An In-Depth Study into the Gaming Industry, the PC, and its Future (long, no tl;dr)

[Ranik]

Before we get to the present, we need to look at the past:

The video game industry that we all know and love is very recent - technically the current industry has only been around for [B]28 years[/B] which is a really small time for an industry. This is because the video game industry is currently in its third iteration after managing to completely crash and burn twice - it's a very infantile, fragile industry, but maybe the third time is the charm?

[B]The Industry Crash of 1977[/B]
The first crash of the industry occurred mostly because in an effort to make a ton of money and the cost:return of video games back then the market became flooded with Pong clones (for lots of systems - mostly outdated ones). Consumers didn't particularly want to play a ton of copies of the same game, causing the market to become saturated with essentially the same product on old and new hardware, both console and arcade a like.

This was a very short lived crash however, as a very famous title from Japan would hit the arcades only a year later - [B]Space Invaders.[/B] However, keep in mind how this crash happened, it's important.

[B]The North American Crash of 1983[/B]
A much more serious crash happened 5 years later. June 21st, 1982 is a date that for people who loved games back then and were around back then might know, as it is the day that this crash began and threatened to destroy the entire industry.

The reasons this crash happened are numerous, but they are all extremely important to note:
*Too many games and consoles flooded the market - there was at one point over 8 consoles competing with each other. Each of those consoles had their own 3rd party library, it wasn't like today where most games are on all 4 platforms most of the time etc.

*High profile games started being unsuccessful, leading to big companies making clones of other games or outright going bankrupt.

*Publishers lost their control. Unlike our modern Sony/Microsoft/Nintendo, the companies who oversaw their respective consoles had no control over what could hit their system, resulting in tons of really really really bad games from odd companies like cereal companies etc flooding the market and toy stores.

*And the big one: the Personal Computer took off, and the power of the PC was so great compared to the consoles at the time, that there was pretty much no competition between consoles and PCs. A PC at the time was almost as cost effective as a console, yet it could do more (word processing etc), the games were cheaper to produce (floppy disk = much easier to make than a cartridge), and the games were simply more advanced.

As a result of mostly the above 4 things, many NA companies went bankrupt. The end result is that by 1983, the game industry was basically dead in North America. Stores got rid of their game products, companies didn't make new games, etc. Sales of games in NA went from a record 3 billion USD in early 1982 to barely 100 million by 1985. And with nothing around, console supremacy shifted towards Japan, where as we probably all know in 1985 Nintendo created the Famicon.

Because the industry was basically destroyed in NA, Nintendo had to do a lot of crazy things just to get the Famicon to sell in North America. The most obvious thing they did is instead of calling it the Famicon (Family Console) they changed the name to the Nintendo Entertainment System under the belief that calling it an "entertainment system" rather than a console (which had a bad history overseas now) would make it sell. Considering we're playing games today, you can guess they were successful.

[B]This crash had two long term lasting effects that still mostly reside today:[/B]

a) The industries dominance shifted towards Japan. Sony & Nintendo & for a time Sega dominated the market. Today we do have Microsoft in Segas stead, but they are having a notoriously difficult time reaching the Japanese market successfully. Before Microsoft entered the game, this was a really an Asian dominated market outside of the PC and occasional console developer.

b) Publishers tried to maintain their iron grip when the industry re-surged. Back then you had to get a Nintendo Golden Seal of Approval to get your game in stores for the NES. Now and days you have to go through Sony/Microsoft/Nintendo to get your game on their system and they have extremely strict rules about it, Microsoft being fairly well known for its strict DLC rules on X-Box Live.

[B]The Current State of the Industry[/B]
Well, it's not doing as well as it was a few years ago. Technically it's on a decline. I don't think this is too worrying at this point really, the current economy as we all know kind of blows to say the least, and video games are a luxury entertainment industry so they would be on a decline as well, if people don't have extra money to spend on it, it's gonna decline just by nature. Games aren't cars or books and are more expensive than splitting a movie with a couple other dudes, so they aren't gonna be bought as much.

