Game Industry and the Economy

[Automoda]

Some call me a "Doom and Gloomer" but thats only because I have a rough understanding of the financial system while most happy-go-lucky people havent a clue. The fact is that this approaching recession is going to be way worse than the dot-com bust.

I dont want to start a thread debating the issue of whether its going to be a depression or recession, inconvenient or the end of life as we know it. Regardless of what happens out there, we all still need to bring home the bacon and earn money. I'd like to keep doing what I'm doing-- indie games. What I have been wondering about lately is:

Is the game industry going to get slaughtered in a recession, with funding and publishers and portals vanishing faster than pets.com?

Will lots of unemployed Joe SixPacks out there sit all day playing games, thus causing a boom in the game industry?

Would the majority of small/medium ordinary game companies fold, while tiny indies survive to fight another day due to the flexibility of being indie?

Will publishers cancel all but the most boring of game projects, fearing to expend capital on inovation? Would that help the indie world?

Would a flood of unemployed business programmers with lots of spare time suddenly flood the market with casual game clones etc?

If money is scarce, doesnt it seem like people would be flocking to free games and cheap forms of entertainment and shun the $50 games on the shelf of the game store? Would that help indies or would the lack of 'fun money' cause all to suffer evenly.

Will lack of spending money cause people to stop upgrading to the latest $400 video cards? You'd think so. So wouldnt the gap in graphics abilities get wider and wider over a few years? Now we get to support DX8-DX14 or else aim low.

What do people cancel first-- HBO and Cable or their internet connection if money is hard to come by.

I think there are a lot of things worth thinking about and discussing that I'm not even considering yet. What do you guys think? How will your business do if we just go ahead and assume a bad recession is upon us?

[cliffski]

games are generally good value for money. You get at least 20 hours of fun out of a good triple A game. at maybe $50 or even $60, thats $3 an hour. That makes it cheaper than going to a bar, the movies or eating out.
A DVD rental is also more expensive on a per hour basis.
So I think generally that games will at least do ok, if not do better in a recession. Whether or not people go for indie games or not is a different question. I think impulse purchases may dry up a bit, so you need to make sure your demo is good nd you are giving great value for money.

But it amazes me how much people revel in the talk about recessions. The more we talk about it the worse it gets. How many people wont start a new company or project now because of recession worries? that just makes it a self-fulfilling prophecy.

[OremLK]

What do people cancel first-- HBO and Cable or their internet connection if money is hard to come by.


Cable, especially in our demographic.

They'll want the internet to find new jobs, right?

[luggage]

Historically entertainment generally does well in times of recession. It's certainly not recession proof but it doesn't suffer as bad as some industries. All those people still need to escape their daily lives.

[Coyote]

Entertainment and education typically do pretty well when the economy goes south for a season.

As far as the doom & gloom goes, during the last recession USA Today had a panic-inducing headline as the major indices hit a new low, proclaiming that there was no bottom in sight. As it turns out, that day the headline ran WAS the bottom. Everybody's got predictions, and your best bet is to listen carefully to the politics of whoever's doing the predicting here in the U.S.

I've been a little more involved with the local and online investment communities of late, and I've been impressed with how much these guys manage to make money whether the market is going up, down, or even sideways. I'd rather adopt their attitude. You can hunker down and be afraid - very, very afraid. Or you can look at it as an opportunity. People may have a tighter entertainment budget in coming months, unable to afford quite as many big, expensive games (or new game consoles). Advertising prices may go down. So... is there any way that you, an indie game developer, can profit from this?

Yeah, I know, that's kind of restating your question...

[lennard]

But it amazes me how much people revel in the talk about recessions. The more we talk about it the worse it gets. How many people wont start a new company or project now because of recession worries? that just makes it a self-fulfilling prophecy.


Ignoring it won't make it go away. Going all in against a big raise when you hold ducks will sometimes win you the pot but will usually get you your head handed to you on a plate. Same deal here. Now is a good time to be cautious (actually 3 years ago would have been if you were contemplating real estate in the US market).

That aside, I love talking about the recession, global warming, peak oil, if this the oft predicted beginning of the great decline of the US. I wonder if this isn't going to be a much larger sea change than most people realize as economies adjust, painfully, to the fact that we are down to the last half of the oil in the world and consuming it a heck of a lot faster than we were 125 years ago. Why wouldn't you want to talk about this stuff?

[Escapee]

http://en.wikipedia.org/wiki/1997_Asian_Financial_Crisis

in 1997, Many Asian "expert traders & Investors" ( millionaires ) committed suicide ( jump off the bridge, roof, carand etc ) due to over-optimism on the market. They ended up catching the falling knife and losing everything.

Negative thinking can certainly save life and wealth sometimes. The thought of 1997 still sent chill to my spine.

Personally, I'm still very optimistic about the commodities price ( gold, silver, oil and etc) but not so on stocks due to "possible recession risk" ( except gold,silver ,oil counter ). When you have almost unlimited and unrestricted paper money supply printed ( to rescue the economy ) to bid on finite amount of precious metals ( + oil) . The "price" is set to explode ( or inflate )...... I 'm still a little regret that I didnt buy more gold/silver bullion years ago to hedge against the fall of paper currency value.

