Question of the Week Responses: Developer Consolidation?

Last week Gamasutra asked our professional audience, “What do you think of the continuing trend of major publishers acquiring significant independent game developers? Is industry consolidation necessary for reasons of stability and growth, and what does it mean for the future of game creation?"

Last week Gamasutra asked our professional audience, “What do you think of the continuing trend of major publishers acquiring significant independent game developers? Is industry consolidation necessary for reasons of stability and growth, and what does it mean for the future of game creation?"

The question was asked following the continuing purchase of independent developers by bigger publishers, including major recent deals such as Sony buying Zipper Interactive and Guerrilla Games, Vivendi purchasing High Moon Studios, and 2K Games acquiring Firaxis. The responses we received from game developers and professionals were many, varied, surprisingly long, and often passionate, and we reprint them in full below, with particularly interesting sections highlighted in bold.

As far as having a positive or negative impact on the industry, I believe this trend is most certainly negative. For a big publisher, independant developers offer a recognized and respected brand, the company culture, a number of experienced developers, and the rights to all of that companies IP and game properties. In return, all they need to do is put up front some cash. What I think most publishers and developers don't realize though, even the ones with relatively laissez-faire policies, is that the very act of acquisition may start a chain reaction that transforms that company's biggest assets into its biggest liabilities. For the developers though, the real question is would they even still be around today without the security of a parent company supporting them. In the end I think most publishers are buying out indies left and right just to limit that option from their competitors, but a homogenized oligopoly as the game industry is becoming will certainly harm it more than help.
- Aurelio Reis, Raven Software

All industries go in waves, alternating between expansion and consolidation. The gaming industry is no different. It's necessary for these changes to exist for the industry to move forward. Think of it sort of like a genetic algorithm - you have the phase of mass-production of all sorts of new combinations and ideas being attempted, then you have the sorting-out and winnowing phase. Not that these are distinct phases; they overlap to varying degrees at any given time. Often, however, one phase or the other is dominant. At the moment, this is the consolidation phase. In three years or so, the expansion phase should again regain dominance, and you'll see a plethora of new and up-and-coming independent game companies releasing their entries into the survival matrix, just like there were two to three years ago (primarily with the web-based and hand-held markets). There's already signs of it now - lots of little groups starting up little gaming projects. With technologies like WiMax rolling out starting this year, there should be a number of new types of markets ripe for the plucking by insightful new start-ups within a year or two, and then you'll see the wave of tag-alongs following the ones that prove most successful. This will, of course, be followed by the "big boys" (not necessarily the same as the "big boys" right now) gobbling up the most successful, and the cycle starting again. So is industry consolidation necessary? I say, not only necessary, but a significant part of the healthy cycle of growth in any organic system.
Jesse McClusky, Rite Studios, LLC

Acquisition and consolidation happens in every industry over time. It is inevitable in a publically traded Wall Street economy. Asking whether it's "necessary" misses the obvious: all industrial economies behave this way, necessary or not. Furthermore, many high tech startups deliberately design themselves to be acquired. This is the main way that venture capitalists can make a large return on their investment. How does this pertain to a game startup? Well, the principals need to decide if their goal in the long run is to make money or to make specific products. The biggest payoffs are going to come from a big buyout. However, the acquisition is going to destroy control over the product. Control may not be important - principals often take the few gazillion dollars from the buyout and just start another company. Or, control may be very important; it may not be possible to develop the product any more, ever. The DEC Alpha CPU is an example. DEC was bought by Compaq was bought by HP; no more Alpha. In the game industry it could mean the death of a franchise. For instance, Bullfrog did Dungeon Keeper 1 and 2, got bought by EA, now no more Dungeon Keeper. Of course, the other way to kill a franchise is to go bankrupt under your own power. For instance, Looking Glass Software did Thief 1 and 2, received critical acclaim, and went bankrupt. It looked like the end for Garrett, but Eidos bought the franchise and Ion Storm did Thief 3. Solvency is a good tool for remaining independent. Can genres be stopped? Can game ideas be stopped? No, they cannot be. They will always be implemented by people who value their creative independence more than they value money. Whether to get bought out is a choice, as is what to do next.
Brandon Van Every, Indie Game Design

