How Could Things Get Better For Game Developers?
Because developers are getting the short end of all the sticks.
OPINION
Game industry job stability is in the toilet and developers really need some relief from the boom and bust cycle. Industries can go through evolutions, and sometimes revolutions, but I hope I’m wrong about what’s most likely to change.
Catching up:
INTRO
The game industry economy has been sucking for a while. We are in a bust part of a boom and bust cycle, with seemingly endless job losses and studio closures. I’ve shared my theory, some would call it a conjecture or hypothesis, for the core cause of the cycle.
As a reminder, here are the axioms that I have been reasoning from:
🔃 Gamers have a high elasticity of demand - they can choose to spend variably, even nothing, depending on life events and preferences
🔀 Games have a high elasticity of substitution - there are many games with roughly equal entertainment value, and gamers can and do switch without a lot of provocation
👊 Gamer time and money are rival to investors - time and/or money spent on one game (investor) is no longer available to be spent on another game (investor)
⏭️ Gamer time and money are non-excludable to investors - games (investors) cannot significantly limit gamers from switching freely to other games (investors)
The last two means that there are no natural barriers for investors who want to build a studio, create a game, and grab a big slice of that revenue pie. An investment gold rush can start.
Games take one to several years to deliver (ignoring auto generated, junk games) so we can over produce studios and games in a market where the available player time and money spend are increasing too slowly. Today’s oversubscription to future revenue results in a future bust, meaning studio closures and layoffs.
WHY IT MATTERS
Gamers get the best treatment in this environment. When the cycle is on the up swing or near the top, they get lots of games, including high quality ones. When the cycle is going down, gamers go back to all those games they didn’t have enough time for when bursts of games were being delivered.
Investors and publishers are in the middle, even if they have to deal with risk. It is not always clear when the cycle will bust, and money is at stake. When the bust happens, they lose money. But when times are good investors and publishers can make a good profit, sometimes a massive one.
Game developers are in the worst position. Most don’t get profit sharing and many are on contracts, possibly without benefits. When the bust comes around, layoffs and studio closures happen rapidly and often without warning. Accepting a new job when remote work is not available can require relocation, often across the country and sometimes internationally. And even then they can be subjected to employment whiplash. So, there is almost no upside when times are good — beyond working on their passion — and they are the bearer of the downside cost when the piper comes for payment.
HOW IT GETS BETTER
Game developers are clearly in need of protection from the boom and bust cycle. Making that situation better requires reducing the amplitude or frequency. Or even better, breaking the cycle entirely. Here are some thoughts on how that could happen.
Less Likely To Happen
Ideally some of these things would come to pass, but I’m not optimistic.
Gamers start spending an ever growing amount of time and money, supporting unlimited studios and games.
Investors and publishers voluntarily reduce the rate of game startups and game creation in the face of FOMO on profits so as to avoid oversubscription to future revenues.
Investors and publishers voluntarily provide softer landings for game developers after studio closures and layoffs to carry game developers through bad times.
Implementation of nation- or world-wide regulations to require softer landings for game developers after studio closures and layoffs.
Creation of nation- or world-wide game developer unions that negotiate … you guessed it, softer landings for game developers after studio closures and layoffs.
I won’t bore you with an analysis of why each of these is unlikely, or at least much less likely than the next list.
More Likely To Happen
History tells us what to expect — that investors and publishers will act primarily or solely in their shareholder’s interests. Standard behaviors include:
Finds ways to increase market power and move from being price takers to being price setters.
Find ways to reduce competition and get a bigger slice of a too-slowly growing pie.
Develop captive or sticky customer bases to guarantee revenue.
Tactics to implement these strategies include
Create barriers to entry to reduce new entrants to the market.
Reduce competition through consolidation/acquisition.
Create intellectual property picket fences to segment the market.
Accumulate large entertainment IP libraries to capture specific demographics.
Implicitly collude to increase market power and revenue.
History says that the industry restructure resulting from these behaviors would decrease competition, giving the biggest players more market power and hence higher and more stable revenue.
The greenlighting of games would be more highly curated (I could be wrong), and thereby reduce the amplitude of boom and bust cycles. Think back to when we only had three national broadcast networks (in the USA, that is)
But these changes would also carry undesirable changes for gamers — they would pay more money and have fewer choices among new games.
OUTRO
Game developers are driven by passion to create but find themselves squeezed between a rock and a hard place, forced to live with unpredictable employment instability. Many are forced to relocate every year or two to stay employed in the industry, and relocation is a high cost in dollars and for disruption of personal lives.
That instability is a result of how economics in the industry work today, but these conditions are not inevitable. Improvements in the situation could come from a number of directions, but not all of those are equally likely. Or equally desirable.
Industries go through evolutions, and sometimes revolutions, and game developers really need some change.
RESOURCES
Article on boom and bust cycles at Investopedia
Article on price takers (those who must accept a market price)
Two and a half minute YouTube video on price makers and setters
Article on barriers to market entry
Wikipedia article on barriers to entry
Economic Efficiency: Definition and Examples at Investopedia
Read about elasticity of demand at Investopedia
Wikipedia article with technical description of elasticity of substitution
Read about rival and non-excludable goods at Investopedia
The meaning of secular in economics is “long term trend”
Wikipedia article on secular stagnation