Making it Special

Ask almost any journalist or commentator what the story of the games business in the past few years has been, and you'll probably get the same stock response. It's all about breaking into the mainstream, you'll almost certainly hear. It's about the rise of the Casual Gamer, this mythical mass-market beast unleashed upon the market by the dark genius of Nintendo's Wii and DS, whose successes other companies are now rushing to emulate.

It's a fairly straightforward narrative, and like any good story, there's a grain of truth at the heart of it - but as an assessment of what's actually happened in games of late, it's sorely lacking in insight, which makes it all the more disappointing that it's such a widespread view of the market.

What's really happened isn't so much a tale of cracking the mass-market (your granny may have bought a Wii, but the stark reality is that the console's installed base is still less than half that achieved by the PS2) as a tale of companies learning about the value of specialisation. It's a story that starts in an industry dominated by publishers who view themselves as jacks of all trades, capable of straddling every genre and target market in the business - because after all, the consumers are all gamers, at the end of the day. The mid-section of this narrative is about companies learning that actually, the only way to keep those profit margins high is to learn what their strengths are, and focus on those areas - and about companies who can't make that transition gradually falling by the wayside.

And the third act? As ever, I'm reticent to stare too deeply into the crystal ball, but I suspect that this story ends in a few years' time, with a landscape largely made up of highly specialised companies, each focused on a relatively tight market segment. Some of them will be huge companies, aiming their efforts at a tight but very large segment, and some will successfully span several different sectors with highly differentiated subdivisions and sub-brands. Some will be modern publishers who have learned to focus; some will be developers who have learned that such tight focus can actually remove the need to work with a dedicated publisher, if you can build the right skillset.

The evidence of this transition in progress can be seen fairly readily in the behaviour of the industry over the past couple of years. Perhaps the most dramatic example is, of course, Electronic Arts, whose entire restructuring plan can, on some levels, be summed up as an attempt to give the giant publisher a laser-sharp focus on a small number of key areas which it can dominate, rather than simply being one among many in a wider variety of industry sectors. There's more to it than that, of course, but it's beyond question that Riccitiello's EA is proving much more circumspect about picking its battles than Probst's EA, which was willing to wade into any arena that presented itself, no matter how ill-equipped it may have been for the challenge.

Staying at the top of the market, Activision, too, has made it clear that it's keen to pick its battles with care. The company has been blunt - perhaps too blunt - about its ambition to launch nothing that isn't a $100 million franchise, representing a clear attempt to remove the publisher entirely from the middle ground and turn it into a brand that only launches slick, expensive, core gamer titles.

Admittedly, the ambition to make this transition and the reality are rather different things - not only does a publisher ignore smaller titles and new IP at vast risk of letting the next break-out hit slip through its fingers, but a firm with Activision's ambitions in this regard needs better quality control and product assessment processes than the company presently demonstrates. Modern Warfare 2 hides a multitude of sins, but not everyone has forgotten that Activision's two other major Q4 09 titles were a slow burning cult success (in the case of DJ Hero) and an outright embarrassing flop (Tony Hawks Ride), rather than commercial triumphs.

Then there's Ubisoft, which this week made clear that it's planning to tone down its efforts in the casual market and focus on what it's been really good at recently - high quality titles for the core market. It's not that the casual market is doing badly - far from it - rather, it's that the people making money there are specialists, not daytripping core game publishers. Ubisoft has done better than most in the sector, but even it cannot really compete with companies whose raison d'etre is to reach this market segment.

Look, for a perfect example of this specialisation at work, at the top 10 games of 2009 in the UK, a chart conveniently unveiled by GfK ChartTrack this week. The top ten has two Activision titles in it - both Call of Duty games, hardcore first-person shooters prized for their online multiplayer. It has two EA games in it - both FIFA titles, from the unrivalled EA Sports catalogue, which dominates the sports markets on both sides of the Atlantic. There's one Ubisoft title in there, core gamer favourite Assassin's Creed 2. The other half of the top ten is all about Nintendo, with five casual or family-friendly games making up the rest of the chart.

