Innovation: does size matter?

Does trying something new make any more business sense for Electronic Arts than it does for Castaway Entertainment or Destination Games? Part 2.

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While an examination of Electronic Arts can provide insight on nearly any aspect of the industry, the company is an especially worthy subject for the second part of GameSpot's look at the business side of innovation. After all, the case can be made that the company is practically the antithesis of innovation (pioneering the annualized franchise phenomenon with Madden and relying heavily on sales of sequels and licensed properties), or even one of its champions, having released some of the most innovative and influential titles of the last decade (The Sims, Ultima Online, Black and White).

As general manager of Electronic Arts' Los Angeles studio, Neil Young is no doubt more partial to the latter view. As he explains it, there are two types of innovation: franchise innovation (taking a new concept from scratch, as with Will Wright's upcoming Spore) and feature innovation (tinkering with an existing franchise, like putting the quarterback vision feature into Madden NFL 06). Looking forward, the emphasis at EA is primarily on feature innovation.

"We want to make sure that all of the franchise businesses have the right level of innovation inside them and I think that we have been guilty of not doing that historically in certain areas of the business," Young admits, referencing Medal of Honor as an EA series in need of a change. "So a focus for us right now is, how do we get new, innovative features that take the existing franchises and move them forward in interesting ways? And then I think what you'll see is a couple of--you know a couple might be the wrong term--but some very focused bets at doing really innovative and different things."

As with so many other aspects of this discussion, it all comes down to numbers. Young says EA cross-referenced Metacritic review scores for the top 30 games of the last three years to spot trends, and they found that the best-rated games all had "1-3 meaningful innovative features that strike at the heart of gameplay." It's a modest goal, and one the company hopes will keep its annualized franchises fresh enough to continue selling.

"That has to be balanced against franchise management versus franchise milking," Young explains. "I think one of the advantages of being EA and operating at the scale that the company operates in is we can afford to rest some franchises in a given year so we can give [them] the opportunity to sort of refresh and grow."

So the company ran the numbers and found correlates for success with its approach to feature innovation, but why would EA be shy of franchise innovation when a breakthrough hit like The Sims brought such a windfall?

"It's a really difficult thing to create something that is completely new, completely different and successful," Young says. "People continue to put their money down for categories that they know and love. I don't think you’re going to suddenly stop liking racing games or stop liking shooters or stop liking adventure games. Most of the categories have already been covered so finding completely new categories that feel entirely fresh I think is very, very hard to do."

The company might approach franchise innovation with a healthy degree of caution, but Young says it's for good reason when one considers the scale on which the company is working.

"Conservative decisions are not a bad thing when you're shepherding billions of dollars of shareholder value," Young points out. "What's important to shareholders is not the degree of conservatism but the degree of return. What's important is that you're growing the business year-on-year."

When the company's bottom line has to dictate publishing decisions, franchise innovation is a risk that simply isn't going to be taken frequently. As Young explains, even when it's done well, there's no guarantee it will reap rewards.

"If you think about what does it take to create a commercial and creative hit, there are three dimensions to that success," he explains. "One is the quality of the execution, another is the degree of innovation and the last that really sizes the market is the audience appeal... In the case of Katamari Damacy and in the case of Psychonauts, the audience appeal of the core underlying concept isn't there. You know if you went up to someone in the street and you tried to explain Katamari Damacy they wouldn't get it. You know it's the same with Psychonauts. Although a little bit easier to understand, not everyone in America right now is dreaming that they're a child who has great psychic powers and goes into other people's nightmares."

Internally, EA stresses the need for mass appeal. Castaway Entertainment was previously part of the EA Partners program, in which the publisher would bring to market the work of outside developers. When it was formed in 2003, John Riccitiello, then EA president and COO, said in a statement that the mission of EA Partners "is to help develop the tremendous creativity of independent studios and publishers and bring their games to the worldwide market. We've created a business to bring innovative games to new platforms and new markets around the world." In practice, however, EA Partners turned out to be more about creating a way for the company to work with independent developers at all than than it is about fostering innovation specifically.

