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During 2012 some pretty striking and popular games were released. On the PC we had the opportunity to experience Diablo 3, Torchlight 2, Guild Wars 2, and PlanetSide 2. On a wide range of consoles we had Halo 4, Borderlands 2, Mass Effect 3, Max Payne 3, and Far Cry 3. That’s a lot of sequels in the last year, sequels that represent a game developer or publisher revisiting a well-loved storyline. For many developers however 2012 marked a year where a sizable portion of their employees would be let go in what has been the largest layoff in recent memory. Perhaps we should take a moment to look at sequels for what they represent in nearly every other creative industry: a safe bet in times of uncertainty.
The games industry is suddenly feeling the effects of the recession almost 3 years after it had already hit most other economic sectors. Movies, TV and other forms of entertainment including video games had long been thought of as bastions from the economic losses. Typically entertainment of any form serves as a form of escape in times of uncertainty. Originally the thought was “who’s going to stop watching tv?” and “game sales are up!”. As the first month of the new year comes to a close hundreds of longtime developers, reporters, marketers and producers are all looking for new work.
38 Studios
The poster child for what went wrong last year is debatable but if one company came to represent failure on multiple fronts it would be 38 Studios. After a high-profile crucification at the hands of a politically motivated smear campaign Curt Schilling’s private, public, and personally funded company went into bankruptcy closing the studio and it’s acquired development arm Big Huge Games. After months of speculating what went wrong as new details emerged it became apparent that running a company on a promise to pay developers and employees was proving increasingly impossible.
Kingdoms of Amalur: Reckoning was jointly distributed by Electronic Arts and 38 Studios. In March 2012, Just prior to the whole the bankruptcy fiasco, it was revealed that the title had managed to move over 330,000 units. While sales like that are nothing to scoff at, especially for a debut game, it was later revealed that 38 Studios and EA had come to an agreement whereby sales would need to reach a minimum before the developer would see profits. It was also reported that employees were anonymously quoted as saying profit from the game was never a factor in 38 Studios’ operating budget. While this is a normal practice (sometimes profit for a developer is a happy bonus as their initial development bills can be fronted by the distributor) it is important to remember that in order to maintain the company once development stopped money had to be coming from somewhere.
Compounding the issue was the fact that 38 Studios next game, an ambitious fantasy MMO, had yet to find a distributor and investors were starting to back out as profitability seemed nie unachievable. Schilling was savaged in the public eye as a founding partner who was unaware and naive when it came to running a game studio. While not the whole truth Curt Schilling was a convenient target considering his celebrity status and seeming disconnect with the industry. What 38 Studios situation seems to show is that even in a state with Taxpayer support, bond backed loans, and supposed tax breaks studios need to have payroll on hand or things can disintegrate almost overnight.
Zynga
Zynga the mobile & social gaming studio that everyone loves to hate has had a particularly rough year. The second half of 2012 was the start of the worst of it all with October marking the closure of Zynga’s Austin and Boston studios as well as a pair of high-level departures in the form of Words With Friends creators David and Paul Bettner. By November the company’s CFO and treasurer jumped ship as social games began to take a noticeable hit on platforms like iOS, Android and Facebook. In December they announced a slew of studio closures, and cut 11 of their games currently in development.
With the social gaming tycoon Zynga it was a story of growing too big much too fast. If you asked the average person what Zynga meant in 2009 you probably would have gotten a quizzical look as the company behind some of the worlds most popular free to play games had just started its meteoric rise. In 2010 it astonishingly opened or acquired studios in Los Angeles, Boston, New York, Austin, India, Japan, and Germany. 2011 was no different with new games, more subscribers, and new studios opening around the world.
Then something important happened. March 22nd 2012 marked the day of Zynga’s highest stock closing at 13.755 dollars per share. From the 22nd forward it was all downhill. By June the stock had lost more than half its value and as of last week’s closing a share of Zynga stock will cost you a scant $2.45. The monarch of social/mobile gaming had seen a massive loss in consumer confidence with most analysts devaluing the company based on new findings in the social gaming sector. Articles on the social gaming bubble soon showed that mobile gamers were playing less often and were far less loyal than previously thought. In an opinion piece we posted entitled Mobile Gamers Are Fickle we reported on a Playnomics’ Q3 report showing that games like Zynga’s hastily purchased Draw Something saw massive user drop-off after only a few days. While plenty of users kept the game installed, a whopping 98% never opened the game after the 3rd day. A user that doesn’t play their free to play game won’t see advertisements and is fairly useless to a publisher trying to make money.
