News from the lovely world of the Games Industry.

[Jacob]

Random tidbit: was talking to my boss and he relayed a conversation he'd had with someone quite senior in the industry, who said "if 2023 was the year of major layoffs, 2024 will be the year of studio closures."

Sounds fairly reasonable to me. I guess we'll see.

[The Minsky Moment]

The obvious disadvantage to that strategy is that it's long term, taking probably at least a decade from "indie" to major AAA bet.

The other perhaps less obvious disadvantage is that it requires executive leadership to build an organization that has the ability to identify quality and potential and is able and willing to bet on those.

Right there is why it is going to be close to impossible for a significant publicly traded company to do that.  It's a lot of work and patience for a return that is modest in proportion to the size of the overall company.

When you say content creators, do you primarily mean the major studios or also smaller players like indie studios and individual production companies?

If tastes are too fickle and cycles too unpredictable to generate reliable investor returns, it makes sense that major investors pull back. That seems very logical. But content is still being produced - and the streaming networks presumably will need some volume of new content in addition to their back catalogues. Where does it come from? How is it funded?
. . .
So I'm not super plugged into the streaming TV/film industry even as a consumer, but my impression is that there are indications that we might be moving back to something like the cable model? Maybe not?

If we look at music - where streaming is most advanced - the big labels do OK, but not as well as in the CD golden age of the 80s and 90s.  The individual artists have been squeezed. The platforms ironically are squeezed as well - at least Spotify has proved to be a consistent money loser.  The other big streamers are folded into much bigger groups.  The consumer is getting a great deal, at least as compared to the old model.  But the labels probably felt they had no choice after the napster debacle.

Movies/TV is probably a better comp for games - a AAA game these days is basically an interactive movie with a script, actors etc. and movies these days use a lot of coding one way or another. In movies and TV, content creators initially did very well as competing streamers bid for new content but that dynamic has reversed as the space matures and the appetite for absorbing enormous losses at the platform level has receded. You are right that costs have allowed cable to become more competitive but "cable" is converging to OTT streaming - a cable sub now brings access to individual streaming service options plus VoD.  Gen X is probably the last generation for which scheduled TV programming has real meaning and resonance. 

I don't know what the future will bring, but the big writers-SAG strikes seemed like a pyrrhic victory.  The creatives were given the battle because it is only a matter of time before they lose the war. The studios can't count on blank checks from Netlflix, Amazon and Apple indefinitely; so they will substitute capital for labor to control costs while supplying a steady stream of quantity.  The promise of streaming and "peak TV" was that freed from the need to chase to middle for Nielson ratings, you would free up creative energies for an endless series of Sopranos, Wires, Breaking Bads, etc.  There is a some of that still, but also a lot of milking the hell out of franchises.

Streaming has been slow to take on with gaming, but I think that is because for the moment, MSFT has been ceded a monopoly position and has been content to move gradually.  Gamepass is a ridiculously good value for the consumer. PC game pass is 120 per year at list; if you buy codes gray market, you can get ultimate for that same price. It offers a huge library that can played on a wide variety of platforms.  It's hard to see why people would drop $70 on a single AAA release when gamepass exists. That is due in part to MSFT moving slow to limit losses and FOMO over out of  offerings not available on GP; but MSFT's acquisition of big studios and committing to Day 1 GP releases could shift that dynamic.  [It should be pointed that Sony's offering is also good value even at newly raised prices - however, Sony's awful marketing and implementation seems deliberately intended to push people to the preferred traditional model of consumption]

If streaming does prevail, then the larger studios will trade the big profit potential of hits for more steady income flows and the smaller players will struggle to avoid freeze out.  They will either have to sign bad deals with GP or play the steam discounting game.

[Jacob]

Thanks for that analysis Minsky. It'll take a bit for me to digest it.

What I'm continually trying to figure out (and I'm obviously not the only one ) is what are the most viable paths (i.e. the least shitty paths) for content creators given the state of affairs you outline. I have some ideas, but it's getting late... broadly I guess it's about smaller players taking on more of the risk, and then publishers picking up games once they've been validated more thoroughly... and that's kind of what I'm seeing anecdotally in places.

Though that leaves the publishers in a position where they're at risk of being bypassed - because if a new game has been validated more thoroughly, the developer could potentially take it directly to the consumers or the streaming services.

Fundamentally I think there's still going to be an appetite for good new content. What I'd like to understand better is how that is going to be generated, given current market forces.

[crazy canuck]

Why do developers need publishers?  Why can't they just always go direct to the streaming services?

Other words, what value does a publisher give to a developer?

[celedhring]

Why do developers need publishers?  Why can't they just always go direct to the streaming services?

Other words, what value does a publisher give to a developer?

If it's anything like the movie/TV industry (which is the one I'm most familiar), the answer is funding (and risk sharing), industry contacts, and marketing.

There's a reason why most success "direct to consumer" videogame stories are small games with crowfunding of some sort.

[celedhring]

And I agree with Misnky's analysis, btw. The vibes we're getting post-strike from the movie/TV industry are pretty dire.

[Tamas]

Why do developers need publishers?  Why can't they just always go direct to the streaming services?

Other words, what value does a publisher give to a developer?

Steam is absolutely saturated with crap. Unless you have a good game that really, and I mean REALLY, manages to catch the zeitgest of the season, good luck raising attention to it without a publisher's established ways and audience to do that for you. And that's without accounting for the fact that in my experience most lone/small team developers can very much use some professional input on design and whatnot. The latter is much less important if you are coming from an industry background, obvs.

[Josquius]

The big publishers certainly have hefty clout.
Saw a LinkedIn post from an indie developer the other day lamenting How EA had rereleased 12 games in a day... Which happened to be her release day and pushed her game way down the new and trending chart, which is key to success.

