Anatomy of a Video Game Industry Hit

The video game industry has Hollywood's problems but less upside. And I don't mean the lack of starlets and coke.

In the video game industry, can you be both a hit and a flop at the same time? Red Dead Redemption and Take Two show us the way. On the day Take Two announced Red Dead Redemption had sold 5 million units, the response from Wall Street was to pummel the stock 7.7% with the company shedding almost $70 million dollars in value. 

A video game developer might credibly ask: "WTF?!?"

RDR has solid sales and a spectacular meta-critic rating. It's promising to be the sort of tentpole game that Take Two desperately needs (you can't just be the Grand Theft Auto studio). So what's the problem?

It's because the economic model of the video game industry is becoming as hit driven as Hollywood but with less sure upside opportunities.

Delivering big hits is hard and expensive. Take Two had to admit, Max Payne III was slipping. Sales in 2009 of Bioshock 2 were actually pretty soft - a lot of copies were on the shelves but they didn't actually sell. In a telling sign of an issue for the video game industry, "sales slowed down sooner than expected." And that's after hyping the video game's massive budget.

What's the big deal you say? Jim Cameron apparently used gold foil toilet paper while filming Avatar and it made money, right? Hollywood throws away more than $100 million on the dreadful fare from Sarah Jessica Parker and Mike Meyers, right? What's the big deal?

In the parlance of Hollywood and the Video Game Industry, it's about the "legs". Films don't just make money the first weekend - sure, it's absolutely critical for eventual success. But it's the importance of a horse coming out of the gate fast - there's still the rest of the race to run.

Films have a strong secondary market worldwide and can typically make as much as they gross in North America. Films have a DVD aftermarket. Films can sell the rights to broadcast. In other words, there's extra millions coming in long after the release date. But it's different in the video game industry - it's a rare game that has legs and still sells strongly after month one. Who wants to play a six month old game? That's an antique. Which is why there's such a strong push for DLC (not to mention the used game market). It doesn't just bring in additional revenue, it helps keep your original title viable past a small window of a couple weeks.

So back to Take Two. They aren't going for many base hits these days - they need home runs. The problem is then what it takes to deliver a bit hit. In RDR's case, a budget in excess of $70 million. That's a big number even by the ever-increasing budget standards of the video game industry. And that's not accounting for the  marketing costs which likely at least doubled the money spent. So when you're making bets that big and you only get one shot at it, you can't just deliver hits.

You've to deliver mega-hits.

On schedule.

And on more than one occasion.

Batter up.

- Sean Dugan is The Boss Monster’s founding editor and all-too-frequent contributor.

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Image by Eduardo Amorim

1 comment:

  1. I wonder if online sales are giving any sort of useful "tail" to game sales. Back when all game sales were boxed copies in stores, if you didn't make a profit within a few weeks, you simply couldn't, because the game would be off the shelves. (Mega-hits would stick around longer, but they'd already made their profit, thus increasing the disparity between successful and unsuccessful games.) I personally find myself buying a lot of older games off of Steam and even Amazon. Granted, they're incredibly cheap and thus the developer isn't making much money, but it's still an improvement over not making *any* money. I'm curious if it's enough to have any sort of impact, though.

    It seems that more and more game companies have stopped being game companies and are now "cross-media" producers as a reaction to all this. I was just reading that THQ has jumped on that bandwagon with a "Red Faction" movie (and possible t.v. series). I wonder how much going cross-media helps though, as it ties in all these other media to the short life-span of video games. A (decent) movie will outlast the source game, but I can't imagine the books, comics or action-figures will. (Ironically I noticed there was a Hellgate novel that came out after Flagship was shut down, thus outlasting the *existence* of the game, but I can't imagine much of anyone bought it.) I suppose all the derivative works allow hit games a better chance of making a profit, but this would also end up multiplying the disparities between hits and flops.

    Something I've wondered about lately is if games like Starcraft 2 or Diablo 3 can even *be* successful. Sure, neither are mega-productions on the same scale as GTA or Red Dead, but they've been in development, more or less continuously, for 10 or so years. The development costs must have stacked up during that time. They're PC-only games, so no console sales, no monthly subscriptions, nothing really beyond the original sales, expansions and action figures to supplement sales. Perhaps merchandizing can put them over the top?