The future of video games depends only on fixing their prices

A few weeks ago, Colin Moriarty, a former IGN employee, commented on his Podcast “Sacred Symbols” What agreementPlayStation’s largest online bet this year has been incurred total cost 400 million dollars. Although after several sources hastened to deny thisthe figure seemed easy to believe, like in blockbusters now, and, yes, it outraged everyone and everything.

A leaked series of internal documents from the Japanese publisher a year ago revealed that its most powerful games had huge production costs, but not to the same extent. For reference: God of War: Ragnarok It cost $200 million. Horizon: Forbidden West 212 million, The Last of Us Part 2 220 million and the most expensive PlayStation 5 exclusive on the list. Spider-Man Marvel 2$315 million. They are all wild figures.

Secrecy by flag

The video game industry has always been very budget conscious, but today it has a unique paranoid obsession. I remember many years ago in interviews with creators, I always tried to get them to comment on this issue. Not by a specific number, because creatives don’t need to know that, but by how many people worked on the project and for how long. WITH rule of three applicable to location There are many conclusions that can be drawn from the study (being on the Santa Monica Pier is not the same as being on the Utah plains). The fact is that the same thing always happened: a very sudden interruption from the duty signalman.

Why did they react this way? Well, because all of these companies are public, meaning they are listed on the stock exchange, and the only thing that really matters to them is the price of their shares. They need to control the flow of information very well so that shareholders do not have “inappropriate” ideas. This is what the publishers themselves want to say whether the game is a success or a failure. And to what extent they exist. Then there’s everyone’s company culture. Transparency (I know, in hindsight this may seem ironic) CD Projekt RED telling you at every meeting how many people are working on each project and how much they have spent on a particular product, both in production and marketing, is not an issue . the same as Square Enix, limiting itself to the laconic “didn’t live up to our expectations“, without at all communicating what those expectations are.

In this sense, we must explain, even superficially, how the numbers we are striving for are established. Since Square Enix announced a reboot at the time tomb Raider 2013 failed to materialize, despite selling 3.6 million copies in a few weeks, and they were attacked from all sides. So much so that they have become a meme. and I think that This is a very unfair memealthough of course they are partly to blame for not providing valuable context. What a publisher expects from a product is mainly determined by two things.

First, all the resources they put into creating and marketing this product. Second, everything they could have developed and sold instead if they had devoted the same resources to something else. Come on, opportunity cost. In recent years, this has been the most important factor in decision making. Let’s just say Final Fantasy XVI Development cost 200 million and about 50 for marketing. These are completely fictitious numbers, but I believe they may be more or less close to reality. In a process that dragged on for 7 years, what is the return on investment (return on investment) would be acceptable for Square Enix? 150%? 200%?

It’s not just the millions it costs to make AAA games right now, but also the 6 or 7 years it might take to make them. That’s a long time for an investment to be tied up without any return for a company that has to keep its share price afloat every year and at the same time can’t report all its projects in the oven. If we accept a cost of 250 million as reasonable and a return of 200% as acceptable to consider the investment reasonable for the company, this means that it would sell about 12 million copies at full price ($70, which of course varies in each region ). once we deduct taxes (VAT in Spain 21%), the part that the retailer takes on (which used to be quite large, and that is why we are all interested in moving to a digital ecosystem), and the part that the platform takes on (PlayStation or Steam, as appropriate). Thus, the game sold 4 or 5 million copies. this is an absolute disappointment (the only number we know for sure is 3 million at launch). Because in this range the costs were not even covered.

Obviously, this is a general analysis and lacks many fundamental details that could soften the blow to Square Enix. We don’t know what they got in exchange for a year and three months of exclusivity on PlayStation 5, but it could have been quite significant. Probably half the development bill and all the marketing costs, plus a much more favorable percentage of PlayStation Network’s share instead of the usual 30%. To this we must add revenue from DLC, merchandising and sales in the coming years.

Square Enix may eventually be able to make the game profitable, especially if they reuse the technology they’ve developed in other projects. But of course, these companies are not built to get 15% or 20% ROI. If they want shareholders’ money, They should offer something more attractive. than investing in index funds or vulture funds that buy residential rental properties in major cities. They must outpace inflation and interest rates. And above all, they have to compete with other companies in the sector who are likely to get rich from microtransactions, games as a service and gacha. Is it possible to be more profitable than EA with its digital maps or Tencent with its Chinese free-to-play MMORPGs?

The end of the video game era

All this is a long preamble leading to a very simple conclusion. The video game industry as it has existed for the last twenty years is not sustainable. There is no longer an audience there that could justify these costs. If the ceiling for new Final Fantasy is 7 million copies with years of price cuts and discounts, they can’t cost that much. We’ll have to lower the bills no matter what. There are many ways to do this, but the most sensible way is to reduce the size of projects, which leads me to believe that we can at the end of an era.

We have been moving upward for the last 50 years. More and more realistic games with more content. The normal thing is that now we are going backwards. Games with more functional graphics and less content. It is very difficult to predict the future because at any moment a disturbance can occur that completely changes the landscape. This could be the use of generative artificial intelligence or the massive transfer of research to countries such as the Philippines or Vietnam, following the example of the manufacturing industries twenty years ago. Publishers will try anyway, but by the end of the financial year their books should make sense. And I’m afraid that in these calculations between the fact that the players put up with receiving less ambitious games.

From this perspective, the least important thing is whether Concorde cost $400 million or not. It cost crazy amounts of money because the ROI is deeply negative. It’s not that they didn’t make money, it’s that they lost everything. If they had to take it off the market, it was because the cost of running the servers alone drove them to ruin. A company cannot afford many such failures before it finds itself in difficulty because Now there is Ubisoft. The Gauls are on the verge of collapse. This is the scenario that we should all be afraid those of us who play video games, because the effect could be devastating to the entire ecosystem. There will always be those who manage to surf everything, in a separate bubble. Nintendo and Rockstars at the moment. But all other publishers are now under serious threat. It is imperative that they find a way to make their business sustainable.

Perhaps in this process of transformation, we too will have to learn to temper our expectations, realizing that for the vast majority, 100-hour RPGs and ultra-realistic graphics will henceforth be an impossible chimera, with honorable exceptions.

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