Gaming

The email: Spencer writes,

Over the past 5-7 years, the AAA publishers have tried to use production scale as their new moat. Very few companies can afford to spend the $200M an Activision or Take 2 spend to put a title like Call of Duty or Red Dead Redemption on the shelf. These AAA publishers have, mostly, used this production scale to keep their top franchises in the top selling games each year. The issue these publishers have run into is these same production scale/cost approach hurts their ability to create new IP. The hurdle rate on new IP at these high production levels have led to risk aversion by big publishers on new IP. You’ve seen a rise of AAA publishers using rented IP to try to offset the risk (Star Wars with EA, Spiderman with Sony, Avatar with Ubisoft etc). This same dynamic has obviously played out in Hollywood as well with Netflix creating more new IP than any of the movie studios.

Specifically, the AAA game publishers, starting from a position of strength driven from physical retail have failed to create any real platform effect for themselves. They effectively continue to build their scale through aggregated per game P&Ls hoping to maximize each new release of their existing IP.

In the new world where a AAA publisher don’t have real distribution leverage with consumers, they don’t have production efficiencies and their new IP hit rate is not disproportionately higher than the industry average we see that the top franchises today were mostly not created by AAA game publishers. Games like Fortnite, Roblox, Minecraft, Candy Crush, Clash Royale, DOTA2 etc. were all created by independent studios with full access to distribution. Overall this, imo, is a good thing for the industry but does put AAA publishers, in a precarious spot moving forward. AAA publishers are milking their top franchises but struggling to refill their portfolio of hit franchises, most AAA publishers are riding the success of franchises created 10+ years ago.

Spencer's analysis is just an overview of the current symptom.

This is the real disease:

because it sees a new platform it can scale to feed the financial growth demanded by investors.

Investors/shareholders demand infinite growth, but there's finite space to grow (millions of games, few customers). This is why, in the past 2 decades we've been seeing the scummiest of practices being employed again and again, as well as a 300% hike in base prices. Capitalism has eaten gaming.

But we've been observing this trend in AAA and AA publishers/developers mostly. Indie gaming is alive and well and evolving towards being better and better. Why? Because indie developers are not usually beholden to investors.

Once you hear a gaming company you used to like has gone public, say your condolences and then run away.

Fight anything that prevents you from owning and controlling your content. Reward, companies and groups that allow you to truly own what you purchase.

The suggestion here is that the type of game that can thrive on a subscription service is either a small one that benefits from better curation and visibility or a live-service one that can make up revenue on the backend by charging all the new players microtransactions (the new store shelves are inside the games themselves).

I've been saying this since Game Pass launched: it encourages scummy monetization. The kind of games that come to it are going to have more and more content locked away behind microtransactions to make up the money lost by not selling copies. It's going to gradually become full of "free" to play garbage, and people will accept it because they didn't pay for an individual game outright.

How about fix the ballooning development costs? Games dont need $200 million plus to be good. Maybe start with that problem.

So, Microsofts suggestion for the problem of studios beating old IP to death isn't to support smaller indie projects that are developing new IP.

Doesn't gamepass make this problem worse? It makes it affordable and incentivizes people to try many of those big AAA games so studios still get paid (maybe less than if it's bought outright, but still i imagine it's still compensated).