10 Games Businesses That Are Doomed

Who's going to fail in video games? Business blogger Nicholas Lovell has his opinions. It's a provocative list. See if you agree...

When I wrote my post-mortem of RealTime Worlds, some people called me brave.

I thought I was cowardly, given that I only expressed my concerns after the company went into administration. And it's very easy to carp with hindsight. I did say that APB risked being an epic fail a year ago, but I very much hedged my bets.

So I'm going to stick my neck out. I'm going to name 10 games businesses or projects that I think are in trouble without some radical changes. Not all of these will fail: I'll be wrong about some; others will change course. What I am saying is that I have concerns about the strategy, opportunity or market for these companies.

I have not had access to any of these companies. If anyone wants to set me straight on any facts I have got wrong, do feel free to get in touch.

And if you disagree with any names, or think I've left out some important ones, let me now in the comments.

1. Codemasters

Codemasters is riding high on the strength of a UK No.1, but I feel that on a global stage it is a low-ranking games publisher that has lost its way.

The company has a successful racing studio, is a provider of publishing services to MMOs owned by other people and operates a casual games portal. It is not a global leader in any of these areas and will continue to be squeezed from all sides.

I believe that this current industry transition – from boxed products to services – will make it impossible for a boxed product publisher without a strong portfolio of AAA games to survive. I don't believe that Codemasters has that portfolio, and it will struggle to adapt fast enough.

It ought to identify what it is good at, and do that really well. I'm not sure that's what I'm seeing.

2. Miniclip

Miniclip used to be the darling of investment bankers everywhere. I never had a meeting with one where they didn't mention this company with awe. Unfortunately, at just the moment that Miniclip's arrogance peaked, the market transformed around them.

Miniclip was one of the most successful online games portals in the world. The company was instrumental in the early success of Club Penguin and Runescape – and deeply resentful that they didn't share in the rewards when those companies were acquired or invested in.

I even heard (although this is uncorroborated) that Miniclip was asking for equity stakes in companies whose games they distributed, so bitter were they in their belief that Miniclip was the fundamental reason for the success of those browser-based games..

Miniclip showed shockingly poor timing – these increasingly aggressive negotiations started just as two things emerged that jeopardised it;s very future: Facebook as a rival form of distribution and virtual goods as a better type of revenue than advertising. (You can read more on my views on portals at The death of the portal.)

I'm not sure that Miniclip is doomed, but I think that its glory days are behind it. The era when a portal with many users and an advertising sales force could dictate terms to developers is gone. Miniclip will probably survive, but the likelihood of an exit for hundreds of millions of dollars is vanishingly small.

3. Milo

OK, this one is now a no-brainer, since they cancelled him last week. But my notes for this post (which has been in gestation for several months) read:

-Pointless -Overblown -Unlikely to see commercial release

In some ways, I think this is a shame. Milo is closer to scientific research than game development: he was about doing something just to see if it could be done, not because it made any logical sense.

The games industry has lost that spark, that desire just to do something to see if it could be done, that can-do attitude that spawned Asteroids and Doom and iShoot.

On the other hand, I think Milo made no sense. He was an over-promise to consumers, he was a distraction from Kinect and, in the near term, a gaming dead-end.

I don't think he'll be missed.

4. Virgin Gaming

I saw the announcement about the launch of Virgin Gaming and thought to myself, "not again".

When will investors learn that betting on yourself in a video game is nothing like tournament poker or a friendly wager on a game of golf. Gaming is so dependent on skill that betting on yourself is, frankly, stupid, unless you are one of a handful of top players in the world.

Every time a new one of these pops up, I quote Tom Jubert writing in the GameShadow blog:

"Gambling works because it's based on luck. no matter how aware of the growing hole in our pockets, we keep playing because were addicted. We're addicted to the chance we might win big with the next set of cards.

In an FPS, as some investors may not realise, success if heavily based on skill. That means if you're a loser, you're a loser – there's no chance of ever making it big. As a result, the weaker players don't bother, while the stronger have no one to compete against."

And it's not as if there haven't been others:

-Tournament.com: went bust in November 2007 - Kwari: went bust in June 2008 - Prizefight: disappeared - Titan Gaming: raised $US1m in May 2010, although I remain sceptical about their prospects.