How bad of a decline it is on can be seen here:
2009: [url]http://www.npd.com/press/releases/press_100114.html[/url]
2010: [url]http://finance.yahoo.com/news/Video-Game-Sales-Decline-in-zacks-3332226628.html?x=0&.v=1[/url]

[U][B]The Current Problems with the Industry IMO[/B][/U]
Let us break down some current factual stuff about the industry:
-Games cost more than ever to make - an average title cost well over 20 million dollars 2 years ago. That number is only getting higher.
-Games cost roughly the same to buy that they did several years ago when games were considerably cheaper to make.
-Games are now more online based, meaning certain companies have to expend more money to uphold servers etc.
-To make up for the above 2 things, developers have shifted to more of a DLC format to get more money without directly increasing the cost of the game.

Now let us look at the real problems, in no particular order:

[B]Outdated Technology[/B]
The current generation of consoles have been around too long and other than Nintendo no one seems keen on jumping on the next-gen bandwagon. Mind that the Wii-U doesn't even look too terribly "next-gen" to begin with.

This is a huge problem. Why? Look at the previous crash - Personal Computer dominance was one of the biggest problems back in 1982. With outdated console technology, they are becoming more and more obsolete as time passes. Buying a PC that can run current games maxed out because of this is getting only cheaper and cheaper - in fact unless you run a HUGEEE resolution monitor or triple monitors or whatever, you can get a PC that can run pretty much anything out now maxed out for ~500$ (assuming you have a monitor and Keyboard/Mouse ready to go) if you shop smart and build it yourself. Maybe 700$ if you don't.

As time goes on, and it looks like it will, that # will only go down until it is close to what a next-gen release console would cost. When that happens, developers will again shift to the PC (which they already are, for other reasons I'll get into later), and you're going to have a big problem as there is a *ton* of companies that rely on these consoles to survive right now. A lot of companies just aren't built to develop titles for PC, which is extremely noticeable if you play on the PC and notice the plethora of really bad ports across the past 2 years.

Because console technology is getting more and more outdated, people on the PC are finding less and less reason to upgrade (and by extension, part makers are finding less and less reason to push out new stuff) which slows down the entire industry because now the people who make consoles won't be able to make as good of consoles as they could make because the parts aren't as good as they could have been etc.

[B]Games Cost too Much to make and a lot of developers/publishers aren't seeing huge returns[/B]
The main problem here is creativity. Companies employ hundreds of people so while I'm sure a lot of companies would love to be creative, if it could seriously make you go bankrupt you can cost hundreds of people jobs and that's something that anyone with a heart probably doesn't want to risk.

With a lack of creativity (because it is too risky), comes a surge of samey games. Maybe not outright clones like before, but very similar games. Companies will create "safe bets". The thing is is too many safe bets at once floods the market and people wind up not buying them enough, see: Guitar Hero/Rock Band/all the Guitar Hero spin offs, etc, so people go bankrupt or get fired and people get even more scared to make things. They follow fads until the fad blows up and dies. I'm sure many people here probably recognize the current fad of "military CoD-esque shooter". I'm sure in a couple years it'll probably blow up too just like Guitar Hero.

In time if this situation doesn't change, the market will become flooded with bad/clone games just like before, which could contribute to another crash. Mind this is a long term problem, like probably 5+ years from now.

Companies can't really invest less money into games without making them lower quality (graphics etc), except the modern gaming audience tends to have such high standards that these types of games (unless indie made) wind up recouping less money in the long run for them anyways.

[B]Piracy[/B]
You knew it was coming. No longer a PC centric issue as it used to be, console games are getting pirated rather heavily as well as the methods of pirating them has only gotten easier. Games are even leaking on console first before PCs sometimes now.

I'm not going to go too much into this because no one can accurately state exactly how much piracy affects the industry (someone pirating your game =/= a lost sale), but to say it doesn't affect it at all would be foolish.

The best way to counter piracy is to create a really well built and unique game that has a lot of value to players, except creating such games is near impossible for most companies because of the above. Only some of the biggest companies (Blizzard/Valve mostly) can afford to do this, and while they are VERY successful in not having to deal with pirates, these are huge crazy examples that 99% of the industry doesn't stand up to in money value.

[B]Used Game Sales[/B]
I won't fault anyone for buying used - the economy SUCKS now and you want to have some luxuries in your life, but lets not ignore the #s here.

Games are not cars or any other industry with used markets. Other industries do not have such massive used markets, and other industries do not have the same problems with it. A used car is COMPLETELY different from a new car - the quality is different, the content might be different, it won't last as long, etc for example. A used game vs a new game really has absolutely no difference except one is cheaper than the other and one doesn't support the people who made the game while the other does.

