Japanese developer Cing announced last Monday that it was filing for bankruptcy. The developer, which specializing mostly in RPG and adventure titles for Nintendo’s DS, claimed to being suffering from “insurmountable debts.” This news comes less than a week after Electronic Arts’ Los Angeles branch laid off the team responsible for the Boom Blox series. It also follows a year of high profile studio closings, bankruptcies, buy outs and dissolutions.
It would take several articles to detail the financial woes of each of these developers, but here’s a brief recap: 3D Realms dismissed its entire development team and most of its staff, leaving only a skeleton crew behind. Free Radical Design very nearly shut down because of financial difficulties, and only survived when it was purchased by Crytek. It even lost its name in the deal, becoming Crytek UK. EA closed Pandemic Studios, laying off or transferring its entire staff. Microsoft nixed Ensemble Studios. Midway, bankrupt. Factor 5 closed its US branch. And on and on and on.
The financial struggles of these developers provide strong evidence that the worldwide economic turmoil has not spared the video game industry. Add this to reports of declining sales, and there seems to be cause for anxiety among gamers. After all, with so many high profile developers closing, how can you be sure that your favorite studio or team won’t be next? The economic distress seems like an indiscriminate and trendless series of disasters, like the recent earthquakes. Is there anyway to tell who is vulnerable?
Well, not completely, but there may be a kind of developer, and a kind of game, that is particularly at risk.
Political pundits like to talk about the decline of the middle class. They believe that the difference between the rich and the poor is growing and that those in the middle are increasingly being forced to one extreme or the other (much more often towards poverty than wealth). To use a simple cliché: the rich get richer, the poor get poorer, and the middle class default on their mortgages.
Something similar may be happening to developers. Both large and small developers continue to grow, while those in the middle deteriorate and fail. Nintendo and Activision continue to break sales records, creating titles that dominate the sales charts for weeks (and sometimes months). In an environment where overall sales are down, the increased dominance of a few companies and their established brands leaves little room for less established and less advertised (but sometimes equally expensive) titles from medium size developers and publishers to secure an audience. Meanwhile, small independent developers are discovering that they can efficiently turn profits on tiny budgets with the help of digital distribution through Xbox Live Arcarde, Wiiware, Playstation Network, and Steam. For example, 2D Boy’s World of Goo, created by a three man team for around $10,000, earned $4.8 million on Wiiware in the last year alone. That figure doesn’t include the amount the title earned from Steam downloads. While such extreme profits are not typical for small developers, World of Goo’s success does illustrate the expanding market for downloadable titles and the increasing capacity for development on tiny budgets by tiny teams to be profitable.
This increasing pressure from both sides is crushing those developers in the middle. Add to this pressure the increasing cost of development, particularly for high def consoles, and you have a scenario where developers will often end up gambling their livelihood on the outcome of one or two expensive titles. When such titles flop, the result can be the complete financial failure of the studio that created them. The environment is less hostile for developers who focus on handhelds and the Wii, but, as Cing’s bankruptcy testifies, they are not immune. The Wii presents an additional challenge. Although it is considerably less expensive to develop for than its high def brothers, following traditional development models often results in low to mediocre sales. This makes it difficult for midrange developers to reliable use the system to recoup losses from more expensive titles.
So where does this leave the middle class studio? Do they have any options? This is a difficult question, and one that the developers themselves can (hopefully) answer better than I can. Shifting resources from multimillion dollar epics to cheaper downloadable titles seems like one possibility. Developing games at a reduced cost for a very specific niche audience (see: Suda 51’s career) may be another. Other developers may find that mergers and consolidation offer the most security.
Whatever route they choose, many midsize studios will find that they have to adapt if they want to remain profitable and independent. That’s it. No hopeful pithy closing statement, just difficult economic reality.