Former Sony CEO: 7 In 10 Games Lose Money

[Dr.Finger]

While speaking to the Edinburgh Interactive Festival, former Sony CEO Chris Deering had some bold statements about both the present and future of the intereactive entertainment industry. From DevelopMag (http://www.developmag.com/news/30312/Gaming-audience-will-hit-25bn-by-2011-says-Deering). Traditional games platforms like DS, Wii and PS3 will hit a total installed base of 500m by 2011, Deering predicted – citing sources like Screen Digest and other industry sources – with alternative mobile platforms and gaming PCs accounting for a billion users each.
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But even with the support of two billion potential players through more fractured and non-traditional platforms, Deering warned that “traditional revenue sources will not be sufficient to fund games development” as the market grows, and studios should explore new business models.

Deering said that currently only 3 in 10 games recoup their development budgets. And that trend will continue in a future where an array of companies, such as mobile networking operators, cable, satellite and DSL operators plus TV networks and many others “will be in the competitive array”. So developers will have to turn to new revenue sources to cover their losses.

“Something is going to have to be there to make up the difference,” he said, citing a “creative use of hybrid online/offline advertising revenue models” as one key way to succeed. “These business models must be explored.” His statement that only 3 games in 10 recoup their development costs is pretty stark. If true it's a bad indicator for the health of the industry going forward.

[Codicier]

Typo in the title Finger, you've got EA instead of Sony. :)

[Ancalagon]

Nonetheless, the industry is obviously lucrative enough to support a few major development and publishing houses.

Lets face it, if it really was that bad, MS and Sony would pull out and make money through other means. As everyone is, they are in it for the bottom line.

You could rephrase that to say, "3 games out of 10 make enough money for the other 7 to flop"

[Heretic Machine]

Well, I'm sure that EA games lose money quite frequently... since 7 out of 10 EA games are shovelware. How many games published by Nintendo lose money? How many games published by Microsoft lose money? Maybe big publishers like Activision, EA, and Ubi need to stop trying to pump out one game for every two people on the planet, and put that funding towards quality products?

[Dr.Finger]

Typo in the title Finger, you've got EA instead of Sony. :)
D'oh!


Thanks!

[Ancalagon]

Well, I'm sure that EA games lose money quite frequently... since 7 out of 10 EA games are shovelware.

Yeah, I'm sure you could correlate that statistic with a lot of other meaningful information.

eg,

7 out of 10 games are rushed and therefore do not sell well

7 out of 10 games are produced by overworked developers

7 out of 10 games are marred by corporate politics

etc

[Karmakin]

Game development costs are rising faster than the size of the market to purchase them.

Something has to change.

[Farsight]

I work in the industry, and that claim reeks of corporate BS to me.

A more accurate statement would be: "7 out of 10 games make so much money that we are unable to fake the books to avoid paying taxes to the governement, and royalties to the people that actually did the work."

[TrackZero]

I don't see it as anything the industry can "fix", there's no sure bets out there, even with sequels. You've just got to produce and try to cover the widest range of IP/genre out there and see what sticks best for the current market, while moving along with new trends.

[Farsight]

dumb non-editable posts... make that "3 of 10"... etc... blah, my forum dyslexia undercuts my point yet again!

[Baron Samedi]

Traditional games platforms like DS, Wii and PS3 will hit a total installed base of 500m by 2011

I stopped reading there.

[Morratut]

Yeah, I'm sure you could correlate that statistic with a lot of other meaningful information.

eg,

7 out of 10 games are rushed and therefore do not sell well

7 out of 10 games are produced by overworked developers

7 out of 10 games are marred by corporate politics

etc

I agree with the above. A lot of the games out there are trash and don't really deserve peoples attention.

[Kelegacy]

The PS4 and Xbox 3 will have only two software publishers because of cost and loss ratio.

Industry needs to stop trying to push forward so much and stand still for a bit. Games are going to only get more expensive, so let's have console generations last much much longer, a la PS2. People that need cutting edge can go play on the PC.

[Dingobloo]

Nonetheless, the industry is obviously lucrative enough to support a few major development and publishing houses.

Lets face it, if it really was that bad, MS and Sony would pull out and make money through other means. As everyone is, they are in it for the bottom line.

