Will the economic crisis affect the video game industry?

[ramza]

IMHO, I do think that the video game industry will also be affected by the recession. I believe that people will keep buying less games than usual. They will become more picky when it comes to buying new games and this will affect small developers. For example, people will be always buying fifa or nba live games. On the other hand, I can't see people spending their money on less popular titles. As a consequence, I am afraid that small developer houses will have to close.

 

That is just my prediction but I am no expert in economics. What are your thoughts?

 

I hope that Obsidian doesn't have any financial trouble of any sort and that it will keep delivering quality games.

 

Cheers.

[Humodour]

Doubt it.

 

I imagine Obsidian is in unbreakable funding contracts with Sega, so the only other thing is consumption, and to be honest I actually doubt that will drop noticeably. A game isn't something you buy every week - it's a unique thing.

 

That said, the IT industry and science research in general has been and will be hit pretty hard by this because they both really on venture capital, grants and various forms of funding, which get diverted to more immediate concerns in times like this. I imagine they will cope, though. Yahoo! might collapse.

[Hurlshort]

Actually, the entertainment sector often flourishes during economic downturns. People want to escape reality as much as possible.

[Kaftan Barlast]

Swede developer Avalanche recently had to fire half their employees because the publisher withdrew from the project. Its been attributed to the financial crisis but it could also be because Avalanche couldnt make a decent game to save their lives, and the publisher just gave up on them.

[Guard Dog]

I think yes so far a consoles are concerned. I think the majority of console gamers (50-60%) are under 18 and still living with parents. As a rule they depend on the parents for the money to buy games. If money is tight for families there will be a reduction in money available for vices and consequently a down turn in discretionary purchases like games. College students are no more or less broke than they ever are and they always find a way to buy games. PC games probably will not be affected but they represent a pretty small part of the gaming market these days.

[Blarghagh]

Didn't it already? Didn't EA just lay off 600 people or something just when they're starting to produce better stuff?

[LadyCrimson]

I think it'll be affected, yes...how much is up for debate. But I'd generally agree that it probably won't have the kind of drop-off as "general retail" and such. Games are one of the cheaper, "stay at home when we have to conserve money" entertainment options ... even if you can't run out and buy a new title every couple weeks anymore.

 

So yeah...people may buy less, and sales for Xmas titles will likely fall below original expectations, but I think gamers will still be buying enough to keep companies afloat, as long as the economy woes begin to recover within a year or two.

 

I predict beer companies will also stay afloat during these dark times.

[Guard Dog]

I predict beer companies will also stay afloat during these dark times.

 

I'll see to that personally.

[Moose]

I imagine the lightbulb industry will also do quite well during these dark times.

[Rosbjerg]

hurh hurh hurh..

[Jediphile]

I definitely think the gaming industry will be hit. Games are a luxury commodity, and those are the first hit when people run out of money - parents cannot afford to give in to the "pester power" of their kids as much as they used to, and mature gamers will likewise have less money for games and so be more choosy in what they buy.

[Amentep]

Depends on how long it lasts; in the short term people might buy less games, but even a 10+ hour game is more cost effective than a 2 hour movie, so I think as far as entertainment goes, the general game player will keep buying games. What effect you'll see now will most likely be to games down the line (ie companies may be less inclined to start a large number of projects) as opposed to immediate collapses in companies (unless the company was already near collapse anyhow).

 

But a long economic downturn will lead to changes in buying habits, which in turn could affect the publishers and developers.

 

Or something.

[Enoch]

The pressure from the cost side might end up being more significant than any change in demand.

 

To make a AAA game, you've got to pay the salaries of a pretty large team of developers for a couple years before you see your first dollar of return. That means that you need some pretty serious financing. All kinds of businesses are finding it much tougher and more expensive to convince lenders to advance them funds, and every additional dollar that goes into financing has to be accounted for, either by cutting costs, raising the price, or lowering profits for ownership. I wouldn't be surprised to see a few major game projects fall apart because the increase in financing costs made their original budget projections obsolete.