Why do these business keep getting funding? As I said in my post on the Titan funding, I think it's because the majority of investors are alpha males, who believe that everyone wants to back their skill with cash (which is, after all, the primary job of an investor).

I just think that they're wrong.

5. Trion Worlds

Dear Lars Buttler, senior management and investors in Trion,

I applaud your ambition. Your desire to "revolutionise the way connected games are designed, developed and delivered" is wide-ranging and far-reaching.

Unfortunately, while you were busy investing $US100 million in your revolution, a bunch of other people went and revolutionised the way online games are designed, developed and delivered.

And it's not in the way that you expected.

Jagex made RuneScape – a game with 10 million users and a million subscribers – in a browser. Unity democratised the development of browser games. Bigpoint proved that you could generate revenues of tens of millions of euros or more from a business based around free-to-play and virtual goods.

Meanwhile, RealTime Worlds proved that an ambitious MMO based on an understanding of the games world anchored in 2005 doesn't work.

I may be wrong about you. You may have fully understood the changing dynamics of online gaming, learned the lessons of RTW's demise and Dungeon & Dragons Online's Damascene conversion to free-to-play. You may have a game that combines a World of Warcraft killer with a RuneScape killer.

But I fear, like a First World War general, you are fighting the battles of a previous century. And you are about to get bogged down in the Somme.

I'm sorry.

Love and kisses, Nicholas

6. OnLive

Is this cheating? The failure of OnLive seems so inevitable it seems lazy to include it in this list.

The company is trying to create a subscription service to access product-style games. Just as the market is changing to have fewer AAA titles, OnLive wants to charge us to have access to its service, and then to buy the games. (UPDATE: Since I first drafted this, OnLive announced it was dropping the subscription charge. I think this is a good move, but I imagine it blows a hole in their financial projections.)

As I argued in April 2009, OnLive needs to gather all of the most-have content into its service in order to be competitive. That means getting EA and Activision and Square Enix and Disney and Warner's content into their system. (Getting Sony and Microsoft's content is a whole different ballgame).

Then they have to persuade legions of core gamers to drop their fanboi console allegiances and switch en masse to a subscription service.

And it has to make them ignore the risk that if OnLive goes bust, all of their games disappear.

And they have to do all of this when new business models – free-to-play games, games as a service, microtransactions – are coming to the fore.

So far, I don't think it's been going well. Onlive has dropped a core revenue stream. It's had to give up equity in order to secure distribution in the UK. It's struggled to convince sceptical pundits.

Meanwhile Gaikai, with its lean startup approach and less-grandiose claims seems to be making progress with a business model that is flexible, scalable and doesn't require retail distribution.

A year ago, I said that OnLive only had two potential acquirors: Sony and Microsoft. If I were the investors in OnLive, I would be hustling for the door.

7.CCP

CCP are the Icelandic developers of Eve Online, the mind-bogglingly intensive MMO set in space. It has committed fans, a strong revenue stream and has been running Eve successfully since 2003.

How can I possibly think the company is doomed?

Well, to be truthful, I don't think it is. I think it has a perfectly good future as a lifestyle business (I don't think it's sellable – though that's a topic for another post).

But Dust 514, on the other hand, there's a product that's doomed.

I used to be an investment banker and one of the first rules drummed into me was this: "If you are going to advise someone to make an acquisition, suggest buying a business they understand in a new country, or a new type of business in their own country: buying into a new sector in a new country is a recipe for disaster."

The people at CCP are experts at building a free-form space game with a subscription model on the open architecture of the web.

Dust 514 is a first-person shooter.

On a console.

With a never-done before connection between a console world and a PC MMO.

It's wildly ambitious but also, in my view, totally pointless. The integration between the console game and the PC-based MMO will be as unnecessary and expensive as the film maker in The Movies or the customisation features of APB.

It will be hugely difficult to implement, actually subtract from the gameplay experience and cause CCP endless headaches.

I was terrified when I saw the presentation of the game at a conference earlier this year. Every fibre of my being screams that CCP is over-reaching wildly.

I hope that I'm wrong.

