Renowned MMO designer Raph Koster warned the Austin Game Conference on Thursday that the game industry was undergoing a radical shift that few game companies understood, and that game companies as we know them today would likely become extinct if they did not alter their business models to adapt, just as the dinosaurs died off when they could not adapt to whatever change it was that decimated them.
In fact, Koster told a packed room of game developers, "The meteor has hit already. It's just that the debris cloud is spreading very slowly."
Koster opened his talk by pointing out the dinosaurs didn't evolve into oblivion; they evolved to meet certain conditions, and when those conditions changed they found themselves unable to adapt.
Koster described current conditions in the game industry, and in related entertainment media, in terms of re-use. Books, movies and music generate revenue in re-use through sales of rights and through royalties. "Re-use is a vital piece of the ecology of content," he said. "But by and large, the re-use market for games is terrible. There isn't really a ton of likely game re-use popping up, unless the games become much more adaptable to other media. Books, on other hand, can easily be adapted to a wide variety of other media."
The condition is made worse by the pattern of hit-driven media consumption. Koster cited a study recently published on Next Generation of the 100 best-selling games of the millennium so far. Top selling was of course The Sims
, followed by Diablo 2
and then World of Warcraft
, but the drop-off from one to two is very steep. "This same shape happens at every level of the market," Koster said. "Only the top 20 percent is going to make money at any given moment. Most of what we make is destined for the garbage heap of history. Most content is disposable."
The way the game industry has adapted to meet these particular conditions is "not to bother making or stocking or selling the other 80 percent," he said. "When you walk into your friendly neighborhood Gamestop, you won't find the game that is 21 on the charts. It's not worth having it compared to having game 20 twice, or better yet The Sims
and all of its expansions. Hit-driven media consumption tends to choke out the variety of the ecology. It drives publishers to select things that are intended to be blockbusters from the go.
The industry's specialized adaption has led to game development teams rising in size, development costs skyrocketing and the size of the games themselves ballooning. In the meantime, Koster warned, the market has pointed itself in a very different direction, and the game industry has thus far not heeded the signs to follow suit.
Koster gave the example of the instructions for the classic video game Pong
-- "Deposit quarter. Ball will serve automatically. Avoid missing ball for high score." -- which occupy a mere 79 bytes, including carriage returns. "These are not just instructions, this is the strategy guide too," he pointed out. The walk-through for Grand Theft Auto: San Andreas
, on the other hand, occupies around 1,574,912 bytes, or more than 1,000 pages.
Koster raised the example in order to show how much of a niche most game development focuses on: a niche in which not the game company but its customers -- hardcore gamers -- are willing to write a 1,000-page game guide. Koster compared games to poetry; not for the level or their content, but because "poetry is pretty damn niche-y."
"Gaming is also very very niche-y, very targeted at a particular subculture. It's extremely self-referential. It only talks to itself," he said. This has created an atmosphere in which a popular and innovative game like Geometry Wars
is not considered a "real game."
"We design and program to introverts. We're not really dealing with all the people in the world," he said.
Koster described the power of a "genre king" like World of Warcraft
to stifle development in the same genre. "The market for a genre declines after the king hits. After that, it's a dead genre in terms of audience. It looks like Windows versus all other operating systems. It's a monopoly is what it is."
"So what's the meteor," Koster asked the audience. He urged the assembled developers to read The Long Tail by Chris Anderson, which points out trends that are working against the game industry as it's currently arranged. "In all media, hits are getting rare," he pointed out. A hit television show at the moment captures about 15 percent of the US audience, while in the 1950s that figure was closer to 75 percent. With the rise of digital distribution, "shelves are getting much much much much bigger," he said. "More and more stuff is moving to the Web, and more stuff can appear on shelves. It no longer makes sense to stock only the top 20 percent." Netflix, for instance, stocks many obscure movies, Koster noted, but 98 percent of the entire Netflix library rents once a month.
