Why I don’t work in the gaming industry

February 10, 2007

As a self avowed gamer and gaming enthusiast with a true passion for games and clear game design ideas, I often get asked why I don’t pursue that passion professionally.

The reason I am not in gaming is that economic dynamics don’t favor startups:

  • As Moore’s law and Metcalfe’s law continue unabated consumers expect ever richer gaming experiences. This leads to rapidly increasing game development costs in all segments – from low end online and mobile casual games to hard core games.
  • Gaming is inherently hit driven and a few hit games (for which there is no recipe) generate the bulk of the revenues in the industry.
  • Startups cannot easily raise the $100+ million necessary to develop some of today’s high end games – and even if they could they would have all their eggs in an incredibly risky basket. A large company like EA can easily finance multiple large projects knowing that even if most fail its hits will likely pay for the failures.
  • Very few game companies successfully transition from being low-end casual game makers to multi-billion gaming behemoths (though Netease and Shanda in China successfully made that transition).
  • In many ways what I describe above is reminiscent of Hollywood. The large studios are the only ones capable of bankrolling $100+ million movies hoping that the hits pay for the flops. The “startups” are the smaller independent movie studios which develop lower budget movies. The risks are lower but so are the rewards as they can’t create billion dollar revenue movies such as the Lord of the Rings trilogy or Titanic.

    That is not to say one cannot build a small successful gaming business – especially in the short and medium run. I know many companies such as Boonty or Jamdat who have become successful building online or mobile games. But despite those successes, I don’t like the long term dynamics of the business – even the supposedly low cost casual online and mobile game segments.

    In both of those markets, a few years ago it cost less than $50,000 to make a game. Licenses were cheap and most of the games made money. In many ways this was reminiscent of the PC gaming industry in the 1980s. However, as the devices grew in complexity and the market grew, licensing and development costs increased dramatically moving the market in a hit-driven direction. I am sure that by now several mobile games have cost over $1 million to make. That’s why it made so much sense for Jamdat to sell itself to EA to leverage its licenses and balance sheet.

    Conclusion: I love games, but for now I will remain a gamer on the sidelines of the gaming business.

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