8. 38 Studios

Is it cynical of me to say that the main reason I've put 38 Studios in this list is *because* the Rhode Island Board of Economic Development has approved a $US75 million loan to the company?

Regular readers will know that I believe that governments should not be giving tax breaks to risky commercial enterprises such as game developers. They certainly shouldn't be giving them to business investing in highly-speculative, unlikely-to-succeed activities like creating a World of Warcraft-beating MMO.

To compound my scepticism, 38 Studios is the baby of Curt Schilling, a celebrated Red Sox baseball player. Could the kudos of rubbing shoulders with a famous sportsman have influenced the Rhode Island bureaucrats?

(To be fair to Mr Schilling, he is clearly a committed MMO player who loves the market; I nevertheless fear that, like Trion above, 38 Studios is pursing an old model, with taxpayer's money).

In the end, launching a new MMO is a massive bet. I'm pretty safe in betting that it will fail. A very few new MMOs succeed massively (only World of Warcraft leaps to mind). A few fail spectacularly (Tabula Rasa, APB). Others just drift along (Age of Conan, Champions Online, Star Trek Online).

The odds of being a success in launching a traditional MMO are stacked against you. Far more likely is that you will lose your shirt.

Even a jersey as celebrated as that worn by Mr Schilling.

9. GAME

Picking on a retailer seems a bit mean. It's like finding a fat kid lying in the dirt, having been pushed over by the cool kids, and kicking them. Just because you can.

But I believe that there might be a future for a dedicated games retailer. They just need to look very different from how they look now.

The challenge facing games retailers is simple: in the future, there will be fewer products for them to sell.

Games are going increasingly online (and mainly as services, not as digital downloads). There are fewer AAA releases and many fewer single-A releases. Console cycles are lengthening. The primary reason for a specialist games company to exist – to sell games – is disappearing.

There is a silver lining. For some time to come, there will be physical consoles and devices to connect humans to television screens. These need a retailer. There will be AAA blockbusters, and they need a place to showcase their product. There will be some people who prefer to pay for online content by going to a store and handing over cash rather than using a credit card online.

But to succeed in this era requires reinvention. It requires making stores into appealing destinations in their own right (much like the need to reinvent the physical cinema in the' 80s and '90s). It requires a mentality shift from being product-centric to being customer-centric. And it requires the rapid shedding of many stores and staff, because there is no way to sustain a shop (or two) on every High Street.

It is not yet game over for GAME and other specialist retailers. But they only have one life left.

10. Call of Duty subscriptions

Bobby Kotick was asked by the Wall Street Journal what one thing he would change about his company if he could snap his fingers and make it happen. His answer:

"I would have Call of Duty be an online subscription service tomorrow"

I can see why. World of Warcraft is a subscription service and is generating a billion dollars a year. I can see why Activision would like to build the same with Call of Duty.

Of course, they are very different beasts. World of Warcraft offers a myriad of play styles – from crafting to guild membership, from exploring to raids. The flexibility of a first person shooter is, frankly, much lower.

We saw what happened when RealTime Worlds tried to turn Counterstrike into an MMO. We saw what happened when Richard Garriot tried to build a new approach to MMO fighting with Tabula Rasa. Converting Call of Duty into an online game sounds very tough to me.

There is one massive caveat here: I'm talking about the Western world. I think that there is potential to offer Call of Duty with a totally different model in China and other territories where piracy is dominant. So I'm not saying that there won't be a Call of Duty Online service anywhere in the world.

I just don't think it will be successful in the West.

That's my list of 10. What does yours like? Who have I missed?

Nicholas Lovell helps companies make money from games. He works with publishers, developers, investors and media companies to understand the changing games industry, and the variety of ways to make good, profitable games. He writes a blog at the website Gamesbrief and is the author of How to Publish a Game"

Republished with permission. [PIC]


Comments

    I'm assuming he only mentions GAME in reference to the UK/European giant, not to imply that it's any different to EB or Gamestop, or that somehow US-owned companies are immune to the issues. I imagine they're facing the same challenges as GAME anywhere. But it's not really rocket surgery to point out that companies need to change to stay relevant over time, in any industry. Slow clap for that one.

