Video Games no Longer "Recession-Proof"

And not just because there's no such thing. From Wired's Game Life blog comes news that Electronic Arts (EA), the maker of enthralling life-suckers such as Medal of Honor, Command and Conquer, and the Madden series, just trimmed its staff:

Electronic Arts is cautious on its short-term business prospects and plans to let go of 6 percent of its workforce as a result of dismal economic and retail outlook --and despite a 40 percent increase in second-quarter sales.

The company lost $310 million, or 97 cents per share, in the second quarter, which widened from $195 million, or 62 cents per share last year.

"Considering the slow down at retail we’ve seen in October, we are cautious in the short term," said John Riccitiello, Chief Executive Officer, in a prepared statement. "Longer term, we are very bullish on the game sector overall and on EA in particular."

The layoffs are expected to save the company $50 million annually, but will result in $37 million in restructuring charges in 2009.

I doubt game makers will vie for a slice of bailout pie, but their economic woes may lead them to revive arguments that Andrew Eades (of PlayStation design firm Relentless Software) made in late September, when he essentially argued for regulation of the pre-owned market:

"I feel that game retailers have absolutely a good role to play but they have to realise that when platform holders, developers, and publishers are saying 'we're not really happy with the way you are treating our games in the pre-owned market' it would be preferable if they listened a little bit harder - because we are saying it loud and clear and we do have another option which is digital distribution which does cut them out of the chain at some point."

EA didn't point fingers in its press release, but it's fathomable that they'd jump on board with Eades and others like him. EA, Relentless Software, and other makers of games for XBox, PlayStation, and the Wii—all of them "console" platforms—face more competition than makers of PC games from the pre-owned market, as console games are more expensive: the average PlayStation 3 game runs about $55 versus $20 for most PC games. A lot of that cost is eaten up by R&D, but part of it is the physical product, so I find it fascinating that makers of console games see moving to digital sales as a last resort; especially since PC companies like Blizzard Entertainment, the maker of World of Warcraft, conduct all their business digitally and make a killing doing it (WoW has 11 million subscribers who pay around $15 a month to play Online).

Adopting a digital product platform—especially in an age where most console gamers play Online—is a great way to cut costs. Incidentally, using digitalization as leverage to call for regulation of the gaming market could lead to the kind of unwanted government intrusions against which the industry is constantly fighting.

Kerry Howley wrote about the correlation between video games and violence here. Daniel Koffler wrote about the government response to Grand Theft Auto here.

Comments

TallDave | October 31, 2008, 1:18pm | #

Eh, EA never did much for me. Blizz is eating their lunch.

WOTLK is just going to further cement their dominance.

MAX HATS | October 31, 2008, 1:18pm | #

EA isn't might or might not be representative of the industry, being so huge and relying on fairly defined intellectual properties / sponsorships that keep the same fans buying the same updated games year after year. Their marketing, development and corporate culture are a thing all their own. And, they've been having issues for a while, labor and otherwise. Yes, labor issues. From what I understand, they try and develop video games on mandatory sweatshop schedules - probably not the best way to harness your programmers and developers creativity. Where EA goes the industry does not necessarily follow, as EA is a bit of a rogue albatross.

ellipsis | October 31, 2008, 1:22pm | #

Good luck with that digital distribution thing. It's worked so well for everyone else that's tried it.

And EA, your QA sucks camel balls. Hire some real testers.

Alch | October 31, 2008, 1:22pm | #

Companies like EA lay off staff and close studios even when they are making a ton of money. I would not say it proves much.

Pantsfan | October 31, 2008, 1:29pm | #

Do people really pay for software?



Really?

Episiarch | October 31, 2008, 1:30pm | #

I wonder if going to digital distribution would cause 3DRealms to finish Duke Nukem Forever faster. Or ever.

rbenchley | October 31, 2008, 1:36pm | #

I'm tired of the video game manufacturers whining about the used game market eating into their sales. The first sale doctrine means that people are legally entitled to buy and sell used games. If they want people to only purchase new games, they should make buying new a more attractive proposition (cheaper prices, extra content, etc.) As for digital distribution, that works fine for some games, but we don't have the bandwidth to distribute larger titles. Even with a good broadband connection, it would be problematic to distribute a 20 to 30GB title digitally. Also, we have DRM issues to deal with as far as downloaded games go. A lot of digital download services are dependent on the server; if your computer/console is unable to contact the server or the company goes out of business, you're SOL and the games you purchased are so many useless ones and zeroes. If your hard drive is corrupted and the downloaded games are lost, you're once again shit out of luck in most cases. Digital distribution might be a great business model for the video game companies, but I want nothing to do with it. The day I can no longer purchase a game on DVD, BluRay, or cartridge, will probably be the day I stop buying video games.

ClubMedSux | October 31, 2008, 1:43pm | #

As far as I'm concerned, it's been all downhill for EA ever since NHL '95.

libertarian democrat | October 31, 2008, 1:44pm | #

EA isn't really so great. I wouldn't count on them as being an indicator of industry health.

