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 ten 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

10 Games Businesses That Are Doomed

Codemasters is riding high on the strength of a UK #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.

10 Games Businesses That Are Doomed

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."

10 Games Businesses That Are Doomed

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 $1m 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 "revolutionize the way connected games are designed, developed, and delivered" is wide-ranging and far-reaching.

Unfortunately, while you were busy investing $100 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 ten 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 $75 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 ten. 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.
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