The Business of Gaming

By Dog of Thunder, 4 years ago
Money, it's a gas
Grab that cash with both hands
And make a stash
- Pink Floyd, "Money"
Money is what keeps the gaming industry going and money is ultimately responsible for everything that affects our options as gamers. What we can play on each console, when it is released, how it is released, even where it is released, is all affected by money. Gaming companies are always thinking of the bottom line and if someone says otherwise, they are lying and chasing "cred", which they can cash in later and make a profit.

The gaming industry is a billion dollar worldwide industry and every product is supposed to sell. What makes financial coverage hard to provide is that it really is not a day-to-day event in the gaming industry. Every so often a studio gets closed down, or lay-offs transpire, but for the most part, no news is indeed good news. This lack of daily news means the Newshound team does not devote many resources to tracking trends, reporting on quarterly earning statements or discussing layoffs at small to medium companies.

Thanks to the recent influx of hard working volunteers, we can attempt to broaden our coverage into the nuts and bolts of the gaming industry. If you, the community, enjoy the following piece then please let us know so that monthly or bi-weekly coverage of the finances, company moves and emerging trends can be provided for you. Of course, if you decide you dislike the rest of this piece, then let us know as well in the comments and we will only report on industry news such as this when it is truly monumental, such as the issues with Activision-Blizzard and Infinity Ward a few years ago. Regardless, I appreciate your time and attention.

April was a very slow month for gaming; so slow, in fact, that the NPD retail data for the entire month was an absolute bore. The biggest story to come out of April's retail sales is the LACK of sales, at least, on the physical side of the marketplace. Digitally was a different story, as not only was the record for day one sales on XBLA shattered, it was broken again just three weeks later.

On April 20th, Major Nelson announced that Trials Evolution had broken the XBLA single day sales record.

On May 10th, Major Nelson announced that Minecraft: Xbox 360 Edition had broken the XBLA single day sales record.

Let's just say that the "Arcade Next" promotion was very, very successful for all parties involved, unless, of course, you were involved with The digital success of the past few weeks reached such a high level that, according to the NPD Groups' Anita Frazier: "For some insight into digital purchasing of content, we can look at the performance of points and subscription cards which was up 75 percent in units over last April."

With the good news out of the way, let's talk some financial reports and get the disastrous out of the way first. SEGA Sammy posted a complete loss for the 2011 fiscal year. There is no way to sugar coat this as the past year was a disaster for SEGA Sammy. While retail sales increased in Japan and Europe, they tumbled in the US.

Sonic Generations sold 1.85 million copies across all available platforms (PS3, 360, 3DS and PC), which was below expectations. As a result, SEGA Sammy has re-adjusted their outlook for fiscal year 2012 regarding their seven Xbox 360 titles: 1.54 million copies combined is the predicted figure. With the downturn of retail titles, SEGA Sammy is planning on taking full advantage of the multitude of digital download devices by shifting focus to that side of the gaming industry.

SEGA Sammy has spun two divisions away from the parent company, with SEGA Corporation focusing on console titles and the new SEGA Networks focusing on digital download titles. While SEGA Networks is focused on mobile phones, they also include XBLA titles and we can expect to see an expansion of the classic SEGA titles available on the marketplace. After all, nothing says "profit margin" like re-releasing old games for a new audience.

Speaking of re-releasing old games, Activision-Blizzard also released some financial numbers that are quite interesting. For starters, while the DLC for Call of Duty: Modern Warfare 3 was down compared to past titles, ELITE memberships helped offset the deficit. To put this in perspective, two million gamers have annual Call of Duty ELITE memberships and these only "partially offset" the lack of DLC sales.

While the actual longevity of Call of Duty titles gets shorter and shorter from year to year, the new franchise on the block, Skylanders: Spyro's Adventure, gives Activision-Blizzard a license to print money. Over 30 million Skylander figures have been sold since October 2011, with a brand new game, and thus more figures, due to be released later this year. Activision-Blizzard believes that Skylanders will be another billion dollar franchise.

Finally, Activision-Blizzard isn't the only company taking a risk on a new way to conduct old business. Microsoft recently launched a pilot program through their Microsoft retail stores involving a $99 Xbox 360 with a 4GB hard-drive. The catch for this deal is that while it includes a Kinect and a subscription to Xbox LIVE, it also requires a 2-year contract with a $14.99 a month Gold Xbox LIVE subscription fee.

While the actual 'deal' isn't much of a deal, it's what this represents that is interesting to industry analysts. Adopting the cell phone strategy of doing business is something new to the video games industry. Whenever we enter a new console generation, which by all accounts will be happening sometime in the next few years, the price point is off putting to most people. With a lower initial cost but a sustained, monthly payment, would we see more people adopt the next generation of consoles faster then ever before?

I'll leave you with that final thought, and if enough people want this to join our growing roster of regular content alongside stalwarts such as Weekly Stats, Community Interviews, Op-Eds, Sales Roundups and DLC Roundups, speak up. At the very least, I hope for an interesting discussion in the comments section.