Next-Gen – The life of the Xbox began in November 2001 and by all accounts ended in November 2005 with the release of the 360. If we take that as any indication of a trend, then the Xbox 3 should release sometime next year.

That sound of crickets is the industry not even hinting at a new cycle of gaming consoles.

It may be odd to consider an omission of information one of the most important events of the year, but it is a further indication of the chilly mood of publishers. Not only aren’t gamers themselves clamoring for the latest and greatest, but the console manufacturers aren’t the least bit interested in rushing the coming shift. Burned by high costs and slow adoption rates, only now are the best laid plans of executives and men beginning to come to any kind of fruition.

Why This is Important: I think this is the capstone of a general theme that I have, which is that the landscape of gaming is changing and perhaps not for the better overall. Looking back we may see 2008 as a year of genuine transition.

-- What are your most important industry moments of 2008?

Comments

6) 25 years after the introduction of games to the mainstream the business of making games remains an unsolved problem (for most). This continues to have a much greater impact on the industry than the current economic situation.

6) However, due to the current economic situation there are some who might find strange similarities between Scrooge McDuck sitting in his pool and some major publishers who would rather baton down hatches to weather the storm than start work on new projects right now.

There is no storm to weather for those in the know.

My industry moments:

1. Steam really coming into it's own. I don't want to say that Valve and Steam are saviors of PC gaming, but they are most definitely champions. They are providing actual resources for PC developers to create and distribute valuable products.

2. World of Goo. World of Goo is fantastic. It is creative, DRM free, digitally distributed, and $20. This is an amazing combination. Also, when faced with an 80-90% piracy rate (I really don't want to argue about the numbers, but that's what the developers think they're facing), did 2D Boy throw a tantrum? Did they threaten to take their toys somewhere else? No. In fact, they said almost nothing. They seem to have put the numbers out there, and let them sink in.

3. Sins of a solar empire. Elyisium said it all. Stardock and Ironclad are providing an example for PC developers to follow.

4. Good Old Games. If I didn't still own the disks for all of the games I want to play that they're currently offering, GWJ would have seen a significant boost in revenue from me. I can't wait to see what titles they add.

5. The Witcher. The Witcher is a herald of things to come out of of Eastern Europe. The PC is still king over there, and with the proliferation of digital distribution, PC gamers everywhere will reap the benefits.

To me, this all says that PC gaming is changing rapidly, and it's about to get ugly. I think in 2009 we will see a real low in mainstream PC gaming, followed by a resurgence in 2010. Unfortunately, I don't think EA, Activision, and Ubisoft will be a part of it. Valve, 2D Boy, Stardock, and others like them will provide quality entertainment, on a flexible platform, at an affordable price, while the giants bludgeon themselves senseless on the console landscape.

Don't mistake this for bravado. I love my AAA mainstream titles, and the thought that I won't be playing many of them on my platform of choice saddens me, but I'm prepared to roll with the punches and vote with my dollar.

I'm ready for the next-gen. The graphics hardware in current gen consoles is barely adequate to push 720p graphics with a modern graphics engine.

Playing Gears 2, I marveled at the art direction and appearance of much of the game, but I was also distracted by a number of areas where they cut corners to preserve frame rate. Some of the special effects and shadowing effects were really primitive looking.

So ActiBlizzard (just freakin' rename yourselves already!) is the new EA and EA is the new Sierra?

Keithustus wrote:
So ActiBlizzard (just freakin' rename yourselves already!) is the new EA and EA is the new Sierra?

I prefer Blizzivision - makes me think of a console - or possibly Actard.

Keithustus wrote:
So ActiBlizzard (just freakin' rename yourselves already!) is the new EA and EA is the new Sierra?

Woo! More Roberta Williams puzzles!

So does this replace Certis's "Bold Predicitons"? I am still waiting for him to eat his hat on the "the next President of USA is going to be a white man" thing, by the way.

Gorilla.800.lbs wrote:
So does this replace Certis's "Bold Predicitons"? I am still waiting for him to eat his hat on the "the next President of USA is going to be a white man" thing, by the way.

Damn, I forgot about that. Can you please dig up which show it was from so I can hear it again?

Thank you for mentioning Stardock's business acumen and its importance to gaming. Brad Wardell, Stardock's CEO, has said that creating profitable PC games comes down to quality, low development costs, the elimination of useless DRM, and scalability (looks good on a laptop or a gaming rig). Unlike some studios, Stardock's not in the business of spending $20 million making a PC game that will run on a select few systems. While GalCiv and Sins certainly aren't for everyone (the former is a beautifully in-depth game, but has a steep learning curve and requires significant time commitments), Stardock has a captive audience that keeps its gaming arm profitable.