You could rephrase that to say, "3 games out of 10 make enough money for the other 7 to flop"

Sony and MS HAVE an alternate revenue stream, they get a slice of every game sold on their platform, doesn't do much for the 7 other developers who are flopping.

[Codicier]

The PS4 and Xbox 3 will have only two software publishers because of cost and loss ratio.

Industry needs to stop trying to push forward so much and stand still for a bit. Games are going to only get more expensive, so let's have console generations last much much longer, a la PS2. People that need cutting edge can go play on the PC.

This. At least hardware and graphics wise. Things look like what they look like and that should be fine for a while. Start selling via creativity and content instead of shiny. So many games are visually impressive but last for no time at all (speaking in terms of singleplayer games).

[jeffool]

I don't see it as anything the industry can "fix", there's no sure bets out there, even with sequels. You've just got to produce and try to cover the widest range of IP/genre out there and see what sticks best for the current market, while moving along with new trends.There's a few things they could do. Longer console generations, an open standard console (so the market wouldn't be fractured, and required two/three different versions of every game to reach anyone,) or even embracing of digital delivery to cut costs.

I just really don't want us to be forever stuck with the model of "a few hits to pay off the rest." See how good that worked for the music industry... The problem with not wanting that is we gamers may think "Make new games with new ideas!" but the people with money in say "Make safe games with proven ideas." And that sucks as well.

[RMan]

I'd always figured it was a worse ratio than 7 out of 10, but still, the few games that really succeed clearly make up for the losses of the failures, but regardless it’s clear why that has resulted in a greater degree of studio consolidation. I’d say it’s pretty clear what needs to be ‘fixed’, if you want to try to make the next big thing, then expect a massive bill to make it, and a great risk. Make games short, and cheap, by lessening the investment required of your consumers you make it easier to get people to try something new. Still, I doubt we’ll see that ratio change much, I don’t think it’s all that bad, I expect most entertainment industries have a higher failure to success ratio.

What surprises me is the number of publishers that seem to have unreasonable expectations on their game sales, seems many are expecting twice the sales they’d have seen from the same type of game last generation. Seems like silly wishful thinking, or just numbers being inflated to match the production costs they’ve let spiral out of control.

[Ancalagon]

I stopped reading there.

Err, whats wrong with calling those traditional platforms? Regardless of what you think of their interface mechanics, to a salesman they are no different from an XBox. They still require a capital investment in the hardware, have accessories that the customer can buy, and also large libraries of games. No difference.

The online aspect is the only non traditional aspect, and even that is hardly new.

[Dr.Finger]

You want to hear something that's even more depressing? How many of that 30% is made up of either Sims or EA Sports annual iterations?

BTW, I agree with Farsight. If 7 out of 10 games were actually losing money the industry as a whole would have collapsed already. It's just accounting BS.

[Rafer]

His statement that only 3 games in 10 recoup their development costs is pretty stark. If true it's a bad indicator for the health of the industry going forward.

I wouldn't be surprised if that 3 in 10 number has always been the ratio. There is probably some equilibrium that prevents the number from going up and down.

Think about it, if 8 in 10 games were profitable you would see a lot more companies spring up, more games being made, larger budgets as companies feel the risk/reward for making the next AAA Halo or GTA series is worth it.

Then the market gets overcrowded, a bunch of big budget games flop, game companies fold and cut back on budgets, safe low-budget sequels. Sort of like now in Japan as you see a quite a few franchises not moving to next-gen yet (Persona, Dragon Warrior, Fatal Frame) or looking like hi-res last gen games (Disgea, DOA).

[RMan]

BTW, I agree with Farsight. If 7 out of 10 games were actually losing money the industry as a whole would have collapsed already. It's just accounting BS.
Not true, that assumes that the 3 of 10 are making the same amount of money each that the others are losing. Successful games make much more, on average, than unsuccessful games lose, and that's what makes the whole thing work.

[Hellstorm]

The PS4 and Xbox 3 will have only two software publishers because of cost and loss ratio.

