The managed growth of gaming

An alert WoS Forums reader linked recently to this excellent article, predicting a major crash in the videogames industry during the next generation of consoles. It's an entertaining and well-argued piece - suggesting (if you can't be bothered reading the whole thing) that the games industry is about to suffer a massive collapse because the coming hardware generation doesn't offer the visible technological leaps of previous ones, and hence the industry's reliance on churning out the same old games every year but with nicer graphics will come unstuck - and the logic of its conclusions seems inescapable. The only problem is, we've heard this argument before, every bit as logically and persuasively argued (though less funny) - and yet still indisputably, empirically, wrong. So why, generation after generation, don't the facts match up to the logic?

The truth is, the public's appetite for lapping up the same old games (and consoles), despite them so often being seemingly trivial enhancements of things they've already bought at least once, seems insatiable. Every year, fractionally "new" iterations of the same games (FIFA, Madden, Championship Manager, you know all the names) shoot straight to the top of the charts despite the fact that you'd need Stephen Hawking and an electron microscope to tell them apart from the previous versions in a brightly-lit room. "But why?", cry those who for want of a less-abused term we must still refer to as hardcore gamers. "Who are these idiots who keep forking out 40 every year for endless fractionally-tweaked repeats of the same game and ruining gaming for everyone?"

The answer, of course, is that the people buying, say, Madden 2004, by and large AREN'T the people who bought Madden 2003 the year before. There are a few diehard lunatics with too much cash who blindly swallow up every single release in a particular franchise without even stopping to ponder for a second if it's really worth the asking price just to have slightly more detail in the players' eyebrows, but in most cases (the possible exception being the phenomenon that was/is Pokemon) their numbers are fairly insignificant. And in this one observation, we also find both the answer to the article's question about how the videogames industry can keep growing a seemingly-saturated market, and the real reason videogames are as expensive as they are, when there's clearly no logical justification for them to cost more than DVDs or music CDs.

For all the endlessly-repeated pronouncements of games industry trade bodies about gaming being a modern mass-market culture like watching movies or listening to music, it's obvious from even the most cursory examination that it isn't. Gaming generates similar amounts of income to those cultures because the unit price is four times as high, which immediately indicates that only a quarter as many people are partaking in gaming as in the other two pastimes. The article's mistake lies in believing that this is in some way a problem for the games industry. In truth, it's the self-perpetuating heart of the industry's business model.

For videogames ever to become a truly mass-market leisure culture, they'd have to become cheaper, a lot cheaper than they are now. Look at how the typical street price of a new DVD has fallen as the format rocketed in popularity - in the early days, publishers would regularly try to fleece customers for 24.95 for a standard new release. Now, you'd have to be a fool not to be able to pick up the latest hit movie the day it comes out for 15. The fact is, the mass-market simply won't bear prices over 20 for leisure-culture items: if you want everyone to participate in a given leisure pastime, you have to bring prices down below that barrier. What's far better for a manufacturer, though, is if they can instead target a specialist and dedicated market half the size which is prepared to pay twice as much - because then they can make the same profits with far lower manufacturing costs and much less risk. And how do you keep your market specialist? By pricing the mainstream consumer out of it, of course.

Surveys consistently show that the average console owner will, over the five-year lifecycle of a typical hardware platform, buy fewer than 10 new games for their machine. Evidently, then, even the biggest hit titles are only bought by a small fraction of the potential audience. At first glance this seems like a bad thing for software publishers, but the beauty of this model is the huge margin of error it gives them. If you only need to sell a game to, say, 10% of the market to make a big profit on it (and selling a title to 10% of PS2 owners, for example, is BIG money), then you can release practically the same game the next year and still have a 90%-untapped audience to flog it to. (And in fact in reality, just as many potential sales as the first game had if not more, because the total market will almost certainly have grown by at least 10% in the year since then.) As long as the hardware cycle is less than 15 years or so long, you'll never run out of people to sell the same game to.

And of course, niche tastes within a specialist market are by definition unlikely to present you with a problem either - selling games about football, car-racing and being James Bond to a market comprised of videogamers is like shooting dead fish with a blunderbuss in a barrel with no water in it. So if a particular consumer doesn't buy your football game one year, it probably isn't because he doesn't like football, just that this year he bought a racing game instead. Next year, he'll still be a potential sale for Football Game 2005. This, in particular, is the piece of the plan that falls apart if games ever do become a true mass-market culture. Suddenly the market is a lot less predictable, and the publisher is a lot more at risk of releasing a game that doesn't have universal appeal, yet with prices lower they have to sell a lot more copies to generate the same profit, and can't rely just on the people who would have bought the game when the market was still specialist.

So as we can see, not only do videogames publishers not need the audience for gaming to become significantly wider, they actually don't want it to, because if it does it'll force them to take far greater risks and develop a far wider range of games. The current situation still offers a "natural" growth, brought about by the fact that the very first gamers are only now starting to have kids, and we're only at the beginning of the generations who will be brought up in an environment where videogames are commonplace and normal. That effect will continue over the next 25 years or so (because the generation of new parents 10 years from now, for example, will itself contain a greater percentage of gamers than the current one does - gaming obviously having grown in popularity between 1980 to 1990 - and hence will be more likely to pass the taste onto their offspring in turn), providing a gentle and steady increase in the size of the market without ever really threatening to break it out of the specialist ghetto.

Only in 2030 or thereabouts will the games industry have to even begin to worry about where its next generation of consumers is coming from. Except that, as we've seen, even then it won't really need one - unless gaming has grown so uncontrollably that it's become a true mass culture. Which is the main reason the industry fights tooth and nail to keep prices at 40, in an attempt to prevent such an eventuality from coming to pass. The status quo offers the videogames industry a neverending procession of unchanging and predictable customers - for as long as there are still 13-year-old boys, there will always be someone to sell football games and racing games and wrestling games to. And as your existing customers grow up and get mortgages and have less time to spend on playing games, they obligingly breed their own replacements, all too eager to pester their parents for Football Game 2015 (conveniently released, of course, just in time for Christmas). Like the best-managed farming systems, this natural cycle keeps numbers at just the right, sustainable, level. Flood the market, though, and prices collapse. The last thing videogame publishers want is millions more people playing videogames.

Comments? WoS Forum