The road to XBOX ONE. Follow the journey

What's wrong with publishers?

When CEO John Riccitiello memorably told MCV in 2003 that million sellers weren’t a big deal any more, this wasn’t what he had in mind.

What’s gone wrong? The short-term diagnosis: Having stumbled in the transition, EA underestimated Wii, allowed costs to spiral, and made too many mediocre games and also the wrong ones – a company with a $2 billion warchest but still no credible GTA-killer hasn’t been looking hard enough.

But I propose a deeper malaise: EA, and most other game publishers and developers, ran out of road. EA is a machine built to deliver millions of boxed copies of expensively developed, mildly iterated traditional games to retailers, but the supply (and the cost of supply) grew bigger and more demanding than the market.

But wasn’t 2008 the biggest year yet for games? Sure, but look where the action was. Casual or ‘experiential’ peripheral-based games like Wii Sports, Guitar Hero and EA’s own Rock Band that cost more and last longer.

Older games like Nintendogs and Call of Duty 4: Modern Warfare that keep selling, either as full price retail releases or revenue-draining trade-ins. Downloadable content – Call of Duty 4 DLC generated $10 million in a week. Then there’s the $1 billion a year geyser that is Activision Blizzard’s World of Warcraft. Every subscription and hour spent on WoW can’t be spent on another game – assuming it would be anyway on that piracy-ridden platform.

These trends have tilted the playing field to topple some companies and left others stumbling. The traditional market remains, but the growth the industry is geared on has shot off in another direction, with ruinous results for the status quo.

The download revolution
Digital distribution will yet cause the biggest upheavals. Some of us have cried wolf about this for years, but now the wolf is at the door.

In retrospect, consumers and the economic forces of the industry (as distinct from its businesses, who with honourable exceptions have been merely bystanders) needed a reason to embrace digital distribution – saving a shopping trip or the sheer inanity of transporting data in cardboard boxes wasn’t enough.

Today we’ve abundant reasons. Gamers like online distribution because it enables community, DLC, easy access to new content, and because the younger ones expect nothing else.

Predicting change
As for the industry, the cost of development and of securing consumer attention means the fire-and-forget mathematics of shipping a boxed title then turning attention to the sequel are breaking down. To exploit hits for longer, retain hard won customers, and fight both piracy and secondhand sales, games are becoming services.

Predicting such change was easy. Timing proved difficult. Tackling it commercially is a crap shoot.
As a related example, EA recently wrote down its $680 million purchase of mobile games pioneer Jamdat by $368 million. It surely overpaid in 2005, but it’s also seen wireless game growth flatten.

iPhone has reinvigorated the market, but tiny developers for whom $0.99 is a payday dominate Apple’s App Store.

Was EA late in fully embracing the mobile market, early, greedy, unlucky, fundamentally right, or wrong to try?

Incumbents are always vulnerable in revolutions. Stalwarts will try to buy or build a future, and some will survive. But when the grand old name of Atari is being traded like a poker chip, we shouldn’t need reminding that everything is up for grabs.

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