Industry needs to stop trying to push forward so much and stand still for a bit. Games are going to only get more expensive, so let's have console generations last much much longer, a la PS2. People that need cutting edge can go play on the PC.
So PS4 and Xbox 3 will have EA and uhhh... THQ and Wii 2 will have EVERYONE ELSE... I can live with that.

[mightbe]

I think this figure is bullshit.

3/10 PS3 games, maybe.

[drakkarim]

i wonder if this is 7/10 like in the music industry, where even if your record sells 50 million copies, they'll find a way to tack on so many expenses that by the time it comes to paying the royalty checks, all of a sudden the net profit after company expenses is $5. better luck next time...

coming from a sony exec i'd sooner piss in the wind and take my chances than trust a word out of his mouth.

[Kelegacy]

This. At least hardware and graphics wise. Things look like what they look like and that should be fine for a while. Start selling via creativity and content instead of shiny. So many games are visually impressive but last for no time at all (speaking in terms of singleplayer games).

However, I didn't mean everyone ditching high-cost development and going to the Wii. I'd rather play my PS2 with new games than the Wii. Can't stand that Wiimote.

[Dr.Finger]

Not true, that assumes that the 3 of 10 are making the same amount of money each that the others are losing. Successful games make much more, on average, than unsuccessful games lose, and that's what makes the whole thing work.I understand that one Sims or World of Warcraft more than cover the costs of making a whole mess of Psychonauts or Beyond Good & Evils. But I still contend that if 70% of games really lost money the industry would have changed their habits by now. I could just about buy 50% losing money. But 70% just doesn't ring true to me.

[DaXIthR]

7 in 10?

Shit...that's almost 70%.

[Ancalagon]

I understand that one Sims or World of Warcraft more than cover the costs of making a whole mess of Psychonauts or Beyond Good & Evils. But I still contend that if 70% of games really lost money the industry would have changed their habits by now. I could just about buy 50% losing money. But 70% just doesn't ring true to me.

You would probably find its a risk-reward balance. For every World of Warcraft, there are many Helllgate:London type games that cost a lot and fail spectacularly.

How do publishers/developers balance their time between high risk titles and "safe" titles? You can already see that a large portion of their time is spent on "safe" titles, including sequels.

I wonder if being a sequel influences a game's chances of making it big, ie making obscene amounts of money. For instance, is World of Warcraft helped by the fact that people could recognize the brand from previous games? Or had it turned up exactly the same with no prequels, would it still have done brilliantly, as long as Blizzard's name was still known to be quality?

[NeoSuplex]

I understand that one Sims or World of Warcraft more than cover the costs of making a whole mess of Psychonauts or Beyond Good & Evils. But I still contend that if 70% of games really lost money the industry would have changed their habits by now. I could just about buy 50% losing money. But 70% just doesn't ring true to me.

I believe it... I mean think about it... you have games which can cost so much money and time to produce, but you have a month on some crowded retail shelves to make it all back. The industry looks great on paper (high revenues and sales numbers overall) but, the vast majority of the money is made by a few players.

Theres a reason publishers are so afraid of piracy and are desperate for added revenue streams. Those common things they do that gamers hate are a symptom of the larger problems.

[Drayven]

Does anyone know how this ratio compares to other industries? What percentage of movies make a profit?

[KSmitty]

7 in 10?

Shit...that's almost 70%.
60% of the time it works 100% of the time.

Some games are getting more and more expensive to produce. As the cost of business steadily increases you will see less new big budget IP and more big budget proven sequels. Quirk and experimental titles will be scaled down to downloadable size.

[RMan]

I understand that one Sims or World of Warcraft more than cover the costs of making a whole mess of Psychonauts or Beyond Good & Evils. But I still contend that if 70% of games really lost money the industry would have changed their habits by now. I could just about buy 50% losing money. But 70% just doesn't ring true to me.
I've always heard 80%, and that sounds reasonable to me. The thing is, not making money doesn't mean losing all development costs, just means falling short of making them back. The ones that are fairly successful, once that ball gets rolling, make several times their development costs, and often spawn sequels/expansions that, if managed correctly, cost less. Of course, the super big budget games now don't have the profit margins they once did, but they still make alot. I mean, take Popcap (just picking someone with low dev costs), it's possible Zuma or Bejeweled have made enough to pay dev costs on all their other products combined, that's not unreasonable. That means for a successful company, they could possibly get away with a 9:10 failure ratio and still succeed. But as stated before, that's why consolidation and diversification is important for stability in this industry.

