AAA or Bust!

In 2009, Activision strip-mined the rhythm game market with seven different titles in what had previously been a relevant and phenomenally successful Guitar Hero franchise: Guitar Hero 5, Guitar Hero: Metallica, Guitar Hero: Van Halen, DJ Hero, Guitar Hero: Smash Hits, Guitar Hero On Tour: Modern Hits, and Band Hero. The entire genre suffered as a result, as did Activision's holiday sales quarter.

In response, the publisher pledged to release fewer games and devote more resources to ensure the games that did make it to market were unqualified hits. Activision is by no means the only company taking that approach; Take-Two and THQ have also explicitly adopted the approach of reducing quantity and focusing on higher quality.

Even those who haven't vocally jumped on board that approach are showing signs of a shift. Last year, Namco Bandai games sold nearly 21 million copies across 239 SKUs. For the publisher's current year, it expects to sell roughly the same number of copies, but split between 60 fewer game SKUs.

There appears to be a trend in the industry of publishers to scale back the number of games they make and to pour more time, effort, and money into each one to succeed in what is increasingly a hit-driven industry. So what happens when so many companies adopt the same strategy? What happens when a company invests so much more money and time in a game, but doesn't have a broad portfolio of supporting titles to make up for any shortfalls? To get one industry-watcher's answer to that question, GameSpot recently swapped a series of emails with Electronic Entertainment Design and Research analyst Jesse Divnich.

GameSpot: Given the rush of publishers focusing on fewer and bigger bets, does it stand to reason that there will be some Ishtar-level flops, these publishers don't have enough other titles around to prop up the business, and they'll wind up going under? Will the future game industry be a postapocalyptic hellscape in which only Activision survives while the corpses of its rivals are stacked like cordwood and burned to provide fuel for the Call of Duty fear engine? Or is this just, you know, a phase that will disappear once a few companies have a bad quarter or two?

Jesse Divnich: The traditional console video game market is currently the most understood, tracked, and predictable market in gaming. As markets mature, companies tend to move from throwing spaghetti at the wall to see what sticks to becoming more methodical and precise with their releases. While it may seem that a flop in today's age

"As markets mature, companies tend to move from throwing spaghetti at the wall to see what sticks…"

may spell doom for a publisher, the risk/reward mechanics haven't changed. In the yesteryears, a company may have to launch 10 different video games just to realize one or two moderate successes to produce a total portfolio profit. Today, because so much is understood about consumer purchasing habits, the risk of a commercial flop has been greatly reduced allowing for publishers to invest in bigger but fewer titles.

Weapon technology provides a great analogy. Some 60 years ago, a plane had to drop hundreds of bombs to ensure that at least one hit the target; today the same accuracy hit can be achieved with just one.

It is for the same reason why we see this "spaghetti tossing" strategy in new and emerging markets; there just isn't enough information to predict what will succeed. We are beginning to see this same shift in the social gaming markets as companies like Zynga have built up such an impressive internal database on playing habits, they can now shift from a high quantity of risky releases to lower quantity but bigger budgets titles.

GS: But isn't "spaghetti tossing" just a different way of saying "innovation"? Innovation will always be something different. It will always have a risk of failure. I'm trying to further your weapons technology metaphor here, but I can't bring myself to argue, "But think of all the wonderful human suffering we never would have caused without carpet bombing!"

However, I can point to a bunch of spaghetti-covered walls, like the Wii, the DS, first-person shooters on consoles, Guitar Hero, dance games, Facebook games, and so on. All of them were innovative and wound up being hugely successful. They also all broadened the gamer demographic, which I think we can agree is ultimately good for the industry.

JD: Innovation and experimentation do go hand in hand, but there is another side of the coin: technology limitations. The ability to innovate is deeply hindered by the maturity of a technology cycle. The Xbox 360 has been out for nearly six years, and at this point, there simply isn't much innovation left to achieve. I thoroughly believe that the launch of the Kinect and Move, which introduced a new technology cycle, elongated this current generation, and without them, I have no doubt we would have seen the Xbox 720 and PlayStation 4 by now. But back to the HD consoles…

"A good example is the Call of Duty Elite service, an innovation I consider the greatest of 2011 for HD games."

What innovations are left that wouldn't require the launch of an entirely new console or at least a significant and costly firmware update? A good example is the Call of Duty Elite service, an innovation I consider the greatest of 2011 for HD games. What most people don't know is that Microsoft and Sony had to make significant alterations and updates to their online service in order to run the Elite service, which I am sure came at significant internal costs. I have no doubt that if this was any other game, or any other publisher, neither Microsoft nor Sony would have made those changes, hindering innovation.

If we examine any technology cycle, we tend to see an overwhelming majority of innovations and experimentations occur early on (roughly the first 33 percent of the length of a cycle). But once a market matures and software or technology limitations are reached, their simply isn't any spaghetti left to throw.

GS: Is it bad for the industry when all the big players are using their fancy new weapons technology to throw as little spaghetti at the wall as possible? When the biggest innovation they push for is a new business model for post-release map packs?

JD: I don't believe a risk adverse strategy of focusing on fewer yet proven business models is bad for the industry; it is just the natural result when there isn't a need to take on additional risks (more information) or when there isn't much left to innovate on (technology limitations).

When the next generation of consoles is released, it will open the door to dozens of new technologies, both hardware and software, which will reset the technology cycle and allow publishers to once again experiment with new business models and game features. What will be proven to be successful? Well, unfortunately that spaghetti has yet to be tossed.