[Jacob]

Why do developers need publishers?  Why can't they just always go direct to the streaming services?

Other words, what value does a publisher give to a developer?

Several reasons, but bottom line IMO is money.

Most developers don't have the cash to fund a full project, or if they do they're typically betting the entire business on that one game.

Beyond that, (good) publishers also provide marketing support, potentially access to better value specialist resources within their network, and quality market research. But money is the real factor.

Right now I have a game that I think would be really good. If I had the budget - say $10 million - I'm pretty confident that I can pull together a team, build a studio, and deliver that game.

My options are:

1) Convince the public that this game is awesome enough that they'll crowdfund it. That's a pretty specialized skill to have, and the odds are fairly low. I don't think I'll succeed there.

2) Convince a publisher that they should fund it. This is a steep hill to climb in various ways, but more realistic than convincing the public. At least I know the route and the challenges.

3) Have personal connections to rich people that allow me to convince them to fund a game studio as a silent partner. I know some folks who are rich, but I don't think I can cajole $10M out of them for something like this.

4) Somehow convince the team to work for essentially free. Also difficult.

As for the Streaming services, from my point of view to the extent that they fund development they're simply a slightly different flavour of publisher.

Basically what the publishers do is provide the funding and take on the majority of the financial risk, in return for the majority of the (potential) financial upside.

[crazy canuck]

Thanks all for your explanations 

[viper37]

3) Have personal connections to rich people that allow me to convince them to fund a game studio as a silent partner. I know some folks who are rich, but I don't think I can cajole $10M out of them for something like this.

Trust me, you won't.

I've walked around very rich people lately, people who's biggest concern is they're buying a new white pick up at 125 000$ or they grey one for 135 000$ and they'll argue over every penny for an investment they are making.  No problem spending astronomical amounts (relative to their wealth) on leisure, but to spend anything on an investment, for about the same amount, they are misers.

[Syt]

https://www.pcgamer.com/gaming-industry/flagging-megacorp-embracer-group-is-now-selling-off-gearbox-entertainment-to-take-two-for-dollar460-million/

Flagging megacorp Embracer Group is now selling off Gearbox Entertainment to Take-Two for $460 million

Swedish games behemoth Embracer Group bought Gearbox for $1.3 billion back in 2021. Just over three years later, Embracer Group is divesting Gearbox Entertainment to 2K Games and Rockstar parent company Take-Two Entertainment for $460 million. The acquisition is expected to finalize by the end of June.

Embracer will retain one piece of the Gearbox pie however, in the form of Gearbox Publishing San Francisco, which holds publishing rights to the Remnant series and Hyper Light Breaker, in addition to "other notable unannounced game releases". The remaining arm of the business will be renamed.

Embracer Group has been ruthlessly downsizing to stay afloat, after years of seemingly monthly studio and publisher acquisitions. It sold off Saber Interactive last month to the tune of $247 million, and laid off around 1,400 people in 2023. Last year it shut Saints Row studio Volition and Square Enix Montreal, to name just a small handful of its big contractions. Rumors that Gearbox was on the out started as far back as September last year.

Embracer's recent doom and gloom is in stark contrast to 2021-22: those were the days when the company was making huge acquisitions ranging from Lord of the Rings through to some of Square Enix's former tentpole western studios, and receiving big investments from Saudi Arabia. But following the collapse of a $2 billion deal in 2023, which prompted an immediate and "comprehensive" restructuring of the business, most of the studios brought under the Embracer Group umbrella have suffered to one extent or another. Needless to say, a hell of a lot must have rested on that deal.

"Today's announcement marks the result of the final structured divestment process and is an important step in transforming Embracer into the future with notably lower net debt and improved free cash flow," Embracer CEO Lars Wingefors said in a prepared statement. "Through the transaction, we lower business risk and improve profitability as we transition to becoming a leaner and more focused company."

Gearbox founder and CEO Randy Pitchford had his say as well: "As a significant long-term Embracer Group shareholder, I believe in the strategy for the Embracer Group going forward and am completely convinced that this transaction is the best possible scenario and an obvious net positive arrangement for Embracer Group, for Take-Two and, of course, for Gearbox Entertainment. My primary interest is always Gearbox, especially our talent and our customers. I want to personally assure fans of our games that this arrangement will ensure that the experiences we have in development at Gearbox will be the best they can possibly be."

Take-Two CEO Strauss Zelnick also indicated in his own prepared statement that these corporate machinations are for the greater good. Gearbox will fall under the 2K umbrella as a studio, presumably with a focus on Borderlands games, which 2K has published since the series started in 2009. For its $460 million, Take-Two also gets other Gearbox IP including Homeworld, Risk of Rain, Brothers in Arms, and Duke Nukem.

[Syt]

I know kotaku has "a reputation", but their business model was mostly op ed articles (usually with an angle that would piss of someone therefore driving clicks).

Anyways, new ownership. Which has mandated to stop op ed stuff and instead crank out at least 50 game guides per week (with a staff of ca. 10, I think?). 

(sheds a tear for what became of https://www.wargamer.com/ )

[Tamas]

Anyways, new ownership. Which has mandated to stop op ed stuff and instead crank out at least 50 game guides per week (with a staff of ca. 10, I think?). 

As in written game guides? Damn. Somebody didn't get the memo on YouTube's existence.

[garbon]

I know kotaku has "a reputation", but their business model was mostly op ed articles (usually with an angle that would piss of someone therefore driving clicks).

Anyways, new ownership. Which has mandated to stop op ed stuff and instead crank out at least 50 game guides per week (with a staff of ca. 10, I think?). 

(sheds a tear for what became of https://www.wargamer.com/ )

They also got rid of comments recently.