What Can You Learn From The Videogame Industry Giants Of Today?

“In 2021 alone, the global videogame industry had a whopping US$ 180 billion in revenue. In fact the videogame industry is bigger than Hollywood and the Music industry combined in terms of revenue.”

This is according to thingshavechanged (thc-pod.com) podcast website which reports stories about the digital industry and all matters pertaining to our digital life. But they’re not alone in heralding this information.

Simply Googling “is the videogame industry bigger than the movie and music industry” for example would turn up plenty of articles which would prove that indeed, the videogame industry is much bigger than Hollywood and the music industry combined together.

According to the website, the top videogames are Grand Theft Auto V (GTA V), Red Dead Redemption 2, Fall Out 4 and the Call of Duty franchise. The website even made a comparison between videogame and movie earnings…

The videogame Grand Theft Auto V has raked in more than US$ 6 billion according to MarketWatch, a prominent industry reporting website/company. Compare this to the highest growing movie of all time which is Avatar.

The movie made US$ 2.8 billion which is already considered a very astounding feat in the movie industry, but you could already see the difference in earnings between GTA V versus Avatar.

If you are feeling inspired to make videogames now, think again. Just like most industries, the videogame industry has matured. This means that there are now well established and well financed players in the market.

Names like Electronic Arts (EA) from the USA and Tencent Games from China are just a few giants in the industry which largely takes in most of the market and profits in the industry leaving only crumbs if at all to the much smaller indie videogame developers.

Harrowing stories of how a videogame development career could be a horrible are echoed in such YouTube videos from the Game Developers Conference (GDC) failure workshops. It is not uncommon at all for videogame developers to earn nothing from their years of hard work.

Despite the huge profits that can be made from AAA videogames, more and more of the big videogame studios are churning out lesser and lesser new videogames. But why is this so? Isn’t it more logical to produce more and more videogames for more and more profits?

For example, the videogame studio, Rockstar Games used to produce a new videogame every four months but fast forward 2022 and its latest game is still GTA which is almost four years old.

One thing we can note is that GTA V costed a lot more money to produce than Avatar the movie. So right off the bat, we can already state that it is very expensive to produce a new videogame on a regular basis.

Videogame studios in fact would do their best not to release new games if they can. This is because of the huge gamble involved in producing AAA videogames. The Scottish newspaper “The Scotsman” reported that US$ 266 million is the cost of GTA V.

This information was reported again by the online general news website insider.com or more prominently known as Business Insider. As you can see, not many companies would want to bet US$ 266 million on a relatively new and untested product.

Let’s use as an example the videogame Cyberpunk 2077 which was once the talk of the town in the videogame community. Many were inclined to buy the videogame even though it wasn’t available yet.

From flashy commercials to the appearance of Keanu Reeves as a character in the videogame, the videogame news industry were hyping Cyberpunk 2077 as the “must have game” for the true videogame enthusiasts.

But upon release, the videogame was found to be with glitches and delivered lackluster gaming quality. So much so that even Keanu Reeves have to publicly state that he never played the videogame. Even the videogame company made a public apology.

The game cost its videogame studio, CD Projekt Red, US$ 316 million to produce and so far in 2022, the gross sales is only 207 million. So the videogame company has lost a lot of money to date, in fact the loss to date amounts to US$ 109 million.

But they are not the only videogame company that lost a lot of money to their new and untested videogame product. Do you remember these videogames which were once the talk of the town: Fallout 76, Battlefield 2042, Destiny …?

AAA games are not only expensive to produce but also uses a lot of manpower, most notably videogame programmers, videogame illustrators, audio experts and so on. For example, the videogame Halo Infinite had more than 100 voice actors alone!

As more people are involved in a project the more are the chances for human mistakes. In the case of videogame programmers for example, these human mistakes are called “programming bugs” or ”bugs” for short.

And unlike a simple typing error in a text document, a programming bug can affect the entire videogame program and could take months and even years to detect and fix. There are even computer programs which have been abandoned because the bugs are so hard to find.

This is also the reason why big videogame studios hire professional game testers whose only job is to play the videogame. If you think this is a fun job to have, you must take note that these videogame testers are likely playing videogames which are full of bugs.

