Computer gaming transcript

Transcription from podcast

Topic:	The evolution of computer gaming
Speakers:	Phillip Lee, Solicitor, Information Technology, Denton Wilde Sapte LLP
	Winston Green, Senior Solicitor, Technology/Telecoms, Denton Wilde Sapte LLP

Winston – Hello, and welcome to this podcast. My name is Winston Green. I'm a senior solicitor at Denton Wilde Sapte. For today's podcast I will be interviewing Phillip Lee, an assistant solicitor in our Technology, Media and Telecoms department on the evolution of the computer gaming industry, the challenges that it now faces and the ways in which it is responding to these challenges. So Phil, the computing gaming industry is a rapidly evolving one. If you had to pick one area in which there have been significant changes over the previous 20 years, what would that be?

Phil – I think the point you make is right, Winston. The computer games industry has evolved very rapidly over the past 20 years and I think in part that's very much tied to the development of the personal computer market. If you think back 20 years to things like the ZX Spectrums, the home computers that we had then, they had very limited power and over the course of the next 20 years that's developed very greatly and machines are now much more powerful than we probably could have conceived of back in the early 1980s. There have been huge changes, not just in the technology and the hardware itself, but also in the nature of the games.

Again, if you think back to the early 1980s, you were perhaps looking at games that were, that had kind of a third person focus and they were very much platform orientated games. Now a lot of our games are sort of very much first person shooters, that type of thing and the audiences that computer games companies are targeting are changing as well. The computer games industry has typically targeted the sort of, you know, late teenage market, but now I think there is a general recognition that there is a sort of huge untapped areas of the market, for example, the female audience and the slightly more aging audience and so I think, you know, there have been many, many changes but probably the biggest change and the biggest challenge that the computer games industry faces now is the cost of development with the latest round of the next generation consoles like the Xbox 360 and the PlayStation 3. The development cost has just spiralled and it really presents a huge issue for a lot of computer games companies.

Winston – Sadly enough I can remember the early 80s. I remember in 1982 I got my first TRS-80 computer from Radio Shack and certainly development costs weren't an issue then because you bought a magazine and typed the code in and then recorded on to a cassette. I can still remember hitting the "CLOAD" command and having to reload the games all the time. They weren't very good quality. So how dramatic has the rise in development costs been then?

Phil – Well, to be, honestly, it has been very dramatic. I think you are quite right. If I think back on my own experience, I used to be able to sort of programme musical compositions in the course of an afternoon and that was really how I got into programming myself, but, you know, to take one example, the Pacman game for the Atari 2600 games console. As I understand it, that particular game, it was developed by one or maybe two programmers took a few months and maybe had a development budget of a few tens of thousands of dollars, nothing much more than that.

Nowadays, if you look at something like Halo 2 for the X-Box, in the credits of that game they list over 190 people and the development costs was rumoured to exceed $40million. With such huge development costs and obviously development times as well, you know, the Halo 2 took two to three years to develop, it's getting harder and harder for computer games companies to reap the rewards of their development.

Winston - So what do you think this means for the industry?

 
Phil – Well, to be honest I think the simple reality is that a lot of development companies are finding it harder and harder to afford to make games and that means really that they are faced with a choice. They either have to go bust or they have to get swallowed up or the third option is just to look at alternative ways in which they can generate revenue to kind of offset that development cost and I think the difficulties that the industry has faced is very much reflected in the market consolidation.

According to TIGA's website, that is the UK games development trade association, there are currently about 150 development studios in the UK and that number represents only half the development studios that there were in 2000. So, anyway, as I say the computer games industries are having to look to alternative business models as a means of making more out of the games and maximising the revenue that they can get.

Winston – So you mention that the games industry is having to look towards alternative business models to maximise profits and to get games developed. Can you give some examples of this?

Phil - I think first of all before looking at the alternative models that computer games companies are using, it is perhaps helpful just to think about the traditional route through which games are sold and traditionally obviously what happens is that computer games publishers will look to distribute their games through high street retailers. Obviously that has some disadvantages. It means that the distribution costs are very high and that tends to be reflected in a high retail price for the game itself and that in itself can fuel piracy.

