Development, video games

A long view of original new games IP – part 1: rising risk aversion dampens new IP

April 2007

The UK and US 2006 games charts featured few new original IPs and almost none in the top ten. So what’s wrong with an endless train of sequels and movie-derived games? So says Develop’s sister publication MCV which questioned the industry’s reverence towards, and desperate need for, original new IP. In this and next month’s article, I’ll investigate why it has been hard for new original IP to reach the market, why that will soon change and why original new IP remains a vital component for the games industry.

2006 was a classic transition year in the industry. Many of the larger publishers had been investing heavily in two (and belatedly a third) of the new console platforms for several years, while continuing to supply the last generation market. In past years, games that sell well later in a console’s lifecycle tend to reach a more mass market consumer who is less discerning about quality, less likely to buy a new game format or genre, and more likely to buy a game based on a brand they recognise. New family-friendly / female-friendly game genres have bucked that trend to by drawing in new audiences on PlayStation 2. Yet the overall trend is still towards safer, more bankable product.

As for the new consoles, producing games early in a console’s lifecycle means that skills, processes, tools and technology for cost-effective production are in their infancy. With low installed bases of early adopters, it looks like a commercially difficult proposition. Over a year since launch, the 360 is only just approaching the point where it has a large enough installed base to generate good returns for more than a handful of titles. In that first year, many new IPs sink without a trace because there is only room for a handful of profitable games when only a few million hardware units have shipped. Subsequently, it’s no surprise that some publishers filed losses in 2006 (as almost every publisher did in 2000/2001). So they need deep pockets and balls of steel to bring a new IP to market at the very start of the cycle.

But still publishers burn money to launch new games brands early in a new console’s life. Why is it worth the risk? Early adopters dominate the year 1 installed base. They consume the highest volume of games annually, are the most receptive to new ideas, are less receptive to sequels and are more discerning about quality. Despite the risk, launching new IP early gives the maximum amount of time for sequels that will reuse technology and gameplay. Hence many publishers will take a bath on the first iteration of a new franchise on the basis that sequels may sell in greater volume and cost less to develop.

In parallel, production cost inflation drives down output across the board as publishers focus their efforts on a smaller number of higher value projects. It is increasingly likely that this output is focused first on internal studios before independents. The recent spate of acquisitions of independent studios has seen most publishers’ internal studio capacity rising fast to cope with the challenge of bigger teams, budgets and ambitions for the new consoles. Some acquisitions have been driven by the desire to own a successful IP and its associated technology, but all have been driven by the need for more experienced hands on deck.

So, the result is that new IP, particularly from independent studios, does always struggle to launch in the 1st year of a new console generation. While these trends have reduced the numbers of new original IP in our charts in 2006, 2007 is another matter entirely. Next month, I’ll discuss why original new IP is so essential to the industry, how new platforms are triggering innovation across the board, and why publishers are demanding that independent studios keep originating new IP.

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