It's essentially been inevitable ever since the cost of development jumped firmly into the millions that acquisition would be the way forward. There are simple reasons behind this, but the most simple is that development companies are poor companies with good resources. Every last one of them is essentially operating in an environment where they are beholden to a very few customers (publishers), which inevitably puts them on the back foot in negotiations and ultimately means that they cannot make enough money to prosper in the long term.
No game development company has a workable growth strategy that lasts more than two years, and many companies (from the most venerable to the relatively green) are essentially relying full time on an existing IP or celebrity or both to stay in the eye of the publishers. But there is no escape from the fact that they have no long term plan, no means to achieve it, and their locations, staff overheads and operating costs. What we're looking at in real terms is a period in the industry's evolution where the very idea of the game developer is becoming anachronistic. Most other media now operate in an entirely contractor-based environment, and games are slowly following suit.
There are several large steps that need to happen before this becomes a reality, first among them being that game development companies must die out entirely. And they will. There simply isn't enough work around to keep teams of the size that developers now need together for long periods of time, but at the same time they are trying to encourage staff to join by moving across the country (or to different countries) to make up for their shortfalls. It's lunacy. What is needed is a new generation of game companies which focus on the sorts of production processes seen in the construction industry.
What is needed is for game production companies which manage each phase of a project as a separate piece, hiring staff purely on contract and performance-based remuneration, and letting go of so many of the "old business" ideas that pervade the industry. In an industry that is supposedly on the cutting edge of technology, we still have a very 1980s sense of how to do business, a sense which ensures more attendance and waste at a time when flexibile working methods and nimbleness is what's called for. Telecommuting to reduce overall office rents, almost no full time staff and central locations are the sort of thing that the games industry now needs, yet amazingly the ideas of software development, of big campus-style buildings and flabby uncontrolled development are the order of the day. These companies need to die to get us away from that entirely fraudulent mindset.
- Anonymous

This trend isn't really anything new in our industry; it just seems to be happening a whole lot more in recent days, especially now that the realities of next gen development have sunk in. Next gen games are exponentially more costly than current gen games, and to make a “mistake” could spell the end for a small developer. In that sense, consolidation is definitely a means of stability, but in the long run all of this consolidation will only make the plague of “sequelitis” worse. In the last couple of years, we've seen a different pattern start to emerge; people are getting hungry again for original content. This is a huge problem for a big company that has to satisfy their shareholders and board by releasing games each year that are guaranteed to sell lots of units. At this point it has strictly become business, and the pride in developer satisfaction has completely been lost in the process. The only logical thing to do in order to get a game out the door the following year is to buy a small, successful creative company, who not only are set to deliver a media-hyped game, but who will also be a maximization of the large companies’ investment.
When companies that are too large lose that culture and attitude of what makes a small company fun to work for and create ideas for, it becomes infinitely challenging to create a game that is fun, original and compelling. It’s very difficult to work when all that the people around you care about is how much money you are spending to make the game you’re pouring yourself into, and demanding that you have to be ready to ship on a very specific date. Management takes a leap forward, but imagination and creativity get placed on the back burner only to be forgotten as the money rolls in from sequels year after year. This could spell “generic” for the future of game creation, but if the right steps are taken by the right companies, we could see a shift towards more original content for next gen development. It’s the perfect stage to test new ideas that were never possible previously, and with all the consolidation and larger timelines for development there will be less major titles from large companies competing with original software. A good current example of this is the Xbox 360. Since its initial release in November, there has only been one additional game reach the shelf, and the next isn’t scheduled to release until the middle of February – that’s over the span of 4 months. If this is any indication as to how few titles we can expect in the future, there will be a lot less software competition in the market this coming year and next. If anything, a large company that can produce multiple sequels in a year might only be competing against itself. This could force them to create original content, which in my mind, is the best possible scenario.
Randolph Stayer, EA Canada

No, it is not necessary. In fact, I am convinced it will be the undoing of the industry as we know it. Independent developers can't even get a bargain basement deal anymore without a nearly completed game. It's ridiculous. They have retail and distribution all tied up. It is an absolute monopoly. It hinders imagination and innovation when you can't push boundaries outside of what some sales guy at publisher "X" who knows nothing about games thinks is a good idea. Hopefully electronic distribution, a few law suits and maybe a behemoth bankruptcy or two will even things out a bit.
- Anonymous

