Saturday, November 15, 2014

Bankrupt videogame companies

In many ways, the video gaming industry has never looked more promising: smartphones and tablets have massively expanded the addressable market; wearables (including virtual and augmented reality devices) are enabling new interaction models and experiences; and user generated content allows studios to add depth and re-playability at little-to-no cost. In 2013, the industry generated more than $65 billion in revenue – representing a nearly 30% increase in only 5 years and totaling 82% more than the global box office and 3.2 times the size of the recorded music industry. Despite this, brand-name studios – including some of the most celebrated and commercially successful ones – continue to hemorrhage or shut down entirely.
Mobile is only a part of the reason why. Over the past decade, the video game industry has been fundamentally upended:
Led by the Nintendo Wii, the seventh generation of video gaming was the first to really achieve mass market adoption. As the console base proliferated, the industry benefited from a nearly 350% increase in annual unit sales – from under 150M in 2006 to 630M only four years later. Yet, this trend abruptly reversed itself in 2010 – and industry volumes have since fallen to fewer than 460M units. Over this same period, we’ve seen an even greater reduction in industry output: 48% fewer (non-mobile) games were released in 2012 than in 2008 (accurate estimates for 2013 could not be sourced). See-sawing demand and competition typically challenges industry economics, but in fact, these trends have provided the industry with a shockingly consistent increase in average unit sales per game:
In theory, this should have driven industry stability – but over this same period,
studios have had to contend with exponential increases in ‘tablestake’ investment costs. In the early 1990s, game development required only a handful of programmers, designers and artists. However, the sophistication of modern gaming engines and ever-rising graphical standards have driven this figure into the hundreds. Some blockbusters, such as Call of Duty and Assassin’s Creed IV, have even exceeded 1,000 (with each team member having a total annual cost of roughly $100,000). Once-modest marketing expenditures have also grown to rival those of major motion pictures. All in, 2013’s Grand Theft Auto V is believed to cost nearly $265M – placing payback sales volume at roughly 10M units (25x average sale volumes). Though GTAV is an outlier, few studios can still afford to develop 2-3 ‘average’ blockbuster titles per year – and a single failure can be ruinous. Furthermore, these titles still need to compete against the likes of Assassin’s Creed and Grand Theft Auto for finite consumer spend.
The normal recourse for this cost creep is raising prices, which remain largely unchanged from the early 90s. In fact, prices have actually eroded by 38% over the past twenty years after accounting for inflation. As a result, today’s studios feel pressure on both the top and bottom lines. Increased sales per game have helped, but they’re insufficient in and of themselves. With this in mind, it shouldn’t be shocking that there has been such dramatic reduction in the number of market participants. But the gaming industry has not just more financial precarious, it has also become more complex.
Over the past five years, the traditional gaming categories, PCs and consoles, have shrunk by nearly $1.5B. During this same time, online and mobile have both doubled, generating an additional $12B and $5B in revenue per year. While mobile has primarily cannibalized time and spend from traditional gaming forms, online has had the most profound impact on veteran gaming studios. Like motion pictures, video games have evolved from a product to a recurring service:
While games used to follow the standard media product lifecycle, they’ve transitioned to a new model where the goal is to drive (and monetize) ongoing usage. Activision Blizzard’s World of Warcraft, which generates revenue through online monthly subscriptions (and soon in-game transactions too), did not reach its peak quarterly user base for nearly five years – at which point quarterly recurring revenue had increased 1,400% over its Q4 2004 release. Though this growth was supported by sequel-esque expansion packs (in Q1 2007 and Q4 2008), the franchise’s ‘Entertainment as a Service’ value is proved through its ability to both sustain and grow paying subscribers in the 26 and 22 months paid months in between releases.
The success of WoW and other EaaS games (not all of which are MMORPGs) explains many of the aforementioned trends:
  • By increasing the amount of time the average player plays per game purchase, total industry unit sales are likely to drop
  • The focus on developing and establishing blockbusters (which require far more depth than an average 15 hour game) drives studios to reduce the number of games they produce and increases development costs per game
  • To meet lofty payback targets, publishers amp up initial marketing costs
  • To sustain user engagement, marketing and promotion expenses (tournaments, advertising, developer programs etc.) long after a game’s initial release
What’s more, studios need a far greater skillset than ever before:
Until recently, game production was straightforward: a studio would design, build, test and perfect a game – there was a “ship and forget” mentality, to use industry terminology. Unfortunately for many, the Entertainment as a Service world is far more complex: Studios/publishers must manage customer relations, foster user generated content and experiences, design and oversee complex in-game economies (which may generate up to 100% of the game’s revenue), provide ongoing patches and bug support and so on. Even the classic skillset of game development is strained: Guild Wars 2 developer ArenaNet has pursued a 2 week content release cycle in order to drive user engagement. Whether the game is even getting paid for these “services” depends on the game; many users expect it for free after paying for $60 of content. As a result, many games have team supporting for at least a couple months after release. In addition, games that were unable to achieve the necessary user scale are often made free-to-play in hopes of increasing engagement and in-game commerce – further challenging industry economics.
There simply aren’t many studios with the skillset, IP and balance sheet to compete in this new market. As a result, we’ve seen a dramatic thinning of the “middle layer” of studios. The largest studios (such as EA, Bungie, Rockstar) will continue to survive, as will niche developers and lean mobile shops. However, we’re likely to see mid-market players continue to exit (which will drive further reductions in industry output).
For all its promise, non-mobile game developers face a harsher reality than ever before. Though consolidation will drive back office synergies and some increased talent utilization, it will not resolve the aforementioned issues. Premier developers, such as Activision or Rockstar, would no doubt love to increase prices. Yet, this would inevitably initiate price-based competition in an industry already moving to free-to-play models in order to maximize the total userbase.
To survive, studios need to acknowledge the reality that content creation, curation and consumption is being democratized. For many executives in the media & entertainment industry, this concept is anathema; they believe that their veteran experience and instinct can pick ‘winning’ game concepts and turn them into blockbusters. Even if and when this is true, the final game will fall short of its potential if it remains tightly controlled. To quote Gabe Newell, Co-Founder and Managing Director of Valve: “Games are essentially going to be nodes in a connected economy where the vast majority of digital goods & services are user created vs. created by companies… Our users have already outstripped us spectacularly… They’re an order of magnitude more productive.” How can a studio fight back spiraling development, marketing and support costs? It doesn’t. It outsources them to users.