Comprised largely of former Blizzard employees who worked on the Diablo series, Castaway is making a multiplatform action-role-playing game that incorporates micropayments into its business model. The project had been under development for EA Partners until it was dropped by the publisher in February.

Castaway president Michael Scandizzo says there was an emphasis at EA Partners to come up with a focused explanation of why his game would appeal to people.

"EA used to have an idea where they wanted you to have a 14-word motto for your game that would sum up in the public eye what your game was," Scandizzo says. "In fact, it became a big problem that we couldn't sum ours up quickly enough as a 14-word motto. I think the problem which some innovation has run into is it's really difficult to sum it up in 14 words."

That focus on mass appeal wasn't the only departure from the development method Scandizzo grew familiar with at Blizzard.

"The way in which I'd learned to work a project back at Blizzard was to actually focus on the gameplay early on, and then a lot of the polish could come later," Scandizzo says. "And EA works very differently. EA looks for promotional materials very early on that advocate what the game is going to eventually look like so they can get marketing behind the game early on. [That] was something we didn't have to worry about at Blizzard. Marketing was guaranteed."

To hear Stefan Scandizzo, Castaway vice president and Michael's brother, tell it, marketing wasn't the only thing they didn't have to worry about at Blizzard. For instance, EA Partners' rigid policies stood in stark contrast to Blizzard's own recipe for success.

"EA has no clue how Blizzard does it," Stefan says. "We tell people that Diablo 2 had no specific design document, that it did not have a specific budget, and their eyes get all wide and glassy."

But even if that formula has led Blizzard to success after success, it's not one Stefan thinks will sweep the industry anytime soon.

"Most publishers don't feel comfortable with the Blizzard development process," Stefan says. "I think they're going to continue to try to lock down time frames and budgets and that things are going to be much worse for third-party developers."

By insisting that developers meet milestones, Stefan says publishers are preventing new franchises from having the time to grow and change and evolve into the next big thing.

"Most of the games that are coming out of the studios that we come in contact with have everything mapped out from the very beginning with very specific expectations," Stefan says. "And sometimes it's like watching a car accident in slow motion. You know exactly what's going to happen, but there's no way to stop it."

The Scandizzos aren't the only developers who have ever been put off by the EA way of producing games. After scoring a hit for EA with the first mainstream massively multiplayer online role-playing game in Ultima Online, the series' creator Richard "Lord British" Garriott retired from EA subsidiary Origin.

"In spite of the success of Ultima Online, [EA was] still fairly gunshy about the online games business," Garriott says. "And they actually felt that the way to enter the business was through Java Web games supported by advertising."

Balking at the company's suggestion that he create smaller, simpler Web-browser games, Garriott left the company. A year later he formed Destination Games, and when EA closed down Origin and laid off the staff, Garriott picked many of them up and signed a deal with Korean publisher NCsoft for a new MMORPG. Much to his delight, Garriott has found NCsoft's approach to development very much in tune with the approach he held at Origin before the company was purchased by EA. On his current project, Tabula Rasa, he says he is being given the time and budget to create a truly innovative game experience.

"Tabula Rasa is a game which is very dynamic," Garriott explains. "The game is moving and changing. When you look out into the fields, the enemy forces are advancing and things are falling out of the sky and the pace of it... Instead of just being this almost turn-based, "I whack you, you whack me," it feels and looks much closer to a first-person shooter. So it's a very new kind of game compared to Ultima Online, Everquest, and World of Warcraft."

It might sound fun on paper, but as Garriott himself notes, fun is a mercurial commodity, and innovating is no more a guarantee of good times than it is of good sales.

