Publishers Versus The Economy

When the first signs of a recession hit the game business in 2008, many publishers were bullish about the industry's ability to weather the storm. Games are better value for money than other forms of entertainment, they argued; the consumer may cut back on taking chances, but they'll still buy the blockbusters. That was the rhetoric from the big box business, as it confidently predicted being able to stand its ground and sell while consumers cut back on non-essential spending.

The middle ground thinned out, with independent and internal studios closed, downsized, right-sized and shuttered. Even now, the situation is still difficult to gauge: were publishers using the economy as an excuse to reshape their businesses and show investors they were taking action, or did they really bite the bullet, admit they were hurting and take appropriate measures? Either way, the industry changed during 2009, as free-to-play, mobile and browser games began to find their place, spurred on by lower barriers to entry and consumers looking to spend pennies, not pounds.

Now, in 2011, with a double dip recession a distinct possibility - or a long period of slow growth at the very least - the industry is facing the same challenges it did in 2008. How exactly are developers and publishers preparing for another long, lean period, and what lessons were learned from the last downturn?

Rather than scaling back, publishers like Bethesda and Activision are focusing on going bigger - spending more on AAA titles that offer better value to the consumer. French publisher Ubisoft is still spending, but it's diversifying, moving into television and film with Ubisoft Motion Pictures, expanding casual brands like the Imagine range, and acquiring talent in the free-to-play space.

"It's important to only do quality, because I think what will suffer is the games that are average or not well positioned," says Alain Corre, executive director of EMEA for Ubisoft. "These ones will suffer the most. But the creme de la creme will be profitable."

Yves Guillemot, CEO of Ubisoft, believes that the recession isn't such an issue if a company thinks globally, and he is currently seeking to expand the company's presence in as many regions as possible.

"I think all companies have to be adaptive to recessions, but we have also to cover the world. If we can generate revenue on a worldwide basis, the GDP on a worldwide basis is actually growing. The rule of our companies is to make sure we can touch all the markets, so we adapt to different countries and we adapt the content."

He also believes the UK economy has the capacity to bounce back after harder times. "In England the advantage is that it goes down quickly but it goes up fast, so what I see is that there's a period where things will be more difficult in the UK, but very quickly when it goes up again it will be fast."

In 2009, EA's John Riccitiello called the recession a "blessing in disguise" as it forced the company to trim the fat acquired during times of plenty. However, in 2011, the publisher's European boss Jens Uwe Intat is reluctant to even speculate whether another crunch is on the horizon. In fact, he doesn't believe it's an issue.

"If I knew whether there was a recession coming or not, there are a lot of people with a much better education in that field who are trying to figure it out," he says.

"I don't even need to know, because the impact of recession on our industry is totally unclear. There are people who say that, in a recession, people still need to have some fun, right?"

Intat believes that consoles and games have an bigger effect on the industry's economy than the recession, and argued against looking at past downturns for clues to the arrival of another.

"If you look at what happened in recessions in the past and try to correlate, I would actually try to warn you against trying to make a conclusion, because you never know what might have happened without a recession."

"If you have a total recession it might have an impact on people actually buying new consoles. But there are so many other devices out there that people can play on that I'm not actually really sure whether a recession would be a good or a bad thing. I don't know."

His colleague, the newly promoted COO Peter Moore, had a clearer view on the subject: "I don't think EA as a company believes we're about to go into a double dip recession."

"Even though we're theoretically in recessionary times, iPads are selling at a breakneck record, smartphones are setting records, the console business goes up and down depending on what month it is."

Indeed, over the last year EA has been a growth business, expanding operations in Texas and snapping up casual developer PopCap, but other areas appear to be struggling. Just this week it was confirmed that EA's Visceral studio in Melbourne would be shutting down, after the project it had been working on for three years was cancelled.

"We've not been shy about making acquisitions when we couldn't build organically," adds Moore. "In the last two years Playfish and PopCap have been pretty sizeable purchases, which, from our perspective, you look at some of the valuations where we live, in Silicon Valley, and every day they look like great deals."

He believes EA isn't just growing, it's "right-sizing," and, he stresses, still recruiting. "We haven't been immune from having to do some rips over the years, but we've still got a large company now that's hiring. We're a company that's hiring aggressively."