Wednesday, November 05, 2014

Generation Z plays with ADHD medications to screw Generation Y over

Most of us have a terrible time focusing on our work. Left uninterrupted, we are likely to interrupt ourselves. The Internet, everyone's interrupter of choice, is the most tantalizing type of reward system to our brain: intermittent but unpredictable rewards, in the form of a randomly great video or a juicy email here or there. (This is also why kids love to whine to get what they want. Parents give in only when they are at their wit's end, creating, from a child's perspective, a similar, randomly yummy reward system.) Each time we interrupt ourselves at work, the process to get us back to that point of focus takes twenty-five minutes. So we spend nearly a third of our work day recovering from interruptions, trying to recover our focus. The time management gurus are all over this problem. Winifred Gallagher is the author of Rapt: Attention and the Focused Life. The thesis of the book is that the ability to positively wield your attention is the key to your quality of life. Gallagher says (in either her book or in the article that I am liberally quoting from — I'm not sure which, but I am distracted enough by the issue that I feel compelled to distract you as well) “You can't be happy all the time but you can pretty much focus all the time. That's about as good as it gets.” That sounds true to me. We each have a certain amount of attention, and our quality of life depends on how wisely we invest our attention. I have written about how self-discipline is the key to happiness. And then I have written about how knowing that has not helped me much because self-discipline is not an easy nut to crack. Now I am wondering if attentiveness is the way to achieve self-discipline. You find your goal—the stuff that is really super important—and you focus on it. That focus creates enough self-discipline to do what you need to achieve the goal. But that isn't just my idea. There are others thinking the same thing. Merlin Mann has one of the most popular productivity blogs, and he's raking in money teaching executives (who surely are too focused to have time to read blogs) to be more productive in their workday. Merlin Mann says that the key to productivity is attention, not lifehacks. Here's a gem from Mann's interview with Anderson in New York magazine: “On the web there's a certain kind of encouragement to never ask yourself how much information you really need. But when I get to the point where I'm seeking advice twelve hours a day on how to take a nap or what kind of notebook to buy, I'm so far off the idea of lifehacks that it's indistinguishable from where we started. There's very little advice right now to tell people that the only thing to do is action, and everything else is horseshit.” Okay. So notice this about focus: You are not actually able to be productive without focus. So we can stop looking for the ultimate moleskin notebook or the perfect Firefox extension because those are actually productivity distractions. The hardest thing about productivity is figuring out what is the number one thing on your to do list. After that, you need to focus on doing that one thing. Mann says, “There's no shell script, there's no fancy pen, there's no notebook or nap or Firefox extension or hack that's gonna help you figure out why the fuck you're here.” Maybe what you need instead is Adderall. Officially, Adderall is prescribed to treat ADHD. Unofficially, it is the drug of choice for Gen Y. Adderall, or other drugs that treat ADHD, give a typical brain an intense ability to focus for long periods of time. I got most of my Adderall information from a great article in the New Yorker by Margaret Talbot titled Brain Gain: The underground world of neuroenhancing drugs. In it, Sean Esteban McCabe, from the University of Michigan's Substance Abuse Research Center says that at some universities, up to 20% of the population is using these drugs: “White male undergraduates at highly competitive schools—especially in the Northeast—are the most frequent collegiate users of neuro-enhancers.” Anjan Chatterjee, a neurologist at the University of Pennsylvania , coined the term “cosmetic neurology” to describe the trend of taking drugs to enhance ordinary cognition. He says, “Many sectors of society have winner-take-all conditions in