Is venture capital drying up? Or is money still out there for game companies to get?

BG: Let's see. There has been a lot of rain lately. I don't have a strong sense of what's going on at general game companies. I think it's harder to invest in companies that want to compete with Electronic Arts and Microsoft. They have franchises, and they have world-class talent and a bunch of distribution power.

Dean Takahashi covers all the gaming investments. I'm not in touch with all of that. He says that it's the biggest number in 2008 that he's ever seen. Sounds right to me. I think in general, venture investors hate to invest in what they call "hits businesses". The business has to have a breakthrough hit in order to succeed.

The reason is that it's hard for analysts, especially non-gamers, to guess in advance what a hit is or what's going to be a hit. They like to invest in technology systems. There have been a lot of bets in virtual worlds.

I think there will be another round of investments in virtual worlds. You know, the iPhone is kind of new, so the venture guys do like betting on discontinuous events. But I don't know. I'm not paying attention to all the game investments being made.

What shape do you think the game industry is going to take in the next few years? There is all this publisher closure and consolidation but also an explosion of indie power on digital distribution platforms and things like that.

BG: Well, I think the internet changes everything. I think in general, the hours of game and internet usage keeps increasing, and that's likely to turn into money. So, the real issue with the console video game business is not usage and popularity but cost. And so our costs need to come down.

I also think the internet is a way to get a better return on the money invested, because the hours of usage of games have risen with budgets. So, the budgets have gone from five million to 25 million, and the hours of usage for PC software has also grown, but the revenue hasn't. The number of units is up maybe 25 percent, and the price has gone up 10 percent, so you have your costs going up by a factor of five and the revenue going up by half.

One way or another, if you get people to pay for the extra hours, everybody's problem would be solved. So, if you had people that play Battlefield -- or let me think of a non EA game -- Half-Life or Counter-Strike, some of the most-played games of all time, and people would pay the same amount if they played it for 20 hours or 400 hours.

The internet gives you a chance to do what Blizzard did with World of Warcraft, charge for the extra hours. And if you can charge for the extra hours, it solves everything.

Yeah, it kind of solves everything except from the perspective of the consumer, unless they don't realize it... I mean, if you're playing Counter-Strike now and suddenly you have to pay, then that looks like a horrible thing for a consumer. If Counter-Strike 3 comes out, and that is free-to-play, pay-for-items or something like that, that doesn't look like a terrible value anymore. I mean, it's gotta be planned from the beginning, obviously.

BG: No. All Counter-Strike would have to say is, "You know, for 50 bucks, you can play for a hundred hours, and after that, you have to watch commercials," you know. That's fair.

[laughs] Yeah, I guess so. It depends on what consumers are willing to stomach.

BG: Yeah. And if they didn't know the difference, they'd think it was fine. Otherwise, you could play Counter-Strike for free with stick figures, or you could buy art. You know, you pay extra for the art. That's another way to do it.

At some point, you look up and like, "Okay, you can't have Counter-Strike anymore because the costs have just gone up by a factor of five, so you have to start paying 250 bucks for Counter-Strike, or what we'll do is charge 30 bucks for it, and then, you know, 25 cents an hour after 80 hours." It's just a pricing model. Either you got to get more revenue for the development dollars or you cut costs.

It seems unfortunate that a lot of people have figured that cutting costs is the way. But cutting costs just sort of gets you less of the game a lot of time.

BG: Yeah, I guess that's the way it is with products. Or you say, video game designers ought to be paid like schoolteachers instead of like computer scientists.

You can do that, too, and start paying them 38 grand a year, and after they put in 10 years, they can get 65 grand a year. That will reduce costs. But the thing it that the Will Wrights of the world are becoming investment bankers.

[laughs] Yeah, I was talking Yuji Naka, the Sonic Team guy, in the past, and he was talking about how in the film industry, the further up you move in the chain, a director is still a director, no matter how acclaimed he is. But in games, if you want to advance your career, you just got to get pushed up into the executive ranks, and you don't actually get to make a product anymore. It seems like a different sort of payment structure would help keep creators creating.

BG: That attitude's wrong.

How so?

BG: Let me write out a list here -- 20 favorite designers over the last 20 years, and see what they did in their job after making the game that you like the best. And you're going to find most of them kept designing.

So, you can always do it in an organization. You can say to the quarterback of that team -- he had a great year, let's make him the coach this year. Organizations can do that, but most don't.

Right, but as far as I understand, designers aren't paid necessarily more as their games are more popular at the level of scale that, say, as film directors do. So, if you want to advance your career from a financial standpoint. Like, say you become a creative director. You're not necessarily designing, you're overseeing design. Do you know what I mean?

BG: It's all in organization choices. Again, it's like if you're a football team, if you want, you can call it quarterback. "Congratulations, great year. Next year, you're the coach." But most teams don't do that.

I actually don't know the details, but I think Shigeru Miyamoto at Nintendo probably did not get increasing value as the games he was responsible for got outside success. That may be more Japanese. That's probably an issue for Hollywood movie stars back when they were employed.

Right. In the studio system and all.

BG: Yeah. So, it's not a requirement. It's a structural choice that companies in the industry can make. In all creative businesses, there's kind of a struggle for value, and you can always go into a creative business and see how the business guys are claiming more than their fair share of the value. It's kind of what they're good at.

It's true. That's why they're business guys.

BG: You can go back to Marxism if you want, but history is full of struggles of when value gets creative on trying to decide who gets credit and rewards.