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96% of Games Unprofitable?

Cooking Up A Blockbuster Game on Forbes.com reports some data from Electronic Entertainment Design and Research (EEDAR), who do market research on games for clients like Electronic Arts and Activision. They offer a shocking tidbit, saying only 4% of released games are profitable: "Only 4% of games that make it to market actually make a profit, he says. About 60% of a game's budget is spent reworking or redesigning a game. Armed with all this data, companies can make those tough calls early in the development process." Thanks GameDaily.

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41. Re: 96% of Games Unprofitable? Nov 24, 2008, 15:34 Krovven
 
millions of people buy lottery tickets with a way below 4% chance of any return whatsoever. And they LOSE money, not just fail to turn a profit.

Gambling a few dollars on a lottery does not compare to gambling investing hundreds of thousands, or even millions of dollars when you have a small chance of ever getting that money back, let alone any profit.

As has already been shown with the "clarification" story, this 4% of all games don't make profit, is bullshit.
 
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40. Re: Dumbasses... Nov 23, 2008, 20:48 wtf_man
 
You can buy an 8800 GT for around $100 and it will handle console ports at settings equivalent to the consoles.

You're missing the point. 8800GTs were not $100 when they launched.

The only reason the prices have come down so drastically recently is because ATi threw a curve ball a few months ago. That is not the norm.

Usually one is perpetually upgrading hardware just to play a "new game" a year later. I'm saying for minimum specs, this is wrong. Period.

Any game released should play well on the comparable console specs as a minimum requirement, which lasts about 5 years... and should have done so from the day the console launched. (Well maybe a bit more RAM due to the OS being such a hog). But they don't. And an 8800GT is far above what an XBox 360 has in it. (It's an R520 (Radeon X1800)... 8800GTs blow those away). And it's not the consumer's fault that console ports are so sloppily done that they require 3x the hardware.

Now, telling someone... "go spend an extra $100 and get an 8800GT so you can play your new game" is NOT an acceptable answer for a lot of folks. Are YOU gonna go buy it for them??? "Go spend another $100" is an enthusiasts way of thinking... not an average consumer's way of thinking.

Why should they keep putting money into that "sinkhole" called a PC, when they can game on a console for much less money and effort?

I'm sorry if you disagree, but a major factor to the PC gaming problem is that the minimum Reqs are just STUPID, nowadays, and they are choking their own market. And these are the folks that aren't tech savvy enough to torrent down games... they actually BUY them. PC gaming shouldn't be THAT much more expensive than console gaming.

This comment was edited on Nov 23, 2008, 20:57.
 
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39. Re: Dumbasses... Nov 23, 2008, 19:49 Jerykk
 
Not everyone buys $500+ Enthusiast cards (Although I am one of them). While they do last a bit longer than "mainstream" cards, and a lot longer than "budget cards"... the idea of spending $250+ every year to 16 months for a mainstream card or $100 every 8 months or so for a budget card just to play an new game DECENTLY is fucked up

You can buy an 8800 GT for around $100 and it will handle console ports at settings equivalent to the consoles. Since high-end PC exclusives are pretty rare, an 8800 GT will last most gamers a long time.

The problem is that people buy big LCD monitors with high native resolutions. Since LCD monitors look terrible at anything other than native resolution, you need to have a high end card. If you don't want to spend a lot of money on videocard upgrades, don't buy a big monitor. Or better yet, just buy a CRT which shows every resolution equally well.

Personally, I wouldn't have any problems with games looking like HL2. If that allowed developers to take more risks and make more PC exclusives, I'd be a happy camper. Gameplay > graphics and even the genres that are traditionally graphics-intensive would look fine with HL2 caliber graphics.
 
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38. Re: Dumbasses... Nov 23, 2008, 13:39 wtf_man
 
...but forcing 80% of consumers to upgrade...that a bit to much... unless people game on 5 year old PCs they should not have to upgrade anything...

3 year old hardwarw will play anything on the maket today no problem...let's not forget that the 8800 series is 3 years old now...I know plenty of people who game no issues on 24" diplays with 7800 series cards.