Consolidation is inevitable and a factor of the existing business model of the console, PC and handheld game market. Retailers place demands on publishers. Publishers place demands on developers. Developers are controlled by the funding activities and constraints of publishers. Hardware and platform holders place demands on all aspects of the supply and production chain through liberal use of licensing fees. It is not a perfect market - hell, it’s not even a fair one, but it is the market that has evolved around the historical activities and operations of the industry to date. Publishers sit at the very heart of the development chain and are the best equipped to perform market research, strategically ally and negotiate with retailers, platform owners, manufacturers and distributors.
Publishers are feeling the tightening squeeze of operating within a global marketplace. Like other industries have discovered automobile, movie, telco and electronics that are global in nature, larger and larger makes sense with big organisations consolidating with smaller ones through buyouts, exclusive deals, partnerships etc. Publishers have the contacts and businesses wherewithal to manage global IP and game manufacturing and distribution activities. Developers that have gone solo, developing their business skills, technology, R&D, marketing, promotion and new methods of distribution such as Valve are a guiding light of what a developer can do to break the traditional stranglehold of publisher financial control. Lucky they are and letting other developers self publish and distribute games.
However for every Steam there are a hundred developers who have, at every new hardware cycle or leap in development, technology or platform decided to forgo developing their business skill, marketing, advertising, R&D and thinking, selling direct to the market or generating profits through their own operational activities. Instead these short-sighted developers have signed away their IP (the only real value of their company) for the hassle free life of letting the publishers do their thinking for them.
The growth of casual games, handhelds and new methods of interaction, distribution and play such as Xbox life arcade will allow a bright few developers who have a mind to make games for themselves with their own funds and their own IP using their own business, advertising and marketing skills can look to a bright future.
Alan O' Dea, Steamdriven

I don't think it's a necessity - there's this big spin that major publishers are putting out there as a scare tactic. There is no NEED for massive industry consolidation, but major publishers WANT to have consolidation because it will affect their marketshare. The bigger the share the more profit there is to be made. I'm not saying that the drive to make money is evil in any way, but the major forces in the industry pretend that the market is the reason for their desicision to consolidate when it's their influence that makes the market the way it is right now. Consolidation does not "grow" our industry, it makes it bloated. Consolidation for reasons of stability? I would argue that it's more difficult to be stable when you've got so much bloated weight to carry. You can't make a hairpin turn while driving a semi truck at 80 miles an hour - all you'll get when you try this is a wreck. That's what I think consolidation will do; we as an industry will not be able to navigate the "hairpin turns" that this very fast, unpredictable, and exciting entertainment medium and business will throw at us. We will choose to drive slow and play it safe, but who wants to watch or be part of something like that? With great power comes great responsibility. I think every major industry figurehead and influencer has the responsibility to change the landscape of the gaming business and make it fertile enough to grow new ideas, new methods of content delivery, and new business models that benefits everyone involved.
- Anonymous

Game creation is too random of an industry to predict what kind of outcome this will have. As many independents are aware, it is a tough industry to be successful in. Many of us won't make a living at doing what we love, which is creating fun games. So, what are our options? If you had the next breakthrough idea, do you market it on your own, and roll the dice? Or, do you pitch it to a company with a proven track record of games sales, and give up some of your creative freedom? Film student George Lucas got lucky in this way; he made the commercially successful American Graffiti, a low budget movie that made it big. This gave him the power to make Star Wars...a movie, at the time of inception, was an unknown quantity. Mr. Lucas really didn't care if it made money or not. In his mind, if it wasn't a big hit, he would go back to making the independent films that he wanted to do. So, how does this trend affect us? It really doesn't. It shows that the major publishers are light on ideas, and need to tap into creativity they don't have. They will squeeze whatever ideas they need to make a buck from your idea, then spit you out once you’re not as juicy as when you were indie. The question better asked is "Should it be necessary for growth?" This trend really shows that independents don't need major publishers to make games anymore! Knowledge that was once held by a few developers for the big companies has been dispersed via the internet. Channels of distribution that were once open to big companies have also been opened via the internet. The sky is limit for the indie now, some will take the short path to success and sell out, and the rest will keep hacking away. If you’re reading this, you’re probably an independent hacker, so just keep at it. Success can come by your own hand.
J Kelly, Sea Cow Games

