Daily Reaction: How the Broken AAA Games Model Still Isn’t Ready for Next-Gen

Fans are continually looking for the latest and the greatest from their big budget games, causing the cost of development to increase to never before seen heights and even leading to the death of beloved studios. With that, the Daily Reaction crew of Sebastian Moss and Dan Oravasaari discuss the problems of the current business model for AAA titles and the effect it is having on our industry.

Dan: This current generation has been the birthplace of many amazing new IPs, but has also marked the death of numerous studios that just couldn’t sell the required number of units to make a profit. That raises the question: Are we setting up AAA games development for failure?

Games are becoming increasingly more expensive to develop, in particular gaming’s blockbuster AAA titles. A major IP used to be ok with just moving a million units, but now we are seeing the requirement of games to sell millions upon millions of copies, in a market that isn’t growing at the same rate. That means that only a select few titles can actually make a return on the investment required to create it, leaving the developers of the less successful games to operate at a loss.

This risk of development has caused countless titles to become vaporware and even led to the closure of some incredibly talented teams. Studios like SCE Studio Liverpool, Zipper Interactive, LucasArts, EA Visceral Melbourne and so many more have all closed down ultimately due to being unable to produce a viable product that could return the required number of sold units.

Cliffy B, a man who at this point should need no introduction, tweeted:

At E3 I overheard that a certain AAA new IP needs to sell 10 million copies…to break even. No I’m not saying which one. You can guess. 🙂

As the market is more competitive than ever before, the idea of having to move 10 million units of a new IP seems ludicrous, especially when you take into account that the incredibly popular Halo 4 has only sold somewhere between 8 and 10 million units itself. Hopefully, sales are going to be split between multiplatform launches, meaning that the game will only have to pull in somewhere behind Assassin’s Creed 3, which had done 12 million units.

Both Halo and Assassin’s Creed are well established franchises, so for any new IP to have a chance to move that many units it will need a significant name behind it and an incredible advertising budget, leaving me to think it would be Bungie’s upcoming AAA title Destiny. Launching on all available platforms in 2014 there is a chance they can make their quota, but as the market becomes inundated with other titles and as next-gen starts to kick-off, this is still a very risky proposition.

Development behind these mammoth sized games is only going to become more expensive as time moves forward and can only be sustained by a four console market for so long, as we eventually say goodbye to this generation. So, it will be interesting to see how the industry handles development on products that are requiring such a vast investment with a market that has to start from the ground up one more time.

Seb: God, 10 million just to break even? That’s just… I mean… That’s downright insane.

I’m actually going to guess it’s Watch Dogs, because Ubisoft does like to make very big bets with their franchises, just like with Assassin’s Creed. I’d also wager that the 2nd and 3rd Watch Dogs games are already well in development, so they need the series to be a hit.

Next gen games do have better graphics that require more work from developers, but publishers are desperately trying to stop costs rising by sharing game engines among their studios, along with other development tools. EA, for example, hopes to keep the rise of development costs to only 5-10% by making everything use the Frostbite engine.

But, while a 5-10% rise may seem small compared to the past increases in cost, it’s still a huge problem. Like we discussed before on DR, inflation means that publishers are making increasingly less actual money out of each game sale. Plus, as we saw this gen, the cost of development is already unsustainable for many.

Square Enix has gone on the record saying their multimillion selling western titles like Tomb Raider and Hitman Absolution were disappointments and failures, ultimately leading to a recent spate of significant layoffs at IO Interactive.

When an IP does actually become a success, publishers try to milk it and make the franchise annual where possible. The problem is that there are now an increasing number of annual series, each of which sucks up their own audience, so there is less and less space for new IPs to have any success. And to be a success they need to be the ‘biggest game ever’ or have the best looking cars, so mediocrity is not allowed. Equally, marketing costs are spiraling as new games have to fight against powerful and established titans.

So we’ve got a model that currently doesn’t work for a lot of developers, and it’s about to get more expensive, just as the install base is reset to zero. That’s not good.

Meanwhile, social developers like Zynga are seeing their bubbles pop, mid-size games have seen their market dry up, and iOS has an insane amount of competition. Indie development can be successful, of course, but those titles don’t see the return required to run a large publishing house (except for a few very rare instances).

The AAA business model is broken, as is most of the other business models out there, so it’s a real problem for publishers. What we’re going to see is a further reliance on existing guaranteed-to-be-a-success IPs, like Call of Duty, and more and more microtransactions, with EA trying to squeeze an extra $20-30 out of every consumer (like we predicted).

This means we won’t see as many new IPs, and when we do, they’ll be in ‘safe’ genres – take The Division, which is open world and post apocalyptic – rather than really unique ideas. And they’ll be games that can be serialized to the point of ridicule, as well as microtransactioned to the point of stupidity.

Then, whenever one of those games underperforms, the studio behind it will be immediately shuttered. Awesome.

Do games cost too much to develop? Should we increase the cost of AAA titles? Or should we temper our expectations and understand the cost of production? Let us know in the comments below, email us at Da[email protected] or tell us how much you don’t care about the developers at Seb and Dan.