14 DAY TRIAL // The videogame industry, both on the hardware and software sides, seems to be continuing its expansion, even if the economy of all major markets for games is being hit by the recession. In February, the growth was slower than expected, but it was still there, delivering more arguments to the idea that “videogaming in recession proofs.”
The only downside is that publishers and developers are having a lot of financial issues. Even the big ones are posting losses, while smaller ones, like Eidos, Midway and THQ, are looking for a buyer or are close to requesting Chapter 11 protection. The problem is that development costs have skyrocketed, reaching at least 25 million for an AAA title for the Xbox 360 or the PlayStation 3, while blockbusters that sell a lot of copies are increasingly sparse.
Reggie Fils-Aime, who is the head of Nintendo of America, has told the New York Times that a game must sell at least 1 million units on his company's Nintendo Wii console in order to be sure to turn up a profit. The NPD states that, in North America, only 16 videogames, 9 made by Nintendo, have broken through that barrier. It's likely that the limit for success on the other consoles is set even higher.
The main challenge to the profitability of big publishers and developers comes from the increasing array of choices presented to the potential gamer. The iPhone and the various mobile devices out there can play games that cost less than those on consoles or handhelds, while a lot of Internet portals are offering games for free.
The solution to the profitability problem could come from business models that emphasize leaner teams and clear knowledge of the potential customer base. Stardock has recently said that games like Sins of a Solar Empire and Galactic Civilization II are very profitable, bringing in three or four times over their development and marketing budgets.