Not everyone buys $500+ Enthusiast cards (Although I am one of them). While they do last a bit longer than "mainstream" cards, and a lot longer than "budget cards"... the idea of spending $250+ every year to 16 months for a mainstream card or $100 every 8 months or so for a budget card just to play an new game DECENTLY is fucked up.

Try playing modern games on the 8600 series. You'll be playing at settings that are uglier than when games came out for when the card actually came out.

The industry bitches about Intel integrated graphics, and even $100 cards don't last. What's wrong with this picture?

If you buy a console (which is considerably cheaper than a PC + a $100 card every 8+ months)... you have a good 4-5 year solid investment (Hardware-wise).

I'm not complaining about the MAX settings pushing the envelope for newer cards... I'm talking about the minimum Reqs vs. eye candy going WAY out of line.

Gaming enthusiasts are a SMALL market.

People that want to play a game, but refuse to keep sinking money into hardware upgrades are a much larger market.

Publishers and Developers effectively cut their own throats by jacking up the minimum Reqs "so far" on every new game they release. And often, those minimum Reqs aren't enough to play the game decently. Then every jackhole in a forum tells the person that their hardware sucks, even though they are above the minimum specs. That's sure a good way to lose customers.

PC games that are consistently on the "Best Seller" lists over a LONG period of time have LOW minimum reqs (WoW, The Sims 2, and their more recent expansions, etc.) You would think that the Publishers and Developers would "Get the hint", but they don't.

This comment was edited on Nov 23, 2008, 15:51.
 
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37. Re: 96% of Games Unprofitable? Nov 23, 2008, 10:19 Parallax Abstraction
 
I think in the case of EA or Activision, where they really operate on a different paradigm, its hard to compare to the rest of the industry. I think there's lots of reasons they lost buckets of money but as I understand it, some of it was because Madden (which from what I've heard has a very low profit margin because of the insane amount they pay the NFL for exclusivity) sold poorly compared to other years and since Riccitello (sp?) came back, they've spent a ton of money on these new IP games like Dead Space and Mirror's Edge which have only recently come out and the investments haven't caught back up yet. That plus the ridiculous amounts they spent on BioWare/Pandemic and that I bet Spore cost a lot more to make than its been bringing in, even with its good performance. I think EA will eventually return to profitability as most of these riskier new IPs that they've been doing seem to be paying off and selling well. I really hope so. I remember Riccitello saying a while ago that he thought he transition to the new generation hardware was basically over with and that companies were done having to pour new money into that and should now be seeing returns.

Its an interesting point you bring up about Unreal and needing talent behind the titles you make with it. Too Human is a whole other discussion but given Silicon Knights' past projects, I really had high hopes for that game and though it didn't live up to the hype, I still liked it. Given that they had to scrap Unreal and write their own engine with less than a year to go, I'm still amazed they were even able to ship it in playable form. I definitely agree with Frontlines and from playing that, it really screams as being a game from a team that wasn't ready for AAA yet. I was very surprised to see that Kaos was not one of the studios THQ chose to close. I've never been a fan of Brothers In Arms but even though this title had all the same flaws as the previous ones (despite being in the oven for so long), I still am surprised to find out it didn't do well. I really thought it would do 7 figures in the end. I figured that this heavy shift to middleware in general that so many companies are doing was ultimately to save money and lower costs but that doesn't appear to be the case for the most part.
 
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36. Re: 96% of Games Unprofitable? Nov 22, 2008, 17:54  dsmart 
 
@ Tomas

Well said

@ DG

I have seen the results. They are the same as the site I cited. Except that he puts the numbers in laymans terms so that the average Homo here on Blues can understand what it means. His accounts of the facts are not different from the numbers cited. Unless of course you're one of the average Joe's who goes cross eyed trying to balance their checkbook.

@ Pitiful

Well after a quick read I get the impression the math is bad. They take a AAA high buget title as the baseline and then apply that to every game out there. So they figure that AAA title cost X dollars and needs to sell Y amount to make a profit, they then take that Y figure and apply it to every game out, which is BS because %90 of those games didnt cost as much to make as their original example.

Yeah, thats what I said earlier. But even so, given that the the other games even if factored in won't make I dent, I guess they went with the largest common denominator.

