Leaked Xbox Boss Email Perfectly Explains Why Game Publishers Are Eating Themselves Alive
Head of Xbox Phil Spencer pitches Game Pass as an alternative to relying on big budget blockbusters
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.
It's the same shit across every industry. Successful company goes public, investors demand yearly double digit growth, and after a few years they are imploding.
Investors do not care about the future, sustainability, or anything except immediate profitability. What you described is exactly what happens, in gaming and everywhere else. It sucks.
I would like to refer to this image which is probably more than a decade old now
https://frankkliewer.com/wp-content/uploads/2015/09/shareholder-value.jpg
That last sentence is so spot on. After reading a topic yesterday, I was trying to think of one time a game company went public, and it ending up a good thing for the gamers in the long run. If anyone knows of one, I'd love to hear it.
Fight anything that prevents you from owning and controlling your content. Reward, companies and groups that allow you to truly own what you purchase.
It's a noble stance, but literally everything is digital these days. Even disk based games are requiring day 1 updates (or aren't coming with the content on the disk in the first place), meaning you're at the behest of the platform to keep your content available.
Digital is not the problem. Lack of true ownership is the problem. GoG is DRM free. Steam isn't great on this, but it's better than other alternatives for now. Sailing the high seas is the best option in many cases.
It's not all or nothing, you can take small steps to stop supporting the worst offenses. First step, don't use any game streaming services where you just subscribe to a rolling catalogue each month/year. PlayStation Plus and Xbox Game Pass are examples of this.
Nintendo is awful too, their games should be ripped from physical media if possible and emulated, or otherwise aquired on the seven seas and emulated. It's a great way to play their games without supporting their evil practices.
Support FOSS games and FOSS-friendly companies. Valve is a good example. Although not perfect by any means, they have proven to be far friendlier to FOSS apps, games, and platforms than most other companies. If you have to get DRM-locked games, get them through Steam. At least they have offline mode and allow full access to all your game files so you can save them to a separate location for archives/backups.
It starts with small things, but if lots of people start doing this, it will have a noticable effect.
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.
We don't need super high quality graphics for every AAA production. Sometimes, Just good enough graphics, but with better interactivity with the environment like ToTK and Baldurs Gate 3. I mean , I love RDR2, but honestly, shrinking horse testicles is a bit too much attention to detail.
As an example, cell shading of ToTK still looks amazing and far more enduring as a graphics style. Also, Elden Ring, arguably has worse graphics than RDR2 or the latest CoD. But, because of it's amazing art direction it will age pretty well.
This can help really reduce the high dev costs.
I think a lot of that also gets spent on marketing.
The budget is also a marketing ploy. The average person hears about a game costing hundreds of millions to make and they think "well then, it MUST be good". It's more or a pissing contest among publishers. Most of that budget does indeed go to marketing and executive wages/bonuses.
And from the publisher's perspectives, that's really a good investment of the budget, because it doesn't just drive up sales. It also cultivates customer loyalty and fanboyism (e.g. "we are spending all that money because we believe in the game, and we want to give our loyal fans the best experience possible" is a very common line in pre-release interviews).
For example, there's a false equivalency among gamers, propagated by this kind of propaganda: "I have to pay the high prices and engage in microtransactions/DLC, because that supports the game developers and their high budgets". In reality, the people who actually make the game see very little of that money. Their wages, in most instances, are shit and do not reflect the hours they put in. However, gamers rarely want to understand that, and instead extend the publisher pissing contest among themselves ("the game I'm playing now spent more money than the game you are playing, therefore it's the superior product").
Thats what this Spencer guy says in the email:
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.
Or collectivize game studios.
They are at the point where they equate video games with Hollywood.
AAA video game budgets have surpassed Hollywood years ago.
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).