Reinmoose | October 31, 2008, 1:45pm | #

I suspect 2 things about EA

They'll find just about any kind of initiative that involves support from customers more difficult after the debacle with Spore

They're probably cutting staff now instead of later or earlier because it's more convenient when "nobody's doing well." If they'd cut during a good market, it would mean more to investors.

Kolohe | October 31, 2008, 1:50pm | #

A lot of that cost is eaten up by R&D, but part of it is the physical product,

To manufacture and distribute a compact disc costs no more than about a buck apiece. Even if you're doing it as a home based business.
25 to 50 cents for a blank CD (or DVD)

$0.59 even when shipped individually.

Seitz | October 31, 2008, 1:50pm | #

Digital distribution makes it harder for someone to take a game to a friend's house to play.

Though with external hard drives getting cheaper, that might not be an issue much longer.

jayjayhawker | October 31, 2008, 1:54pm | #

I know this doesn't apply to EA, but Fallout 3 has been selling like crazy, even the $70 collectors edition is doing well. This has been a very solid year for video game quality: Halo 3, GTA IV, Fable II, Fallout 3, Little Big Planet, Spore, Gears of War II (coming very soon, but from I have heard it is good)...etc. I think the game industry as whole will be fine.

ccasin | October 31, 2008, 2:02pm | #

PC games cost $20? Since when? The PC version of one of these major games tends to cost just as much as the console version (or perhaps $5 cheaper if you buy it digitally)

The n00b effect | October 31, 2008, 2:04pm | #

http://www.youtube.com/watch?v=P_t7EL_cYTc

isildur | October 31, 2008, 2:10pm | #

Well, I'm actually *in* the game industry, so unsurprisingly I have some thoughts on this issue.

First, EA scaling back doesn't really mean much for the rest of the industry. EA maintains a massive staff to keep their annual sequel machine running, pumping out the latest Madden or what have you. We're growing at my company, actively hiring in all departments.

Second, on the used game market: Its existence is entirely the fault of the game companies, and calling for regulation of it is like calling Child Protection Services on yourself because you can't control your own kids. Games with under 10 hours of gameplay; games that are effectively shovelware but sold at a $60 price point; games that are billed as 'sequels' but are just content that should have been in the original release... all these things make people hesitant to buy new games, and eager to get some of their money back from games they end up not wanting anymore.

Frankly, GameFly should be much more of a concern to console developers. I don't buy games anymore unless I'm completely certain the game will be great (CoD4) or I'm a huge fan of the series or the developer (the new Silent Hill). GameFly sends me games, I play them, I return them.

Regardless, I don't see the used game market, the rental market, or piracy as significant challenges for the game industry, just as I don't think music piracy is a significant challenge for the music industry. It's going to require some rethinking of business models, but that's the price you pay for constant innovation.

There are two models that are completely immune to the issues of piracy and resale: the subscription model and the digital download model. I work in the subscription world, and we love 'piracy'. We want our client software distributed as widely as possible; we make our money on a monthly subscription. As for the digital download model: of the three games I'm currently playing, only one was a physical disc purchase. The others (Castle Crashers for the XBox and Hinterlands, downloaded from Steam) were resale-proof downloads. I'd say that more than 2/3 of my game purchases are downloads.

The game industry, like the music industry, is slow to recognize that their business model is dying. Ultimately, any company that isn't selling digitally or running a subscription service is going to wither and die. All the current economic environment means is that the process is being forcibly accelerated somewhat, as gamers slow the purchase of big-ticket AAA titles with a crappy ratio of gameplay time per dollar, and focus more on cheaper, smaller titles with lots of gameplay per dollar.

(We estimate that a casual WoW player is putting 15 hours a week into the game; at 60 hours a month, the cost per hour of WoW is 25 cents. Compare to a typical console title with 20 hours total of gameplay; that's $3/hr -- or a typical summer movie, at $5/hr.)

Dave T | October 31, 2008, 2:11pm | #

Going to have to second some of the comments on here that EA kind of blows. They don't make innovative games.

Their QA is pretty bad, and they publish games that are very buggy.

Matthew | October 31, 2008, 2:11pm | #

With the easy availability of 8 Gig (and growing) flash drives and the general crackability of DRM schemes, I fail to to see how switching to digital distribution would stop or even slow down the used sales market.

Am I missing something important here or is EA?

Bingo | October 31, 2008, 2:26pm | #

A service like Steam is great for digital distribution. I actually prefer to buy my games on it since disks get scratched and lost. But EA's digital distribution pretty much sucks.

Kolohe | October 31, 2008, 2:32pm | #

We estimate that a casual WoW player is putting 15 hours a week into the game

over 2 hours a day is casual? Now I understand why the sterotype is that the 'average' player is an addict.

ed | October 31, 2008, 3:03pm | #

leverage to call for regulation of the gaming market could lead to the kind of unwanted government intrusions...

