How The Game Is Played

Why Electronic Arts doesn't matter.

Okay, I've got a challenge for you.

Name 4 film directors.

Now name 4 lead actors or actresses.

Now name 4 currently independent major film distributors.

That last one is a whole lot harder isn't it? And its not just because the film studio ownership changes from month to month.

Its because unlike the first two, who the studio is doesn't matter. People go to see movies. Who the director is or who the major stars are gives you a good idea of what the film will be like. But who distributed it? That really doesn't matter to anyone but the distributor.

Asking who the distributor is is a whole lot like going to a Frank Lloyd Wright house and asking who the bank was who financed it. That is the distributors primary role-- the banker. Without the banker, the house wouldn't get built, but who the banker is has no relevance on the product produced. The banker's role is silent, uninteresting, and ultimately the most lucrative of them all.

Film distributors in today's Hollywood are exactly the same. Do you care that Disney is distributing Pixar's films? Of course not. Would you have gone to see The Incredibles if Warner had distributed it instead? Of course you would have. Who the banker is matters to exactly one person-- the banker.

What drives the industry are not the bankers. What drives the industry are the creative individuals. And thats why you recognize and can quote their names. The George Lucas's and Harrison Ford's are the engine of the movie industry. They create the content, which is what you as a consumer care about. And thats why the folks who produce content you as a consumer eagerly consume are the stars and why the best thing a banker can own is a lock on a star property so they can't go to any other banker.

Big game distributors are exactly the same. Although you might buy a game because it's a “Madden” game, you would not buy a game just because its an EA game, or an Ubisoft game. Or any other distributor. Big game companies are primarily distributors and they act in the exact same capacity. And they are equally interchangeable.

What drives the industry are the star creations and their creators. And, because of the nature of the industry, today these occur outside of the major studios.

Look at it this way. There is an old saying that bankers are bankers because they hate risk. Big studios are in exactly the same business of risk reduction. Creating a new hit property is, by definition, the riskiest investment you can make, It takes a great deal of money to develop. Tens of millions of dollars, and generally an equal amount to promote. If your lucky, the result is a hit. If not, its a financial disaster. Thats why little game companies are typically born, if they are lucky ride high for awhile, and then die when that luck runs out. Thats too risky for big studios.

Instead, EA found another formula. Two actually. They found that they could buy a hit property and it would have a certain shelf-life for sequels at a far lower risk. In general, this meant buying the small studio that created it and turning them into a sequel shop. EA has had great success with this strategy and that has spawned imitators such as Eidos and Atari (formerly Infograme) who have also done quite well.

The second thing EA discovered was that there was a certain market for low cost “shovel-ware.”

Something a lot of people don't realize when they walk down the soap isle at their local supermarket is that all the laundry detergents with all the different names are made by exactly two companies. Thats it. Those two companies discovered that by creating a whole shelf of apparent choice they could capture the consumer. In the retail business shelf-space is gold, and by having not one product line but a dozen, they could capture more shelf space. Even if its really only for two products repackaged over and over and over again.

EA does the same thing. They fill the shelves with generic, minorly differentiated product, figuring that the odds a random browser will buy one of their titles is pretty high. And thats worked well for them too, although the economics of game production have become so outrageous, and the individual titles so expensive, that I could argue the browsing phenomenon is endangered going forward.

Which ultimately gets me to my point. The EAs of the world don't drive the videogame industry any more then the Disneys or Warners drive the movie industry. They are the bankers. They take the lions-share of the money, but they depend on the individual small creators to keep the industry going. Without small companies creating new franchises that these giants can buy and ride through sequels, they wouldn't survive. And they know it, because neither business, film or videogames, is one where anyone who kids themselves about the economic realities survives long.

So why bring this up? Because I'm part of a team that is bringing Sun into the game industry, and to do that, we need to shake some old perceptions. Sun is used to selling to the bankers. And in banking, if you get JPMorgan/Chase you've just gotten a large segment of the industry. Sun likes selling to the JPM/Chases of the world. We know how to do that,

But if you sell EA what do you have? Nothing. Because they don't make the creative decisions and therefore don't make the technology decisions either. Those are made by the small independent developers and, because they are the engine of the industry and are where the real power lies, it will stay that way for a long time.

You don't take an industry like the videogame industry by convincing a few execs in a few big companies. You take it by winning the hearts and minds of the little guys. Microsoft has done it by outright bribery in the past. They've gone so far as to rent Great America for an evening for the personal amusement of all the individuals attendees at the annual Game Developers Conference.

I don't suggest we do the same thing. Frankly I don't think its as effective as simply addressing the technical problems the little guys face. And thats something Sun is good at. But we need to realize where the power lies and address the needs of those in power.

And none of them eat in EA's executive dining room.

Posted at 11:37PM May 12, 2005 by gameguy in General  |  Comments[6]