@ Parallax

That makes sense Derek but I guess my question in that case is, does it still save them more money to license tech like Unreal? Obviously, if it was possible to write your own engine and then make subsequent titles less expensive as a result, wouldn't more companies be doing that? Is it simply a matter of it being easier to license tech or ultimately, does that create less risk for the companies? I wonder because in cases like Ubisoft, they've developed a lot of their own tech (the Assassin's Creed engine, the Far Cry 2 Dunia engine is almost a complete rewrite of CryEngine 1 etc.) but they've also licensed tech like Unreal, often for projects from the same studio (Ubisoft Montreal did AC for example but also did Rainbow Six Vegas which uses Unreal.)

Well folks with common sense - like you and me - would think that. However, it doesn't work that way. The reason tech gets licensed is

(1) to cut down on development time

(2) to get an edge because for some reason everyone thinks that when you see e.g. an awesome looking Unreal game, that means if you license the engine you're going to get the same results in your game.

In the case of #1 above, it can be a double edged sword as most developers (e.g. Silicon Knights, Atari, Midway et al) have ALL found out in recent months and cried foul in the process. Having an engine is like having the chasis mold for a car engine. The car you end up with - in terms of performance - depends on the people you have working on the engine thats going in the car.

If you don't have the talented people to work on Unreal Engine for e.g. - or even experience using it - you're going to end up like Atari, Midway etc. The Unreal engine in the hands of experts like Epic, Gearbox etc is a sight to behold. And its not just about the engine. In Unreal, the content creation process is *vital* to the end result. The reason Unreal is so frigging expensive is that what Epic gives you - basically - is a license to print money. But you won't get that far if the molds (devs, artists, modelers) for printing that money are all mininum wage earning dofus' sitting somewhere in a cubile. Or better yet, in country where the GDP prohibits common folk from owning cars, let alone computers.

So when you fork out North of $500K for Unreal, you better be damn sure that you have the people to throw at it. But then, think about this. The average triple-A games theses days takes two years and upwards of $20m (incl. marketing). When you look at those numbers, spending $500k on an engine is not even a second thought.

So you go and spend all this crazy money on the game, tech whatever - and even with the best people - then it tanks.

Case in point? The recent casualty: BiA: Hells Highway. The one before that? Frontlines Fuel Of War (which everyone knows THQ is also hurting financially).

The triple-A game building business is just as Tomas pointed out and worse these publishers are all going with the Hollywood model. A company like EA can push out 800 (!!!!) SKUs and STILL manage to lose MILLIONS. Think about that for a bit.

This comment was edited on Nov 22, 2008, 18:07.
 
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...but don't be surprised if we don't uphold them
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35. Re: Dumbasses... Nov 22, 2008, 17:52 DG
 
Gaming site? Forbes?

My mistake, I meant some random blogger
(I was referring to see dsmart's link)

This comment was edited on Nov 22, 2008, 17:53.
 
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34. Re: 96% of Games Unprofitable? Nov 22, 2008, 17:47 DG
 
millions of people buy lottery tickets with a way below 4% chance of any return whatsoever. And they LOSE money, not just fail to turn a profit.
But it's a risk of losing a couple of $. The product is the fantasy. A bit of fun, or glimmer of escape maybe. People don't buy lottery tickets to make money.

Only people with very real problems would throw a few million on lottery tickets. That kind of money is an investment, not a purchase.
 
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33. Re: Dumbasses... Nov 22, 2008, 17:46  Blue 
 
I'd stay well away from a gaming site's attempt at analysis of financial reports.

Gaming site? Forbes?
 
