Business modelsConsumer InternetInnovation

Long tail economics to hit the games market

By August 9, 2007 No Comments

Casual game

The games industry could be about to hit a period of massive disruption.   The thesis comes from a presentation on Tuesday by Chris Anderson, author of The Long Tail (this link is for the original Wired article). In a nutshell the idea is that the video games market has got to a point where the economics are similar to the music industry pre-Napster – and, surprise surprise, it is about to get Napsterised.

Today the games industry is about hits business with (development) studios investing tens of millions of dollars in the hope of hitting the jackpot. The business model is shrink wrapped software – and new hit games are expensive – say £30. This is like the music industry at it’s peak in 2000 when *NSYNC released the all time best selling album No Strings Attached. Huge amounts were spent producing and marketing the album and the model worked because sales were of over priced CDs.

The games industry model is already under pressure as production costs have kept rising and the shelf life of games has been falling. Now it is at risk of being undermined by a huge catalogue of low cost games distributed over the internet.

As Chris Anderson is wont to point out every time high production values competes with choice, choice wins. The music study is the best case study of that where the overall market has remained roughly flat, over the last five years, but the proportion held by the top artists has fallen dramatically. Music lovers still spend the same amount, but have flocked in droves to the smaller niche artists that more precisely match their tastes.

The same thing that happened with music is now starting to happen with games. The internet is reducing the cost of distribution and making it economic to produce games for small niche audiences. People are attracted by the possibility of trying games for a fraction of the traditional retail price and are prepared to take a chance with brands and studios they don’t know.

The cheaper the games are, the stronger this logic becomes and the quicker the market will shift. The beauty of games is that even more so than music free distribution can make good commercial sense. Giving away the game and then charging for extra levels, extra characters and even funky things like audience rights and lessons can be very powerful – the virtual goods model. If this idea really takes off the pace of change in the games industry could be frightening.

The early evidence from the casual games market suggests it might be.