which small advantages produce disproportionate rewards.” That resonates with me. I have already decided that cosmetic surgery is a must-have career tool for the high performers. So why not consider cosmetic neurology as well? Joshua Foer wrote about his own Adderall experiment in Slate, and it sounds glorious: “The part of my brain that makes me curious about whether I have new emails in my in box apparently shut down.” So I decided that maybe I should give the Adderall a whirl. But then I started getting worried. Because I read research from Nora Volkow, director of the National Institute on Drug Abuse that shows Adderall is addictive. Not addictive like crystal meth. But addictive like, if you have a proclivity to addictive behaviors, you are a sitting duck for this one. “Because drugs that increase dopamine have the potential for abuse, these results suggest that risk for addiction in vulnerable persons merits heightened awareness.” That scared me. But what really scared me is that the cost of gaining extreme focus is often losing extreme creativity. A good example is Paul Philips, a professional poker player who won more than a million dollars after taking Adderall to help him. The scary thing about the Philips example is that Adderall also helped him resist the impulse to keep playing losing hands out of boredom. I think we have some of our most creative moments when we are doing odd stuff to quell boredom. That is, when we are not focused at all. “Cognitive psychologists have found that there is a trade-off between attentional focus and creativity,” says Martha Farah, director of the Center for Cognitive Neuroscience. “There is evidence that individuals who are better able to focus on one thing and filter out distractions tend to be less creative.” Maybe it's better just to do lots of things at once without great focus but with natural creativity. Focusing on focus seems to distract from the real issue, which is knowing what you value most. Do we know that? And if we did know that, maybe our focus would come naturally from that. And our lack of time management comes from a lack of self-discipline which comes from a lack of focus which comes from a lack of knowing the meaning of life. And we'll never know that. So maybe we should just be happy that we have our lack of focus because that enables our creativity. And we don't know the meaning of life, but we do know that we each get to create our own life, and that, in the end, may be the only guarantee we have.

Tuesday, November 04, 2014

Governor Debate

Be sure to vote for Walker. Abortion laws would bother me. I'm around these gays in minnesota. Why would I get a girlfriend if it had to end up in abortion anyway? I rather own a dog, its cheaper. I agree with my NRA friends about the 2nd amendment rights.

Monday, November 03, 2014

Xbox One for birthday

The only console I don't have in my collection is Xbox One so I bought that today with $300 birthday cash and then $120 from the savings today.  Halo 5 will be pretty awesome.  It'll require my router to be always on, but hopefully it accepts Gamestop games.  

My PS4 has 6 games already. I guess all I am missing is people. I obviously have updated to the  peripherals.  I believe the Kinnect is dead.  Now I own all of them.    Last generation, I bought Xbox 360 first in 2005 and then Wii last in 2007.  This generation is the complete reverse. (Wii U first 2012, PS4 2nd and Xbone 3rd.

It's election year! PS4 holds the edge of sales worldwide. Xbox One has a slight edge of 22 states in the United States.

Saturday, November 01, 2014

Downloaded Sega CD

I downloaded Popful Mail, and Shining Force CD, because they cost $100 each.  They would play in Fusion on PC.  Popful Mail was a great Sega CD game from Working Designs.

Robo Aleste is a lot cheaper, but I have MUSHA for Sega Genesis.  I found a DVD with my entire ROM collection on it.  Roms cost nothing and you save money on expensive videogames.  The hacker community knew our salaries were staying the same or going downward. There is always price gouging.

Owning the rom is better then seeing people go bankrupt on Youtube and having to sell their collection to pay off bank debt from the 3000 games he owns.   I have a 1500 ROM game collection that fits on a DL-DVD. Half of these ROMs are already on SDcards  Gamepark Cannoo and JXD handhelds.