Halo 3: $30 million in development cash
Developers and publishers have for many years sought the holy grail of gaming: a reliable, recurring revenue stream. Traditional game development can be a high-risk business, with top class titles such as Halo 3 estimated to cost around $30 million. This cost can be shared and managed between the developer and publisher, with the balance of cost on each depending on the commercial agreements in place. Trouble is, there’s a large amount of risk involved in this process – what happens when a game eats through a wadge of development cash only to fail to sell well once it hits the stores? Being as averse to losing money as the rest of us, publishers try to reduce the risk by financing titles that are likely to do well, either because the characters or concept involved is already well known (a sequel or franchise), or because the developers have prior history of creating similar successful games in the past. Once a developer released a title, they became almost dependant on it’s success to fuel an appetite for future products. This cycle can play havoc with cash flow, especially with the average title taking between 18 months and 3 years to develop.
The strategy of almost every developer is to try and smooth out the bumpy cash flow they face. Some larger studios aim to run two or three development cycles in tandem, with the conclusion of each offset from the others. Smaller studios may look to partner up with a large publisher then seek milestone or interim payments on the road to delivery. Both of these are more a case of commercial mechanics that are unlikely to have an impact on the overall delivery. Publishers may also seek to re-release popular games at a lower price point, under a “classic” or “platinum” banner if the game does well initially, potentially bringing in further revenue. In terms of getting further revenue from customers who buy an initial game, there’s only one further choice available: expansion packs. In a similar way to tabletop or role-playing games, a developer could re-use the existing technology and game mechanics and just provide a continued storyline with new creatures to defeat and areas to explore. An example of this is Beyond the Dark Portal, an expansion for Warcraft II: Tides of Darkness.
Spore: Creepy concerns
Expansion packs aren’t without their downsides though. EA Games took expansion and content packs to an extreme level with The Sims 2. Over the course of four years, eight expansion packs and ten “stuff” or content packs would be made available to buy from retail stores. Seeking to repeat the process, Spore was quickly followed up with the Creepy and Cute pack. Unfortunately, EA had lost a substantial amount of goodwill in relation to Spore due to the SecuRom debacle upon release. Users (and I have to count myself among them) experienced further problems in using this new content with existing saved games, further damaging the reputation of a game dogged with controversy. It’s when moving into areas like this that publishers have to be careful, particularly in the current climate. Players have to feel that they’re buying an entertainment product, not a chore. More importantly though, they have to feel that they’re buying something that represents to them value for money. With retail growth slowing during the crucial winter season, it’s more crucial than ever to reward customers for their purchases. Some publishers have started to move in this direction by lowering the prices of some of their newer releases, but if discounting becomes the norm it increases the risk that a game will not generate a profit.
Aion: Tower of Eternity: NCsoft's next MMO
The question is, can MMO studios fare any better? Although they release videogames to similar schedules and charge about the same for them, they generally take longer to develop and require additional infrastructure to support them. Likewise, while they can provide a regular revenue stream, players expect regular content updates to be included as part of the agreement. Plus a fair chunk of that recurring revenue has to be spent on operational costs such as maintenance, customer support and so on. And don’t forget, a developer has to splash out on getting all this up and running before a single copy of the game is bought – if the game doesn’t sell or if forecasts are wrong, they may end up with too few subscribers to sustain the online platform. The history of Istaria: Chronicles of the Gifted (formerly Horizons: Empire of Istaria) serves well as an example in this regard, with the development and ongoing maintenance changing hands several times. Firms such as NCsoft, with a range of multiplayer games spanning multiple markets, and with a support and server infrastructure already in place, may fare better in the medium term.
Of course, this does depend on subscriber loyalty. As we dip further into an economic downturn, are players more likely to give up buying new games to continue paying for subscriptions to their current ones? How high is a gaming subscription on a player’s list of financial priorities – is it something they’ll hang on to as long as possible, or something they’ll only cancel if almost forced to? How much of an improvement does a new MMO have to provide before players switch from one game to another? It’s difficult to say for sure, but I have a feeling that players are likely to consider giving many other things up before closing out on a game they’ve enjoyed playing for some time.