Each of these industries has their own problems - cars had to get bailed out by the government ffs, books are switching to e-books to fix similar problems, online music sales have made album sales (most of the music industries profit) plummet, film costs are getting so ridiculous people are trying gimmicks (3D!!!1!1!!!!) or making samey movies as safe bets just as well, etc. This is the video game industries biggest one s'all, just like the VG industry doesn't have certain other problems that other industries do.

To put into perspective how huge the used market is for games and how big of a problem this is, GameStop (the largest used game seller) in 2009 made ~[B]$4.32 billion[/B] dollars from used game sales, 48.1% of their total revenue for the year. ([url]http://www.sec.gov/Archives/edgar/data/1326380/000095012310030164/d70778e10vk.htm[/url]) No other used industry remotely compares to how big this is.

That's a lot of money to say the least. That % of their revenue is going up over time too. It's quite possible 2011 will mark the year where it goes over 50% and most of their revenue comes from used game sales.

If you remotely like games you need to look at that number - while yes GameStop is huge, they aren't really using that money for all that much besides expansion to make more money. If that number was even cut in half that is well over 2,150,000,000 USD that could be used to actually benefit the industry as a whole. That's ridiculous.

[B][U]The PC, what we could learn from it and why it is bigger than ever[/U][/B]
There's a thread on here saying the PC is dying or crippling - completely disagreed.

What the OP of that thread fails to account for is that the PC is mostly a digital experience now, rather than a retail one. This is a huge thing to fail to account for because digital retailers like [B]Steam[/B] (and Impulse/Origin/GreenManGaming/etc) refuse to give out sale info for products to companies that track that information like NDP.

This means that the PC essentially looks weaker than it really is. PC companies are abandoning retail like crazy - go to a store IRL that sells games, I'm sure they don't have many PC games and the section is pretty small if they do.

Digital retailers simply offer companies more money and in the case of Steam allow them to be highly competitive with unique glorious sales at specific times of the year - check out Steam during Christmas for example.

Steam takes the same retail cut that retail companies do ~30%, except going digital means the other ~20% of the money lost through the retail process (making CDs/manuals/shipping hundreds of copies world wide etc) doesn't happen, so as a whole companies make 20% more through digital than they do retail.

Going digital and abandoning retail will also free up companies to lower the price of their products (like they do during Steam sales). Right now companies don't do that at release etc because retail is too much of a threat as is and they will outright refuse to sell the companies product which CAN make an impact (eg: you can't sell that game brand new on Steam for 40$ digitally while we stock it 60$ here brand new we won't stock it fu)

There are a couple other advantages to companies for going to the PC like they have been more and more recently:
-Used game sales aren't an issue at all. It doesn't happen on PC.
-Bigger companies can take advantage of the unique tech on a PC that the current consoles don't have to deliver a superior looking product over other companies. Consoles are so underpowered at this point that what an average company and a great company can make isn't too different looks wise. This kind of difference between companies only happens at the start of a consoles life when the tech is still being figured out.
-Unique methods of getting around piracy are starting to take flight on PC - Battlefield 3 for example will require you to log in to EA's Battlelog website & Origin to launch the game. This is a nice kind of DRM because while being connected 24/7 CAN be annoying, the truth is is most people now and days have their internet up 24/7 anyways. Especially gamers.
-Because no one oversees the PC, companies can deliver you content of any price (even free, unlike the 360 thanks to MS's rules) at any time they really want, as much as they want. Microsoft only allows companies to make really 1 free DLC and they can only patch their game like once every so often.
-The variety of a keyboard & mouse allows them to make games in certain genres much more difficult (or impossible really) to make on consoles with the same depth - RTS, MMORPGs, DotA-likes (which are taking off), etc. These genres can be pretty big or huge money makers - League of Legends on the PC is massive and one of the most played games in North America.
-Because of the nature of a PC, indie developers tend to primarily develop for PC, and these indie developers/modders are basically the first people companies will want to jump at to add to their teams in the future. Knowing and supporting the platform makes it easier to bring these guys in to keep the dream alive.