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32. Re: Dumbasses... Nov 22, 2008, 17:38 DG
 
FWIW EA's accounts are published online, I'd stay well away from a gaming site's attempt at analysis of financial reports.

http://apps.shareholder.com/sec/viewerContent.aspx?companyid=ERTS&docid=5960135#F40957E10VK_HTM_301
 
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31. Re: 96% of Games Unprofitable? Nov 22, 2008, 17:25 space captain
 
i am now shedding 4% of a tear  
Go forth, and kill!
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30. Re: Dumbasses... Nov 22, 2008, 17:19  cliffski 
 
We have that.Its called indie games. Plenty of low budget fun stuff that doesn't try to outdo gears of war for polygons.  
http://www.positech.co.uk
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29. Re: 96% of Games Unprofitable? Nov 22, 2008, 17:14  cliffski 
 
millions of people buy lottery tickets with a way below 4% chance of any return whatsoever. And they LOSE money, not just fail to turn a profit.  
http://www.positech.co.uk
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28. Re: Dumbasses... Nov 22, 2008, 17:02 4D-Boxing
 
You are 100% correct about the lack of gameplay depth but forcing 80% of consumers to upgrade...that a bit to much... unless people game on 5 year old PCs they should not have to upgrade anything...

3 year old hardwarw will play anything on the maket today no problem...let's not forget that the 8800 series is 3 years old now...I know plenty of people who game no issues on 24" diplays with 7800 series cards.
 
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27. Re: 96% of Games Unprofitable? Nov 22, 2008, 16:00 Yosemite Sam
 
So, is anyone able to refute anything they said, or is everyone here just going to say "NO IT'S ALL LIES" and rag on about Evil Big Business

Well after a quick read I get the impression the math is bad. They take a AAA high buget title as the baseline and then apply that to every game out there. So they figure that AAA title cost X dollars and needs to sell Y amount to make a profit, they then take that Y figure and apply it to every game out, which is BS because %90 of those games didnt cost as much to make as their original example.
 
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26. Re: Dumbasses... Nov 22, 2008, 13:54 wtf_man
 
...make cheaper games. Every title doesn't have to have a huge team of devs and the latest greatest graphics.

Try making GOOD games on a tight budget and settle for acceptable graphics.

The gaming industry needs it's own form of John Carpenter and B movies.

Bingo!

Graphics, graphics, graphics, and little gameplay depth = CRAP.

Marketing a game with little gameplay depth + forcing 80% of the consumers to upgrade their hardware = NO SALE. (Or rather, very limited sales)

Most people will ONLY upgrade for one of those AAA titles (4% ?) and even then, it's iffy.

The PC gaming industry has done this to itself (Limit it's own market). Then add on the fact that most of the more tech savvy people don't want to fuck up their machines with the MALWARE that's included with today's games.
 
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25. Re: 96% of Games Unprofitable? Nov 22, 2008, 13:38 Tomas
 
Since I used to be in the games industry and my last title was a multi-million dollar indie game here's a few things I'd consider "facts" about making games. I don't expect most of you to believe me because this is, after all, BluesNews, the place for people who think they know how the world works. =)

It's not as hard as you think to get investment for a project if you have the right people talking. It's the same with the movie industry - there's a lot of well-to-do persons who think the idea of "making a game" or "making a movie" is awesome. They know nothing about how the industry really works but they do have money and the idea that they could be "making a game/movie" is a really cool thing to them and is a more powerful force than the possibility of losing their money. So getting funding, even if the shot at profit is really low, isn't really that hard, it just takes hard work. I've seen both movies and games funded several times so I know you can do it if you have the right people involved.

Movies don't make money. Well, most don't. Games don't make money. Well, most don't. So why do people make movies/games? Because we love the good ones and its extremely exciting to think you might be part of making that awesome product and the hoards of cash that come with it. Look at how many good and bad game studios fail after their first title or two. It's not necessarily because they made bad games and it's obviously not because they made tons of money. It's simply because their investment money plus the cash from sales finally ran out. Games simply aren't that profitable in most cases these days.

There are of course the studios that do make it and you can usually tell which they are after their first project, but even those studios are often only one title away from shutting down. If you need facts just look at the entire history of the games industry. This is why the big guys buy up little studios and eventually take over in both industries. Their plan is the same as the movie industry. You put out X products a year knowing that most of them won't be very profitable but you also know that you only need one or two big sellers and you're fine for next year.

Anytime you see a good game come out that is successful watch for that studio to get bought up by a big studio. Some will try to remain independent and if they have great management they might be able to do so for a while. The reason they are such tempting targets is because finding a solid development team is really hard. A mostly great team often isn't enough. Having great guys in most departments but incompetence in one or two areas can really hurt your overall sales and chance at survival.

