Sony and PopCap's downsizing shows that a 'recession-proof' industry is feeling the pain

Monday 27 August 2012 15.30
Popcap's downsizing announcement is indicative of a gaming sector feeling under threat in Ireland and internationally
Popcap's downsizing announcement is indicative of a gaming sector feeling under threat in Ireland and internationally

This time last year the games industry in Ireland was all about potential.

In PopCap, Blizzard and Bioware it had three global brands actively recruiting in Dublin, Cork and Galway; local hero Jolt and was contributing to the development of games for the international market; Angry Birds' developer Rovio was on the way; and, in Games Ireland and a glowing report by Forfás, it had a coherent voice and a government-endorsed plan of action for more than doubling the number of people employed by the sector from 2,000 to 5,000 through the development of a 'global games hub'.

The current outlook is not so rosy. Last week PopCap announced the downsizing of its US operation and that it was putting it's Irish office under review, possibly leading to the loss of 96 jobs; Blizzard has shed 200 jobs in Cork; Bioware's Star Wars: The Old Republic online multiplayer game is being wound down, leading to lay-offs at its operation in the US; and Jolt has ceased trading.

There are good news stories from the likes of Big Fish, Demonware, Gala and Bitsmith, but for tentpole brands to be seen in a position of weakness is a new and unwelcome development.

If there is an upside it’s that Ireland is not an isolated case. Sony has closed its Liverpool studio and is reeling from a year that saw catastrophic reputational damage inflicted by hackers, and its PlayStation Vita handheld console has not been the gamechanger it was hyped as. Nor is Nintendo feeling the love as its 3DS languishes as a niche product. If you want to get into mobile gaming, this is not the way to do it anymore.

Why is gaming struggling? How is this ‘recession proof’ sector feeling the effects of the downturn? Industry boosters have been making grand claims about gaming being the new movies in terms of revenue but the ways in which games make money now have outstripped the pace at which new titles are being brought to market, creating a polarised market with consoles and PCs at one end and smartphones on the other.

As PopCap co-founder John Vechey said in his memo to staff explaining the rationale for cutbacks, revenue models have changed and publishers haven't figured out how to adapt to leverage them successfully. As a developer of casual games like Plants v Zombies, Peggle and Bejewelled, PopCap relies upon direct sales for revenue either through hardcopies or low-price downloads. The current market, however, has moved towards a ‘freemium’ model where users pay for virtual items, advertising and subscriptions within games.

Hardware has also proved a problem for the mainstream games industry. Handheld gaming hasn't moved on to the PS Vita or Nintendo 3DS, it lives on mobile phones and tablets (with open source consoles like the OUYA waiting in the wings). The age of the hard copy as product is over, now we're into 'gaming as ecosystem' where brand loyalty dominates. Microsoft's Xbox LIVE has properties such as Gears of War and Halo to power its co-op gaming platform and a secondary market based on game credits through its online rental store accounts for over 40% of its revenue. It shares franchises like Call of Duty and Battlefield with Sony. In contrast Wii is sticking to its family-friendly philosophy, keeping the faith in the iconic Mario to shift material of varying complexity.

An increased acceptance of the inevitability of free-to-play dominance on PC was shown by Ubisoft CEO Yves Guillemot in an interview with Games Industry International last week. He said that as much as 95% of games being played in the wild were pirated - a staggering number. Far from playing the poor mouth, however, Guillemot conceded that free-to-play was probably the way forward as distribution problems made certain games harder to find in different markets and only 5-7% of players actually pay for additional material in-game. This is not good news for retailers, especially the few Game Stop outlets left in Ireland.

Gaming has been humbled by emerging technology and the vagaries of users. It's an alien position for the industry. One that must either curb stomped, shot down or beaten-up - depending on your preferred style of play.

Niall Kitson is editor of TechCentral.ie