The future of the games industry? It’s in three parts

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I spend a lot of time talking to people about my view on the future of the games industry. I keep talking about a blog post that I must write to explain how I think the industry is going to coalesce around three totally different businesses. This is that blog post.

Blockbuster studios – or the big get bigger

The future of the blockbuster game is bright. Every piece of evidence I see suggests that big games are getting bigger (see the endless stream of “biggest first week sales ever” from breathless games PRs.)

These games are sucking up budgets, investor attention, gamer time and media column inches.

The problem is that there are ever fewer of them.

Modern Warfare 2 cost $50 million to make. It costs a further $150 million to manufacture, distribute and market at launch. Very few companies can afford to take $2o0 million bets, still less to build the portfolio of games that are the only defence against the hit driven nature of blockbuster games.

Meanwhile, gamers are abandoning the mid-tier games. Those games are just not doing the units to justify the gamble, and are falling by the wayside.

The closest analogy I can get to is the death of the B-movie: when television came along, making audiovisual content available in the home, shlocky, sub-par movies couldn’t draw the crowds. Blockbuster movies survived, even thrived. B-movies collapsed under pressure from soap operas on the television.

For the games industry, Red Dead Redemption is the blockbuster movie; Farmville is the soap opera. Games on Facebook, iPhone, PSN, XBLA and the web are drawing user’s time and money. Only the very biggest titles will survive.

This change rewards the huge companies and penalises the medium-sized. Activision will be a dominant player in the blockbuster space. Probably EA too. Disney and Warner. There aren’t very many more spaces left on the global stage (generally all media business consolidate to 5-7 major players). Ubisoft? Take Two? Square Enix? THQ? Zenimax?

if you are not good at making blockbusters – and don’t have the financial strength to back at least half a dozen of them every year – you are going to get squeezed out. You will need every game to be a hit, not just enough of the games in your portfolio. You won’t be able to afford to back the ones you really believe in with marketing and distribution budgets that are 4x the development cost. You will always be one game away from bankruptcy.

It won’t be pretty.

Persistent online games, or the television of gaming

The second category of winners will be large persistent worlds.

And no, I don’t mean World of Warcraft (although they do fit the category).

I mean Zynga and Playfish, I mean Bigpoint and Gameforge. I mean Mind Candy and Jagex. I mean ngMoco and Booyah.

These are all companies who have created a whole new approach to gaming. They don’t focus on launches or release dates. The launch is the start of ongoing development cycle, fine-tuned by customer feedback driven by direct data showing what users like and dislike.

Before you throw your hands up in disgust at this prospect, stop. There is no reason these games have to be crap.

(Personally, I think many of them are great already, but I realise many core gamers don’t).

We are currently at a very early stage in the development of these businesses. It’s like you are at the beginning of the emergence of television and all that’s been invented is soap operas and daytime television. The immersive stories and entertainment that make up the best of television was not invented over night – and nor will the social games industry.

So the second category of winners will be companies who know how to launch cheaply (but then spend lots of money on improving the game over its lifetime), to attract and retain audiences, to offer them compelling reasons to come back regularly and spend money.

And they won’t be subscription client-based MMOs.

3. Anyone who wants to make a game

The future for game makers is very, very bright. New technologies like Unity make coding easier. Distribution channels like the web, XBLIG, Steam, the App Store and the Android Market mean that it is easier than ever before to publish a game.

That’s not to say it’s easy. Just that a publisher is no longer a requirement.

That throws the door wide open for anyone with creativity, discipline and determination to make money from making games.

Small businesses, ranging from a single jack-of-all-trades to, maybe, 50 people, will be able to build strong sustainable businesses in this new world.

They won’t make blockbuster games. They won’t be the next Zynga.

But they might make the next Joe Danger or Darwinia, an Angry Birds or a Travian. These will be content creators, taking control of their own destiny and making a decent living (although perhaps not their fortunes) making games they want to make, and enough of us want to play.

That wasn’t possible in the days of dominant publishers.

Of course, every successful game from this third-way takes away from the money and time available for blockbuster games and persistent online games. Which makes the success of these “indies” one of the biggest challenges to the power of an Activision or a Zynga.

In the end, the games industry will polarise into these three segments (can you polarise into three?):

• Blockbuster games
• Persistent social games
• Independent games

I no longer believe that the era of the blockbuster game is over; I believe that “film”-style games will live in harmony with “television-“style games and “independent” games.

But I do believe that the shakeout as we get there will be ugly.

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