Bitter medicine: What does the game industry have against innovation?

This fall's critically acclaimed film about pioneering broadcast journalist Edward R. Murrow, Good Night and Good Luck, ended with the respected newsman delivering those lines to an assembly of his peers, urging them to utilize the new medium of television to its fullest potential.

It's a sentiment that should be familiar to gamers, who often call upon developers to push the medium to some higher state of existence. Sometimes those calls are made by developers themselves. Or publishers.

But just like Murrow discovered throughout his career, these media are money-making businesses first and foremost, and their failure to realize their potential to the fullest is not always due to a dearth of talented individuals "determined to use it to those ends." As often as not, it comes down to matter of what's best for business.

In the gaming industry, nobody's more concerned with what's best for business than the analysts. But now even they are complaining of a lack of innovation in games. Wedbush Morgan Securities analyst Michael Pachter has been bemoaning the lack of innovation in the industry for years, and earlier this month pointed to the lack of originality in this year's heavily hyped holiday lineups as a reason for this season's industry-wide slump.

"Inovation's dead," Pachter laments. "Dying. Every once in a while, somebody will slip something in that will shock us, but for the most part there's no money in innovation, even if it's great."

In most cases, the risks of attempting to do something new simply outweigh the benefits, according to Pachter. With next-generation development costs skyrocketing, publishers want proven sellers, safe choices that they can be assured will provide a reliable return on their investment.

"The best business for a publisher is to give people what you know they want," Pachter says. "And what you know they want is a sequel to what they wanted last time. So we don't see a whole lot of innovation."

And even when innovation gains traction, publishers have a way of institutionalizing it, sometimes to the extreme. "Every now and then a company will come up with something really innovative and they'll sequel it to death," adds Pachter.

It may be working for now, but Pachter sees some negative long-term implications from this approach, as it's not just the companies who innovate that will look to capitalize on those breakthroughs.

"The problem I have with the whole sequel thing is it's not just sequels," Pachter says. "It's once we see that World War II combat shooters work, we've got 50 of them. The funny thing is the next year after we saw that, everyone thought, 'If World War II worked, Vietnam would work too.' But all those games were a disaster. Now we've got how many more World War II games coming out?"

So following trends and doing the same thing as everyone else isn't a surefire route to success either, but at least publishers know that a really well-executed World War II shooter will probably still sell. For evidence of that, just look at Activision's shooter Call of Duty 2, which was purchased by about three out of every four Xbox 360 owners at launch.

"Clever and different and new doesn't necessarily work unless you convince consumers that they really want it," Pachter says.

Compare the sales figures for Konami's Dance Dance Revolution Extreme on PlayStation 2 and Katamari Damacy. According to the October NPD numbers, the third installment of the Dance Dance franchise has moved more than 559,000 copies since shipping on September 21, 2004. By comparison, Katamari Damacy, one of the biggest innovation success stories of the last few years, has moved just over 300,000 units since hitting shelves on the same day.

"It's the combination of giving a consumer something he wants and then letting him know that you're giving him something he wants," Pachter says. "And it's the latter more than the former. There are games like Psychonauts that are pretty innovative, but nobody knows it exists except the 50,000 hardcore guys that bought it."

According to the most recent NPD figures, Psychonauts has moved nearly 51,000 copies on the Xbox, not quite 23,000 on the PlayStation 2, and a little more than 12,000 on the PC.

Developed by Grim Fandango creator Tim Schafer and his team at Double Fine Studios, Psychonauts is something of an industry-standard cautionary tale about innovation. Psychonauts is about the story of a young child stowaway at a summer camp for psychics who must enter into the minds of his fellow campers and the camp counselors, and it was originally planned as a high-profile Xbox exclusive with Microsoft itself as publisher. However, Microsoft dropped the project in March of 2004 with no reason given.

Schafer shopped Psychonauts around for months before finding a new publishing partner in Majesco. The game was released on the Xbox, PC, and PS2 earlier this year, and met with critical praise and consumer apathy. Majesco (and a number of analysts, Pachter included) had great expectations of the game's retail performance. When the sales didn't materialize and another high-profile Majesco title flopped in Advent Rising, the company lowered its projected revenues for the year by a third, the CEO Carl Yankowski resigned, and a number of shareholders sued as the stock plummeted.