      "But it’s not really rocket surgery"

      Rocket surgery?

        Rocket Surgery is such a commonly used (intentionally) mixed metaphor, that it pretty much stands on it's own now... I'm genuinely surprised to see someone question it (but then, I may spend too much time on the internet!)

          Yes, so:
          Rocket Science + Brain Surgery = Rocket Surgery

          "It's not [Rocket Science : Brain Surgery : Rocket Surgery]!"

          -It's not a complex task.-

            Now hand me that Icecream scoop...

    I'm a Game employee and have to ask, given EVERYTHING we are taught is about getting customers help fast, and dropping anything we are doing to help customers, how we can possibly be more customer centric?
    Talking out of your behind on that one. Unless anyone can give us more ideas on how to be customer focussed other than looking up price matches for you, getting what you need quickly, reserving games you want... it is sort of beyond the whole industry of retail to just give you the games you want for free.

      Maybe because its cheaper to buy the games with free postage off the GAME online store plus they are closing stores left right and centre?

      I think it's more a matter of corporate policy rather than the guy having a go at Game employees.

      E.g. As a customer, I really don't give a toss about price matching at Game / EB. If the game is cheaper at JB, I'll just buy it at JB. Support the guy who's actually being competitive, not those like Game and EB who are happy to try and get away with the full RRP and only compete if somebody asks them to.

      Try being competitive on price from the moment I walk into the store, rather than just after I ask you to match somebody else's price (and maybe after demanding I produce a catalogue with the price I want you to match, or making me wait around while you call JB and go on hold for 10 minutes while you wait for them to confirm the price for you).

      And when I say "you", I'm obviously referring to Game (and EB and the like) as an organization, since these things are a matter of corporate policy rather than anything the employees are empowered to change themselves.

        You don't seem to understand the reason why JB Hi Fi or Big W price their games so low. They do it because, as massive companies, they can take a loss on the game sale because they want you to come into their store - and once they have you in there to buy that game, you will see something else you like (which has a large profit margin) and you will pick it up. They undercut all the other retailers who can't afford to sell it at a loss. GAME and EB, being game specific retailers (whose profit comes almost entirely from PO sales), don't have other products with a large mark-up on them as they are specific to the one product - games. IMO that is MUCH MUCH worse than simply selling it at RRP.

          Just to add to that as well, Big W is the worst of the two. They will advertise something at a ridiculously low price, then will allocate about 3 copies per store. So by the time you go into your local store to pick it up, it will be sold out! So not only have they got you into store and looking at their other products, they haven't even had the take the loss on the sale! That's why I'll never shop there.

            Only problem with that is that as a consumer, I really don't give a sh**. JB have it cheaper, therefore they win.

              I shop at JB and occasionally the big box stores mostly because:

              1. Generaly much, much lower prices.
              2. I dont get harrassed into buying second hand goods.
              3. I don't get harrassed into buying extended warranties/scratch protection.
              4. I dont get harrassed into buying guide books.
              5. I dont get harrassed into pre-ordering whatever the ''next big thing'' is for the console Im buying for.
              6. The staff at JB /Big W etc etc dont seem to have an attitude or take all day long to take my money, which pleases me so, as I can get the hell out of there.

              So you see... Price is important, somewhat ...but simply giving me what I ask for and quickly taking my money without being a total douche is a much, much bigger issue, and at doing this... GAME, EB etc all have the same approach and the same result -EPIC FAIL!

        Could not agree more with Braaains.

        Game and EB alike plainly market themselves to parents and anyone else who is ignorant of the average selling price of games and hardware.

        A massive "seen it cheaper? we'll match it" sticker may lead one to assume that they say this because they are confident it's a good price.

        Game and EB are two of the few shops who try and sell a game for $119.95.

        As raised by Braaains, what is the point of price matching? If it's cheaper at Big W, I'll buy it Big W.

          "Game and EB are two of the few shops who try and sell a game for $119.95."

          I bought Halo Reach's limited edition (the middle one) for $80 from the UK. I saw the REGULAR version for $120 in EB. All the "oh JB takes a loss" "oh the exchange rate blah blah" excuses in the world doesn't mean crap to me when I can buy a superior version of the game for 2/3 the price.

