Blue Christmas

December 10, 2008 on 3:42 pm | In Column, News, PC, PS3, Wii, XBOX 360 | No Comments

The business of video games has become larger and larger almost every year since the original Nintendo first brought Italian plumbers into living rooms nationwide. Along with the money generated, the fanbase has also steadily increased, as the variety of games available expands exponentially to lure in new players. The kinds of things you can expect from video games has also multiplied with advent of more powerful machines and the always-evolving power of the Internet. For most of its history, the industry has just continued to climb to greater and greater heights.

Amid this continually upward trend, there have only been two large scale failures. The infamous video game bust of the mid-80s and the total failure of the Dreamcast, the latter which demoted Sega from powerhouse player to endlessly churning out mediocre “Sonic” games. Yet, if you look past all the pretty ornaments out on display this Christmas season [add some games here], there’s some news underneath the tree that isn’t like to spread holiday cheer.

Sony’s announced 16,000 job cuts, EA chopped off six percent of its workforce, Midway canceled several games, THQ slipped into the red and Electronic Gaming Monthly is likely to cease as a print publication. Despite the veritable torrent of quality titles released, it seems that dastardly economic recession has stymied potential buyers from investing in a $60-a-pop product. While it’s tempting to blame this all on the recession, some of things events have been a long time coming. Sony, especially the corporation as a whole, has been struggling to find a stable line of profit for a while now and EA’s financial troubles where also apparent back in the summer months.

My theory? Perhaps, like many other economic sectors, the video game industry is susceptible to bubbles and bursts. Think of all the massive hype surrounding the unveiling of next generation consoles. The respective companies promised that the synergy they (the consoles) were capable of, incorporating games, movies, music and the Internet, opened up the path to immense profits. On top of that, “World of Warcraft” become a poster child of sorts, with its 10 million times $15 a month business model. Who wouldn’t want a piece of that? In addition, Xbox Arcade and the Playstation Store ushered in an era of smaller, cheaper titles.

Guided by the cheap credit of the global economy as a whole, old hands expanded their libraries and new companies tried their luck. But making games can be an expensive endeavor and public opinion can be brutal, resulting in a quick trip to the Wal-Mart bargain bin. As demonstrated by EA, the industry’s biggest publisher, even having a few blockbuster titles isn’t always enough to put you inside the margin of profitability. The irony of EA’s sudden turn of fortune has already been noted by others.

And so, with both the holiday season and the global financial meltdown fully engaged, that end-of-the-year saving grace has yet to manifest itself for many game companies. A lot of industries that rode the wave of economic growth produced by financial market manipulations have just now come crashing into shore. It seems that some video game companies will not be spared from this tsunami either. The bubble burst and there’s coal underneath, just in time for the holidays.

Yet, this surely will not be the last Christmas the industry sees. While losses may slim down some corporate structures, the video game industry is too firmly entrenched, both socially and economically, to suffer any drastic consequences. So, drink some eggnog, buy some games (if you can), enjoy the season and be glad you play games, not make them.

Fact Check: I’m not an economist and what I argue above is merely food for thought, or at the very least an intellectual snack. Please do not ask to see facts, stats, graphs or trend lines to back up any of this, as I have none of these things. If you do hold some theoritical disagreement with my thesis, by all means, comment away.