[B]The Future[/B]
The industry is kind of in a decline right now as posted above with #s and what not, and it is kind of starting to mimic the same problems that ruined the industry 28 years ago, but I think if Sony & Microsoft get smart and can produce a solid next-gen console or two and if the economy picks up, it won't be that bad. The key word here is a get smart, don't build a console around dumb gimmicks. Yes they attract casual gamers and stuff, but honestly if someone could make a better console that just has really good games to play, they could make a killing. Look at the Playstation 2 for example - it was awesome. You don't need MOTION CONTROL or CAMERAS LOL to make a successful console, and they waste so much money designing games around that junk.

Consoles need to desperately catch up. They are so behind on technology that it isn't funny, and it really does show if you look at a game like Battlefield 3 on a PC maxed out, then look at a game like Black Ops on a console. Such a technology difference is poor for competition, which hurts the industry as a whole.

Consoles need to catch up in more than just tech though - starting to switch to a mostly digital era will help the industry as a whole because retailers won't be able to control the industry so much as they do currently. Going to a more digital product will also allow companies to no longer worry about used products, leaked products, weaken piracy as a whole, and make them more money.

Consoles won't be able to really break away from Microsoft/Sony/Nintendos control, but that is probably for the best. If they didn't have control the market would just get flooded by bad games again. This doesn't really happen on PC because of the nature of how a PC works - arguably the PC market is flooded with bad games but all those bad games are online/indie/free/etc so they don't impact the greater market as a whole. Flooding a digital market with bad games is completely different than flooding a retail market with bad games, for reasons I hope I don't have to explain.

I know people who go PC MASTER RACE LOL XD are annoying, but you need to look at the big picture as well. The advancement and future of the gaming industry has always technically come from the PC because all the new tech that the consoles use etc comes from PCs. Supporting and embracing the things that the PC is doing right and trying to keep up with them as much as possible is only going to push console gaming (and with it gaming as a whole) much much further and in the right direction. The people who tend to do the whole "pc master race" thing are just people who are disappointed in seeing the industry as a whole stunted.

[B][U]Final Word[/U][/B]
I see a lot of people who complain about how games are 60$ or how companies release too much paid DLC or how companies are releasing boring samey games. They like to blame the companies but refuse to look at the big picture: all of those problems are mostly due to retail dominance and the current situation of the industry.

Games are 60$ because when you factor in the retail process & retail cut, that 60$ becomes 30$ for the makers. There's paid DLC because they can't increase the price of the game directly (people would bitch so hard and just buy used even more), so they try to make similar money in other ways (also helps them make money off used copies to separate the difference between used vs new). Companies release samey games because games cost a lot compared to how much they are actually making back, it's too risky to make unique games without cheapening graphical/sound etc quality and they can't push those games retail effectively.

Digital is a massive step in the right direction. A 60$ digital game now becomes 42$ for the makers. Used game sales don't exist so there's no option of getting 0$ from a consumer who plays your entire game. Paid DLC becomes less neccessary because they are receiving more money from used sales. It's very easy to sell cheaper quality games digitally (look at Steam, there's TONS of indie/cheap F2P games/mods on it, no joke). If digital is the mass majority of sales, retail is no longer in control so companies could actually sell games for slightly cheaper or run competitive sales (like Steam does) which in the long run makes them even more money.

This pretty much solves most of the crippling issues (combined with newer consoles) without having to rely on cheap poorly thought out methods of fixing the problems like "Project Ten Dollar", "Tons of Paid DLC constantly", "release the same game every year", "15$ map packs", "increasing the price of the game", "charge 10$ for a used game if you want multiplayer", etc.

Again, it isn't just a simple issue though. The industry is infantile - it has crashed twice. Those other big name industries have been around for many many times longer than the VG industry and are relatively stable. Stuff does have to change and gamers have to be a bit more open to that, lest the industry crashes again, which while I don't want to be all DOOM AND GLOOM is certainly more than possible as industries are always at their weakest when they are new, and 28 years is VERY new as far as an industry goes.

Keep an open mind, try to vote with your wallet when you can, and if you enjoyed any part of this topic I encourage you to google industry numbers across the years or research more into the industries problems or the state of the companies who make the games you love yourself and see how things are. And if you like the topic, feel free to post. :3

[Sh33p]

A good read, I agree with most of the stuff you've said. In the future I see console manufacturers building more heavily into the digital distribution market, but I can't see how it'll ever be as natural a fit as on a PC.