          Totally agree, I am often tempted when in EB and I see people buying games to just tell them to go to JB and get it $10-$20 cheaper.

            Mr Waffle, you're an idiot, why not just boycott every store in Australia that sells games cos you can get them cheaper overseas? I mean hell, do we even really need chains operating in Australia putting people in work? Nah man, its cool, your way is MUCH better. Idiot.

              Of all the comments in this discussion, yours is by far the most ridiculous. I don't know if you realise, but game prices in Australia are jacked up considerably. Do you know why? Simple put, it's because publishers know they can get away with it.

              I work at a store that imports most of its game stock, and we're able to sell them ALL for less than $90 (and that's just AAA releases, everything else is even cheaper). If chain game retailers and publishers want to increase sales, they'll have to grow the fuck up, because this is just ridiculous.

              If we actually DID boycott game retailers in Australia, it'd be

                Wow, you MUST be some kind of expert. Bravo. Cos telling publishers to grow the fuck up is going to work. I'll go write them a letter now.

                  Hey greenacid9, i've got this great pen i think you might be interested in, for only $50. i know you could get it cheaper from overseas, but then that might put me out of a job, and we couldn't have that could we?

                  idiot

              Considering how few people actually do import, they have little impact on those stores. Given the criminal taxes we have on top of the already high prices of games here due to "shipping costs", buying online makes sense - retailers could never take off well in Australia due to our prices.
              What about downloading games? That bypasses retailers too, is perfectly legal and is much cheaper.

              ...then there's just pirating...

              I'm glad I don't buy 360 games (despite the fact I have the console), they cost a fair bit more than Wii games - we'll leave the fanboyish argument regarding quality out for this round, eh?

      I used to work in retail, and I felt the key to good customer service was knowing your product. Now, obviously there is a rediculously large number of games for sale, and that people who read this site won't need to hear game information (I'm hoping people here do their game research before they buy). But what about parents who don't know anything about games? I bet they would appreciate a salesperson providing them with a basic rundown and/or suggestion of a new release game (mention the rates probably a big plus as well if they're buying for younger kids).

      I'm more likely to buy products from someone who knows their sh*t, than just getting the cheapest price.

        I have also found that many of the employees don't know much about their games. Sure they're customer centric, in that they want you in buying their games and out as quick as possible. Not that they aren't polite, just a little brusque.

        A place that deserves to work, though I'm afraid they won't? Game Traders. They have a good range of new and old products. They are more than just customer focused, they are quite friendly, happy to have a chat just about games or anime or anything. Now this may be because they need the sales, but I tell you what, their products and employees make me want to come back.

          +1, Game Traders are the only store I buy from because of that reason.

      Probably because you are one of the few proper employees who might have payed attention to proper training and orientation and actually knows their shop and games? As someone mentioned its good to have people willing to work/explain/know their stuff on a shop..

      I lament the loss of Games Wizards into GAME when they got bought out years ago... the place I used to go to was fine when the original GW staff was still around. The shop just went incrementally downhill as ppl moved on and GAME staff took over. Less JRPG selections for me and more and more budget/popular games being stocked.. and I won't get into the whole "lets invite all our HS friends to hang in the shop coz I work there" incident I had. Biggest display of utter "not give a crap" about work ethic =/

      If you're one of the people who actually gives a shit about the customer (and it seems like you are, but you're certainly not the standard, unfortunately), there's nothing you can personally do to be more customer-centric. What Nicholas is saying is that games retailers themselves (as a company) need to become more customer-centric. Very different thing, there.

    Looks like someone has broken the font & bold tags, everything is huge and bolded

    You, Mr Lovell, are an idiot.

    Don't even bother with Koticks, he's a natural prick.

    Virgin Gaming definately seems an odd thing but with the kind of capital behind it, it could keep itself going for as long as it wants really.

    Agreed with onlive though it just seemed a supremely stupid thing to begin with.

    So CCP will fail, because they are breaking into new territory? Right, because pioneers have never succeeded before. All civilizations success has come from staying put, and sticking with what we know.

    Ohhh, I forgot, you're an investment banker. Sorry I even tried.

