Rundown (2/11-2/17) Gameindustri Is a Business!

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Something that I tend to forget from time to time is that the video game industry is really just a large scale multi-billion dollar business run by companies that, above all else, are searching for ways to remain profitable in what is a rather turbulent market. While games are unquestionably art, they are sold as products and produced by studios with the goal of creating revenue likely surpassing whatever goals are held by the developers themselves. Yes, of course there is the independent scene where things work different, but when talking about industry, only the biggest players really warrant much attention.

Where as I going with this? Oh, right. One of the lesser stories that caught my eyes this week come from a presentation from Ubisoft’s recent investor conference call, as they detailed a lot of information about where the publisher, and with them a lot of AAA gaming, is heading. I would actually recommend looking through it yourself, as it brings up some interesting points such as the sheer size of the gaming population of China, how PC players tend to be the most dedicated and likely to influence others, and a reminder that video games are the largest entertainment industry in the world. But in order to prevent me from going on about it for two full pages, I will only focus on the two most interesting elements of this presentation. Live Services and the costs of selling games.

For the past five years or so, AAA publishers have been touting games as services as being their future in this medium. A future where, instead of putting out a lot of games frequently, they will focus on fewer games that function as platforms in order to offer recurring revenue for the publisher while they support the game with bits of far easier to produce bits of additional content in the form of DLC, season passes, and the ever popular microtransactions and loot boxes. This seems to be in full force now that the developers have nicely settled into this idea, now referred to as Live Services, and Ubisoft in particular seems interested in adopting this structure in what sounds like all of their upcoming titles, as, based on many figures they brought up, it is simply more profitable, and that is what is most important to them.

Now, this is achieved through multiple means. These Live Services tend to sell more after launch, they make players more engaged with their ever precious brand, but mostly, they are able to bring additional revenue through the use of digital sales, which are actually far more beneficial to the publishers when compared to retail purchases. Now, there costs of distributing games is surprisingly unknown even throughout the more dedicated subsets of gaming enthusiasts, so this was the really interesting part to me.

For a $60 retail game, there are two basic costs that come with selling the game. One is the $12 fee that is uniform across all platform holders. This functions as a licensing and manufacturing fee, or the Cost of Goods Sold to use accounting terms, and must be incurred for each title produced, even if they remain unsold. The second is a 25% retailer cut that is taken on each unit sold, but this rate is based around the selling price of the game. This can all be simplified to a basic formula of .75x -12, with x being the selling price, to determine the Gross Margin of each unit sold. For a game sold at $60, the Gross Margin is 55% at $33. If it is sold at $40, the Gross Margin goes down to 45% and $18. And if it is sold at $20, the Gross Margin will be 15% and $3.

Digital sales meanwhile remain at a constant 30% cut from the platform holder, and it is uniform across Steam, PSN, the eShop, and so forth. As such, publishers would very much benefit from people buying their games and buying digital content form them compared to the diminishing returns that come with retail releases, as they simply make more money that way. And based on Ubisoft’s figure of roughly 55% of their game sales being digital, it is becoming the primary way for people to purchase games. Which really makes the whole idea of a digital only future far less far fetched, even though it would not be sustainable given the iffy future of net neutrality and the embarrassing state of North American internet infrastructure.

Moving onto some more direct and relevant game news, THQ Nordic acquired Koch Media, along with their games division Deep Silver. It was a pretty surprising story to pop up on a Wednesday morning, but after thinking about it for a while, it is actually pretty sensible. They are both European publishers who occupy a middle tier for the industry, have their hands in a lot of different projects at a given time, and THQ Nordic have been acquiring a variety of studios and IPs as of late. Yet this acquisition will have Koch Media continue to act as a separate entity, with the two simply sharing resources without any currently planned restructuring, instead of having Deep Silver dissolve into being another component of THQ Nordic.

This is a rather curious part about the acquisition that make me feel that there is an unstated reason for this acquisition, but the only real reason I can think of is that this was something of a precaution taken by Koch Media to stay afloat after this generation has not been too kind to them. With Deep Silver’s major titles like Agents of Mayhem and Homefront: The Revolution being tepidly received critically and commercially, and Dead Island 2 being fraught with development issues that led to a developer switch two years after the game was announced. Combined with the relatively low price the company was acquired for, I would not be surprised if this was a precaution made by Koch to stay afloat, even if it is as a subsidiary of another company.

Regardless of the reason though, it is a bit odd to see the sold off and distributed components of THQ come back together like this, forming together into what could be a very prominent games publisher that has a lot of resources to call its own, with well over 100s IPs, dozens of games in the pipeline, over 1,500 employees, along with a bunch of publishing deals. I can only wish them the best of luck, especially considering how companies like them will likely start filling in a niche left by AAA studios as they continue to pursue Live Services.

Okay, okay, that is enough about companies themselves, onto some more game centric news. According to a report from Laura Kate Dale of Kotaku UK, Activision is primed to release a remake of the original three Spyro The Dragon games for Playstation 1. This is obviously a response to last year’s wildly successful Crash Bandicoot N.Sane Trilogy, and is set to be a very similar remake. Developed by Vicarious Visions, the game will feature entirely new assets, an extra level of visual flair, some quality of life improvements, possibly some previously cut content, and a one year exclusivity deal with Sony. The game is currently set to be announced in March, with a release on PS4 set for Q3 2018, most likely in September.

Before moving on, I should address how I referred to this title as a remake and not a remaster as most sites have. That is because of how I define a remake and a remaster. As far as I am concerned, a remaster is something that uses the original source code and assets of the original title, with various tweaks made to them in order to enhance or improve things. Remakes however are games that do not use, or do not use much of, the original source code or assets, and instead recreate things from scratch. From how the game is described in this report, it is a remake and not a remastered version of the original, even if the level designs, structure, and mechanics are lifted and recreated about as accurately as possible.

Swery, famed director of the cult classics Deadly Premonition and D4: Dark Dreams Don’t Die recently announced his second project since starting his own development studio, White Owls. No gameplay footage, or even details about what the game will be were given, just the title, The Missing, a logo, and that the game is being co-developed by famed fighting game developer Arc System Works. That itself is rather curious, and raises quite a few questions, but given the sheer eccentricity of Swery’s work, I am inclined to keep tabs on whatever he is doing, because he would have to try pretty darn hard to make something that was not, at the very least, interesting or novel.

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