While I think the 4% number is a bit misleading it's probably not that far off. I wish I had some data on the costs/sales of every game this last year. I'd bet that it'd end up being pretty close to that number. Remember that there are a LOT of games you've never heard of and many didn't even get released. Additionally, nany don't miss profitability by much so that 4% figure is not quite as bad as it sounds. Again consider the investment mentality. You try to spread your portfolio because you know some are going to be winners and some losers. Games and movies are the same. Most investors know that 9/10 of their investments will not return a profit but it's still worth their investment because the one that does turn profit makes up for the other nine.

I've brought this up before but it seems relevant again today. There's a reason we see derivative games over and over. Those studios that do make money are run by business people who have the data and know which types of games made money and if you want to make something that isn't on their list of proven recipes you're going to have a really hard time getting it approved. This is all because of the fact that many great games will never make money.

The costs of development these days has become so large that it is very hard to survive with a product that only appeals to a niche market. Many creative and some of the best games made fall into this hole. They aren't going to appeal to the masses. Sure there are a few exceptions but as a whole this is a truth. It's the exceptions though that make that group of guys with an idea and the drive to make a new studio time after time and try to make it work. Few people go into a new project thinking that it's going to only make a few sales and appeal to a small number of people. We all think what we like is clearly the best thing and therefore everyone should like it as well.

As for the 60% of the budget being spent reworking or redesigning a game I'd say that is also true. However, in most of those cases I'd say that the more redesign or reworking that goes into a project the less likely it is to make money or even be "good" at release. If the design was bad...it's often cheaper to drop the project and start over. It may seem counter-intuitive that dropping a huge investment in a project to simply start something new is cheaper but it's often true. The costs and complications of changing something that wasn't ever designed to be changed are usually far greater than expected. This is why sometimes adding that feature post release that the whole community is clamoring for isn't as easy as it sounds. Just because that feature is commonplace or is in other games and isn't that complex doesn't mean it is easy to implement into the architecture of every project.
 
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24. Re: 96% of Games Unprofitable? Nov 22, 2008, 13:36 Parallax Abstraction
 
That makes sense Derek but I guess my question in that case is, does it still save them more money to license tech like Unreal? Obviously, if it was possible to write your own engine and then make subsequent titles less expensive as a result, wouldn't more companies be doing that? Is it simply a matter of it being easier to license tech or ultimately, does that create less risk for the companies? I wonder because in cases like Ubisoft, they've developed a lot of their own tech (the Assassin's Creed engine, the Far Cry 2 Dunia engine is almost a complete rewrite of CryEngine 1 etc.) but they've also licensed tech like Unreal, often for projects from the same studio (Ubisoft Montreal did AC for example but also did Rainbow Six Vegas which uses Unreal.)

I think the industry's biggest problem is that everyone is obsessed with being the top dog in the eye candy department. It drives me nuts when we have games coming out unfinished with restrictive DRM, loaded down with dynamic ads, shorter lengths and now people like Epic talking about making people pay for endings and yet still these companies are whining that they can't make any money. And then in the next sentence, they're talking about how much more state of the art their game will be than the next guy's. If so few games are profitable and it is well known what the size of the customer base is, then isn't ultimately the fault of those making the games for not properly managing the scope of their product and setting expectations far too high? At some point, the industry has to stop looking everywhere else for something to blame and get a little introspective.
 
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23. Re: 96% of Games Unprofitable? Nov 22, 2008, 13:28 Jono
 
And you're not making that up? How do you KNOW the report is nonsence? I know lot's of people that write music and a few who write games and none of them can make a living out of it.. in fact most of them doesn't even get paid. And contrary to your whishes they make games and music anyway
 
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22. Dumbasses... Nov 22, 2008, 13:22 Dreagon
 
...make cheaper games. Every title doesn't have to have a huge team of devs and the latest greatest graphics.

Try making GOOD games on a tight budget and settle for acceptable graphics.

The gaming industry needs it's own form of John Carpenter and B movies.

This comment was edited on Nov 22, 2008, 13:23.
 
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