Edited November 10, 2008 by Enoch

[Amentep]

That's kinda why I figure it won't effect much in the short term; a game complete or 90% complete probably won't be scrapped, but I could see a publisher/developer being wary about commiting to a lot of projects down the line. So if they start making less games we'll see it 2-3 years or so down the line.

 

A bit how studios balked at funding now a Steven Speilberg/Peter Jackson version of Tintin. Not that they couldn't make money on it - those names alone would sell it in the US where Tintin isn't as big as it is elsewhere, but the immediate cost didn't make up for the potential future profits a couple of years from now.

[WILL THE ALMIGHTY]

EA just sacked 600 people.

 

Of course it's going to affect the industry.

[theslug]

The pressure from the cost side might end up being more significant than any change in demand.

 

To make a AAA game, you've got to pay the salaries of a pretty large team of developers for a couple years before you see your first dollar of return. That means that you need some pretty serious financing. All kinds of businesses are finding it much tougher and more expensive to convince lenders to advance them funds, and every additional dollar that goes into financing has to be accounted for, either by cutting costs, raising the price, or lowering profits for ownership. I wouldn't be surprised to see a few major game projects fall apart because the increase in financing costs made their original budget projections obsolete.

Said much better than I was going to but I definitely think we are going to be seeing an even greater restructuring of the market (becoming a tad smaller) with the big companies trimming their fat while acquiring small companies on the cheap and small/medium companies kind of just disappearing from lack of financial stability since this economic meltdown was unforeseen in their budgeting and they are going to lose millions before they get a return on their games. All it takes is less than mediocre sales.

[Killian Kalthorne]

I see it affecting larger companies like EA, but not smaller entities like Obsidian unless it goes the long haul. Hopefully it won't last more than a year or three.

[Walsingham]

Report recently which I saw in a paper was saying that games are UP in the UK. Mainly because while a game is expensive, it is extremely cost effective. You get months of entertainment from a game, while a DVD can maybe give six hours.

[Jediphile]

EA just sacked 600 people.

 

Of course it's going to affect the industry.

 

Yes, I'd call EA firing 600 people pretty supportive evidence of the financial crisis having effect.

 

Games now under development may not be scrapped, but I suppose most people can see why few would go out and invest in a new Playstation 3 right now. Those who haven't migrated yet will stay on the PS2 or choose Wii instead, I'd expect. Paying the mortgage and buying food comes before getting the new game console.

 

New games will probably also sell less, because games aren't cheap on the consoles (where they really sell), so some deadlines may be pushed ahead and products in pre-production dropped. With a longer deadline, the developer can lay off people, because fewer can do the same work over a longer time. And there reduced sales due to lack of money among the customers means less releases, so that's why they'd stretch deadlines and releases. The market simply can't consume the product at the same rate anymore, because money is running short.

[Jediphile]

I see it affecting larger companies like EA, but not smaller entities like Obsidian unless it goes the long haul. Hopefully it won't last more than a year or three.

 

Big difference, though. EA is both a developer and a publisher. Obsidian is only a developer and does only work it has been contracted to do. Since they undoubtedly have a contract on every project, Obsidian is probably fine for now. The trouble comes once the current projects end and aren't replaced by new ones. I think that will hit other developers a bit more than Obsidian, though.

 

TSL may be under fire for all the cut content, but never the less Obsidian finished the game (such as it is) in a timeline that was even cut short by the publisher. Publishers like that sort of thing.

Edited November 11, 2008 by Jediphile

[Hurlshort]

EA seems to go through a purge every few years regardless of the economy.

[Slowtrain]

EA seems to go through a purge every few years regardless of the economy.

 

 

I always wonder with EA. Are they really affected by the economic issues? Or did they just decide to sack some people to scare the crap out of all their other employees and get them ready for a pay cut or something. Probably I'm too suspicious.

[Morgoth]

The shareholders just wanted to see more profits, so the EA exces fired some 600 people. I love this system.

[samm]

Wait until some company comes up with the recession as an excuse for even more schemes to control their apparently mindless customers DRMS with constant online validation, secret driver installation and limited number of installations are just the beginning.