Only Small Number of Next-Gen Titles Will be Profitable

A new report warns that publishers could be left with empty pockets on many next-gen projects

According to the latest research from media analysts at Screen Digest, an "increasingly difficult environment" will mean return on investment on next-gen game projects is not likely to happen before 2008. Based on the sales required for single and multi-platform releases to cover development costs in the U.S. market, Screen Digest found that "only a tiny proportion of next generation titles are likely to achieve profitability in the near future."

Screen Digest's Next Generation Consoles: Games publishing, hardware analysis and forecasts to 2010 surveyed a number of major video game publishers and found that they're taking different approaches to survive the tough video game landscape. "Publishers have responded by employing risk reduction strategies, including outsourcing, releasing games on as many platforms as possible (including handheld and last generation consoles), making sequels to popular titles and producing games based on popular movies," states Screen Digest.

Some have also decided to 'level up' by bolstering internal development capabilities. Sony, for example, has doubled its internal development since launching the PS2. Sony Worldwide Studios employs about 2,200 development staff across 14 studios, all but one of which are devoted to making games for PlayStation 3. "Given that gamers choose consoles largely because of the games available for it, Sony's investment in its studios has given it a powerful weapon in driving PlayStation 3 sales momentum," asserts Screen Digest.

The report notes that while Microsoft and Nintendo also have large teams, they've taken a different tack to weather the challenging video game environment. Microsoft has been targeting relationships with third parties, such as Epic, to make games exclusively for the Xbox 360; this is a strategy that is already paying off in the case of Gears of War. As for Nintendo, it's well known that high-def visuals is not what Mario and Co. are striving for. The company has decided to focus on unique gameplay ideas and has ensured that making Wii and DS games will be affordable (if not profitable).

"While the previous generation was quickly dominated by Sony's PlayStation 2 across all major territories, this time we anticipate a more competitive situation where market share is likely to be split on a territorial basis," commented Screen Digest report author Ed Barton.

"Xbox 360 has a 12 month advantage, but whilst it has built a strong position in the U.S., it hasn't been able to achieve the traction needed in Japan, and Southern Europe remains a challenge. Nintendo's Wii has attracted an impressive level of third party support relative to its predecessor, but must maintain momentum into 2008 or risk declining levels of publisher support. We believe that a combination of Sony's investment in next generation games content and a strategy to position PS3 at the heart of the broadband enabled, high definition living room will enable it to build the largest global user base by 2010."

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