There's no denying it's a confident stance, but some are more cautious. Showing his trademark candour, Crytek co-founder Avni Yerli goes further than just admitting there might be another recession on the way - he sets a date for it.

"2015, it will happen. End of 2014, 2015 it will happen."

He is also less certain that games exist in a safe realm. While he agrees that games, as part of the entertainment industry, may not feel immediate effects in the way other businesses do, he argues that it is creativity and innovation that suffer, not just graphs and share prices.

"I think what will be at a disadvantage in this case is that you won't see innovative new games in this cycle or a year later, because nothing gets started because people, publishers, become more risk aware, and do not spend on new games or new IPs. They go for sequels, and very easy sequels."

During the last recession, Crytek stepped in to save TimeSplitters developer Free Radical Design after the company went into administration. The UK developer then became Crytek UK, receiving a reported £50 million investment.

"It was not something which had a negative affect on us," says Yerli of that economic downturn. "I mean we had our games in development, we had our technology in development, we licensed our technology out. What we realised when we talk to licensees is that they're all working on new sequels, but not new IPs."

Sony Computer Entertainment, as a hardware manufacturer, publisher and developer, has both a unique perspective and the most tumultuous recent financial history of any of the companies we spoke with. Hit hard by the April hacking attacks that shut down the online store and multiplayer services - not to mention the earthquake in Japan - its understandable that Sony is braced for another dip.

Sony Worldwide Studios' Michael Denny is a master of the interview, but on the mention of another economic downturn his brow creases for a moment. But he too believes the industry occupies a special place in consumers lives, even when they're struggling.

"In terms of gaming in the recession I think nothing is recession proof. I don't believe that, but as an entertainment medium I think we are really good value, and I think its one of those things that consumers and game fans are reticent to give up."

"So when times are economically hard we have to try harder, we have to make sure our products stay relevant, we have to make sure we're pricing things right. But most of all we have to keep producing innovative new experiences, then people will still want them."

Unlike Yerli, Denny believes that, rather than causing in a wave of sequels and remakes, recessions can actually stimulate creativity among developers.

"Clearly the economic conditions have been quite dramatic, the credit crunch last time and maybe what we're feeling at the moment. But it's interesting, talking from perhaps how it affected us in Worldwide Studios, is that to some degree we all look harder and tighten our belts, but sometimes in those times of adversity even more innovative products can grow out of it. People sometimes perhaps try even harder, they know what's required to spark interest and keep interest in gaming."

Only time will tell if the industry's apparent faith in the consumer's endless lust for entertainment is well placed, or if another crunch could see more businesses closing. But those aren't the only two possible outcomes.

Another is that the relatively new (to the Western market at least) free-to-play model could become more widespread. Carl Jones, director of global business development at Crytek, suggests that another recession could force the market to evolve.

"What's changed is free. Making things free and letting people pay when they want to for the content that they want," he says. "And so certainly at Crytek we're looking at free-to-play as a major changer in the games industry and the products that we're looking at releasing ourselves, we're looking at those kind of models for them."

And he's not just referring to the company's new freemium title, Warface. Crytek recently made its CryEngine 3 SDK free for non-commercial use. "I think this is an important change the market has to go through. If we all do it right then I think the industry will actually grow, regardless of any recession or any state of the economy, because people want entertainment. And if they can get their entertainment free, then great."

The theory is backed up by the actions of his peers. Just yesterday Sony Online Entertainment announced that its MMO DC Universe Online was to go free-to-play. Blizzard, publisher of the ever popular World Of Warcraft, also adopted a model that allowed players a free trial of the game up to level 20.

Jens Begemann founded Wooga, and is already well ahead of the free-to-play pack. While others are trimming the fat on their development teams, Wooga is hiring two new members of staff a week.

"There's not a huge impact to the free-to-play business model," he says. "I think what's for certain is that games, especially free-to-play games, are something that would work in any economic environment. "

"People may save money when the economy is bad on going out or buying expensive luxury goods, but playing a free game and spending $5 here and $5 there - you always have money for that."

Fonte: Game Industry