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DICE Fight Club: Budgets, Not Consolidation Edging Out Innovation

Will industry consolidation kill innovation and risk? At the DICE Summit, representatives from Benchmark Capital and Boesky and Company went head to head on the question, positing that it wasn't consolidation, but console creators pushing technology and t
At the 2008 DICE Summit in Las Vegas, game executives were pitted against one another in a Fight Club-inspired discussion, and round one featured industry executive Mitch Lasky, now of venture capital firm Benchmark Capital, versus game veteran Keith Boesky of Boesky and Company. The question: Will consolidation kill innovation and risk? Lasky's view: "Consolidation is going to help the people at the fringes get funded so they can ultimately get those titles into distribution." If innovation is being stifled because of risk, Lasky added, consolidation's not to blame: "Blame Sony and Microsoft for jacking the budgets up to $30 million for console development." Consolidation affects small publishers, Boesky added, when big publishers are only focused on their internal product. "What do we get with consolidation? Guitar Hero II? More of the same. Guitar Hero III? More of the same." The result of this type of post-consolidation repetition? Consumers get dissatisfied. "You get everybody moving back outside," Boesky asserted. While Lasky agreed that having too much capital is "bad," he supports distinguishing between "the video game fanboy art project and the video game business. Ultimately, having an exit strategy for making a multiple on your cash flow and return to the shareholders is important," he said. "It's been about ten years since a franchise has been created from within a publisher," Boesky pointed out, to which Lasky responded, "I think Activision's strategy for years has been to own the brands and worry about the development later." Boesky used Bungie as an example. "If you prove yourself within a publisher, the publisher gives you latitude -- creatively and [in terms of] responsibility." Conclusion? It's skill and polish the market rewards, not innovation, in Boesky's view. But if consolidation -- and, by association, risk-averseness -- continue to increase, when will consumers push back? Boesky says that massive size has already begun to trip up major publishers. "Look at EA -- somewhere along the way, EA forgot to make good games, and the customer, a few years ago, stopped buying it. Customers are not blindly buying sequels. How quickly can this huge behemoth respond? EA has to grow 10 percent every year -- so how can they respond?" Responded Lasky, "Big publishers are essentially capital formations -- some are external, some are internal development -- but because of new distribution, you don't need the capital as much as you used to." Boesky highlighted some reasons why it's so hard to be creative. "You have to make your numbers -- you have to make your numbers. It's all the mitigation of risk." Lasky says the introduction of packaged goods marketing values into video gaming market plays a role, too. "Packaged goods people are good at fighting over existing markets. They are not good for making new markets." Boesky believes that, despite all the talk about innovation and creation, the valuable employees internally move the needle financially. He feels games popular and beloved for their innovation aren't considered a success unless they're financial blockbusters. And Lasky feels that indie developers are "not a good risk reward for venture capitalists," because they don't turn a profit. It's because of that -- and not consolidation -- that innovation struggles, because, as he added, "Look at the '90s when there were 40 publishers... was that better for developers, for money?" "Did they need it?" Boesky retorted. "The console and PC game business is closed unless you're willing to dance with the devil," Lasky said, due to budgets reaching too high. So, he advised, "Make a direct-to-consumer casual game, a phone game, an XBLA game." In summary, both of the "fighters" agreed that innovation happens on the fringe. The main issue is scale -- does a product generate a vital ecosystem relative to the size of a project? And it remains to be seen what will happen if those innovators on the fringe want to stay there.

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