The above is just my personal opinion.

BTW, the sales ( Aff )in these few days have been bad, the ads revenue remain the same though. Does anyone here face the same thing ?

[Tex Pine]

As for the game market, the growth of the unit-selling model is jeopardized by piracy. As the Google generation grows up, finding cracked stuff on the Internet will become natural. So game houses won't be able to rely on it on the long run.

The problem for us is that unit-selling is the best, if not the only, way to sustain a game development business. Ad-revenue is low, and subscription-based online games are expensive to implement - the game must be BIG to convince the player to keep paying. The micro-transactions model only generates big bucks on big online projects as well.

A solution would be to join the portfolio of subscription-based sites like Pogo.com and Shockwave Unlimited. But as for my own experience, it's hard to get there. Maybe a subscription-based Indie site would be created in the future?


But it amazes me how much people revel in the talk about recessions. The more we talk about it the worse it gets. How many people wont start a new company or project now because of recession worries? that just makes it a self-fulfilling prophecy.

Actually, there are full-featured economic theories and models based upon this "self-fulfilling" characteristic. :)

Will lots of unemployed Joe SixPacks out there sit all day playing games, thus causing a boom in the game industry?

I think this is unlikely. Unemployed people will try to save every penny until getting a new job (or starting they're own company).

Will publishers cancel all but the most boring of game projects, fearing to expend capital on inovation? Would that help the indie world?

Isn't that happening already? Maybe for the last 10 years or so?

Regarding general economic thinking, I believe the recession won't be too bad or last too long, probably in 2009 economic growth will continue. The real long-term problem is global warming. I've been reading some amazing scientific articles on that, the problem will get really bad. Chinese industries and American SUV's will charge all of us a high price in 10-15 years. That said, the problems of global warming makes me believe a worse economic recession is coming on the long-term.

[svero]

Well I don't know about all this financial stuff, but let me just say this.

It's a scientifically proven FACT that the best thing you can do during a recession of any kind is hunker down and play some Aargon, which is now cheaper than ever thanks to the falling dollar.

...cough...

do go on...

[Tom Cain]

Is the game industry going to get slaughtered in a recession, with funding and publishers and portals vanishing faster than pets.com?

No. But funding, publishers, portals and may go down as part of a natural cycle, and some people will blame this on a recession whether one exists or not.

Will lots of unemployed Joe SixPacks out there sit all day playing games, thus causing a boom in the game industry?

No. There won't be lots of unemployed Joe SixPacks.

Would the majority of small/medium ordinary game companies fold, while tiny indies survive to fight another day due to the flexibility of being indie?

No. But some of them will fold as part of the natural industry cycle, and some people will blame this on a recession whether one exists or not.

Will publishers cancel all but the most boring of game projects, fearing to expend capital on inovation? Would that help the indie world?

This is the way it already works. But some people will blame it on a recession regardless.

Would a flood of unemployed business programmers with lots of spare time suddenly flood the market with casual game clones etc?

No. There won't be a flood of unemployed business programmers.

If money is scarce, doesnt it seem like people would be flocking to free games and cheap forms of entertainment and shun the $50 games on the shelf of the game store? Would that help indies or would the lack of 'fun money' cause all to suffer evenly.

No. If money is scarce, people will flock to food, clothing and shelter. If people can purchase any form of entertainment, money is not scarce. But if people reduce their entertainment expenses, some economists, journalists, and scientists will call it a recession.

What do people cancel first-- HBO and Cable or their internet connection if money is hard to come by.

They cancel both. If they can afford one, money isn't really that hard to come by.

The US economy is an old political marketing tool and the hype is bigger because the stakes are higher: the next President may nominate several Supreme Court justices. Economic reports will magically improve when the current election cycle is over.

[tentons]

Economic reports will magically improve when the current election cycle is over.
Does that mean the US dollar's freefalling value will also magically reconstitute when the election is over? I'm not sure it's that simple.

[Escapee]

High interest rate and trade surplus will save the dollars, Paul Volker did this ( double digits interest rate ) in the 80s when US was still the creditor of the world and with trade surplus ( cough ... Cough... ).

An article written in 2005 ( Ex-boss of federal reserve - Paul Volker's opinion )
http://goldprice.org/news/2005/04/paul-volker-on-financial-crisis.html

[Jesse Hopkins]

The recession is certainly not manufactured for "marketing" before the election.

[Davaris]

The recession is certainly not manufactured for "marketing" before the election.

I don't know... In Australia the economy was terrific for the last 10 years. Unemployment the lowest in 30 years, low interest rates and easy credit. So everyone borrowed like crazy to keep up with the Joneses and pushed house prices way beyond what they were worth.

Despite slowly rising interest rates, the rising price of petrol and increasing homeless numbers, everyone was happy because our houses were worth twice what we paid for them. Yippie!

Then our government changed from Liberal (right wing) to Labour (left wing) late last year and over night (I kid you not) our economy went from "the envy of the world" to inflationary (with a strong risk of falling into stagflation) and now everyone is "living on skid row".