Smaller and indie videogame studios do not even have this luxury. Most of the time they have to program and test their videogame at the same time. There are even videogames from very small videogame studios that are released not fully tested if tested at all.

Videogame development studios don’t have to contend only with big budgets, workforce and computer bugs but also consumer acceptance. The Apple Store and the Google PlayStore in themselves alone have over a million videogames.

We can also add the videogames available in Playstation, Xbox, Nintendo and the other gaming consoles. Then there’s more old games available now with Retrogaming. A single retrogaming device can contain thousands of videogames.

Then there are the established AAA games that people play for months and even years like Fortnite, Clash Of Clans, Call Of Duty, God Of War, PUBG, Candy Crush… and the list goes on and on.

How does a new videogame compete with this deluge of videogames which are now almost all free to play just to attract more and more players? For many established AAA videogame studios the answer is to simply milk their more successful videogames for everything its got.

And this strategy is working. The big AAA videogame studios have been earning record revenues despite not having to produce new videogame titles. The amount of money these studios save by not producing a new videogame is big money in itself alone.

AAA videogame studios and even the smaller ones are making money nowadays by selling virtual upgrades and cosmetic items in their videogames, by renting out their game engine or by setting up their own videogame store.

Why would RockStar games for example release a new installment of GTA when it would virtually cannibalize the sales from their older GTA games? As you can see, videogames are being developed today which have the purpose of being played for decades to come.

For example, Halo 1 is still being played by many people today despite its age. Halo 1 beat out the then reigning champion Doom in the First Person Shooter or FPS type games because of its superior technology and gameplay.

Succeeding Halo games contained only slight advantages from the original Halo that many people stuck to the original Halo. This is an example of how games have plateaued. Many gamers are simply happy with playing their old videogames over and over again.

And videogame companies know this. That is why instead of making new videogames, they are not just slightly improving their games to offer more virtual upgrades, cosmetic items and the likes. And what do you know? Their strategy is working.

Let’s take a look at how successful milking your existing products can be. In the case of Epic Games their Unreal gaming engine has a 13% market share. This alone is worth a reported US$ 20 million/year in licensing fees.

They also charge a 5% royalty fee for every successful game developed in Unreal engine which earns over a million dollars. This reportedly generates around a billion dollars per year to the company alone.

And we still have to mention that the company operates its own videogame store. As you can see, from developing games they have pivoted to becoming middlemen between videogame developers and the videogame players.

Epic Games is unlikely to have another success like this one and may have to expand to other areas in order to grow even bigger. They’re milking their game engine for all it’s got. If you are a businessperson and you have one or a few successful products, don’t think this will continue.

You have to maximize your earnings from your most successful product before going to the next one. For example, The Coca-Cola Company has largely maximized their profits from one product alone which is Coca-Cola before it branched to other new beverage products.

1. Paywalls: This is increasingly being adapted by many websites including blogs and news websites. You probably have visited a blog like Medium or a news website like Bloomberg which have paywalls.

In this strategy, the blog or news website would show you a few free articles before showing a subscription paywall where you have to pay a subscription in order to read the successive articles on the website.

You can do this too in your business by having two tiers of digital products. One are the free digital products which serves as your promotional materials and the second would be products behind a paywall. Ideally, the products in your paywall offer more quality than the free ones.

2. Cosmetic Items: These are digital products that are not needed for your digital product to work. For example, there are many text and graphics software that offer templates, illustrations for an extra fee.

3. Ad Buttons: You could also enable people to further access your digital content by watching a non-skippable ad. You would be surprised by the number of people willing to watch an ad just to access free digital content.

New videogames are not only very expensive, difficult to produce but are also a very big gamble. This is the reason why even in the movie industry there are many remakes of successful movies.

It is best to fully milk your profits first from your most successful products before gambling your money on new and relatively untested products which might not sell well if they even do. This is because your past successes is not a barometer of your future success.

Failure from doing something completely new is always a very real reality as most consumers resist and are even hostile to change.

You might also like to read the article:

GDC Failure Workshop And Similar Videos

The GDC Failure Workshop is an annual event of GDC or Game Developers Conference. As the title suggests, it talks about failure in game development. But don’t be disheartened by the workshop’s name, there’s more to it...