Depending on who you ask, gaming is either an unstoppable juggernaut or an industry that’s burning bright like a star, moments before it goes supernova and eventually goes cold. Now, I should preface by saying that I don’t believe the video game industry is in need of “saving” in the typical sense, nor do I believe it’s approaching some type of collapse.
On the contrary, the industry continues to thrive and grow, or at least it does if you’re not named PlayStation, Xbox, or Nintendo. As noted by many industry insiders, the traditional console gaming market hasn’t grown much in the last two to three decades. Instead, what we have is a market with an install base of roughly 250-300 million that gets traded between the big three. Sometimes, it’s PlayStation with more users, other generations it’s Nintendo, but it’s never less than 200 million and it’s yet to surpass 300 million.
While an industry that’s not growing is problematic on many fronts, the biggest problem facing the gaming industry is rising costs. $59.99 —that was the price of a AAA game back on PSone, the price of a AAA game on PS4, and now on PS5. What hasn’t changed since then are production costs.
Shawn Layden, former president and CEO of Sony Interactive Entertainment America talking with Dean Takahashi:
It’s been $59.99 since I started in this business, but the cost of games have gone up ten times. If you don’t have elasticity on the price-point, but you have huge volatility on the cost line, the model becomes more difficult. I think this generation is going to see those two imperatives collide.
Today, it’s not uncommon to see a game cost well north of $100 million to develop over five years and that’s not even taking marketing into account. To put that into perspective, in the early days of PlayStation, rarely did AAA games cost more than a few million dollars to produce.
If that sounds unsustainable to you, you’d be right. If the install base continues to stagnate and the cost of goods remains mostly the same while production costs increase by leaps and bounds, something has to give—and it has.
Though perhaps invisible, the gaming industry is now, more than ever, reliant on sequels and “safe bets,” ie: sports, shooters, and battle royale! Now mind you, some of my favorite films are sequels and like everyone else, I’m eagerly awaiting Horizon Forbidden West and the next God of War. But, there’s also a reason we’re on Call of Duty Infinity+ and sports franchises are able to pump out a new edition every year.
Enter cloud gaming and its promise.
For a long time, I was extremely bullish on cloud gaming. The “Netflix of gaming!” I cried. My rationale was this—on average, game consoles cost anywhere between $300-$500, but through the introduction of cloud gaming, that barrier would be reduced to the cost of a controller. Where before, you needed a console, now, like Netflix, on your latest smart TV or iPhone, you could connect a $60 controller and be off to the races with the latest games.
This solution “solved” a major problem developers are facing—user base. Where till now, Naughty Dog needed to create, and therefore budget for, a game that made sense for an install base of 100 million, knowing full well that they may only capture 10 or 15 percent of that audience, they now suddenly had access to hundreds of millions of gamers if PlayStation Now (or insert your favorite developer and cloud platform of choice) was accessible on TVs, computers, tablets, and phones.
This, to me, sounded like the inevitable future and why Google (RIP Stadia), PlayStation and Xbox are pouring billions into cloud gaming. Eureka! The industry is saved.
That is, unless there’s a fundamental flaw in my thinking, and I now believe there is. None of what I’m going to say next is to devalue cloud gaming, nor do I find it lackluster or underwhelming. Like so many other things, there’s a place for it, but on its own, cloud gaming does absolutely nothing to actually address the core issue—install base.
My cloud gaming approach had thus far been built on the narrative of “if you build it, they will come” and failed to take into account the possibility that everybody who would come has already arrived. Think of it another way—yes, we all want a PS5, but between its price and scarcity, it remains unattainable for many. But the same was true at some point for PS4, PS3, PS2, and PSone. Eventually, every single one of those consoles became readily available at lower price points and yet, the install base has never eclipsed 300 million.
That is to say, while cloud gaming can dramatically reduce the price of entry for gaming, it does little to attract non-gamers. In fact, if you look at those who are most excited by and most likely to utilize cloud gaming, via PlayStation Now or Microsoft Xcloud, they are hardcore gamers who already own a console and are looking for additional ways to game when not in front of their TVs, not consumers who aren’t gamers.
The only thing cloud gaming offers the gaming industry is a moat around console gamers so that, as traditional gamers grow and their lives become more complicated, they still have easy accessibility to their games, and therefore don’t fall off the gaming grid completely. In other words, it’s all about maintaining the install base, not growing it.
Think of it another way, when was the last time you saw a friend, family member, or colleague express interest in gaming, let alone cloud gaming, or see the ‘traditional gaming industry’ be mentioned in anything outside of gaming circles?
So does that mean console gaming is doomed and forever capped at 300 million? Far from it, and mobile gaming offers some pretty great lessons for PlayStation, Xbox, and Nintendo. In part 2, I look at what diversity can offer the big three and how inclusivity and accessibility play a key role in exponentially expanding the console install base.
Listen to (and/or watch!) my conversation on this topic with long-time friend David Jaffe, the legendary creator of God of War and Twisted Metal (starts at minute 21):