If you’ve been reading the papers, watching the news, listening to the radio or, if in New York, been wandering past the huge LED tickers that dominate Times Square, you’ll probably be aware that some of the world’s largest economies are in trouble at the moment. With oil and fuel prices rising and people having less and less money to spend, several big companies are reporting huge losses and announcing cutbacks in the epic economic slowdown known as the ‘credit crunch’.
The thing is…could this be affecting games companies?
In recent months, plenty of companies across the world have reported losses and necessitated rescue programs by their respective governments: one only has to look at the UK (where mortgage lender Northern Rock needed saving by the Government to prevent a market crash) or the US (where Fannie Mae and Freddie Mac have also both required rescuing) to see that there are problems. Even after being rescued with Government funding, Northern Rock has reported a billion dollar loss. The multinational bank HSBC has just reported a 28% loss, warning that financial markets are at their toughest “for several decades”.
If none of this is really meaning anything to you, let’s look at it from another point of view. Starbucks, that hugely popular coffee chain with thousands of stores across the world, has reported its first loss in over fifteen years. The difference between its profiteering and loss is a massive $165million.
Still, you’re probably asking why this is sitting on Sarcastic Gamer, rather than Bloomberg. The thing is, the gaming industry isn’t invincible. It might not be as ‘considered’ an industry as others (mortgages, banking..coffee) but the fact remains that it is an industry and hence will feel the crunch that others feel in times of economic strain.
I’m not just speculating though, as some gaming firms are feeling the bite of the impending recession already. For those unaware, a recession is a half-year period where, over two business quarters, a country’s overall output profit (gross domestic product, or GDP) decreases. Since you’d expect a country’s economy to grow and grow, two constant quarters of loss can be pretty hard hitting on an economy and can cause mass lay-offs and cutbacks, and even the closure of some large companies altogether.
First up, Midway’s feeling the strain. Just today the company behind the up-and-coming Mortal Kombat Vs. DC Universe reported a loss of $35 million, and the former ‘Biggest Game Company In The World’ Electronic Arts reported a small loss and a huge drop in share prices. Square Enix recently said that profits were up, but that overall sales were down, potentially due to consumers wanting to spend less with the threat of a recession looming. THQ has lost $27 million, despite an increase in sales.
Is it all bad though? Maybe not. Page two has the scoop.
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5 responses so far ↓
1 Pillowfort // Aug 5, 2008 at 5:26 pm
Recession affects luxuries first and formost, people tend to have less money for things that aren’t essential and start making cutbacks, they decide not to go on holiday, they buy cheaper food, etc etc.
The games industry might be an exception to this luxuries are bad rule though, as in time of recession people don’t spend as much time out, rather than heading to a cinema they’ll rent out a film and invite some mates over,cutting the cost of entertainment in half. Think about that in game terms, you buy yourself one ‘o dem haloz for £30 and your mates come round each night for a week for some multiplayer, it ends up far cheaper than watching a film every night that week.
Oh, and you haven’t really delved into exactly why this problem is even taking place, Protip: oil oil oil, people are spending all their money on petrol and don’t have enough left for much else.
2 Korolev // Aug 5, 2008 at 5:27 pm
It really depends on whether or not gaming takes a central role in your entertainment - if you only game occasionally, and still read books and go to movies, you’d want to cut back on gaming. But, if gaming is THE entertainment experience for you (as it is with many people in the US, UK, Australia, Japan, etc), then you’d still put money down for games - so fan support will still be there for many game developers, and even with the present financial woes that are affecting many countries, I still believe that gamers will by games. Just as movie goers will still go to see movies, gamers will still by games. Things haven’t gotten so bad that we can’t afford a bit of entertainment every now and again.
As to whether or not game companies will fall flat on their faces and die, due to borrowing problems - not unless the movie industry does so first. I believe that in the US, the games industry has overtaken the movie industry in terms of size. It’s not invincible, but until people start devouring each other on the street due to a lack of food, I wouldn’t worry about the big guys like Microsoft, Nintendo or Sony. Or EA or Blizzard or Activision, for that matter either, going broke.
Of course, this credit crunch could spell doom for small, independent game companies, at least for a while. So it’s not going to be all okay - some small games companies will probably go broke.
3 Pillowfort // Aug 5, 2008 at 7:09 pm
heh
I’ve just noticed that you actually did discuss it being about oil.
4 Fred // Aug 6, 2008 at 3:29 am
fortunately the game industry is based on intelectual property, having no need of overpriced feedstock like other industries do, this gives it stability.
another thing is that most video game consumers are tightly related to the product, as mentioned before by Pillowfort
the product has great value to gamers, so if you can’t purchase a game right now, you could have it later,
that’s the kind of commitment most gamers has, so i think is a pretty solid industry
5 walkyourpath // Aug 6, 2008 at 8:54 am
I don’t think you’ll see the industry shrinking so much as you’ll see the industry consolidating if the recession continues/worsens.
Like Fred mentioned, the name of the game (literally) is IPs, and the production of IPs won’t be slowed by economic concerns.
However, with some developers succumbing to economic pressure and outright folding or just cutting back on developing new IPs or not focusing on retaining key talent for cost reasons, this opens the door for the juggernauts.
Your EAs, ActiBlizzards, etc. — who are financially solid — will have the resources to gobble up failing developers or lure key talent over to their camps.
The usual story at times like this — the rich will get richer, and the poor — eh, who cares about them anyway, right?
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