Also I'm interested to know where computers like the Atari ST and ZX spectrum and the like fit into this, you say PCs like there's only one kind when in reality especially in the UK there were far more different types of PC than there were consoles.

[DainBramageStud]

Very well written, great thread. Needs to be highlighted.

[editline]2nd August 2011[/editline]

[QUOTE=Sh33p;31485138]Also I'm interested to know where computers like the Atari ST and ZX spectrum and the like fit into this, you say PCs like there's only one kind when in reality especially in the UK there were far more different types of PC than there were consoles.[/QUOTE]

The UK had rather a different market to the US - it was more focused on one-man teams making games on their ZX Spectrums in their bedrooms then selling them through catalogues.

[Numidium]

I made the thread about PC crippling, and I have to agree with you. Didn't really think about digital sales then. Or rather, didn't see them as they were never mentioned in the statistics I see, because as you said, NPD doesn't get them.

[ironman17]

A good thread, addresses many concerns and also cites possible solutions. Fine work was done here today.

[Ranik]

[QUOTE=Sh33p;31485138]Also I'm interested to know where computers like the Atari ST and ZX spectrum and the like fit into this, you say PCs like there's only one kind when in reality especially in the UK there were far more different types of PC than there were consoles.[/QUOTE]

I'm not too experienced with the UK market back then, but going off what Dain said it was definitely completely different than what happened in NA. In NA it was generally a bunch of smaller teams working in their garages or houses/dorms producing games and several much bigger companies producing games and selling them through actual (toy)stores rather than catalogs and one man teams weren't exactly a big thing over here.

I'm going to assume this is a major reason why the 1983 crash is largely associated with North America. Said stores got absolutely flooded ridiculously hard and these small teams which pooled all their money together to exist got burned hard, it wasn't really much of a somewhat serious hobby for a lot of people it was a real job with salaries and everything for these guys and these real companies and they got utterly destroyed. While I'm sure one man teams would be affected as well, it's less of a burn than a group of people going out of a business and becoming essentially poor together, y'know? One man teams can also afford to be a bit more risky/creative as well than a team of a bunch of people/companies as you even see today, so that probably contributed as well.

And besides major companies, smaller teams/individual people wouldn't be able to really afford expanding their game to other countries back then (let alone afford translation in foreign countries), which is why the situation would be so largely different between NA/EU/Asia.

[lifehole]

Very Informative and eye-opening (in a way) this really deserves to be highlighted.

[Ranik]

[QUOTE=lifehole;31487555]Very Informative and eye-opening (in a way) this really deserves to be highlighted.[/QUOTE]

Thanks :3, I'm glad people are really enjoying it and actually reading it. :D

Makes me happy considering I took so long to write this up.

[DOG-GY]

Thanks for the analysis. Really great read and had a bunch of interesting points I hadn't thought of.

[blackrack]

sony is definitely going to fuck this up

[Ranik]

[QUOTE=blackrack;31492307]sony is definitely going to fuck this up[/QUOTE]

It's a very hard transition to make in general, by all rights the PC completely lucked out as most people didn't expect Steam to take off as fast (or as much) as it did, and in doing so it paved the way for everyone else to hop onto the bandwagon.

For consoles it'll be an even slower process because consoles have always been a ton more retail reliant, especially with how huge used game sales are etc.

[Ranik]

For anyone who is deeply interested in this type of stuff, John Carmack's key note address from this QuakeCon is viewable online. For those who play games and live under a rock, he's the legend responsible for pretty much the FPS genre as we know it and pushing the boundaries of technology to where they are today. He works for iD and is currently working on RAGE.

[url]http://www.gametrailers.com/video/john-carmack-quakecon-2011/718646[/url]

This is a 2 part key-note address that lasts well over 50m total just for the first part. It is a very long watch but the guy is a genius and he touches on quite a few things I reference in the OP - notably how developers (like him) are changing their focus on the PC, why, and how they are changing how they approach the PC.

He completely slams Crytek's treatment of the PC with Crysis 2 in there as well so that is always good.

Anyways, this is probably the biggest addition I could add to the thread, the guy is a technological genius and there's a lot of interesting ideas in both parts of his key note address.