"The cost to make one minute of content is going up, while the price to buy it is dropping. The average consumer now things content should be free. It's already happened with music, and now it's happening with movies, television and games. Since consumers aren't going to pay for content, publishers have to find other ways to make their money. Games have to adapt to new conditions, they have to be built for digital distribution. That means smaller and cheaper games, less emphasis on assets. It also means aiming at different markets, at all those people we don't currently sell to, who never set foot in a Gamestop. It means going after a much wider array of gamers, not just the hardcore."
"Content isn't worth a damn," Koster continued. "What is of value is the relationship between the consumer and the producer. Being good is no longer an exclusive. In a hit-driven business, the epitome of success is to be the Beatles or Elton John, which means having a consistent record of making blockbusters, or almost never screwing up, of always earning out reliably and of doing this over the course of decades. Those people are so rare they are the dodo, and their share of the audience as a percentage of the population is shrinking."
"The goal instead should be to be the Grateful Dead. You don't want to be the number one hit, you want a relationship so that you can ding them over and over and over again. The band's t-shirts may make more than their recordings."
"Can publishers adapt? Well, everything I've told you is not predictive at all. The meteor has hit already, it's just that the debris cloud is spreading very slowly. The outcome is not clear." Koster cited the fact that the most popular games out there are not in fact built for hardcore gamers. Runescape, Habbo Hotel
and Gaia Online
all have more players than World of Warcraft
on trailing 30-day usage, he said.
"What we're seeing here is that other people have come out around us and said, You have a good thing going, but the entire infrastructure is just broken, so we're going to take all the good bits and money and all the customers you think are not good enough. The market got broadened for us by other people. We're the ones now that are niche. We're back in the corner rolling our 20-sided dice again."
In order to evolve into something more closely resembling mammals, game developers will have to take the Web into account in much greater measure than they do today. "Every other industry on the planet is going there. We ignore this kind of Web revolution at our peril, and yet we built our business, even our online business, around the box model, around locking in subscribers, around a whole antiquated notion that just plain doesn't exist anymore in any other industry on the planet." Neopets, Koster pointed out, has 150 individual Happy Meal toys in distribution at McDonald's. "Compared to that, Master Chief is an afterthought."
"We are seeing a climate shift. We're hitting a wall on finances, it's not a sustainable curve. We're not seeing alternative revenue streams, because we don't build our content for it, we don't develop for broad audiences, for multiple media. We're lousy at character design, at story, at all the things that resonate with the mass market. Alternative financing isn't going to materialize because we're too hit driven a business as we're currently configured. Distribution is in total upheaval, publishers are scrambling to compensate."
"What this adds up to is a shakeout for any publisher who cannot adapt quickly enough. We're seeing console manufacturers right now trying to make this shift with things like the Wii and XNA Express. People are getting the picture, the question is how quickly we're willing to change. Digital distribution is the only logical play. That means a more varied ecology, because the gatekeepers won't be there. It also means the noise level in the market rises."
"Finally, everybody will be trying to lock customers into lifestyle marketing, because that is where the money is. The bottom line is that triple-A gaming is rarefied territory -- so rarefied that nobody can play there. In many ways World of Warcraft
, the genre king, is the last gasp of the dinosaurs. How do you trump WoW
? Can you follow WoW
? Sure. Can you do to WoW
did to EQ
? No. Not unless you spend $150 million."
"Celebrity is going to have to matter more. People [outside the game industry] are going to need to know who you are, because that is the only way you will stick your head above the noice. Your team, you personally or your brand is going to have to inspire loyalty in order to stick up above the noise. You're going to have to be able to say, I've got a relationship with these people, and interact in a way they don't get in a broadcast structure, because that's a one-way structure."
"Assume a world where there are no game retailers or game publishers, just lots of aggregators and portals. There will be a lot fewer artist jobs [because there will be far more user-generated content]. I'm talking about games as services and lifestyle, not as products. Products are something you throw away."
[Mark Wallace is the editor of 3pointD.com, a widely read blog covering virtual worlds. His freelance journalism on technology and culture has appeared in Wired, The New York Times, PC Gamer (UK) and many other