Behind the Quiet Success of the Video Game Industry
There's much to envy about the video game industry. While video games are considerably more expensive products than movies or music, Americans spent over $25 billion on video games in 2010.
And, despite video games not receiving as much limelight as movies or music, the Entertainment Software Ratings Board (ESRB) reports the industry revenue figures hitting $10.5 billion in 2010, selling 273 million total units, a close second to the film industry, which posted $10.6 million in the U.S. in 2009. (The music industry topped everyone with $11.6 billion in U.S. revenue in 2010.)
The numbers don't lie: Video games are on equal footing with movies and music, in regards to cultural relevance. Games are addictive, pervasive, and nostalgic. Most of us can still remember the first Nintendo system and the first Game Boy. We remember the subsequent generations, the console cycles promising improved graphics and new ways to play the game. We played as different heroes, saving princesses and worlds, and fighting evil magicians and large apes wearing formal attire. We were sucked in.
People will always return to video games, even when consoles experience several down years, sometimes four or five in a row. But customers return because video games, at times, can provide the most compelling, quality products.
Other industries wish they could bottle the magic of video games and harness that level of immersion. If companies could create ways to compel customers to return, they would have better luck retaining customers, especially during the hard times.
This brings us to Harold Goldberg, who, through interviews with over 200 experts and names in the industry, has become somewhat of a video game expert himself. His latest book, All Your Base Are Belong To Us, details the rich history of the industry, by virtue of its success stories. In an interview with the author, Goldberg discusses the extent to which video games influence our society, the industry's latest newcomer causing a stir in the console community, and what businesses can learn from the success of this dominant industry.
How is the game industry beating out other industries?
It's kind of this juggernaut that keeps on rolling. The game industry beat out the movie, music, and DVD industries combined [in 2008] in terms of sales. But with the recession, we've seen games be hit a bit, but I think it hit everyone. We're also at the end of the console cycle, which means people are waiting for new consoles to be revealed and launched.
When consoles are released, everyone flocks to them; we saw that with the Wii, for instance. Everyone just bought it; but as sales taper off in the next five or six years, a new box or console will come out, and the excitement happens all over again. The question with Nintendo is now that they've released the 3DS, which is a portable device that allows you to see 3D without glasses as you play games, is how well they'll sell over time. I just read a story about how it's not sold to expectations in Japan, but there's reasons for that, because of the tsunami and the earthquakes. It also hasn't sold up to expectations here in the U.S., but I think it will over time—once better games come out for the system.
I think video game industry keeps chugging along. One of the things I feel about the game industry, as opposed to other media, is that it's a bit more agile, as far as both technology and forward thinking. I wouldn't say it's so much more fruitful than the other entertainment industries, but it is more agile. If a portion of the industry sees slower growth, as we saw last year with music-based games like Rock Band and Guitar Hero, the game industry isn't afraid to cut—quickly—and move on to the next trend. I don't think you see that agility in the other entertainment industries.
Do you predict mobile gaming to eventually supplant the gaming industry, or supplement it?
I think that they are niches that don't necessarily feed off each other. Mobile is separate from portable Nintendo DSi or 3DS, which is separate from consoles, which is separate from PC gaming, which is separate from social gaming on Facebook. I feel like there's kind of room for all.
But you have these devices like the iPod Touch or the iPad or the iPhone, and they come out constantly, they're constantly upgrading, and iPad apps are not that expensive compared to console games. You can play Angry Birds for free if you want, and maybe spend a few dollars for the fuller version. On the other hand, console games cost $60 if you're not getting a discount.
Recently at the Game Developers Conference, which took place this March in San Francisco, you heard the president of Nintendo in Japan, Mr. Iwata, say to attendees, "You're underselling yourself; don't put these [bad] games out." The reason he's saying that because they sell games that cost $40 or $50, and they don't want to see [mobile gaming] take off and be their competition, but it is. They're really kind of afraid of the huge success of iPad and iPod games.
