Editor's Note

The world of video games is not all, well, fun and games. While players enjoy the entertaining side of this industry, on the development side, the focus is all business. And lately, the business of making games has not been an easy one. Years ago, many analysts thought the entertainment industry—films in particular, but also video games—was recession proof. The belief was that when people were pinching pennies, video games, like movies, offered a relatively inexpensive form of entertainment. But lately, this theory has not held up.

Despite the $50 to $60 price tag of many triple-A titles, they remain a bargain for players, who get upwards of 40 hours of enter­tainment for their purchase. However, these games are not a bargain for developers. The current console titles are expensive to make, and this is having a wide-reaching effect on the industry’s landscape—a point hit upon at the Autodesk Media & Entertainment Backstage Pass event earlier this year at the company’s offices in Montreal. In his welcome address, Autodesk M&E’s senior vice president Marc Petit provided a discerning snapshot of the entertainment industry, iterating what we all know to be true: It’s difficult for studios to turn a profit.

We used to think that this situation wreaked the most havoc on smaller independent studios that didn’t have the resources to ride out rough waves that rocked the economy. Now, however, we are seeing the toll that this economic storm has had on even larger facilities. On the film side, several well known studios have been forced to close their doors. We were all saddened when The Orphanage suspended operations in 2009, especially after working on such films as Live Free or Die Hard, Pirates of the Caribbean: Dead Man’s Chest and At World’s End, Fantastic Four: Rise of the Silver Surfer, and Night at the Museum; even the hugely popular Iron Man could not save the studio from a horrible fate. More recently, CORE, Asylum, CafeFX, and Image­Movers Digital have suspended operations.

On the gaming side, the picture is similarly dire across the globe. Krome Studios (Star Wars: The Force Unleashed), Australia’s largest game developer, went defunct last fall, as did Realtime Worlds (C rackdown, APB) in Scotland. Even studios under the protection of big names suffered similar fates. Earlier this year, Activision—one of the largest third-party publishers—shut down midsize Bizarre Creations ( 007 Blood Stone), the London studio it had acquired in 2007. Disney Interactive pulled the plug on its Vancouver, British Columbia-based Propaganda Games ( TRON: Evolution) this past January, as well. Perhaps the biggest shock of all came when Activision Blizzard announced two months ago that under its deep restructuring plan, it would no longer be developing or publishing a number of titles, including Guitar Hero—this after closing RedOctane, which launched the music-focused title. Another casualty became MTV Games, which sold off Harmonix ( Rock Band) to a private investment firm for the price of a game—a mere $50—after writing off a $299 million loss for its 2010 third-quarter earnings. Also in financial trouble are EA, Disney Interactive, and THQ, which are reported to be in the red.

So, what is causing this disturbing situation? More and more we are hearing that  the demand for quality work in films and games is outpacing budgets. More to the point, the current economic climate and global marketplace have made it unrealistic for some companies to continue to deliver the highest-quality visual effects work at a competitive price—and sustain a profit. As a result, VFX facilities and game developers are not just fledgling, they are failing. The cost of creating quality work is extremely high, yet visual effects command just a small portion of most movie budgets. The demand is always for more, better—but at what cost? Many facilities are bidding on jobs at a break-even point (or worse), just to retain staff or to keep their doors open.

Perplexing

It’s hard to believe that with the two Pirates movies grossing nearly $2 billion collectively worldwide that any studio associated with the highly acclaimed effects would be forced out of business. In that same vein, we have to scratch our head and wonder how Activision (named the top US game publisher in 2007 by NPD Group) as well as the other dominant developers could find themselves in such tough financial straights. And EA, for goodness sake! After all, that company dominates the lucrative sports-themed gaming market.

The general public hears this news and is perplexed. We’re talking tent-pole films and triple-A game titles. What they don’t understand is that they are part of the problem: Audience and player expectations are higher than ever. The public is no longer wowed by a realistic CG character on screen; they expect that character to look and perform flawlessly. They expect a digital evolution with every release—movie or game. Unfortunately, directors and publishers have similar expectations. And more unfortunate still is that studios must satisfy those demands on ever-tighter budgets.

Recently, I came upon an interview with Greg Zeschuk, cofounder of BioWare, and in it he claims that for most development studios, working on triple-A console games would be pointless, as only the top 10 studios can actually accomplish that feat and walk away with a little pocket change. He further cautioned that such an endeavor is more competitive today than it has ever been, and more dangerous, too.

New Avenues

However dire the situation appears, it’s not all doom and gloom out there. There are success stories: Despicable Me, the first CGI feature produced by Universal and its Illumination Entertainment division, earned $542 million at the global box office on a modest $70 million budget. As Autodesk’s Petit points out, the democratization of VFX and CG is empowering small companies to grow their businesses and empowering storytellers to create more compelling stories—whether in theaters, on television, or in games. In fact, as the traditional CG doors are closing, nontraditional doors are opening—particularly in the Web and mobile gaming areas.

According to Petit, Autodesk’s research finds that this market is set to grow significantly, with revenue from mobile games projected to exceed that of console games by 2015. “Mobile is global; there are 726 million 3G users worldwide representing only 14 percent penetration and growing more than 30 percent per year,” he says. “In the ’90s at Autodesk, we were selling 3D software for 2D game creation. History is repeating itself—in this new sector, 3D tools are the key to differentiation in the growing mobile game platform.”

Others share Petit’s vision when it comes to alternative markets. One such person is Nintendo president Satoru Iwata. In his keynote address at GDC last month, he admitted that the mobile and social gaming industries are a growing force.

Iwata recalled that in 2005, when he gave his first keynote speech at the conference, only a few people were developing for the mobile market; now more than half the attendees made such a claim (no doubt due to the proliferation of smartphones and tablets). Another market game changer is an adjunct of this area: social gaming, which is growing by leaps and bounds thanks to Facebook. In so far as VFX is concerned, opportunities are sprouting in new areas, too, such as online advertising, notes Petit, as well as growing in others, including television.

One only has to look at the number of epic-style miniseries (Camelot, The Tudors, The Borgias, Spartacus) and top-rated TV series ( CSI, Fringe) to see opportunity. Or games like Angry Birds, being played on 42 million devices—and growing daily. Nevertheless, the need for high-quality visual effects and console games will continue to grow, too. Let’s just hope there will be plenty of studios standing to take on that work.