Fun Inc. (4 page)

A decade after they first began to distribute outside of Japan, Nintendo and Sega were the acknowledged kings of the gaming world and the most bitter of commercial rivals. This was the age of ‘console wars’. Between 1985 and 1995, they sold between them over 100 million hardware units, and many hundreds of millions of games. The principle of games as electronic toys was, it seemed, approaching a high-water mark, with Nintendo increasingly the dominant player and Sega starting to overreach in its efforts to keep up. This particular brand of fun had saturated the teen and pre-teen market: where was it to go next?

As it turned out, the games industry had only just begun to transform itself. And the next stage of its evolution came courtesy of a newcomer to the industry, electronics giant Sony. Following a failed collaboration with Nintendo on a new console, Sony decided to go it alone and in 1995 released a games machine called the PlayStation. Other rivals to Sega and Nintendo had come and gone, including a belated and ill-advised attempt to re-enter the games console market from Atari. But the Sony PlayStation was different. Sleek, grey, expensively marketed and blisteringly powerful, it offered CD-quality sounds and gorgeous graphics at a heavily subsidized low price. It was something more than a must-have toy for teenagers: a desirable consumer product for young, upwardly mobile adults, complete with soundtracks designed for its launch titles by some of the hottest DJs on the global club scene.

The PlayStation was a bet on the claim that Stephen Russell had made three decades previously – that games were for everyone, and that their natural place was at the forefront of society’s relationship with technology. Astonishingly to most observers, Sony’s gamble was rewarded by its transformation into the world’s most influential games company, with the PlayStation going on to sell 102 million units during its lifetime, and its successor enjoying still greater success. The market for video games was, the world realised, far broader and deeper than most people had ever believed.

Sony’s ascendancy proved a knockout blow for Sega, which stopped making new consoles after 1998. Yet gaming was far from done with transformations, and the dramatic next stage of its evolution came thanks to Nintendo and their release, in 2006, of another entirely new kind of games console: the Wii (a name chosen, according to Nintendo, because ‘Wii sounds like “we”, which emphasises that the console is for everyone’). Ending once and for all the increasingly ruinous race for more potent technology, the Wii was a less expensive, less powerful alternative to the other machines on the market. But it had one great innovation – motion-sensitive controllers – coupled to a philosophy that chimed exactly with the sentiments of a new generation of gamers: that modern games could be not only a mainstream activity, but also something family-friendly, physically active, sociable and, above all, fun. It made a phenomenal impression, outselling its competitors by a factor of almost two to one, and left the video games market looking more wide open than ever.

Behind all of this, the slow, steady rise of the personal computer has continued: a story of gradually accumulating resources rather than the generational revolutions of games consoles, and one that leaped to a whole new level with the invention of the internet. Computers, unlike consoles, are an open platform. The divide between Macs and PCs notwithstanding, almost any computer can run at least one version of almost any game or program, something that has in the past restricted companies’ opportunities for maximising their gaming profits on computers. But the unrestricted freedom to browse the internet that computers offer (unlike consoles, which give online access only to the ‘walled gardens’ that their manufacturers are able exclusively to control) means that literally millions of games are now at the fingertips of their users. And with game-playing now a more popular online activity than anything else outside of search and social networking, the evidence for play as one of the most fundamental social and economic dynamics of the present century – and the internet as its natural home – is mounting.

In terms of human hours, the internet is already the world’s most important gaming arena, and it is also here that gaming’s potential and its underlying nature can be seen with the greatest clarity. It is a phenomenon that brings people together while simultaneously allowing them to escape the world, either for a few minutes of casual fun, or for an entire other realm of adventures, achievements and shared experiences. There is remarkable potential and peril in this, on a scale that can begin to seem almost anti-human in its superlatives: the size, the scope, the sheer hours of effort consumed by electronic play in return for what can seem, to outsiders’ eyes, scant rewards. But just as games have a particular history that has brought them to this point, they also remain not an implacable natural phenomenon, but the products of a human industry with its particular traits and foibles. This is an industry that has grown astonishingly fast – but that has not yet, in some ways, quite grown up. And in this the games industry echoes the attitude of many of its consumers, who are aware they are standing on the edge of something transforming; but not yet aware of just how much it may change them.

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A license to print money

At a time when most global media are either shrinking or static, perhaps the most noteworthy fact about the video games industry is its growth. At the end of the 1970s, global gaming was worth a few billion dollars a year. By the 1990s, software sales – that is, sales of the games themselves, rather than the machines they were played on – had moved past the $10 billion mark. Soon after the turn of the millennium, this had escalated to over $20 billion, with the industry showing no signs of slowing down. Factoring in online subscriptions, the $40 billion mark was passed by the end of 2008, with projections putting profits from gaming at over $60 billion within another five years.

Where it will end is hard to predict, but it’s already fair to call video games the world’s most valuable purchased entertainment medium, ahead of Blu-ray and DVD sales, recorded music and cinema box office receipts. In 2008, Nintendo even overtook Google to become the world’s most profitable company per employee. Such statistics are a tribute to games’ phenomenal appeal, but also to the steady expansion of their demographic: it will be half a century before video games will be truly ‘native’ to every age group, by which stage the very definition of a video game will have shifted to cover a far broader spectrum of products than it applies to today. Already, analysts and audiences are struggling to keep up with the shifting boundaries of the gaming world, with games increasingly available on every electronic device it is possible to buy: calculators, watches, mobile phones, MP3 players. Yet perhaps the most significant attribute that games possess is their supreme suitability for the digital age.