      No, he just thinks Dust 514 will fail. And to be completely honest, as a former EVE player, that was EXACTLY what I thought as soon as CCP confirmed that it would be a console exclusive FPS.

      Seriously, I think that has to rank up there as one of the DUMBEST decisions any game developer has ever made. EVE Online is about the most PC MMORPG ever made, a game so hardcore it would bring a concole gamer out in hives just thinking about it. Do CCP honestly believe the famously dedicated and serious EVE crowd will be able to form a serious working relationship with clans of twitchy Xbox Live FPS players? If it was a PC shooter, they might. On console, not in a month of Sundays. It also precludes the actual existing EVE playerbase, the largest body of people who'd actually want to play Dust 514, from playing the game themselves unless they also own a 360. It's just a stupid and counterproductive business move which will bite CCP in the ass in the biggest way.

    OnLive looks interesting, basically it's Citrix for gaming right? Still, the point is valid. If they go bust, you lose all the games you had access to.. That's a doomed business model from the start unless it's dirt cheap and there's no doubt in any of the customers minds that the service is not guaranteed to survive.

    Interesting that OnLive is doomed but Steam is not. Surely OnLive could work out a 'back up' system for exactly that risk...

    "When will investors learn that betting on yourself in a video game is nothing like tournament poker or a friendly wager on a game of golf. Gaming is so dependent on skill that betting on yourself is, frankly, stupid, unless you are one of a handful of top players in the world."

    I really don't understand this at all. How is betting on golf or football not betting on a game of skill? Seriously, worst reasoning ever...

      It's COMPLETELY different! When betting on football, you can bet on who ever you like. The "skill" is about you deciding which team is the best one to bet on and if your team isn't doing so well, bet on the other team and you can still win.

      When you're betting on yourself (which is how I understand the model works here), then if you're not winning then there's nothing you can do except to just stop playing.

      Basically, this would just involve players of less skill paying the players of higher skill to beat them. Who wants to do that?

    I said the same thing about Milo as soon as people were complaining that it might not get made. I seriously did not see the point of it. Sure if they wanted to say 'we're doing it just to see if we can' I wouldn't mind but it was being talked about like it was some revolutionary game. It wasn't.

    Most of the others I can't speak to but I do think Game is in a bit of trouble. They feel like EB's little brother, pretty much the same, but they don't have as big a brand name and rarely have better prices.

    9. GAME
    WHY ARE YOU WRITING THIS IN BOLD
    WHY HASNT THIS BEEN FIXED A COUPLE DAYS AFTER THE ARTICLE WAS POSTED

    This list forgot #11

    #11) Traditional print media. I include most of the major games magazines in here (the EB one seems to be doing fine.. for now). The internet is a great source of news aggregation and opinion pieces. It also has a huge benefit in that it is always up-to-date. A monthly, or even WEEKLY subscription magazine will always be outdated by the time it hits the shelves. And with an industry as cutting-edge and innovative as videogames, print media just doesn't cut it.

    Print media's biggest draw is that it is a first hand source. Usually they can afford to send their journalists places, get exclusive previews, or interviews etc. But when a game blog simply pinches your material, what's the point?

    Internet blogs etc have been free so long it's impossible to transition a printed videogame magazine into a paid subscription. They don't have the brand name, or collateral like the NY Times, Wall Street Journal etc. Internet advertising is not a viable source of revenue, and it's also gutting traditional magazines of their classifieds or advertising space.

    PS: I'm sorry Hyper etc. But the clock's ticking.

    I don't agree about CCP. The previews I've seen of Dust 514 appear interesting and one things for certain; FPS gamers like grinding. One only needs to see the cR farming in Reach or the profligate boosters of previous shooters.

    CCP are taking a risk, but I guarantee they will reap massive profit being first there if it takes off.

    Electronics Boutique will only hire beautiful people regardless of how much they know about games. In all cases (I have heard of) EB hired hipsters and people with less brains than a monkey just because they looked good.

    EB won't hire the nerds who know games because of corporate policy and some suits who don't know jack about the industry.

      Apparently no one told this to my local EB. The guy in there is about 200kg and is far from what anyone would call a beautiful person in looks or demeanour.

      Fair call on the not knowing shit about games though.

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