The video game industry is being hit hard by the economy, just like every other industry. And although I believe it's potentially recession-proof, it won't be easy for gaming to stay that way.
Things are looking bleak for game creators. In a statement Tuesday, Electronic Arts, the world's largest video game developer, announced that it was forced to lay off about 1,100 employees and close 12 facilities worldwide to streamline its business operation and cut operating expenses by $500 million to prepare for uncertain economic times.
Microsoft Game Studios was hit hard by Microsoft's recent announcement of 5,000 layoffs. Avalanche Studios, another prominent developer, cut nearly half its staff late last year. And Take-Two Interactive, a former EA acquisition target, announced in its last quarterly filing that it incurred a $15 million loss for the three months ending October 31, 2008.
On a macro level, oddly, things look just fine in the video game industry. But when we look closer into sales data (from NPD), it becomes blatantly clear that that's mainly due to the Wii's success and the popularity of established game franchises. So as the recession worsens during 2009, I think we can expect a slew of third-party Wii games, and many more sequels, as developers try to capitalize on the best ways to make a lot of money from very limited resources.
Speaking to reporters after announcing quarterly earnings, EA CEO John Riccitello said that his company will devote "half [its] emphasis" to the Wii during 2009. The reason? "Nintendo is the leader."
Riccitello went on to say that the Wii is also attractive because "development is typically a third to a fourth as much for a Wii game than it is for a PS3 or an Xbox 360 game." And with a larger installed base than its competitors, the Wii has become an important platform for third-party developers.
It makes sense. The Wii is embarrassing competitors in hardware sales and it's obvious after considering sales data that what gamers are looking for in Wii titles is simplicity and fun. So far, Nintendo appears to be the only gaming company to realize that. That's why 2009 will see a glut of new Wii titles from third-parties that have finally woken up and realized that the Wii can't be ignored if they want to make money.
Developer success in 2009 goes beyond the Wii. For years now, video game sequels and major franchises have provided developers with the profit opportunities. During 2008, the top ten best-selling titles list was dominated by first-party Wii games, like Wii Play and Mario Kart, as well as popular game franchise sequels, like GTA IV and Call of Duty: World at War. There wasn't one new game franchise in the top ten.
The cost of developing a video game from scratch is enormous. When the economy is healthy, taking a risk on a new franchise isn't such a bad thing; it gives game developers an opportunity to try something unique and start new franchises that can later be milked for years.
But when the economy is fraught with uncertainty like it is right now, developers are forced to take fewer risks and release sequels that not only cut down on development costs, but usually turn a nice profit, since gamers are more willing to spend their money on game play and characters they already know and love.
And that's exactly why the upcoming release calendar is overloaded with sequels, new takes on old ideas, and Wii games. Developers realize that just because 2008 was a watershed year for gaming, 2009 may not be. So the only way to ensure success is to create games that will appeal to gamers who want to head back into their favorite franchise's world.
There's a problem with that. More often than not, I've found that sequels ruin popular franchises. Sure, Call of Duty 4 was better than its predecessors and even Gears of War 2 was better than the first game, but I don't think they are the norm. In fact, I can cite Call of Duty: World at War and Halo 2 as just two (of many) examples that strengthen my claim.
Blame the economy or blame ourselves. But like it or not, you'll be seeing a slew of sequels and third-party Wii games during 2009.