Innovation's a risky business. As the executive vice president of Vivendi Universal Games' worldwide studio at the time, Michael Pole understood that. That's why his company passed on publishing Psychonauts, despite Pole's own affection for Schafer's work.

"If you were to ask me who is one of the most creative and innovative people in the business, it's Tim Schafer, without question," Pole says with enthusiasm. "The guy is just as good as it gets… I so desperately wanted to work with him on that product, and we weren't able to get a 'green light' at Vivendi. But if you look at the unit volumes [Psychonauts sold], could we have done better with it? I don't know."

The green-lighting process is a cold, mechanical process by Pole's description, and one every major publisher uses to determine which games get made and which ones don't.

"You have to look at a product from every angle," Pole explains. "What is the product's genre? What are the platforms? How much money are you going to spend? Who are the people that are building it? Is it a licensed product? Is it an original product? You then present the idea to the green lighting committee, which is, like the senior management in sales, senior management in marketing, and product development. And then, basically, you run the numbers. And it's a numbers game after that. If the unit volume comes back and it supports the development [costs] and what you'll need to spend at marketing, then the product is given the green light."

It's tempting to look at the process and say the qualities that made reviewers love the game were the same qualities that made Vivendi gun-shy about publishing it, but Pole says the biggest problem was actually the game's platform.

"The biggest challenge for us was that the lead SKU was the Xbox," Pole says. "So when you look at the unit volumes and you look at the genre of the product, that was a little bit challenging because there weren't a lot of character action games that had done well on Xbox."

So because Oddworld: Munch's Oddysee, Voodoo Vince, and Blinx the Time-Sweeper didn't post big numbers, it was considerably more difficult for Psychonauts to find a publisher. Depending on how good a job one thinks Majesco did with marketing and distributing Psychonauts, its disappointing sales might vindicate the publishers' decisions to pass on it. So why didn't it sell better? Schafer says it's always tempting for developers to blame failures on bad marketing (convincing consumers they want a game, as Pachter would say), but it's usually more complex than that.

"It's a number of things," Schafer believes. "Some of it is how the game was sold and some of it is how the game is made. We looked at various things about the game like the age of the main character. The age of the main character affects who will be drawn to the game and I think our main character was a 10-year-old boy. So were we selling the game to 10-year-old boys or were we selling the game to an older market? Because a lot of the humor and the puzzles are for an older market. We thought we were safe because Zelda's got a young kid as a hero but that falls into the special rule of Zelda-can-do-anything-it-wants. I guess the rule is that if you're established, you have more room to experiment."

Despite some second thoughts about some of the game's design decisions, Schafer still thinks Psychonauts could have been a hit if the industry worked a little differently.

"If there was just some way that it could sit out there and take its time and let people discover it, then it could be very popular. But it's just so hard that the games go in, they're on the shelves and then they're not if they don't [sell]--if their preorders aren't good, even. So even before the game is in the stores it has to be a success or else it just doesn't get any shelf life. That works against a game like Psychonauts that has such great word of mouth. How can that word of mouth do any good if you can't go to the store and buy it?"

Digital distribution of games is one such solution to the shelf-space problem, and Schafer says he wants to use it eventually to sell smaller games that would allow him to try out new ideas with less risk. Digital distribution also allows companies to offer games in release windows like the film industry, an approach currently used by various subscription-based gaming-on-demand services. So a game might have the equivalent of a theatrical run on store shelves, followed by online distribution for those services' subscribers, much like a feature film would eventually be shown on premium cable channels like HBO or Showtime. Schafer thinks there's more to be learned from the film industry about fostering innovation, but not everything will work for games.

"There are a lot of things about the film industry we kind of aspire to, like some of the funding models that give more control to creative talent, innovative financing and things like that," Schafer says. "But there's a part of me that also looks at the film industry and [sees] it's not super great right now, either. It's not a hotbed for innovation either. But it does have an independent film machine that's viable, and that's something gaming doesn't really have. In film, you can have the independent movie win best film of the year at the Oscars. But there's not really a chance that one of those indie games is going to knock out Halo, you know."

