It's been a big part of the news lately, the financial crisis in America, a huge economic collapse predicted to cause a global depression. With such disaster forecasted, and as the American dollar plumments, I thought I would fire two quick questions to Game Developers' Association of Australia (GDAA) president, Tom Crago, on his thoughts on what it all means for the games industry. If you have any thoughts and predictions on how the games industry will fare, please do post it in our comments section. Are we heading for a major downturn or will the games industry withstand a slowing economy?
tsumea: The American consumer market is a huge one. Looking at film releases, a movie often makes more ticket sales domestically than it does with international sales combined. In light of the recent financial crisis in America and amidst talks of an economic collapse and a global depression, what do you think it means in general for the games industry and the consumption of games? Will this make an impact on the growth of the games industry here and abroad?
Tom Crago: We're all very mindful of the financial crisis in the US, but personally I don't expect it to hurt video game sales. People actually tend to spend more money on video games when times are tough, because games represent such great bang for buck. Eighty dollars on a game for twenty plus hours of entertainment starts to look pretty good when you put it up against movie tickets or restaurant meals.
tsumea: The Australian dollar has overtaken the American dollar and is currently at $1.42 (AU) to $1.00 (US) with economists warning of further slides for the U.S dollar. Do you think this will have a major effect on local developers securing contracts? What incentives are there for a publisher if it costs much more to develop in Australia than locally in the U.S? Is outsourcing dead?
Tom Crago: Well just to get this straight, here in Australia we actually want a weak Australian dollar and a strong US dollar, as all of our deals are in foreign currency. The glory days were back when one US dollar equaled two Australian dollars! Again, currency exchange rates are something we need to be mindful of, but at the end of the day we try not to compete for work on price alone. There are also ways that you can hedge your foreign currency exposure, and many Australian developers do this, often at the start of a project.
Not as bad for games as for other industries
As Tom said, many people actually buy more games during tough times, because it's a relatively affordable form of escapism. People also tend to still buy things for their kids regardless of how bad things are, so that's another plus. Some may start to think twice about $100+ for next gen console titles, but portable and downloadable console (not to mention iPhone) might even get a boost because they cost less.
Also, to put the currency situation in perspective - I can't imagine a single Australian studio head who would not be absolutely jumping for joy about that right now. Anyone who exports would be happy, it's only importers and those who buy imported goods who will suffer (big screen TVs, anyone?). Most studios deal with US publishers in some way, which means contractual milestone payments are specified in USD. Not so long ago everyone was very worried about the resource-driven race of the Aussie dollar towards parity (where one AUD would buy one USD), which made the AUD totally overvalued just because we're good at digging stuff up out of the ground and shipping it overseas to China. To give you a very realistic example, say you receive a milestone payment for USD100,000. The Aussie was sitting at about 0.93 USD for quite a while, which means you would get about AUD107,526 for your milestone. Today, the exchange rate is at 0.66, which equates to AUD151,515. So if you parked your payment in a USD currency account back then, and traded it for AUD today, you would have received AUD43,989 MORE :)
I know my boss is jumping
I know my boss is jumping for joy at the moment :)
I think the only potential danger is people can't afford to spend much money on games anymore, I think its more likely to hurt console sales vs games.
Gazing into my crystal ball...
I strongly agree with OzGamesInsider, but there's more dimensions to the economic downturn than the dollar.
One of the biggest issues for the game industry is likely to be the drying up of capital. Lack of capital means games companies will have a hard time getting money to get through the rocky road of development. Game development is considered a high risk investment.
Small mining companies are looking at having a hard time in this market simply because they won't be able to raise the capital they need to kick start new mining and exploration operations. I can see similar issues facing the industry. Publishers and developers that rely on loans and investment to create working capital are going to be in dire straits.
I'd also be surprised if game sales didn't see a dent as unemployment rises. The recent economic boomtimes have also seen rapid growth in the game industry. Although it's a good idea to be wary of drawing comparisons from one set of data to draw conclusions about another, it seems pretty likely to me that in an economy in which people have access to lots of credit, things like game consoles and other entertainment commodities will see a rise in sales. The converse is also true, unfortunately.
I'd also be wary of relying on upped spending on entertainment in bad economic times. This isn't just less money people are talking about - it's potentially mass unemployment and people turning up at the Salvos for food (in the US at least, if not here). However, I agree with OzGamesInsider here: I do think cheaper games like mobile and online games may well benefit from the economic downturn as people turn away from the expensive titles, but are still wanting to play games (perhaps especially if life gets harder and work less rewarding).
So, my crystal-ball bullsh*t guess for the next year or so: one or more major publishers will bite the dust, either going into receivership or more likely, merging with others. There'll be a contraction in the market internationally with fewer publishers and developers, and fewer games being sold. A number of games currently in development (or will be in dev soon) that are not very close to release will get canned.
For Australian companies, although the economy will be better here, 90% of our game development sales is for export. The low dollar may see more development being done here, but will also be offset by less demand for games generally. Overseas publishers are already less likely to do business with Australian developers due to the perception that's it's harder to manage games developed here. A more skittish overseas market may see
What works in our favor in Aus is the fact that Australian developers are used to making do with very little support and operating in a market that's pretty much razor thin. They're used to little overseas capital, and as a result are pretty creative when it comes to working out how to do development on a shoestring budget with massive uncertainty. In effect, our developers are already well evolved to deal with adverse economic conditions, much like local marsupials are well adapted to a harsh environment.
The big disclaimer here is that I'm not a developer or an economist, and have never worked for a local company, though I have been studying the industry for a while. So, I'm pretty much just making educated guesses here. But I'd be keen to see what others in the industry think.
Some companies affected
Anyone been keeping up with what's happening lately? Electronic Arts shedding 6% of their employees (with specific aim at Pandemic Studios and EA Los Angeles), and THQ Studios closing five studios, all of which have been due to the current economic crisis.
None of those closures mention any local studios specificly, fortunately, but it's certainly a worrying sign. Those two publishers alone have a good chunk of important studios in Australia. I know we've had a pretty bad run during this time for studio closures over the past few years, but this could've been something disastrous if these two publishers decide to pull out.
Didn't Pandemic move
Didn't Pandemic move premises recently? Seems like a worrying omen.