Business Model
A company’s finance within the games industry can be affected by many things, one of these factors is the business model. There usually for stages to this model, but as there is new technology developed everyday then the business model can vary, these are the four traditional stages:
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•Development- This stage is basically the designing, coding and creation of the game. This stage is carried out by the developer company; one for example is EA (Electronic Arts).
•Publishing- This stage is carried out by specialist companies who are the overall management for the games packaging, manufacture, distribution, marketing and mainly funding. An example of a publisher would be Capcom. The publishers give the developers an advance sum of money that covers the cost of the development, and because of this it means that the developers don’t get any royalties for the game, until the game has sold and the cash flow comes back threw the business model and back to the publishers.
•Distribution- This stage can be done two ways sometimes a specialist distribution company will carry this out, but other times the publishers can take care of the distribution as they can get it to the bigger retail chains, for example Game.
•Retail- This is done by specialist video game retailers such as Game and Gamestation, but the retail of a game can also be done by non specialist retailers such as larger chained supermarkets like ASDA.
•Consumers- The final stage of the business model is the consumers purchasing the game from game retail shop such as Game. This is the stage which now determines the money which the developers get, however they won’t get as much as the publishers who covered a lot of the costs it took to create the game.
Marketing Trends
Market trends within the games industry can change very suddenly or they gradually change over a longer period of time. The market trend affecting the games industry at the moment would be the want for first-person shooters for example, Call of Duty: Modern Warfare 2. This can have its positive and negative affects on the industry for example:
Pros
•The public demand for more FPS’s, this is a positive effect because game developers know what people want so they can develop games to suit the market trend for that period of time.
•If a publisher were to release a brand new FPS then that could possibly generate excitement and anticipation so gamers would want that more than a game of its same genre that has been around for a few months.
•If the market trend was for FPS, then game developers and publishers that have already had a top selling FPS released will have more of the markets attention as consumers of the first release will be expecting a better game next time round. For example when Infinity Ward released Call of Duty: Modern Warfare, as soon as Modern Warfare 2 was set for release there was a lot of hype towards it and a lot of consumer demand.
Cons
•If there was a market trend going towards one genre alone e.g. FPS, then this would have a negative effect on other developers and publishers who don’t succeed in making FPS, as there would be no interest in there releases.
•Sometimes some consoles can’t play FPS as well as others for example, Call of Duty would play much better on the Xbox 360 compared to the Nintendo DS as the graphics quality would be better and so would the game play because of the DS’s touch screen. So if a console hasn’t got great compatibility with a popular game in the market trend then less people are going to buy that console just because it’s not suited to the market trends genre.
Industry Trends
The industry trends within the games industry shows that, the games industry gathers more profit than the film and music industries. This shows that original IP for games is dominating franchised IP.
Original IP- Original IP is where the idea for the game only comes from the games industry and is not in any other, for example games like Halo and BioShock have came from original IP.
Franchise IP- Franchise IP is where the idea for of the game exists in other industries, like the film industry or the book/comic book industry. The Spiderman games have already came from the comic book and film industry therefore that would Franchise IP.
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Original IP seems to be dominating the games industry as many consumers seem to like new and fresh games that haven’t came from films or books. It is also better for the industry if there are more original IP games as it means there is a new market, a new franchise for the game, and more revenues, also the company’s value will increase, there would also be new audiences and genres. However franchised IP’s are not always bad for example, sequels. Sequels are important, the cost for marketing the first game may get paid off as the sequel will attract consumers of the first title, for example Assassins Creed was a hit so when the sequel (Assassins Creed 2) was released it already had people wanting to buy it as the first was such a hit.
Reference
(1) Games Investor Consulting Ltd. (2009). The games industry: Business models. Available: http://www.gamesinvestor.com/Research/Business_models/business_models.htm. Last accessed 26 November 2009.
(2) Games Investor Consulting Ltd. (2007). A long view of original IP: part 2. Available: http://www.gamesinvestor.com/Research/Thinkpieces/Past_Thinkpieces/Original_IP_2/original_ip_2.html. Last accessed 26 November 2009.
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