Outsourcing: The Quiet Revolution

By 2010, outsourcing for most video-game publishers will represent about 40% of development money spent

With all the talk of video game development costs spiraling upwards as we head into the next generation, developers need to do something to keep their projects within an acceptable budget. A new report from media research company Screen Digest suggests that developers are increasingly turning to outsourcing to combat rising costs, and that this trend is likely to continue.

Specifically, Screen Digest says that game development expenditures are mostly being shifted to outsourced services providers in Eastern Europe and South Asia. Their report Outsourcing in Next Generation Games Development estimates that the market for games outsourcing will reach $1.1 billion by the end of this year and will grow to $2.5 billion by 2010, which would mean outsourcing would actually represent around 40 percent of total games development expenditure. Although outsourcing is already common today (an estimated 60 percent of studios outsource), Screen Digest expects that figure to reach 90 percent by 2008.

Not surprisingly, Screen Digest points out that this trend has been fueled by the transition to next-gen consoles, the cost of making games for which "threaten to undermine industry profitability." Because of the demand for high-definition visuals and increased art requirements, production costs for making next-gen titles could rise by as much as 50 percent, states the report.

"Every transition to a new generation of consoles is painful, but this one is proving much more difficult and more expensive than before," commented the report's author, Rick Gibson. "Outsourcing is one of the few effective strategies in use today by the world's largest games studios to keep costs, particularly resource costs, under control."

Effective outsourcing should enable publishers, console manufacturers and developers to cap rising costs to 20 percent; the idea is to keep team sizes stable while outsourcing large projects to specialists. Screen Digest warns, however, that companies need to watch out for "low quality delivery, and lack of due diligence and poor briefing by clients."

"Outsourcing is in wide use today, but it is not a magic wand. You get what you pay for in the trade-off between price and quality, but the real costs of outsourcing are often below the line. This is forcing the industry to undergo a fundamental shift towards stronger project management skills, which have been lacking in many organizations," added Gibson.

Screen Digest also sees some likely side effects from this outsourcing trend. The research firm predicts that demand for quality art and animation will soon outstrip supply by experienced outsourcing providers and as a result of this shortage prices will increase. Furthermore, this may lead to "continued suppression of the number of new titles in development, an increase of financing into the games services sector, and a number of new market entrants, particularly traditional media companies, whose entrance will be slow, difficult but ultimately beneficial for the games industry as a whole."

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