The Paradox of Success

Scarberia brings up a lot of interesting points in his(?) analysis of the current state of the game business, but first reaction I have is, “Who’s business are we talking about exactly?”

Thinking of the game industry as a complex ecosystem is a good one, but often the lions of business neglect to recognize the full spectrum of cohabitants within the same environment. To say that many of the big companies in the game industry are hurting right now is a no brainer. However, that’s a limited point of view that fails to recognize that games, as a medium, are more vibrant and interesting and broader than they have ever been – and, in fact, there are tremendous business opportunities for those willing and able to grab at them.

Scarberia seems to lament over how the business was so easy back in the day. Well sure, the good old days are over and now we’ve got to really earn it. Sticking with the ecosystem metaphor, it is indeed survival of the fittest. And, in the fast changing game industry, fitness is more directly correlated to the ability to adapt than corporate might per se.

A recent analysis from DFC looked at the profitability of publishers across the West, Japan and the rest of Asia. In summary, the Western publishers are growing revenue, but profitability has been taking a nose dive. Conversely, publishers in Asia (Korea in particular) who are more service oriented may not be grossing as much, but are maintaining decent profitability. In part, this is due to their abandonment of the old ways of doing business. Or more precisely, they never bothered to adopt the old ways to begin with.

Korean publishers, as we all know, were quick to exploit online subscription models and leverage game café play, largely as a way to jump over the piracy hurdle. Now they are pioneering the micro-transaction model (aka “free-2-play”). And, it is through these innovations in business and distribution models that tremendous new value has been created. (No disrespect to Korean developers, but from a design/content point of view, they’ve essentially been cloning the West.) As game biz veteran Mitch Lasky recently echoed at the Game Business Law Summit, Western publishers have not given innovation in business/distribution models much attention.

And why would they? The EAs of the world are the entrenched players – the lions at the top of the food chain – that are now trapped by their own success. This dilemma is not unique the game industry, but is one that is faced by all successful businesses in a changing marketplace. In order to embrace new ideas fully, they must abandon their current revenue streams (e.g., selling discs in boxes at retail, or selling shooters to young males, etc). Thus, a dilemma between what works today and what will work tomorrow is created, along with the ensuing aversion to the risk of switching. To reiterate, it is the very success that got EA (and the other big publishers) to where it is, that is now holding it back. In short, it is a species that is overly optimized for the old ecosystem, and is now struggling to adapt.

And so, it is often left to the new players – or the existing ones that are most adaptable – to dive into the chaos and succeed. Again, largely by pioneering the business and distribution side of things.

Bigger is not always better, and blindly following the tech curve for tech’s sake is not the answer anymore (refer to the anemic horsepower of the Wii or the dominance of Flash online). True talent will always find a market – not because they deserve to, but because they’ve earned it.

Much like the failings of the music business to hold onto their monopoly of pressing CDs and pushing them to retailers, I’m not much interested in maintaining the status quo within the game “business”. The music “business” (i.e., selling CDs at retail) may be on its last gasps, but music on the whole is booming and exploding with countless opportunities for talented artists. If the current economic climate forces the game ecosystem to evolve a little more rapidly than some would hope for, well too bad. On the whole, I see that as a good thing for the evolution of games.