“People in this industry are so blind,” one insider told Silicon Knights founder and president Denis Dyack minutes before he begins his talk at the 2007 Lyon Game Developers Conference. Dyack has given this talk before. Once in Leipzig, and once, at the last minute, in Austin. He's discussing the idea of a "one-console future," zeroing in on the topic of commoditization in the games industry.
Dyack admitted that he likes the openness of the European audiences, and while he demurred when it comes to agreeing that everyone in the games industry is completely blind, he did note his surprise that knowledge of core economic principles and theories seem to be lacking.
His talk, then, focused on two points. From a business point of view, it’s the “We’ve got to do something!” rallying cry. And from the economics point of view: that something technically called commoditization does occur.
Dyack says this is where he tends to lose the audience. These are all sound economic terms, he said, and share the freedom from bias you don’t think of when arguing about which platform you’re a fan of.
Commoditization, Or How Consoles Are Like Cell Phones
“If you’re looking for someone to pick which console is going to win, you’ve come to the wrong talk,” Dyack stated. Instead, he said, his points were based on “my knowledge of economics, and the history of technology -- what I see as the trends.”
“There are three things I think you need to succeed:
Creativity, education, and warfare,” he stated.
Continued Dyack, "I have to talk about... a term called commoditization.” Borrowed from Marxist economic theory, Dyack uses it as a neutral look term. It’s, as he says, “talking about a unique branded product.”
Dyack described what happens between the “monopolistic model” going to a “perfect competition model,” creating, as he says, an "unintentional outcome that no party actively sought to achieve." Adds Dyack, "I have yet to find any technology that hasn’t become commoditized.”
Discussing a recent Gamasutra piece by Howard Wen that asked whether
there would ever be "one console to rule them all," Dyack said he was “shocked to hear them offer their opinion without any economic background."
When cell phones were first introduced, he explained, they were introduced as an executive’s toy. "If you saw the initial ads, you were very empowered,” he described. Now, he says, phones play music, allow for email, feature keyboards and functionality for IM and internet access. Now, he says, cell phones have entered an era “where the actual value of the cell phone became irrelevant,” and the price of the service was what was important.
According to Dyack, the simple formula boils down to “the number of features that you put into something is inverse to its value.” As something becomes less sought, he says, features must entice bored consumers.
Open Standard, Open Market
He then talked about open markets, like the DVD player.
“The PC is the exact opposite of that, because there’s no standard," he said.
The heart of his message, then, is that the games industry needs an open standard. "The PC market may be open, but it’s not standardized, and I don’t think it’s going to be anything publishers flock to anytime soon,” he added.
First parties establish a market with hardware while third-parties pay royalty profits, Dyack says -- and third parties stop liking this when the platform doesn't support the sales numbers they need.
"Let me go into some of those current development issues," continued Dyack. "The budgets are getting really high, and it’s getting really hard to make money. On a yearly basis, I’m hearing about [budgets] doubling and tripling. It’s definitely becoming a hit industry—if you don’t have a hit the first time." Furthermore, he noted, "The PS3, Wii, and 360 all seem like viable platforms. This is the first time [that’s happened].”
An event horizon is a term taken from astronomy -- when something goes through a black hole and is unable to return. Dyack predicts an event horizon for the games industry. “I think we’re seeing that with consumers where they can’t tell the difference between the PS3 and 360," he said. "We’re approaching things that will change things for quite a while."
Approaching The Event Horizon
Technology will continue to get faster and faster. But consumers don’t care anymore, Dyack opined. "I think we’re starting to over saturate people," he said, pointing out that no one needs to watch movies on a console when they also own a DVD player.
“Performance oversupply” is the technical term for this -- there is an emphasis on performance from the manufactures, but not a matching demand from consumers. "The first parties are paying tremendous amounts of money for exclusives,” revealed Dyack, citing $40 and $50 million figures. “It’s becoming increasingly difficult to get an exclusive,” he added.
He also discussed the "peak" in releasing titles. He owns every system, is a hardcore gamer, loves them -- but there are 300 coming out in November alone. "There are not that many consumers. I am not buying 300 games! I really have a hard time saying this market will continue.”
Dyack continued that not only do games have production values that rival Hollywood, but, "on top of all these things, you have a market where there’s no clear target. No console has 80 percent market share. I think the market cannot support itself.”
The solution is an open concept, and open standard where everyone can compete, he stressed. "When you buy a DVD, you don’t have to worry about whether your DVD player will play it -- it will,” he said. "You’re not going to have to worry about compatibility, because it will be.”
Dyack believes the one-console future will occur naturally, through a kind of economic and technological Darwinism. But he also expressed that we can push it sooner -- and moreover, that publishers should do so in order to keep from going out of business.
As an industry, he argued, "we want to hit the mass consumer. We have all these closed platforms, and that’s a huge problem for the consumer. think it’s hurting our industry.”
And if a lot of publishers lose enough money -- which, Dyack said, with current market trends, they will, publishers will step up and demand it. “I just think it’s a future in which everyone could win,” he said, noting, "You are seeing a ton of mergers with publishers and developers.”
“I’m not against any of the first parties… it’s not that at all," Dyack pointed out. "I just wonder how long this business model can continue. People ask me, 'who will win this console war?' With a one console future," he says: “the publisher, the developer, and the consumer.”