This set a new bar for developers. Each company wanted a game that had the best graphics, life-like animations, a huge marketing campaign, and developers assumed that this was the formula to sell multiple millions of copies. Sadly, this strategy only boosted the amount of units needed to break-even.
THQ, now defunct, released Homefront in 2011 to mixed reviews but sold well; however, for THQ to break-even on the game, Homefront had to sell over 2 million units. Months later, the developer behind Homefront would close its doors.
Recently, Japanese developer Square-Enix released a reboot of the Tomb Raider series, a 1990s gaming classic. The reboot released in March and was reviewed well, and sold over one million copies within the first 48 hours and almost 2 million copies a month later; however, management at Square-Enix expected sales to be in the range of 6 – 8 million copies within a month! Analyst Billy Pidgeon went on to estimate that Tomb Raider would need to sell over 5 million copies to break-even.
This focus on “sell big or bust” has hurt developers who have game concepts that would work on a smaller scale — where one million units sold would be profitable. Chris Roberts, a veteran developer working on a crowd funded PC game called Star Citizen, had this to say about state of the AAA game market,
You’ll still have these big blockbusters, and that’s going to be the domain of Electronic Arts, Activision Blizzard, Inc. (NASDAQ:ATVI), and Ubisoft… On the Activision Blizzard, Inc. (NASDAQ:ATVI) and EA scale of things they’re not getting out of bed unless they think it’s five million units, and they really want ten million or more. They probably lose money selling two million units. Whereas if I sell two million units I’m making a lot of money, for two reasons. I don’t have the same overhead and costs, and also I capture a lot more of the dollars.
If future consoles are to prove successful, Sony Corporation (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT) will need to open up their next generation consoles to the small/indie developers, Free-to-Play business models, and flexibility into their console model to lure in middle-tiered developed games.
Foolish bottom line
The console portion of the games industry is at a potential breaking point. Hardware manufacturers, Sony Corporation (ADR) (NYSE:SNE) and Microsoft, can no longer ride on the success of AAA games to lure in the both developers and customers. Allowing smaller developers and teams to release games that are economically viable at one million units sold would encourage business growth and diversity in games offered for consumption. As for the hardware — the hardware will have to do more than just play games; console will need to be THE center of living room entertainment.
David Henry owns shares of Microsoft. The Motley Fool recommends Activision Blizzard and Nintendo. The Motley Fool owns shares of Activision Blizzard and Microsoft.
