Regression to Progression: Video Game Simplification to Increase Revenue

COMMENTARY | According to market researcher NPD Group, U.S. retail sales of video game hardware, software, and accessories dropped significantly in January. Analysts point to the lack of new games as the reason behind the decline, and while true, there may be a more systemic issue with the video game industry in the United States. Increased complexity in gaming continues to drive competition among console game developers to new heights, and may cause the industry to undergo great pains in the future. Recent news in the industry, and particularly in console gaming, has been increasingly negative, as console gaming continues to give way to the rise of mobile games. Traditional console developers must consider regression in game complexity in order to better compete with mobile games.

Console gaming thrived in a market when it was the only option, but the market has changed while the delivery has not. Console gaming is increasingly becoming a niche market, while mobile gaming by comparison enjoys a much broader audience, reaching a much higher percentage of women, children, and older adults. Compare the most popular console game in Activision's Modern Warfare 3 versus the ever-popular Angry Birds. Undoubtedly, the former is a much more complex game, appealing to those who consider themselves true gamers, but Angry Birds has an outstanding profit margin and longer term revenue potential. Angry Birds has become a dynasty in mobile gaming, extending well beyond anything that could have been anticipated, yet it is simple and significantly easier to produce.

Delivery of games needs to change too, and thankfully, it seems that new Sony CEO Kazuo Hirai understands the new direction. Integration of TV, internet, and gaming is essential to growth. The best part about moving into less complex games is that development is relatively cheap and easy when compared with traditional console games. Large market players in gaming can offer amateur developers nominal fees for development and then base payouts on sales. Delivery of this content can come through online interfaces based on the console, which would also result in lower production cost. There will always be a large market for the traditional complex console games, but to increase revenue in the short and longer term, these companies should expand into simpler games.

In short, companies in this industry have been ignoring a large portion of possible consumers and that will need to change in order to continue growth. While the majority of revenue will still come from traditional CD-based console games, expanding the market into online delivery of simple or even rereleases of old games (as Sony has done with PlayStation One games for example) can be an effective method of revenue expansion on a large profit margin.