[frederec]

Sort of like now in Japan as you see a quite a few franchises not moving to next-gen yet (Persona, Dragon Warrior, Fatal Frame) or looking like hi-res last gen games (Disgea, DOA).

I think some of your choices are odd. Sure, Dragon Warrior IX coming to the DS as opposed to some console is bizarre. However, the new Fatal Frame is coming out on the Wii, and while that might not be "next-gen" enough for some people, it is still a current console.

Persona I still chalk up to being somewhat rushed because the success of Persona 3 caught Atlus off guard. Before Persona 4 was announced, there were rumors of a new MegaTen game on the PS3. I suspect that the runaway success of Persona 3 got them to put that on the back burner and focus on quickly putting out a sequel. And the quickest way to do that is to release it on the PS2.

Then again, a new Devil Summoner game is coming out on the PS2, which I think works better for your argument than mine.

And Disgaea has reasons for its issues too. It's well known (been mentioned in interview with the developers) that the Nippon Ichi is a small company that needs to put out a game each year to stay afloat. This is why their games tend not to change too much between iterations. For Disgaea 3 they wanted to move to a new console, so the time they should have spent making it look better was spent getting to know the console. So it's a transitional game. They promise that future games will use the hardware better. Not that I ever expect them to look as good as AAA PS3 titles, but some improvement is promised.

As for DOA...I don't follow fighters. Can't say anything about that.

[Codicier]

However, I didn't mean everyone ditching high-cost development and going to the Wii. I'd rather play my PS2 with new games than the Wii. Can't stand that Wiimote.

I agree, me either. My secret agenda is to force Bioware to make another Infinity Engine game. :D

I want me some long and deep games, but If they don't have megatextures or volumetric light or some crap I'm not going to care.

[H.Bogard]

I agree with the notion that the industry should just fucking stay still for a while. I haven't seen anything on the fancy Xbox 360 hardware that wasn't possible on the original with respectable visuals.

Forget about the fucking eye-candy for a while and try to reduce your ridiculous development costs.

[Farsight]

i wonder if this is 7/10 like in the music industry, where even if your record sells 50 million copies, they'll find a way to tack on so many expenses that by the time it comes to paying the royalty checks, all of a sudden the net profit after company expenses is $5. better luck next time...

BINGO.

Movies are the same way. Studios pay accountants a lot of money to ensure the books line up so they don't have to pay the talent even more.

New Line even tried to tell Peter Jackson the LotR films "did ok" so they could lowball his royalties by some insane 9-digit number.

The "7 of 10" statement is a blatant lie. Do not buy into it for a second.

[blackzc]

I work in the industry, and that claim reeks of corporate BS to me.

A more accurate statement would be: "7 out of 10 games make so much money that we are unable to fake the books to avoid paying taxes to the governement, and royalties to the people that actually did the work."

This sounds more like it. Crap would NOT be put out if it never made money. And there is plenty of crap.

Ive always heard, if it sell over 200k its a success, for an average title. Castlevania, blom blocks, mega man, stuff like that.

[Limech]

There are SO many crappy games out there. I'm surprised the ratio isn't worse than that.

I mean, even those that are relatively better end up doing much poorly than anticipated.
Especially last year, there was so many good games that game out that many above average games didn't do as good as they should have.
Coming to mind: ETQW, FFoW, WiC, Crysis and UT3.
They were buried by: CoD4, Halo 3, AC, Bioshock, Orange Box, etc even though they were really good games (compared to some other ones, i.e. above average IMO).

[Flaps]

I believe that more than half of the games produced don't break even. I don't know if I buy the whole '7 out of 10' thing, because those kinds of losses are only ever revealed by public companies who have to file earnings reports.

So many game lose money because they ask the developer to copy a hit for half the money and in half the time. Copying something doesn't mean success, underfunding the project certainly doesn't lead to success, and in half the time is typically a ridiculous request brought about by some licensing deal or quarterly earnings goal.