One of the models that computer games companies are looking to now is to use digital distribution or online distribution of games effectively where consumers try to download a game through a website and that can have the advantages of meaning that there are cheaper distribution costs and that can be reflected in the price of the game itself. It also has other advantages of course that for when any user downloads a game through a website, the company then has an opportunity to capture information about that user; names, address, contact details, so that they can market future games to the end user.

Winston – You mentioned that digital distribution can lead to more innovative game delivery.

Phil – Well, again if you think about the traditional model through which games are sold, you know, typically it involved giving away the whole game when it was sold in the high street. Digital distribution allows us to look to alternative methods of delivery and one of the models that computer games companies are considering is to supply computer games in instalments.

One of the things that has recently been, that market research tends to suggest is that a lot of gamers are no longer looking for the sort of huge immersive experience that you get, for example, in massive online role playing games. They are looking for games that they can play chunks of. They can sit down, have some casual gaming and then walk away from it. The advantage of this is that you can target your games for this kind of audience and you can deliver your games in episodes so that an end user can play one particular episode, if they like it they can proceed to download and purchase the next episode.

It does mean that you can then sell each episode for less than the cost of an entire game which means that, you know, you have a cheaper retail price which can encourage end users to buy the game and to combat piracy. It also means that you can have an ongoing development, meaning that you can release the game in stages rather than to have to develop the entire game in one go leading to a development lag time of potentially several years.

It has also been very successfully used in the mobile arena. If you look at a game like Need for Speed for example. That was a game that could be downloaded in stages and it meant that the mobile users didn't have to download one huge file which could potentially take ages and cost a fortune over, you know, using mobile costs and from a consumer perspective it's helpful as well because it means that the consumer ends up paying only for what they want. So really, I mean, it's just one of the models that the industry is looking to, but you know the early signs are good.

Winston – Sounds like consumers still have to pay up front to play a game. Are gaming companies considering any alternative revenue models?
Phil – One of the alternative models that computer games companies are considering is to actually give away the game itself, which sounds a bit counterintuitive and you wonder how games companies will make money from that, but the approach that some games companies are taking is to give away the game and then once you have got the end user hooked on the game, to actually sell them content within the game. That has the obvious advantage that from a consumer's perspective you don't have to take a risk in buying a game first of all to find out whether you like it. That particular model has been very successfully used in for example a game called Crazy Racing Kart Rider, which is a popular South Korean racing game and, as I understand it, what happens in that game two of the most popular pieces of content are mud and car wash and the idea being that in the game you can fight your opponents and you can chuck dirt at their car and the only way that they can remove the dirt is to just to buy this particular car wash to remove it. So, you know, that's just one of the ways, one of the other ways in which games companies are looking to generate revenue.

Winston - So no one wants to drive a dirty car then?

Phil – Exactly.

Winston - Are there any other business models which games companies are considering?

Phil – Well, yes, a third option that the games companies are looking towards is ad based gaming and as the name suggests that's the use of advertising in games, so a sort of product placement and sort of in game billboards and that kind of thing. That one obviously needs some very careful consideration because advertising naturally brings with it a wealth of regulation and the potential impact of advertising regulation on games is perhaps not yet clear. The other thing that needs to be considered just on a practical level is that advertisement placement can have a negative perception from gamers who, you know, can review it as having an adverse effect on the purity of the game. However, if you consider the film industry, you know, advertising within films and product placement has been used very successfully so in the long run there is no reason why it shouldn't be in computer games.

Winston – Phil thanks very much for that. It certainly seems that the gaming industry has evolved a lot since I was a young man playing on my TRS-80 and it will be interesting to see how the industry responds to the challenges that you've outlined. Thanks Phil.

Phil – Thank you.

 

This is a Technology, Media and Telecoms download from Denton Wilde Sapte LLP.  Visit the website to listen to other podcasts in the series.