We may be on the wane of console gaming and actual physical discs are concerned—"wane" meaning in the next 10 years, when the broadband pipeline opens up to be a bit faster, so you'd be able to download a full console game in a much speedier way. That may mean that you won't be buying the physical medium in the stores as much; you'd always see it, but they won't make as much. I think there'll always be a place for a fan who wants to hold the game in his hand and read the booklet, but it'll be much less ubiquitous than it is right now.
With mobile gaming being so cheap—Angry Birds is only 99 cents—do you see the console industry lowering its prices to compete?
I feel that these are separate niches; while Electronic Arts is watching [Angry Birds] and has purchased game companies in that space like Chillingo, and while they want to succeed, the costs of making a console game are so large that they feel they can't really lower the price much. You have hundreds and hundreds of people making games like Madden, or Red Dead Redemption, and games like that. But console games seem to compensate by making more and more different ways to playing the game, resulting in many more hours of gameplay. If you play Red Dead Redemption, you could probably play for about 100 hours, from your $60. Certain games are worth that price; where we have a problem, as writers and critics, is where you're charging $60 for a game and the gameplay experience is just a few hours, and the online experience with your friends is bad.
How do smaller companies and developers in the video game industry compete, without nearly as much money, technology, or resources?
In some ways, it's a crap shoot for an indie developer without much money, who perhaps will create a game and put it on the iPad or Xbox Live in hopes to get noticed or funding from a venture capitalist, or picked up by a larger publisher like Electronic Arts.
I was at the Game Developers Conference and listened to a session about a pretty successful game called Super Meat Boy. These two guys just went through hell trying to finish that game on time and get it up on Xbox Live after one of them had a chronic illness, and the pressures of trying to get the game to market nearly made him have a relapse. It's a lot of deadlines and crunch time and a hope for success, but not necessarily guaranteed success. I can almost make it akin to trying to get followers on Twitter, in a sense that you say, "Here I am, here I am," and then maybe it will snowball; it's kind of the same with independent developers. They not only have to deal with the making of the game but also the promoting of the game itself, to try to rise above the fray.
What role do venture capitalists play in the video game industry?
Traditionally, VCs have had a huge impact on the video game industry. They've always been a factor. For instance, if we go way back to the days of Atari, Don Valentine was involved with seeding that game. There are smaller game companies, "casual" game companies, that get angel funding. Even PopCap games, which is the huge casual game company that produces Bejeweled and Plants vs. Zombies, are looking toward an IPO.
What I've heard anecdotally is there's a lot of money around right now for smaller social Facebook-type games. I think that's where everyone is looking, but how will social games and "freemium" games take off once Facebook has its IPO? Will Facebook be its own platform for games? It kind of is now, but the games like FarmVille and Mafia Wars [from Zynga] have graphics that are not that great, but people fly to them anyway. They're very savvy business-wise: You play for a couple of hours and then it asks you to pay $5 to upgrade, and then you might get awarded some armor to protect yourself so you won't die so much in the game. The game I'm talking about is Deep Realms, where you play for just a little while and then they want you to upgrade. It's insidious, but it seems to be very effective.
What can businesses learn from the video game industry?
I think it's the agility. Folks will look to this industry and see that it's always in flux and always a step or two forward. The question is, are there enough risk takers in any industry right now to do things that are really creative? I see creativity on the iPad platform, and I see games that don't cost that much money to produce hitting and being fabulously successful—games like Angry Birds, and a game like MineCraft for the PC. When they do take off, it's a huge payoff for not that much investment. I think that you need to stay abreast of the trend, and I think that's what people look to the video game industry for: To see a group of creative people in all of these niches who are willing to change their games and foresee what consumers want.
Where do you see the video game industry heading next?
I feel that we'll eventually have 3D televisions without glasses. I think 3D is where we're going. Since the 3DS has challenges: it does make you dizzy if you play over an hour, and it also has not much of a viewing angle, but having said that, if they can make a television that allows a viewing angle and does not give you this feeling of vertigo, I think that'd be a pretty fantastic experience. Not just for viewing television, but for playing games. And also, people down the line experimenting with holographic gaming; I hope to see something like that eventually. I don't know if I'll live to see it, but I think that's a really fascinating idea.