On how recent economic setbacks could affect Microsoft and Sony's respective consoles...
Obviously, events like studio closings at Microsoft are unlikely to affect the current trends for the PlayStation 3 and Xbox 360 hardware directly.
On how layoffs and downsizing could affect game development output...
In comparison to the 6th generation during the same time period, the 7th generation has produced 16 percent fewer titles. First- and third-party publishers are now much more intelligent about the gaming sector than they were eight years ago.
In the "golden years" of the 6th generation, publishers would throw titles on retail shelves as if it was Jell-O -- whatever stuck got a sequel. Nowadays, with development costs on the rise, this strategy is simply not profitable.
Businesses strive for maximum efficiency and in the video game industry that means producing titles that make a profit. If publishers had a crystal ball and only produced profitable titles, we would see a fraction of the releases each year.
As publishers apply more due diligence and research during the greenlighting process, that is exactly what we will see: fewer titles, but more profitability. Unfortunately, that does sometimes translate into reducing headcount and condensing development teams.
Of course, the amount of shovelware on the Nintendo Wii would contradict the trend of achieving maximum efficiency through the development of fewer titles, but I believe the Wii market is still in the "Jell-O throwing" phase.
Simply not enough research is available to understand this new market of non-traditional gamers. But as we travel down the experience curve, you can bet publishers will focus more on fewer titles that can generate more sales and profits on the Wii.
On whether there could be more layoffs, mergers, buyouts, etc....
The economic recession has given most, if not all, companies a haircut in terms of their market valuation, and, because of that, many publishers, developers and studios can be picked up at bargain basement prices.
Unfortunately, this scenario is a Catch-22 because the same force -- the recession -- that has made acquisitions a great value, has also forced publishers and media conglomerates to be more defensive and less aggressive with acquiring new assets.
In terms of layoffs, I believe we have seen the worst of it; most of the big publishers, whose new financial year have begun or are about to, have already announced their restructuring plans for the next six months.
That is not to say layoffs, cutbacks, and studio closings won't occur; these events happen even in the best of times.
Do you have a business-related question about the video game industry that you would like to suggest for discussion in Analyze This? Are you a professional analyst and would like to take part in this column? Email howardhwen@gmail.com.
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There's really no correction like over-correction.