"This is a fast-changing industry and what feels like a good innovation in one year, you'll often discover in year two [isn't]. What sounded like a brilliant plan, we either just can't pull off because we can't figure out how, or you'll pull it off exactly like you say but when you play it, it's just not fun," Garriott says. "And you don't know it until you're done with the creating process, which is again why it is so risky. And the reason most people avoid risky experiments is because it's common to get to the end of the experiment and then throw it away."

The problem is compounded when innovating because one man's fun can be another man's frustration, which brings the issue back to Castaway and the difficulty of appealing to the masses.

"In order to have a game be successful with the numbers that they need nowadays, you need a significant percentage [of customers] to like the title," Michael says. "And, unfortunately, some people find some kinds of breakfast cereals great and others not, but a general one that we can all agree on is oatmeal, which is one of the blandest of cereals."

When it gets right down to it, oatmeal sells, and everybody knows it. But Stefan sees the mindset that innovation is prone to failure as a sort of self-fulfilling prophecy.

"Look at the state of the PC market. You hear a lot of publishers complaining that they don't want to spend money on PC games because they're not selling," Stefan says. "And so, as a consequence, when they do make PC games, they tend to be low budget. They tend to be safe, unoriginal concepts. They tend to be derivative of things they've already produced. And then they don't sell well. And then they say, 'Well, see, I told you the PC market is no good.' So, how do you fix that?"

While the bottom-line-oriented mindset of the publishers might be the source of much of Stefan's dismay (Castaway is currently looking for another publisher for their action-RPG), Michael believes that same mentality will serve to keep innovation alive.

"It's almost like some sort of a Darwinian process for games that the most profitable ones are the ones that survive and the reason that innovation has not gone away entirely is because there is a balance in which innovation is needed for profitability," Michael says. "Eventually, you crank out enough sequels and your series has lost all of its gas, all of its power, all of its momentum, and you need those new products to start up the new chain of conquering blockbusters."

Garriott is likewise optimistic about the fate of innovation, even if he thinks the smaller development houses espousing the ideal won't survive to achieve it.

"There is no question that games will continue to become more and more expensive and distribution of them will become more and more complicated," Garriott says. "And so the small guys and the startups will continue to be squeezed out at a greater and greater rate. Just like the other mature industries, be it movies or cars or other things, the cost to even come to the table to play will continue to go up. And so that will weed out some of the potentially interesting low-budget innovations. However, since hardware will continue to keep its high pace [of advancement], that will give plenty of opportunity for people such as myself and other established publishers and developers to really run amok and have a great time producing a continuing array of innovative products."

So to oversimplify the situation, developers have their hands tied by limitations of what they can get funded and published. Publishers have their hands tied by needing to turn over significant yearly profits to stockholders. Stockholders could choose to invest in innovation-driven companies, but the point of investing is to get the most return for one's money, and such companies are going to be fundamentally unreliable.

Customers can do their part to support innovation in the industry by actually buying ambitious new games when they're released, but whose hands aren't tied by limited discretionary income? And why shouldn't that income go to a licensed football game or a World War II first-person shooter if that's what a customer feels like playing?

Looking further out, say two to four years ahead, the rise of alternative revenue streams and methods of funding for developers (micropayments, independent financing), as well as advancements like digital distribution, could easily threaten to disrupt the current landscape in such ways that innovation might make more business sense. But the reality today is that only limited, incremental innovation will carry the day. Companies will still take shots at truly innovative products in the hopes of finding the next hugely successful breakthrough hit, but rising development costs on next-generation hardware and the myriad difficulties of creating something new (and convincing people they want it) will likely keep those ambitions few and far between.

Whatever the fate of innovation in gaming is, you can expect EA to play a significant part in it, for better or worse. Young's point of view suggests innovation to be a force as inexorable as the march of time, and no company, not even one the size of EA, can keep it from coming.

"At the very center of what our business is about is innovation if you think about it," Young says. "Every four or five years a new piece of technology innovation advances the market. And if we don’t match that hardware innovation with software innovation, distribution innovation, we run the risk of being left behind."

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