While industry consolidation is never necessary, given how significantly easier it is to produce and distribute games independently today, there's a certain boon to it that I think is overlooked. Bringing bright and successful developers into the fold, whether it be less than amicable like with Katamari and Namco, or robust like with NCSoft and its new guildies, will both improve the visibility of rare talents, and also gain (a touch of) corporate appreciation for maverick designers. What the industry really needs is "celebrity directors" like Tim Schafer, Miyamoto, Cliffy B, or Kojima. Once you can disentangle their names from a corporate brand, the proper credit will hit the proper people, and they just might be properly funded in the future. There are many talents in the industry, and consolidation is fine so long as that doesn't obscure due renown. We might even get better games out of it.
Lorenzo Wang, ESC Entertainment

This is very bad for the industry in my opinion. Most large publishers/developers are afraid to make risky new types of games, but small/independent developers can be more willing to try them, as it could possibly make their games stand out more. If we look at what has happened so far, usually when a small developer creates a popular game and then gets bought by a large company they tend to end up just making sequels of the same game from that point, then once that franchise has been beat into the ground, the group is disbanded and absorbed by the rest of the company. Our industry needs diversity if it is to thrive. Games are entertainment, and gamers will always be looking for something new and unique. What would be much more beneficial to us all is if the big publishers and what not would simply make greater investments in helping fund games by independent developers. They would still make money off them, but the developers could have more freedom to make the games they want. Sure, the current way things are going, these mergers and buyouts probably stand to make a good bit of money real quick, but not in the long run.
Derick Eisenhardt, EMH Games

With EA and Microsoft in a slow-paced battle to usurp any company with the slightest inclination towards making great games, I have to wonder if the best strategy for a fledgling developer is to seek being purchased by them. You only have to innovate enough to have one, maybe two blockbuster hits before the twin Borg cubes descend over your studio and begin assimilating. I also wonder how many of these small startups actually started from a section of people splintering off of the two larger companies. It really seems like it's just a cycle. EA buys Westwood, anyone with talent and drive leaves, they form their own studios, then those studios are bought by Microsoft. It's kind of like a pyramid scheme except that the corporations are paying the owners of the small business for talent that can leave at anytime because they have no obligation to stay. But this consolidation doesn't provide any growth, it's the same talent (with the occasional new people coming in, and fed-up people leaving) being moved around from one company to another. Then that talent can leave the new company and form their own studio whenever they want. For game creation, it means that the big studios will always be making a sequel to something, because the truly creative people are going to leave to do their own thing as soon as they're bought. Innovation can't come from EA or Microsoft directly, because they're too big to recognize a creative individual. They only think in terms of the business they're buying. As a result, they end up with an empty shell of a business and no innovators. Granted, this isn't always the case, but only the sucesses are going to be touted by EA and MS. How many of those sucessful games are sequels to games that began creation before the company was purchased?
Dave Fried, The Collective

It is necessary if said independent game developers want to continue making high-profile console games for the impending next generation, but for the wily studios there's plenty of alternatives. Developing for today's handhelds is certainly a viable option since they're so close to last-gen consoles; Planet Moon did exactly this. Digital distribution is on the horizon as well, giving the chance for established studios to flex their creative muscles unhindered by publisher demands (Valve with Steam, Ritual with Sin Episodes), and as a one-two shot these digital distribution methods will allow the smaller guys to get their products directly to the marketplace, like Introversion's Darwinia. But back to the question—competition is good for business, the industry, and the players; and removing the variety from day-to-day releases by scooping up promising studios won't help anybody in the long run.
Ben Serviss, Creo Ludus Entertainment

If the publisher doesn't change the creative ideas of the independent developer that made it successful in the first place, then it could be a good thing, because it will help keep that creativity alive and well and be allowed to flourish. However, some publishers tend to ignore the same developer's ideas by the thinking 'we own you so what we say - goes' approach, then it won't be doing anyone any good - least of all the consumer. Independent developers try to give the consumer new and fresh products, where it appears large publishers usually like to just go for a quick buck with a licence, which is ironic, as they are the ones who can take a more finacial risk.
- Anonymous


[Please note that the opinions of individual employees responding to the Question Of The Week may not represent those of their company.]


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