What Games Are: E3 Was Wild, But AAA Games Are Still A Mess

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Editor’s note: Tadhg Kelly is a veteran game designer, writer of leading game design blog What Games Are and creative director of Jawfish Games. You can follow him on Twitter here.

Between all the press conferences at E3 and the follow-up interviews, there’s been a lot of gaming news to chew on this week. Announcements of consoles and games all came at a terrific pace, along with a lot of he-said/she-said.

There was an amusing gaffe made by one platform chief, essentially saying “let them eat cake” to those who didn’t jive with his next-gen vision. There was a very off-color joke in a press conference. There was a dreadful reaction on Twitter to a question posed by Anita Sarkeesian about a lack of female protagonists in upcoming titles. And a stunt gone slightly wrong when one microconsole maker tried to set up an un-conference in the parking lot outside the main event.

For me, however, the signature moment was a cheer that happened during the Sony press conference. Sony, once kings turned to laughing stocks. Sony, the penitent platform holder who spent half a decade mending fences and yet still got very little respect. Now Sony, champion of used games, lending games and region-free games. Sony, hero of indies and diversity. Sony, the console maker who didn’t make too big of a deal around extra features. Sony, a full $100 cheaper than its rival.

And the crowd roared.

Change Nothing!

While the cheer was certainly a delicious moment, its broader context is significant. It wasn’t an Apple-esque cheer for some new invention, device or bold new product line. It was a cheer for the status quo, for a lack of innovation or disruption. Gamers whooped and hollered because Sony said that it was going to try to keep their world exactly as they already know it, discs and all.

Gamers are an expectant group on the whole. They are highly tribal in their loyalties, and consistently respond to both visual aplomb and brands. They buy into franchises rather than single titles, which means once their loyalty is earned it usually stays earned for long periods of time. With the right trailers and tone, the publisher that seizes the moment can ride it all the way to 100m unit sales over a decade if it gets it right.

Many gamers don’t like some kinds of change. The console war saga is one that they’ve known for a long time, and they are comfortable with. It feels as though the back-and-forth of gaming generations is eternal, and how things should be. It seems evolutionary, right, and disruptions that threaten its core dynamic are viewed very dimly. It’s always been consoles and the PC, that’s where “real games” are.

“Real gamers” don’t like iPads. “Real gamers” don’t like Facebook. “Real gamers” consider figures like Sarkeesian as pushing agendas that will ruin games. “Real gamers” consider games as more than a medium: they are a culture. And that would mostly be fine (not the sexism part) if it weren’t for two issues: (1) The escalating cost of making games driven by gamer expectations, and (2) the size of the gamer population.

The Same Old Problem

There are simply not enough “real gamers” to make the console market function well, and there haven’t been for a long time,  but “real gamers” don’t really get that. They think that “real games” are bigger than movies, and always growing, but the reality is that the market for console games has only grown incrementally over the last decade. All the explosive growth and the most interesting stories have come from “not-real” markets like mobile, social and casual games. For a long time now it’s been smartphones and Wiis that really pushed the medium forward. Core consoles, on the other hand, seem stuck.

While the Wii managed to sell to lots of people outside the gamer fold, the core consoles managed about 75 million to 80 million sales each over a seven-year period. Accounting for dual ownership (people who bought both systems) and replacements, the overall core market’s size is probably about 140 million gamers, much the same as it was in the PlayStation 2 era. Of those, maybe half are active enough to buy three to five games per year, and of that half, maybe a third are active enough to buy one or more games per month.

That means the real market for console games is maybe 70 million (split across two systems). Remembering what I said about gamers buying into franchises, less active gamers tend to make a lot of repeat purchases. They buy into the super-AAA games over multiple years (Grand Theft Auto, Call of Duty, FIFA, Madden, Mario, Zelda, The Sims, Diablo, Pokemon, The Elder Scrolls, Final Fantasy, The Need for Speed, Halo, etc.) and not touch newer would-be franchises unless more active gamers keep telling them to. This means the market for mere AAA games is smaller, closer to 20 million to 25 million players. And below AAA used to what we’d call mid-tier games, but they’re mostly dead now. Why?

Mid-tier games just stopped making sense. At a $1 million typical cost level of original PlayStation games, publishers could field lots of games and rely on a few hits paying for all the others. This meant that many games were mid-tier, a few became AAA and the idea of a super-AAA category didn’t really exist. However with the sixth generation (PlayStation 2, the original Xbox) development costs multiplied by a factor of four, and with the seventh generation (PlayStation 3, Xbox 360) they did so again. Publishers could no longer afford to play the field and had to be very choosy in what they funded, and yet many of their games didn’t pan out. The market did not grow along with the costs, and so the mid-tier game died. So did many publishers.

With the next generation, the same is already starting to happen for AAA games, only the stakes look even higher. Costs will rise once more, but the market is still much the same as it was. We live in an age when a console game can sell 3.4 million copies and still fail to make a financial impact for its publisher. That’s a team of 700-1,000 developers slaving away on a 15 hour experience that people pay $50 to own. And still, at best, it’s breaking even. As costs continue to rise does that mean that the sales target for all big-budget console games become 5 or 6 million copies? Yep.

Enjoy The Exuberance

Sony may feel reborn, and along with its rebirth comes a sense of rejuvenation in the games industry. It may seem as though the forces threatening “real games” have been pushed back, and that these are happy times. Publishers will commission new games, developers smart enough to have gotten an early start gain enormous buzz from the press and inflated sales, and everybody hopes to build a marketing story.

Yet this exuberance is irrational, a temporary respite from the longer problems that the console industry faces. For all the excitement surrounding the eighth generation, not enough has changed about how it operates, and its core market’s unwillingness to be disrupted means that it continues to battle its own stasis. It means that successful publishers are likely to see a big shakeout in the next couple of years. Companies like Ubisoft, Take Two and even mighty Electronic Arts are going to feel extreme pressure to succeed at every instance of going to market. Soon the only viable market for console games will only be super-AAA, and they know it.

E3 may have proved a very exciting week, but the quiet news about iPhones getting game controllers is probably more significant. While the “real gamer” can comfort himself in feeling that games have not been ruined by outside forces, and that because games are bigger than movies that means everything will be fine, the reality is that change is coming to games whether he likes it or not. The only question that remains for the companies involved is which side of that change they want to be on.