A new report on the risks involved in game publishing and development has been released suggesting that, in the next generation, as few as 80 games a year will turn a profit. Development costs in the next generation are set to rise from $3 -$6 million per title to $6-$10 million, with some cases surpassing $20 million.
Those are the findings of a new report from Screen Digest called Games Software Publishing: Strategies for Market Success. The report adds that these increases must be set against forecast sales growth of 9-10% over the next four years.
The report goes on to say games publishers will become more cautious as the cost of a failed title becomes more pronounced. Screen Digest estimates that the number of profitable titles per year could fall as low as 80 as developers and publishers are forced to focus on fewer titles.
The report predicts continued industry consolidation and the demise of smaller publishers, while large U.S publishers continue to grow. Licenses and sequels may well become even more dominant.
Licenses versus original IP
Screen Digest's analysis shows that in the U.S. in 2004, titles based on licensed IP, such as Madden NFL 2005, sold 23% more units than titles based on original content. However, the short term revenue gains of licensed IP, does not necessarily translate into greater profits. Licensing costs are rising as IP owners become increasingly aware of the growing importance of the games medium.
While the majority of games released in 2004 and 2005 by the major publishers will have been profitable, looking ahead new revenue streams will take on increased significance for games publishers. The total online PC games market topped $1bn in the West in 2004 and is expected to exceed $2bn by 2007. Mobile and digital distribution also offer growing new incremental revenue streams for publishers.
The author of the report, Marc de Gentile-Williams, said, "At 30 years of age, the games industry still suffers from an endemic lack of professional management compared to less mature industries such as the mobile telephony and the internet industries. The high number of bankruptcies -- despite favorable market conditions -- is testament to this fact. Games companies must complement their formidable creative and technological achievements with strong business planning and analysis in order to reap the benefits of the next phase of console market growth".