The death of Guitar Hero became inevitable, but was it avoidable?

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On Wednesday, Activision declared the end of the music game.

What a journey it’s been. In 2008, music-based games generated £1,700 million in retail revenues. The following year, it fell by 50%. Now the Financial Times estimates that the market for music games is now worth just $300 million a year. And that includes dance games.

That’s a hell of a drop.

I was very excited about the Guitar Hero business unit when Activision appointed Dan Rosensweig as CEO of the division. A former COO of Yahoo, Dan was Internet through-and-through, unlike the box shifters and product marketers who dominate at Activision. I said at the time:

It didn’t work out. Less than a year later, Rosensweig was out. A year after that, and Activision has shut down the music division, laid off most of the staff  (added to the Job Loss Tracker) and confirmed that the Guitar Hero franchise was over.

Where did it all go wrong?

I am not privy to the internal debates or issues at Activision. As an outside, here are my best guesses:

• The music labels were difficult: My guess is that music labels asked for minimum guarantees and onerous terms, the same issues that have stopped Spotify from launching a US service and killed endless music download and streaming services before they launched
• Artists got precious: Courtenay Love threatened to sue Activision for letting Kurt Cobain play songs by *gasp* other people. Gwen Stefani and No Doubt did sue them for “an unauthorized performance by the Gwen Stefani avatar in a male voice boasting about having sex with prostitutes” (or to put it another way, performing Honky Tonk Women by the Rolling Stones).
• Consumers bought enough plastic tat: How many plastic guitars does the average consumer want to own? How many drum kits, microphones, mixing decks and more? No more, is the main answer.
• Activision viewed Guitar Hero as a product franchise, not a service: The mechanism Activision chose to exploit the franchise was a series of retail releases for high profile bands. These were working-capital intensive, involving console royalties, inventory, distribution, retail margin, marketing and (probably) music advances. If a product didn’t do well, that left Activision losing a lot of money. A service-based approach, driven by downloads, would have cut out many of these costs, enabling Activision to use many different artists, with smaller followings, and still be profitable.
• The market got too crowded: Every man and his dog jumped into the market. EA couldn’t let Activision go unchallenged and launched Rock Band. A bunch of middle aged marketing execs decided that the Beatles were the most exciting band the world has ever known, and all gamers want to be like them (they were wrong). Saturation led to decline.

Could it have been different?

Possibly. The real opportunity was to use Guitar Hero to move Activision away from a reliance on boxed products, with their attendant high launch costs and marketing pizzazz. It could have been the product that shifted Activision to being a service company, not a product company.

They would have made less upfront revenue during 2008 and 2009. They would have been building a new skillset that they don’t already have. They would have been starting the transition that Electronic Arts is now partway through.

They tried. There is a Guitar Hero store with hundreds of tracks for download. Maybe it just didn’t work, and maybe not enough people bought.

Or maybe Activision was just the wrong company to try this strategy. It is used to massive budgets, fire-and-forget launches and large teams. A service-based Guitar Hero perhaps suits a scrappy startup better than a global behemoth.

Guitar Hero now stands as an shining example of how a franchise can be built, exploited and destroyed in five short years.

What now for Activision?

The demise of Guitar Hero is bad news for Activision. The company had three core franchises. Now it has only two, and they are both more than seven years old. OK, so they are Call of Duty and World of Warcraft, but still.

If I were an investor in Activision, I would be wondering about where the next blockbuster franchise is coming from. Given how Activision treats studios it acquires (roughly: buy them, exploit them, shut them down), good developers will think twice about selling their IP-owning business to them. They haven’t a new franchise internally for some time.

I was negative on Activision for a long time, because they were not readying themselves for the digital transition. Then I changed my mind, because the games industry is splitting into three parts, and Activision seems well placed to dominate the AAA segment.

Now I’m teetering back again. Time to build a new franchise, Activision. And soon.

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