So yeah I think "political perception" has a lot to do with the state of the economy. :D

[Automoda]

Well, I have to say I must respectfully dissagree with every single point Tom C. Made. It was all denial that recessions could potentially get bad enough to matter to our business model, or asserting that people either stop spending entirely or spend like drunken sailors. If you're into cycles then perhaps you should look up the K-Cycle for some inspiration. People dont just stop doing things entirely-- they may see matine movies instead of night movies. They may use blockbuster... but they'll still watch movies till they no longer have the option or interest. The same goes with expensive gas and driving, fancy food, nicer clothes, better housing, and video game choices. Its not boolean... few things are.

I didnt really intend the thread to debate whether or not a recession is goign to happen. It wont be a matter of debate by the time this thread dies anyhow. With 80+year old Bear Stearns imploding (RIP) on Friday, the Fed cutting discount rates on Sunday, Merril writing down 3billion Monday, times are getting interesting. There are *hundreds of trillions* of dollars in bad bets between banks and so this time, it really MAY be different, normal cycles be damned.

Lets consider what we indies will do, (Call it 'Plan-Z' and you dont have to consider it likely), when crap hits the fan and times are tough. I think its always good to consider the various angles... Hell, the military has plans for every unlikely scenario you can imagine!

I think I put out some good subjects for discussion. I'll chime in later with my predictions. I do have to say though, that everyone saying "publishers already refuse to fund anything risky" is a cop-out. They could cut back on risk much more than they do already. Nintendo took a huge risk with their Wii and developers took a big risk writing for it early on, as an example. Also the "think positive and it'll go away" crowd probably read "The Secret" and will be learning a new secret: It dont work.

[Coyote]

Well, I'd pretty much figure that there'd be some great similarities with the Savings & Loan crash of the early 80's.

Sure, the sky really could fall this time and the doomsayers may be right this time. Even a stopped (analog) clock is right twice a day. There's always the specter of the Great Depression to give even the most stout-hearted optimist pause.

But as a game developer, piracy and how we can monetize digital distribution and actually make a profit in the next five years are much more pressing and real concerns to me.

[cliffski]

Why are people reading what I said as "think positive and it will go away". That is not vaguely my assertion. As others have said, there are serious economic theories around the self-fulfilling prophecy problems of recessions.

Much of business is based on confidence. Stores only order stock if they think people will buy it. People only start businesses if they think people will buy their products. Companies only invest in R&D if they think there will be a payback.
A huge influence on business confidence is media predictions regarding the economy.
If you could get 20 prominent business and political commentators to proclaim loudly on a single day that JP Morgan was in serious trouble, they almost certainly *would* be in serious trouble. Perception matters.
Politicians don't just avoid proclaiming a recession for their own political expediency, they also know that talking about how bad things are will have a negative effect.

[zoombapup]

Well I don't know about all this financial stuff, but let me just say this.

It's a scientifically proven FACT that the best thing you can do during a recession of any kind is hunker down and play some Aargon, which is now cheaper than ever thanks to the falling dollar.

...cough...

do go on...

Cheap, but you sir, have stones!

:D :p

[Escapee]

Beside confidence, international business also depends a lot on price stability of raw materials, labor cost, currency stability & etc. When you have steel/metal price increases 10+% every month and the dollar keeps tanking like there is no end. It will not be conducive for international business transaction. My dad ( in manufacturing ) is about to lose an int business because the potential client will probably not accept the new quotation with increased price due to sudden hike of steel price. Similarly, many businessmen here lost their business because their clients oversea will only want to pay in US dollar instead of EURO. :rolleyes: Confidence & trust between business partners/clients can be shattered easily by other equally important real "fundamental" factors.

[Coyote]

Here's a little data point:

GameStop's Profit Jumps 46% Amid Demand for Hit Games (http://online.wsj.com/article/SB120584494419544997.html?mod=googlenews_wsj)

"GameStop Corp.'s fiscal fourth-quarter net income rose 46%, thanks to strong videogame sales and a booming market despite the sluggish economy. The retailer also gave fiscal first-quarter and full-year guidance above analysts' expectations."

[svero]

Cheap, but you sir, have stones!
:D :p

Couldn't help myself :-)

My serious answer is that I don't think we'll see much change. I expect a lot of the doom and gloom reporting to go away by mid next year.

[shed]

A few thoughts..

1) I suspect that broadband access for a lot of people is being almost seen like a utility now - would be among the absolute last things to get cut

2) Cheap forms of leisure do OK and even well in downturns - movie going for instance holds up - luxury vacations in Hawaii do not

3) When I worked for P&G we noticed that people did not cut back on things like premium shampoo - you might have expected a switch to store brands, but people saw it as a treat they could afford while cutting back on other stuff

4) At least 50% of the game market is outside the US, and you can sell to them, plus if you price in $, hey it's a bargain for them

5) Games are just not that expensive - subscription services run $5-$20, games in our space cost $20 - compare that to a dinner/road trip etc. - it's just not a lot

So all this leads me to expect unless it's really deep and more like a slump, I would not expect it to impact the games industry especially hard.