Blood on the Tracks

I was reading this report on game earnings at GoNintendo, and this quote struck out at me:

Perhaps most disconcerting is that Take-Two management does not believe that the company can turn a profit at the $1.2 billion revenue level. The company they inherited had earned a profit on exactly that revenue level in FY:05, and yet management appears reconciled to the fact that this cycle is more costly, and that it cannot turn a profit from its quite impressive lineup.

When your business is raking in a billion dollars, and you still lose money, something is seriously wrong.

The video games industry has been in a technology arms race ever since the beginning.  We've always been pushing for stronger hardware, more features, and better graphics.  But with each generation, production costs have risen higher and higher.  The costs are now astronomical, and would probably shock the average person if they knew.  Those flashy games on PS3 and XBox 360 spend over two full years in development, with budgets in the tens of millions of dollars.

Take Two's budget for Grand Theft Auto 4?  Sit down.  It was over one hundred million dollars.  $100 million for a single video game.  I can't even wrap my head around that number.  And yet, despite the vast success of the GTA brand, with over a billion dollars in revenue, Take Two cannot turn a profit.

This business model is doomed to extinction and everyone knows it.  There's absolutely no way the present situation can be sustained forever.  And then when you consider that these bloated-budget HD games are the ones squarely aimed at the shrinking 18-34 market*, and all you can see is blood on the tracks.  This business had better discover some more affordable options if they want to survive.

I hear Nintendo has a popular games console.  Maybe they should put some effort into making some real games for it.  Oh, and Apple has this gadget called an iPhone that's really popular with the kids.  Somebody should look into that.

* I should note, as a 36-year-old myself, that I still enjoy playing video games, just as my peers do.  We just have other priorities in life, from careers to families.  We're not going to be in front of the couch at all hours of the night, and we are not paying full price for every game that comes out.  We have to be more discriminating in our choices.  Also, some of us still prefer the classic games we grew up with, and some of us want to share our games with the kids.  Focusing on the single 30-year-old as your "hardcore" market is suicide.  Take Two is learning this lesson now.