EA And Activision
Activision one of the largest conglomerates in game distribution closed Radical Entertainment in June eliminating around 90 positions. EA, the other giant distributor, closed partner PopCap’s Dublin offices in September letting 96 employees go from their mobile games arm. Radical Entertainment’s Prototype series was well received by the review community and sold a fair number of units, enough to float a sizeable development team for years. The difficulty still lies in the relationship between developer and publisher, unrealistic expectations saddled companies like 38 Studios and Radical Entertainment with hard to reach sales goals. When 2 million+ units sold of a single title become too little to sustain development that could be a sign that publishers are expecting too much from the consumer. Since consumers are also pinched for money the annual sales numbers have dropped as buyers look for fewer games at better prices instead of buying every title they originally wanted.
PopCap is a studio that owes its massive success to the increase in popularity of mobile games since the iOS app market boom started in 2008. Since we already know that this boom or “bubble” is showing signs of bursting it makes sense that EA would move to reduce its already expanded footprint in the mobile sector. These studios were created and grown in times where mobile games were expected to effectively replace titles on the Xbox, PlayStation, Wii, and PC. They were created with sales numbers and advertising revenue in mind that never manifested itself. It is also possible that working on so many similar titles pigeonholed these smaller developers into pathways they were doomed to fail in.
It could be argued that if Radical Entertainment wasn’t working on revisiting the Prototype games it might still be around after the release of Prototype 2. Since Radical only produced three titles for the current generation of consoles, two of which were Prototype and Prototype 2, it seems as though Activision was driving development there down a very narrow avenue. These were outright closures but it looks like the big studios will do the next best thing in the future by culling smaller numbers of what are deemed “unnecessary” weight at troubled developers. These leaner studios will be more focused on artistic or revolutionary titles instead of sequels or repeated versions of the same stories.
Press/Media
The press and media were not immune to the games industry turmoil in the last year. Machinima is inarguably one of the biggest media forces on gaming utilizing the Internet’s largest media portal - YouTube. In 2012 the broadcaster got new investments, hired a bunch of new employees in the Summer, and eventually let a similar bunch go a few months later in December. This is actually one of the smarter moves discussed in this article as the micromanagement allowed Machinima to consolidate its holdings and reduce risk. Whomever orchestrated the layoffs in December saw that the company had overextended itself and they acted accordingly. Still the loss of a job in any economy is a hard pill to swallow.
Magazines closed, broadcasters restructured and publications changed marking a year of metamorphosis for games press. You might say that change is an inevitable aspect of any year in any business sector and these events were just a coincidence. I would counter that even media companies are adverse to risk and much of what happened is a sign that the game industry is retracting a bit after it’s expansion in the last decade. Where 50 people were needed in years before to report and write on video entertainment 45 will do, and this has become evident as media employees in Los Angeles, San Francisco, Seattle, Chicago and New York are all now looking for new work.
Even as a business that makes videos, writes reviews, has recurring columns or articles, and analyzes games the press is not invincible. With hundreds of daily papers closing nationwide over the last 10 years it is obvious that analytic, critical and opinionated writing is in the middle of a very tumultuous change. Large companies like Machinima, G4, IGN, Game Informer, Joystiq, Polygon, and Gamespot will see contraction or severe change over the next year or two as these businesses attempt to keep or expand their profitability.
Gas Powered Games
An interesting trend among vibrant smaller development studios is an increased reliance on crowdfunding and sites like Kickstarter. These companies were tired of the vicious developer/publisher cycle that in recent years saw the closure of many other studios that had worked for the bigger publishers. Gas Powered Games just took to Kickstarter with a new campaign to raise money for development on a game entitled Wildman. But only a few days after launching the project they decided to let go their development staff in a move that makes sense from one standpoint but confounds in other ways. Company CEO Chris Taylor told Polygon in an interview that they “still have a fully functioning company, IT, HR, Operations, etc”. Wildman is aiming to raise a minimum of $1.1million in funding to start development. It’s still hard to imagine a company that just let go around half of it’s total employees will go about creating a $1.1million+ game.
Gas Powered Games brought us many memorable titles including the Dungeon Siege series, Supreme Commander series, and more recently Age of Empires Online. But does this Kickstarter crowdfunding mixed with layoffs at the company mean that the cycle is moving in a different direction for smaller developers? Will programmers, artists, engineers, producers and other talent be freelance - only hired when a new project is ready to work on? Does a game developed in this type of environment suffer from this new mechanic as well? What if your best freelance talent is working on something else or just gave up entirely on an industry that seemingly turned its back on them.
Gas Powered Games’ CEO Chris Taylor has a pretty good reason for the company doing what it did though. He said that It was “crazy idea to gamble in this economy and gamble with the people here who are the most talented and loyal people”. Instead of keeping employees on the line like 38 Studios did, draining the company budget dry, Gas Powered would release the employees and pay them their benefits effectively freeing them to pursue work at other companies.