Will the Market Segment?

Can the videogame market be segmented, and still generate cashflow? It’s a question I find myself asking more and more frequently. Put another, more specific, way the question becomes: is an indie games market a viable commercial possibility, or simply the place where those who love games sacrifice themselves on their vanity and dreams?

The question comes down to whether the economics of videogames can be made to work on a smaller scale, or whether we are locked now into what we might call Moore’s Law of Gaming: the demand for ever more impressive games drives the demand for ever more complex hardware, which drives increasing retail costs, which in turn requires bigger and more impressive games, which in turn require ever more expensive development budgets.

The upper market – the place where the games we’ve all heard of exist – thrives on giant game budgets, now routinely exceeding $10 million for development, and the same again on marketing. Lost Planet, for instance, cost $20 million to make and $20 million to promote according to an article on Kotaku. And most of these games make a loss. The top 3% of games are responsible for roughly 25% of game industry revenues; the top 7% of games are responsible for roughly 50% of that revenue. Publishers only survive by having portfolios, as I have discussed before. 

Money is like mass: when enough of it accumulates, it creates its own gravity well. It’s inevitable when you’re dealing with a multi-million dollar development that it generates its own necessity, and that in turn attracts more promotional money which drives the process, like a white dwarf star sucking in the mass of a red giant companion. This financial gravity seemingly cannot be resisted. The specialist press increasingly appears to exist for the sole purpose of servicing the PR departments of the larger publishers; devoted satellites caught in the orbit of the industry’s gas giants… they yearn to report on the next big thing, and to do so they obsequiously dote upon the upper market.

A viable indie market depends upon successful segmentation of the market – it must be possible to divide a certain amount of money into smaller portions, to make games on smaller budgets, and ultimately to still see a return on that investment. It doesn’t have to be as large a return as the most successful videogames – but there must be a return of some kind, or else the indie market is nothing but a sinkhole, the blackhole of wayward developers, who are sucked down into oblivion. 

Is it possible? Certainly. Is it probable? Much harder to say.

We could use to know how many “boutique” MMOGs survive, and how many indie games make a loss on their implied development budgets (remembering that even a game with no formal budget has an implict budget proportional to the time spent developing it). Even if these figures are not too depressing, it won’t be quite enough. The indie market necessarily needs its own self-sustaining portals – it’s own centres of mass. Manifesto are valiantly trying. I fear they may need more capital to make it work. 

And that’s where it all comes back to: money. It takes money to make games, and in a capitalist society money flows to where more money can be made. If indie games are to survive, they must prove their profitability – not as individual titles, but as a successful market segment.

I believe the market can be successfully segmented, but I am concerned that the stable slices will be all-too familiar. On the one hand, the extremely simplistic “Casual” game, as epitomised by PopCap – games for people who think they don’t play games. On the other, those videogames that suit the core gamers who have been cast aside by the spiralling greed of the upper market (Type 2 Managers by DGD1, Strategic players by Temperament Theory), epitomized by Introversion Software, the self-styled “last of the bedroom programmers”, making the games programmers enjoy for players with the same tastes. 

I love that both these niches exist, but I naturally wonder if these segments can support more companies, or if these lucky few are merely anomalies in an otherwise bleak independent wasteland. But more than this, I hope that there are more niche markets out there, waiting to be discovered. We can but dream.

Comments

[David]

I think that videogames are a auper business and no one can do anything again them, but it's a nice comment.

[Patrick]

Maybe you're not young enough, but I can give you a very diverse and difinitive range of ways where casual and indie are cross-pollenating and mutating with incredible speed and temerity, finding better business models as well as interaction models.

I think this is a nice post, one that could be much more interesting if you research the cutting edge of whats happening in the web-space. Manifesto needs to embrace browser embedding at least to a point. Have you read my blog lately?

[Chris]

I read your blog regularly, Patrick. Sometimes I skim and sometimes I read carefully, though - such is the nature of blogs... ;) I haven't been very convinced that there is a viable business model for browser embedding, though - did you make this case at some point? Do you know anyone making money at it?

Update: Shortly after typing this, I remembered the post... it was the crater post. I thought this was an interesting piece, but I guess it didn't convince me that there wasn't a future for indie game downloads. For Casual games, sure, but...

[Patrick]

Don't get me wrong, there's absolutely a future for single player downloads whose design patterns appeal to a hardcore, because those are the kind of people who can get excited enough about a design pattern to pull out the credit card, then they relate to others and evangelize, like you wrote in your book. This is where the console/PC hardcore games industry is going, downloads on the PC and Consoles which have either premium production values in established genres or decent production values in experimental forms. There's a future there.

Browser embedding is a streamlined form becoming more prevelant with Unity, mostly Flash 9, ect. There's no question that the wider audience prefers browser embedded experience, the data shows a 70 to 30 preference. Kart Rider gross half a billion dollars over three years, Puzzle Pirates does 350k a month from subscriptions and microstransactions. This is very good. I expect Loot, my next big project, which uses a new microstransaction model (wagering) and really isn't that big will gross at least five million dollars a year in its prime.

[Chris]

$5,000,000, eh? :) I admire your optimism. :D If I had remembered your crater piece, I might well have referred to it, but I wrote this piece to blow off steam; it wasn't carefully constructed in any way. ;)