You say you want a revolution, well you know, we’d all love to see the business plan. When widely admired veteran designer Greg Costikyan set the game industry on a roar with a sustained (and furiously blogged) rant at the 2005 Game Developers’ Conference, calling on his colleagues to “[r]iot in the streets of Redwood City!”, turns out he meant it.
One year later comes Costikyan’s Manifesto Games, a game distribution network for independently-developed titles and older classics like Jagged Alliance 2. And while his start-up may seem like a niche outlet for indy/obscure titles, its ambitions are actually larger than that. Costikyan is, with little dispute, among the smartest people in the industry, and his case for Manifesto is based on a broad and sharp critique of the game business in the era of broadband and next gen consoles.
After the break, my interview with Greg on the failure of the industry’s business model, the power of the long tail, and why the time is right for fighting in the street.
On why the industry is destined for disaster
The industry’s business model is broken primarily because of what Raph Koster calls “Moore’s Wall.” As processing power increases, machines become capable of producing higher quality media, and in a competitive market, it becomes mandatory to create higher quality media if you are competing in the most popular genres (because otherwise your real time strategy game won’t look as good as a competitor’s.)
This means that budgets spiral ever upward, and as they do, the unit sales required for financial success spiral ever upward. Consequently, genres that still have passionate followings but can’t produce 1 million plus unit sales are abandoned by the publishers, and it becomes impossible to get anything novel or innovative greenlit, because such products are viewed as too risky, and no one wants to bet $20 million on anything that isn’t a sure thing, or as close to one as you can find.
For developers, the model is broken because there is no longer any opportunity to develop and succeed with the game of their dreams– instead, they’re stuck doing nicer road textures for yet another racing game, or building a game based on a Hollywood license in a well-understood game style. Independent developers have essentially no chance of financial success, because royalty rates are so low and budgets so large that they’d have to see 2 million plus unit sales to have any prayer of seeing a dime beyond development funding.
For most publishers, the model is broken because the ever-spiraling cost of development means they have to cut back on the number of titles they develop, since their financial resources are limited–which is bad, because in a hit-driven industry, you need a diverse portfolio to have a reasonable shot of generating enough hits to carry the company. As a result, only the publishers tied to console manufacturers (Sony, Nintendo, Microsoft) and EA (which is far and away the largest) have any kind of stability.
Even the larger publishers are starting to become scared at the cost of developing for next-gen consoles. In truth, the current model favors only one part of the value chain: the console manufacturers.
On the Manifesto business model
Manifesto Games is a classic Long Tail play. But in the game industry, the “long tail’ is longer than in most others, because rising budgets have forced publishers to focus on a narrower and narrower range of products. Essentially, they now need 1 million plus unit sales to make money, and that means that many game styles that still have passionate fans (e.g., adventure games, wargames, turn-based strategy) just don’t get funded any more, because they can’t generate sales at that level. Additionally, many gamers prize creativity and innovation, and much has been written in recent years on the retreat of the industry to franchises and licensed titles– a retreat forced by the need to reduce risk with such large budgets.
To put it another way, the long tail is longer now than it was even a few years ago, because of market pressures–a fact that can be seen in the decline of PC game sales from $1.9 billion in 1998 to $950 million in 2005. With modern budgets, you need to ameliorate risk by releasing on multiple platforms, so the many game styles that work best on PC just aren’t supportable.
Manifesto’s purpose is to capture the long tail of gaming by a) doing the proven things that work in long tail markets (selling online, offering a depth of inventory, providing customers with the tools to find “the game for me” not “the bestselling game”); b) adopting a business model that’s already proven to work in the casual downloadable market (try-before-buying, one-time application sale); and c) targeting customers proven to purchase games in large quantities–the core gamer market that, according to old surveys, used to be 12-18 games annually. (Not the middle aged women that the casual downloadable market targets, in other words).
His case for why the Manifesto model is better than the standard version
From a developer’s viewpoint, the advantage of our model is that they, and not a publisher, reap the rewards of success; they receive a much higher percentage of the consumer dollar, and retain ownership of their own IP.
From our perspective, the advantage of our model is that our “portfolio risk” is spread over a much large number of products, so that the success or failure of any individual one is not going to take us down; there is essentially minimal product risk, as our “manufacturing cost” is a trivial expense on bandwidth (plus some staff time to get a new product into the system); and that our model is highly scalable, with increasing sales volume not materially increasing our overhead.
There are, of course, two losers in this equation: What we’re proposing to do, essentially, is to disintermediate both the retailer and the publisher.
On the industry/social trends that work in his favor
1. We would have no prayer except for the spread of broadband. Some of our games are large– and a gigabyte is a long download even over broadband. Most of our games are much smaller, of course, but the casual downloadable sites see a big drop-off in conversion rates between a 10 megabyte download and a 20 megabyte download. Our customers a) are more likely to have broadband, and b) are gamers, and inherently more patient about getting something they’re interested in playing.
2. The fact that the “long tail” meme is out there helps us in explaining why what we’re doing is a Good Thing, to be sure.
3. The rigid constraints of the existing business model, to which existing players are tied, pretty much dooms them, and gives us at least a window of opportunity to establish ourselves before they get desperate enough to chuck the whole thing and try anew.
4. And perhaps most importantly, I believe there’s a cultural shift going on among gamers.
When even Wall Street analysts start to say things like “gamers are bored with franchises and licensed games” (as Michael Pachter of Wedbush Morgan said earlier this year), you have the sense that this isn’t just bitter middle-aged developers saying it any more– it’s passing into the mainstream.
Six years ago, when I claimed in the Scratchware Manifesto that the industry’s business model was broken, I basically got chuckles from others in the field. Last year, when I said so at GDC, I got a standing ovation.