The Big Guys should take a page from Stardock's playbook and fund lean development teams that can create *quality* games for <$1 million. I'm certainly not a businessman, but the industry's ballooning development costs necessitate ever higher sales; not every game will be a Halo or GoW or GTA. Hollywood doesn't focus solely on mega-budget blockbusters. Neither should the big gaming outfits. Having a few games made with the "Sins Philosophy" in mind would diversify their portfolios, appeal to niche markets, and allow them to take more risks. In Stardock's case, the <$1 million development cost turns into eight-figure revenue...excellent return on investment.

Digital distribution will only make it easier for the Stardocks and 2D Boys of the world to reach customers. My favorite PC games of 2008 are World of Goo, Sins, and Mount&Blade. Long live the little guys

Lex Cayman wrote:
Steam really coming into it's own. I don't want to say that Valve and Steam are saviors of PC gaming, but they are most definitely champions. They are providing actual resources for PC developers to create and distribute valuable products.

This would be the big one for me. I have had a Steam account for years, but never really used it as a marketplace until this year. I have a feeling it has to do a lot with the release of Steamworks. Valve finally opened the door to publishers and they are starting to make their way in. People have always praised Valve for their creative achievement, but I think their biggest acheivement is on the business end. Steam is a great interface, is always having great sales, and the list of AAA titles available in the shop is near complete.

I don't think it is hyperbole to say that Valve is the savior of PC gaming. I really believe that Steam will become a major force in the industry in the next few years and that PC gaming will show a major resurgence thanks to the service. It is almost like another console. I would really like to know what sort of sales figures games on Steam have been getting? I bet, in the near future, publishers will be looking at those numbers and start scratching their heads...hmmm...maybe we should lead on the PC?

The only thing that is missing is marketing. Valve needs to get the word out there to people. Steam is adopted, pretty much, by word of mouth and is really only known inside the core community. There has been gossip in the community about a deal with MS, but that has got a snowball's chance in hell. Valve needs to borrow some money, hire some talented admen, and get the word out. Maybe cut deals with manufacturers to have it preloaded on systems, run some TV and print ads. Stuff like that. It can't be too hard to sell something that is free.

RichP wrote:
Thank you for mentioning Stardock's business acumen and its importance to gaming. Brad Wardell, Stardock's CEO, has said that creating profitable PC games comes down to quality, low development costs, the elimination of useless DRM, and scalability (looks good on a laptop or a gaming rig). Unlike some studios, Stardock's not in the business of spending $20 million making a PC game that will run on a select few systems. While GalCiv and Sins certainly aren't for everyone (the former is a beautifully in-depth game, but has a steep learning curve and requires significant time commitments), Stardock has a captive audience that keeps its gaming arm profitable.

The Big Guys should take a page from Stardock's playbook and fund lean development teams that can create *quality* games for <$1 million. I'm certainly not a businessman, but the industry's ballooning development costs necessitate ever higher sales; not every game will be a Halo or GoW or GTA. Hollywood doesn't focus solely on mega-budget blockbusters. Neither should the big gaming outfits. Having a few games made with the "Sins Philosophy" in mind would diversify their portfolios, appeal to niche markets, and allow them to take more risks. In Stardock's case, the <$1 million development cost turns into eight-figure revenue...excellent return on investment.

Digital distribution will only make it easier for the Stardocks and 2D Boys of the world to reach customers. My favorite PC games of 2008 are World of Goo, Sins, and Mount&Blade. Long live the little guys :D

Stardock's model is great for the little guys, but not sure what folks are suggesting by constantly holding them up as an example the industry should follow - combined sales for Sins and GalCiv fall short of short of many of the titles that had DRM in them, because without them demonstrating the use of some mechanism of protecting their investment, they would be deemed fools by shareholders and the rest of the industry alike. There are already a ton of smaller PC games that come out all the time; few of them do as well as Sins, and for those where the costs of production can be met by those folks who are legitimately going to pay for a copy of the game, like Sins and Goo, the no DRM route is a great tactic; but for all the rubbish you hear from the anti-DRM advocates, it doesn't mean they're not being pirated though, as download numbers on the torrent sites show, just means they've sold enough for it not to be as big an issue.

My post has little to do with DRM or its effectiveness (hint: if it's not Steam or Impulse type DRM, it's worthless). Brad Wardell says that pirates aren't customers and his company doesn't focus on them (in other words, Stardock designs games that deliver the highest return per dollar invested and appeal to demographics that are more likely to pay for games). He's also quick to note that Stardock's main business -- Windows desktop customization -- is subject to rampant piracy, but they still do alright by designing products that cater to business users and other paying customers.

My point, and I should've been clearer, is that it's entirely possible to make highly profitable PC games if you follow Stardock's lean development strategy (that's why Sins is on Sands' list in the first place).

Sorry Rich, didnt mean to be too confrontational; in complete agreement with you on Steam and Impulse as the wisest way forward.