Schafer's not the only one comparing games to film. After leaving Vivendi Universal, Michael Pole joined up with former Electronic Arts Los Angeles executives Rick Giolito and Mark Skaggs to form Trilogy Studios. Where his previous position had him reluctantly nixing innovation as an exec at a worldwide publisher, Pole finds the shoe on the other foot now as CEO of a company making an episodic "first-person shooter/RPG combo" for PCs and next-gen systems.

Pole compares the current game industry landscape to that of the movie industry at the height of the studio system.

"They controlled the talent," Pole said of the movie studios. "They controlled the directors. Everybody was under contract, and for the longest time there seemed to be a stifling of creativity underneath that system. What the games industry is finding now is while you can amass an extraordinary collection of talent, extraordinary games are created within small teams. The best new intellectual properties are coming from independent--self-funded for the most part--studios."

He points to Bungie as an example. It had gained a reputation as a top-notch developer and had begun work on Halo long before Microsoft purchased the development house. Trilogy now has its own intellectual property to work on, a small development team with big credits (Skaggs was part of the Command & Conquer development core while Giolito was key to the Medal of Honor franchise at EA), and thanks to independent equity funding, money to go make the game.

Pole said that independent funding is opening doors to a number of non-traditional publishing models for the company. Coming up with at least part of the game's budget on its own gives Trilogy more leverage in negotiations. Instead of just pitching their game to publishers, the developers now are in the unique position of being a little choosy about who will put their game out. It's not enough for Trilogy to make a AAA title, hand it off to a publisher, and cash a check. Pole and his team want to know that their work will get top-notch marketing and sales support that will do their game justice.

While independent funding and digital distribution might fundamentally alter the landscape of the industry to make it more innovation-friendly, that change isn't going to happen overnight. And until it does, Schafer's putting the hard lessons learned from Psychonauts to use. But even with a few more years of experience and a greater understanding of how publishers assess potential projects, he's running into problems finding a home for Double Fine's latest.

"Pitching is pretty demoralizing," Schafer admits. "I'm working on a new game now and we have a couple of publishers that are very interested, but in finding them we talked to a lot of publishers who are incredibly risk averse. And in pitching the game to them I found myself playing down the innovation of the game and playing down the creativity of it a lot because it's--just hearing those words--those are the wrong words for them. I found myself trying to explain the game in terms of how everything in it had been done before just to calm them down, and then I come to work and I go to a design meeting and the focus has to be, 'How can we do something that's never been done before?'"

This pitch doesn't just make the difference between being picked up or not. It also impacts the game's budget.

"If you're using an existing game play mechanic that was a big hit and a big successful license you can do a $15 million or $20 million game now," Schafer says. "And if you want to talk about making either one of those original then, you now have knocked off $6 million off your budget right there."

Sobering as that might be, Schafer doesn't see it as any kind of sign that innovation is dead or dying.

"I've always found that at any given time there's some publisher out there who's interested in innovation," Schafer explains. "Different people have taken up that mantle from time to time and they always get excited about it and then for some reason or another that light kind of goes out and someone else picks it up. And as long as there's at least one publisher out there who is interested in innovation and doing something revolutionary then I think games like that will keep getting made."

Of course, that outlook might spring from the knowledge that without such patron publishers, the future of innovation in this industry might not be so bright, and Schafer's future projects might not get made.

"I am optimistic about it because I have things I want to try," Schafer says, "and that would make it easier for me to do the kinds of things I like to do. And also because I'm just very, very determined to stay in the game and be annoying to everybody else until we win.

"Can't let the f*****s win," he laughs.

The second part of GameSpot's look at the business side of innovation will focus on the 800-pound gorilla of third-party publishers, with Electronic Arts Los Angeles studio head Neil Young outlining the company's strategy for success. In addition, Ultima creator Richard Garriott and Castaway Entertainment's Michael and Stefan Scandizzo weigh in on their current attempts to get innovative games to market.