Sounds familiar. Perhaps they require a Gamers' Unification Act.
For the good of the people, dontcha know.

Ska | October 31, 2008, 3:06pm | #

I don't think you can treat consoles and PC the same way. Saying that most console players play online is also a fallacy - maybe they play CoD and Halo primarily online, but online play for most console games is an add-on (albeit one that gets more popular each year). For PC games, yes, downloads make sense. Wii owners are not going to be dowloading full games; the hardware isn't made for it. How many Xboxes sold were Elites? Those might have the hard drive capacity, but the less expensive Xbox packages have 20gb HDs. You're not going to be dowloading and erasing games all the time. What about blu-ray games for PS3 owners? Aren't they much larger than a DVD title?

Shit, pre-owned games is a pro for consoles. These guys are upset that if I buy the game and someone buys my copy that they aren't getting two sales of the same game? As someone above me said, a $70 price point on a 20 hour game which might bore me to death is too much. At $25 used, it's reasonable - and who knows, if the game is good I might buy the sequel new rather than wait.

It sounds like a lot of bitching in an industry that gets bigger and bigger each year.

TrickyVic | October 31, 2008, 3:11pm | #

"""the average PlayStation 3 game runs about $55 versus $20 for most PC games.""""


No. A newly released PC game is about $50. But sometimes I do wait till they are 19.95 on Steam.

Ben | October 31, 2008, 3:30pm | #

They posted a loss because they bought Pandemic and Bioware last year for 620 million and thus posted a $454 million loss list year. Also a lot of the layoffs are from Pandemic. Just sounds like reorg from consolidation to me.

Toxic | October 31, 2008, 3:37pm | #

I'm Toxic, and I used to be addicted to WoW. Until my life stopped sucking. Then I didn't care anymore.



A hardcore player is signing on for 30-40 hours a week really. 15 hours is too casual to really do anything of consequence.

Work, sleep, play WoW.

But its not the game itself which is addictive. The game itself kind of sucks. But it provides a sense of accomplishment and community for .25/hour, and that is what hooks people. If you want to break a WoW addict's habit, give him something to look forward to in the real world.

Kint | October 31, 2008, 3:46pm | #

You're wrong, Mike. EA isn't a bellwether, as others have noted. It's not that videogames are recession proof - they just run on a different cycle from the economy - Super Nintendo sales did very well in the depths of the early 90s recession, somewhat attributable to Street Fighter 2. Playstation 2 sales did well after the dot.com crash, and PS2 actually had a banner year in 2003, when there was a slowdown in the economy.

R C Dean | October 31, 2008, 4:40pm | #

Regardless, I don't see the used game market, the rental market, or piracy as significant challenges for the game industry,

What-his-name at Cracked.com publishes what I see as very insightful critiques of videogames, and has a brutal take there (several months old, at least) on the current generation of games and consoles, essentially tagging the current direction of the industry as being a high-speed run into a brick wall. Sorry, can't link from work. I'd be interested to hear isildur's thoughts.

Geotpf | October 31, 2008, 6:11pm | #

ellipsis | October 31, 2008, 1:22pm | #

Good luck with that digital distribution thing. It's worked so well for everyone else that's tried it.

Gabe Newell at Valve stops swimming in his Scooge McDuck money pit to look up at you with a quizical look on his face. Steam makes Valve megabucks, especially since there is no physically product to manufacture and store, no inventory levels to guess at (for a physical game, you can either print too many copies of a bomb or too few of a hit), and no cut for the distributor and retailer to take.

As for the original article, the big PC games cost the same $50 that console games do. Also, EA is getting bitten in the ass on the PC side for their stupid DRM on their last few releases, which has done nothing but piss off people and generate bad press for them. They should have gone with Valve's Steam or the equivalent, which is a fairly unobtrusive DRM system (as well as a digital distrubution system and an auto-updater and a IM client and about a zillion other things).

agentalbert | November 1, 2008, 11:14pm | #

I will never forgive EA for buying up one of the greatest video game companies ever, Origin Systems, and then ruining the Ultima franchise.

If the video game makers want to stamp out selling of used games, they need to be prepared to drop prices on their new product by somewhere from 15-40%. The fact that an active secondary market exists is what allows people to stomach paying $50+ for a new game.

blood sword | November 3, 2008, 1:19pm | #

Just here to agree with the people who say that EA is sub-par. I find all sorts of glitches in their games, and Madden hasn't changed or improved in any measurable way for the past eight years.

Wes | November 5, 2008, 5:56am | #

Blood you know your right. i ony buy one sport game with every new console generation because of the slightly better IP.

EA is trying to move in a nw direction but ets wait and see what happends. i think Dead Space is a good way to start things after the ever so dissapointing Army of two omg what a Gears of war wanna be that turned out to be.

Anyways EA needs to stop manufacuring the same damn games over and over again (not to mention the rediculious amount of expansions afterwards) and clear the table and start fresh sheesh the only decent title im actually looking forward to now is NFS undercover lets hope its better then Pro street