Developers uneasy about new game consoles

Warren Spector, who's been developing games for more than 25 years, has mixed feelings about the eagerly anticipated Xbox and PlayStation game systems.

The erstwhile studio director of Ion Storm, responsible for titles ranging from "Wing Commander" to "Deus Ex," thinks the new video game systems will be a player's paradise. With high-definition graphics, incredibly fast processors and surround sound, the experience will be leaps and bounds beyond anything console gamers have seen before.

But with that will come consequences. Spector and other developers are worried that the game industry will become ever more like Hollywood, with huge budgets, huge productions and lots of sequels, dominated by the few big companies who can afford to produce a top-shelf title.

"Once hardware guys give us the capability to do something spectacular, someone's going to spend the money to do something spectacular," Spector said. "The quality bar is going to be raised. Someone is going to spend $20 million or $30 million or $40 million, and the rest of us who don't have deep pockets like that are going to have to find some way to compete."

This ripple of anxiety is moving quickly through the world of game developers and publishers as the hype machines for the Sony's PlayStation3 and Microsoft's Xbox 360 grind into gear. The game industry is evolving on both the business and creative levels, and it's a good bet that nobody knows exactly what that means.

The last several years have proved beyond a doubt that gaming has hit the business mainstream. Sales of video game hardware and software topped $9.9 billion in the United States alone in 2004, according to NPD Group. That's a few million dollars higher than Hollywood's total box office take for the same period.

But the process of making games has changed substantially in the course of reaching those heights. Games were once the product of just a few people, or even a single person acting on inspiration. "Pong," the game that kicked off the video game craze in the early 1970s, was created alone by Atari's Al Alcorn, on instructions from company founder Nolan Bushnell.

By the time the industry reached the PlayStation2 and Xbox league, the biggest games were created by teams numbering in the dozens, with budgets often reaching upward of $10 million. Some in the industry have been grumbling for years that this has sapped creativity, with game genres standardizing around the core big sellers: sports, shooters, strategy games and role-playing games.

Some innovative projects do get off the ground. But most big titles are familiar, critics say. Eight of the top 10 best-selling games in mid-April were sequels, some on to their fourth or fifth iteration, according to NPD Group.

"If look at history of games, the industry grows by creation of new styles," said Greg Costikyan, a game consultant and independent developer. "One innovative game appears, and then you

have a genre based around those play dynamics. Without that level of innovation, my fear is that the industry is doomed to stagnation."

The developers of Microsoft's Xbox have a very different take, however.

J. Allard, head of the company's Xbox division, says game developers have been eagerly pressing him for details and have been nothing but enthusiastic about the capabilities of the as-yet-under-wraps console.

But the software company has been listening to developers' concerns, he added. They've released a standard set of tools aimed at streamlining many of the development practices. Other open-source tools and game engines have also made independent developers' lives somewhat simpler.

"With more development tools, developers won't be stuck worrying about nuts-and-bolts tedious stuff and can spend more of their time on improving or innovating other parts of a new game," said Schelley Olhava, a game analyst with research company IDC.

Allard also touted a new "marketplace" feature of the Xbox system, in which developers will be able to post downloadable content ranging from trailers to demos to rub-on tattoos. That will help developers and publishers make extra money for their games and could provide publishers with a way to experiment with new ideas cheaply, a little bit like pilot shows on television, Allard said.

He likened the pilot idea to the way "Clerks" director Kevin Smith came from nowhere to make a hit movie funded on credit cards at the same time studio budgets were routinely crossing the $100 million.

"People say publishers are going to make fewer bets," Allard said. "I want them to make bigger bets."

Details of Microsoft's Xbox will be released Thursday night on MTV. Sony executives declined to comment for this article.

Publishers under the gun
Indeed, it is the publishers--an ever-shrinking circle of companies such as Electronic Arts and Take Two--that actually fund most of the games that are produced, much like record labels pay musicians to record albums.

Historically, industry console transitions have led to increases in game development costs, said Peter Dille, senior vice president of worldwide marketing at THQ, one of the industry's largest publishers. Consoles are typically updated on five-year cycles.

"What happens with each cycle is that the cost of development increases by 50 percent, and we expect history to hold form this time around," Dille said. "What we'll see is costs will go from a range of $3 (million) to $10 million up to around $5 (million) to $15 million."

"With higher costs, we're likely to see fewer quirky titles, meaning those that aren't based on a proven formula."

--Schelley Olhava
Analyst, IDC

Today, many if not most games don't make money, and small publishers often survive on the backs of just a single hit or two a year, if they're lucky. Boost the average cost of production up to $10 million, and it will be even harder to turn a profit. Analysts say that is almost certainly going to dampen publishers' appetite for risk.

Dille predicted that much of the extra development will be made up in an expansion of the market. But analysts including Olhava have been pessimistic about that prospect, noting that console household penetration has stayed in the 40 percent to 45 percent range for years.

"With higher costs, we're likely to see fewer quirky titles, meaning those that aren't based on a proven formula," she said.

Financial analysts expect more consolidation among publishers, as the smaller ones lose the ability to compete effectively. Some predict that big media conglomerates that aren't now in the business will enter, seeing the opportunity for dominance.

Others say a funding system more like Hollywood's is likely to evolve.

"There are entrenched funding mechanisms in Hollywood that support $70 million movies," Spector said. "The movie-funding model is going to come to gaming, it's just a question of when."