What games define Activision? Call of Duty, of course, and since the Vivendi merger, World of Warcraft (which isn't in the chart but still made enough money to wallpaper the moon in hundred dollar bills and still have enough left over for the taxi fare home). Electronic Arts? Brave attempts at new IP and pushes into exciting new digital markets will probably pay off in the end, but right now, it's Madden and FIFA. Ubisoft? Assassin's Creed and Splinter Cell, pretty much. Nintendo? Mario, of course, and Wii Sports / Wii Fit - the Axis of Casual.

It's not an accident, of course, that the defining games of each publisher are the ones which sell the most. It's perfectly blatant logic that commercial success and widespread recognition go hand in hand. Each publisher has a strength that it's playing to, and they are increasingly learning that playing outside those comfort zones is hard work, prone to failure and ultimately a fairly weak investment compared to simply playing the game you're already good at.

Meanwhile, outside the world's giant publishers, specialisation proceeds at an extraordinary pace. When we first got excited about browser based games, Flash games and mobile phone games, there was always a vague assumption that these would be integrated into the operations of "real" game publishers some day. Even those companies which set themselves up as the leading publishers of such new content (often by means of hiring better PR people than their rivals rather than any real achievements) were often essentially designed to be acquired by a game publisher at some point down the line, rather than with the intention of ever really being a force in the wider market.

Yet today, companies are learning that such specialisation isn't just viable, it's often healthy. Specialisation - be it on a genre, or a target audience, or a medium - provides a wealth of benefits, both in terms of specific expertise and in terms of the ability to structure your entire company around the requirements of your market sector. It's hard for a company used to building monolithic boxed software to embrace the mindset required to iterate quickly and release lots of smaller products, or to run a full-scale service for several years. It's not just the developers who have to change their working habits - middle and upper management, too, require re-education, and bare basics like how money flows into and through the company need to be reconsidered.

Moreover, if you're a company used to selling $60 software to your customers and making a $10 margin, it's natural to have a serious conceptual problem when setting up a service which deals in Average Revenue Per User (ARPU) figures instead, especially if those ARPUs are being measured in cents rather than dollars. Isn't this cannibalising your lovely, straightforward high-margin business, to some degree? Maybe it is, maybe it isn't - but for the specialist firm, which deals in nothing but high-traffic, low ARPU business, that's not even a consideration, making them more nimble and less constrained in how they choose to do business.

In other words, it's only to be expected that many of the industry's top publishers, after their flirtation with emerging markets, will fall back on what they know best - making core games for a core market. This won't excuse them from having to think about new business models - even core games are going to see their revenue models overhauled vastly in the coming years - but it'll certainly mean that the list of what we consider to be the world's "top games companies" will need a serious rethink in the coming years.

Those who will be left behind by this change - those most at risk in both this transition and the move to new business models in general - are those who simply don't have a specialisation. Studios which can produce major, exciting, AAA games have nothing to fear - no number of highly addictive iPhone and Facebook games will ever remove that market. Equally, those who can create genuinely entertaining family and casual products will find comfortable niches, as will those with valuable expertise with running games as services, rapidly developing high-quality titles for small-game plaftorms, and so on.

There exists, however, a crop of development studios - many of them quite venerable - whose existence has been entirely predicated on the existence of a market for games which fall somewhere in the middle. They're not bad games, but they're not fantastic games either - competent movie licenses for movies that don't quite set the world on fire, decently made clones of games that were popular a year ago, enduring classics like racing games where the cars have guns on them, or nondescript shooting games where you fight aliens, demons, or alien demons. They're the games that scrape back their investment, because the investment is low, and because they're delivered on time and on budget, the publishers come back for more.

This work, I fear, is going to dry up - for the simple reason that the investment required for a PC or console title has risen to a level where a "competent but unexciting" game can't really justify it. Meanwhile, whole new markets have sprung up underfoot, less risky ones where small investments can turn into significant rewards. We're already seeing a polarisation in the industry between games that were hugely expensive to develop, and games that were incredibly cheap to develop, with companies deserting the middle ground and flocking to the extremes. That's going to leave studios which presently eke out a living on that middle ground in a seriously bad place. It's time for them, too, to pick a lane and stick with it - to find a specialisation and master it, before the undifferentiated ground they're standing upon is swallowed up entirely.