May 2007
Last month I looked at why so few charted last year and why publishers invest in loss-leading new franchises early in the cycle. This month, I want to examine the critical role of new original IP in our companies.
Is there anything intrinsically wrong with a stream of sequels dominating the charts? Sequels are important. They amortise costs from expensive first iterations across more profitable sequels. They build a franchise’s brand, reducing publishers’ cost of marketing to new audiences by triggering hard-won first adopters’ excitement about the next chapter. They reduce development costs by re-using technology and assets, allowing incremental innovation with gameplay already familiar to audiences. Sequels can significantly reduce risk.
However most sequels, especially perennial ones, can go stale. Developers can be forced into reusing gameplay or denied the chance to innovate significantly to avoid hurting the brand. Games go off because staff get bored endlessly remaking them. Re-treading the same footsteps encourages laziness and risk aversion, because sudden innovation can alienate the franchise’s core audience. This can kill the culture of innovation that generated the first game’s success. A franchise too heavily mined (say a franchise in its fifth iteration with movie spin-offs, cuddly toys, versions on every conceivable platform and an MMOG waiting to crash spectacularly) can lose its direction.
New original IP plays many important roles – financial (new markets, franchises and revenues), commercial (new models, lines of business and company value), demographic (new audiences and genres), technological (new technology, processes and ways to reduce production costs), and structural (new companies and sources of finance) but high on the list is the effect that it has on staff.
Games studios cannot survive without teams of committed, passionate and creative developers generating new ideas that move everyone forward, as relevant for companies with 1,000+ developers as for three-man-bands working weekends on cherished pet projects. New original IP creates passion in the team developing it, which enthusiasm can rescue companies at the brink just as its absence can kill them. The industry redefines itself rapidly, triggered not by chairmen writing new mission statements, but by talented teams creating something new. That’s behind EA’s refocus towards creating original new IP from internal teams.
Balancing the portfolio is vital for publishers, so that the failure of one franchise doesn’t jeopardise the company. Take Two is unstable for many reasons but topping the list is 60% of its revenues in a GTA year come from one franchise. Eidos had the same problem with Tomb Raider, but its investment in new franchises has balanced their portfolio. Ubisoft is doing some of the world’s most exciting development on new franchises, but they’re bankrolled by strong sequels.
What triggers new IP? Sometimes new technology enables new gameplay – such as 3D game engines or innovative network features. Perhaps it’s new commercial models – like micro-payments. It could be privation – the threat of a company’s imminent collapse, or ingenuity with almost no resources. Maybe it’s the arrival of new distribution mechanisms – Xbox Live Arcade or MySpace. Or a lone genius could be buried in your testing rooms. These triggers are completely unpredictable. The only constant is having good teams able to create or respond to opportunities whatever their origin.
Just as franchises must balance riskier new games, publishers still need independents to inject new ideas. Despite the recent mass extinction, independents are vitally important to the industry’s eco-system, and many innovative, genre-busting, assumption-challenging games will come from the independent sector. New original IP’s financial impact, when successful, is measured in the hundreds of millions of dollars and publishers are now demanding that they own, or at least control, it. If not, there’s the game can under-perform. Independents must often cede control of all but the strongest IP early on, unless they possess the financial muscle to retain it.
The challenge is to keep the flow of original new IP from publishers and independents moving. Next month we’ll look in detail at the competitive position of the UK industry in a global market imbalanced by government subsidies.
Games investor consulting blog 