(This article is a guest post by Rohit Gore, a Pune-based senior IT professional and novelist.)
Social scientists have forever been the chief antagonists of the gaming industry that has generated $25 Billion revenues in US alone and has employed more than 120,000 people. The reasons are several and some of them quite compelling. However, the industry has shrugged off all the fears and grown at a rate that few other industries have managed. From the humble beginnings in the early ’60s, when a few bored developers just wanted to kill time by creating something to amuse themselves to a time when we have a video game ‘CALL OF DUTY: MODERN WARFARE 2’ being declared the highest revenue generating entertainment product ($3 Billion and counting), the gaming industry has come a long way in its technology adoption and engaging its consumers.
The most modern trend in the industry is that of ‘Social Gaming’. This is closely tied with the wider, more pervasive ‘social media’ or ‘social internet’ phenomena. Platforms like Facebook have a plethora of applications that are essentially games pitting its users against one another.
The Gaming Industry Value Chain
The gaming industry has six components in its value chain
- The Publishers: Entities that are engaged in commissioning the developers for development of the games. They are the ones who pick the tab of the wizardry that the developers create and the consumers enjoy. Electronic Arts, Microsoft Game Studios, Activision and Ubisoft are some of the world’s largest publishers
- Developers (Talent layer): These are the prima donnas of the industry. The people who ideate and develop. They could be working on contracts or are on the rolls of the publishers.
- Tools providers: Entities that provide the necessary tools, software development frameworks, middlewares and game engines to the developers. Gamebryo and Renderware are biggest of the middleware providers
- Distribution: People who are responsible for generating and marketing catalogues for games
- Hardware: The platform on which the game runs. It could be an arcade, a PC or a gaming console. Xbox and Playstation are the two most ubiquitous consoles.
- Consumer: The people who play the video games
Let’s look at the top challenges that the industry is currently facing:
No more Consoles?
The console market in the recent years has seen a flat trajectory and there is a distinct possibility that it will go down. Although there is a surge in the number of variants launched by the likes of Sony and Microsoft, the problem lies more with the market than with the product. Consoles are primarily value products and are targeted at value markets viz, US, parts of Europe and Japan. We can add parts of South Korea to this mix. The population of these countries is stable and the users aren’t growing. The console makers would need the support of the publishers to create newer markets in these geographies. In some cases it has been successful. For example, the game Diner Dash that was targeted at primarily women audience sold close to 200 million copies and created a hitherto untapped market of women gamers.
The strategy being adopted by the console makers is to partner with a Publisher right at the console development stage. This ensures a) a sustained interest from the gaming community for the launch of the product, b) higher market penetration immediately after the launch as the gamers want to experience the game in the way the perception has been created – on the ‘new and most suitable’ console, c) ties the future of the game from the publisher with the console resulting in the loyalty from the gaming community.
A recent example of this is the tie-up of Ubisoft with Nintendo’s Wii U launch.
Another significant challenge that the console makers are faced with is that of ‘Gaming Clouds’. Cloud gaming solutions are particularly attractive for the industry as a whole because the key drawbacks of cloud computing like security and data integrity are relatively less intensive in the industry. What gaming clouds would ensure, though, is the redundancy of the advanced consoles. All the processing power will reside on the cloud and the users would be essentially using a dumb terminal. This even eradicates the need of cyclical upgrades, which is the key revenue generating factor for the console makers.
Do you Multi-platform?
The gaming industry, although young compared to several entertainment industries, is fast becoming extremely competitive. As a result there has been more than 100% year on year growth in the number of publishers, most of them independent, who pose significant challenges to the established publishers like Electronics Arts and Capcom. This has led to several game titles flooding the market and in turn, this has led to shorter attention span of the gamers. The challenge for the publishers is to engage the consumers on multiple platforms to ensure higher mindshare. Single platform games, and especially a segment of games called ‘casual games’ that are single platform have faced shorter shelf lives. The key is to multi-platform. From PC and consoles to several handheld devices, social media platforms like Facebook and Myspace. Publishers are investing in the future of ‘casual games’ that are truly portable to multiple platforms. The challenges for the developers are manifold, as they have to develop games that are technology agnostic and can have APIs for as diverse platforms as a Playstation to Facebook. The emphasis is to create a truly ‘social game’.
A big bad bubble?
There are worries in the industry that much like the ‘social internet’, the ‘social gaming’ is fast becoming a big bubble. The recent valuation of PopCap, a social gaming company, of $1 Billion is the most glaring of all such examples. The recent M&A trends in the industry point to significantly high valuations of independent publishers. Japanese mobile gaming giant DeNA paid out up to $400 million for iOS game developer ngmoco. Electronic Arts paid $300 million for PlayFish last year, while Disney paid $760 million for Playdom, and has been aggressively restructuring its entire games business around the social gaming model. The challenge is the correct valuation of the independent publishers. Like several other mature industries, Gaming industry is going through a large scale consolidation and players like EA, Disney and Capcom are emerging as the consolidated global entities. The question that needs to be answered is whether good money of these large publishers is being spent on bad assets.
Our impressions:
- Innovation is going to be the key in this industry. Both process as well as product innovations. In this respect, it is a unique industry as several other industries offer innovation opportunities either in process or product
- New market development is the key for the long term success. Markets like US, Europe, Japan and South Korea are fast approaching saturation. However markets like India, China and Brazil are the markets to tap into. Especially for publishers who have a long term focus areas in Social/Casual Gaming. Every publisher needs to have an entry strategy for these markets and the early entrants would enjoy significant loyalty
- Newer distribution channels need to be developed. The traditional channels are putting a lot of pressure on the margins, even for large players like EA and Microsoft. Cloud Gaming solutions are the way to go, even for new markets. Companies like Gaikai and InLive are investing heavily in cloud solutions
- Gaming industry can play a significant role in socially impacting areas like education. Newer markets like India and China are especially receptive to finding innovative means of learning and therein lies the opportunity for the industry
Concluding, we believe the gaming industry is poised for a significant churn in the near future propelled partly by the rush to be the ‘first’ to exploit the burgeoning and untapped social gaming market.
To discuss this perspective in more detail you can contact Rohit at rohit.gore@in.fujitsu.com
About the Author – Rohit Gore
Rohit Gore is a Pune-based senior IT Professional and novelist. Rohit is a Lead Consultant at Fujitsu Consulting India, and has 10+ years of Industry experience including stints at Infosys and Sasken after an MBA from S P Jain Institute.
Rohit is also the author of ‘FOCUS, SAM’ a novel from Rupa Publications and the upcoming ‘A DARKER DAWN’. He grew up in a number of towns in India. At various times in his childhood, he wanted to be a theatre actor, an architect and a bookshop owner.
He loves sports, specifically the discussing and watching part of it, since the playing days are long gone. He has travelled a lot – a consequence of living in Mumbai and London. His greatest passion is reading and it inspired him to write. He is a frequent contributor to many online writing forums and wishes there were more writing groups.