As the book, newspaper, magazine, music, film and television industries have discovered to their cost, the accelerating migration of consumers towards digital formats is deeply damaging to the profitability of companies that traditionally make the bulk of their money by supplying physical products to retail outlets – and by charging advertisers for the privilege of featuring inside them. A mantra that’s often repeated in business is that the price of a product tends towards the cost of distribution, and when the distribution method is the internet, this cost starts to look very close to zero. Games are almost uniquely well placed among media to buck this trend. For a start, they tend to be much more difficult to pirate than other media, given both the degree of copyright protection console manufacturers build into their machines and the sheer size and complexity of most titles compared to text, music or non-interactive moving images. Beyond this, the very way in which games are consumed makes them a very different case to non-interactive media. A brand new mainstream game costs $40 or more, and in return it offers a ‘live’ experience that cannot simply be reproduced or consumed passively. Games are premium products, and are perceived as such.

The time a player will invest in playing a major new game is typically at least twenty hours, a figure that in the case of multi-player or role-playing games may run into the hundreds or even thousands. This means that ill-made, disposable products simply don’t work in the gaming mainstream. The most financially successful console game of all time,
Grand Theft Auto IV
, is designed to take around 100 hours to complete, a tribute to the complexities of its non-linear virtual world. With a budget estimated at over $100 million, the game credits a production team of over 550 people, plus almost double that number again of voice actors and performers used for motion-capturing virtual citizens. The result was both a brilliantly realised virtual world and the most successful release of an entertainment product in history. Retailing at $60,
GTA IV
grossed $500 million in revenues in its first week on sale in April 2008, $310 million of which came on its first day, substantially more than the previous holders for the most successful book (
Harry Potter & The Deathly Hallows
at $220 million in twenty-four hours) and the most successful film (
Spider-Man 3
at $60 million).

Meanwhile, in online gaming, the biggest titles cost around $10 per month to play, and offer different but similarly robust reasons for spending to digital consumers: the fact that the entire point of gaming in a virtual online world is the people you get to play with, and the knowledge that your achievements are both valid and cannot be taken away from you so long as you keep paying your monthly bill. Outside of the official realm of an online game, there is no gaming community to speak of and thus no incentive to invest time or energy in playing something that offers no guarantee of fairness, regular updates, reliability or company. As with
GTA IV
, the business of building a rewarding and engrossing virtual world from scratch – let alone maintaining it – is extremely labour-intensive, and essential if a consumer’s interest is going to be maintained. In this context, the most successful online games rank among the world’s most valuable media properties, with the most famous of all –
World of Warcraft
– generating over $1 billion a year in revenues from over twelve million subscribers.

The story of the gaming industry is, it seems, a remarkable and cloudless tale of expansion, with money virtually making itself for all involved. Even in the advertising sector, where digital revenues across other media have proved unable even to approach the levels of the pre-digital age, the video games market is growing by more than 10 per cent a year, thanks to the hundreds of millions of eyeballs now watching games for hours every day. And yet, when viewed by sector rather than under the umbrella of global statistics, gaming reveals itself to be a rather more complicated and contradictory field than the overarching trends imply.

Much like most other creative sectors, the video games industry is divided between those companies who fund and distribute games, the publishers, and those who actually make them, the developers. It’s a divide that exists for sensible historical reasons. Funding, sales and distribution expertise don’t tend to coincide with creative and production skills, although the giant companies of the gaming world – Sony, Nintendo, Sega, Electronic Arts and others – encompass both publishing and development divisions. The industry also consists of two parallel sectors: games on consoles, and games on computers. Computers are a constantly evolving field, but consoles advance in sudden leaps: since the 1980s, an entirely new generation of machines has arrived approximately every six years, each time bringing with it a wilder rush of growth followed by relative decline. Given the increasingly vast amounts of capital required to develop a next-generation console, this cyclical pressure has over time made the games industry both volatile and highly reliant – among mainstream publishers – on coming up with hit titles, whose revenues offset the increasingly huge up-front costs of hardware and software development.

In the first few years of the twenty-first century, there were genuine fears that the mainstream games industry was becoming a victim of its own success, crushed under the weight of escalating budgets and consumer expectations, with profit margins actually shrinking and publishers becoming increasingly risk-averse. The price of a major game failing after a year or more of development and the expenditure of a seven- or eight-digit sum could easily be bankruptcy. As the CEO of one of Britain’s largest independent games developers explained to me, ‘the costs of making a big game have escalated faster than sales in the shops. Sales go up 15 per cent a year, but creation goes up 25 per cent. That means it is very difficult now to make a game that sells enough to be profitable.’ Gaming was at once an over-invested, dazzling and yet strangely constricted world.

Digital distribution has since begun to transform this situation, opening the floodgates to smaller and more innovative projects by allowing games to be sold directly to their audience online rather than through the expensive, marketing-intensive and extremely limiting arena of retail outlets. Despite games’ numerous natural advantages as media in a digital era, however, it’s far from the case that companies across the industry have simply breathed a collective sigh of relief and begun to make a fortune online. For a start, although their products may be digitally robust in comparison to print or music, the business model of most major publishers still relies on the most conventional of twentieth-century tactics: selling boxed products out of shops, backed up with multi-million-dollar advertising campaigns and quasi-monopolistic distribution networks. Now that even minor competitors are able to sell directly to consumers online, many of the biggest games publishers around are facing the paradoxical situation of a hugely successful industry within which their own financial exposure and levels of risk are higher than ever.