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Tomb Raider Finally Turns Profit, Should be a Lesson for Gaming Industry
Just in time for the release of Tomb Raider: Definitive Edition (releasing on PlayStation 4 and Xbox One), an executive producer at Crystal Dynamics has revealed that the original release on PlayStation 3/Xbox 360/PC…has just become profitable. Yeah, I was baffled, too. For those of you unaware, Tomb Raider’s launch was a pretty big issue for Square Enix. While forecasting 5-6 million units sold during its first month of released, it only managed 3.4 million. Yes, only. Apparently for a video game to be financially successful in today’s market, it must sell ridiculous sums in an incredibly short span of time.
After nearly a year, executive producer Scot Amos told Eurogamer that Tomb Raider has finally “crossed the lines of profitability for the last-gen and PC versions.” My first question: what extravagant budget did this game have? One of the reasons I balked so heavily at Square Enix’s projections for the original game was because I assumed it was just hoping for a ridiculous profit. After all, at $60 per unit sold (estimated, since other territories might have slightly different price points) and 3.4 million units sold, revenue for that game was $204 million in its first month! Compared to releases like Grand Theft Auto V and Call of Duty: Black Ops 2, this may not seem like much, but it should still cover all costs to develop and market a game.
What does this mean? Square Enix obviously allotted a much, much bigger budget than anyone imagined. Forecasting at 5-6 million units, we can safely assume that’s about how many units sold it took for Square Enix to begin turning a profit. Factoring in $60 per unit again, we come out with a whopping $300 million at least before the game makes a profit. To give you an idea of how absurd this is, let’s take a look at film studios. Known for bestowing films with tremendous budgets, the most expensive film ever to be made to date (even adjusting for inflation) had a budget of, you guessed it, $300 million. (That film, by the way, was Pirates of the Caribbean: At World’s End.) So, Tomb Raider, a game that never had a chance of becoming one of the biggest launches in history, was allotted a budget rivaling the most expensive film ever made. To me, that’s ludicrous.
Sadly, I fear this may make a statement about the gaming industry as a whole. It’s no big secret many AAA titles have superfluous budgets. In fact, if you look at statistics (or even take a casual look at the industry), you will discover the only successful games right now are the bloated AAA titles, like Call of Duty and Grand Theft Auto, and independent games with tiny budgets. Tomb Raider tells us exactly why that is. Even being a AAA game, it took almost a full year of sales to achieve profitability, all because it didn’t have an explosive launch. So many studios are finding the cost to develop and market is too great for the game to turn a profit.
An obvious solution from a business standpoint might be to increase the price of games—and then consumers would be irate, analysts would have a field day, and critics and journalists would be all too eager to ruffle feathers. Would they still sell games? Of course. Would it come without consequence? Not at all, and while the bottom line might be dollars, I believe treating your customers like you actually care is important, as well. And yes, as a consumer I don’t want to start paying $70 for new games.
Another solution could be to take the EA approach and nickel-and-dime your customers—and face the wrath of the masses for it. My proposed solution? Variable pricing models and budget cuts. Variable pricing might sound counterintuitive, but consider the benefits. Rather than releasing a full game at $60 retail, companies could rely on lower price points in conjunction with downloadable content, even possibly releasing games episodically. Telltale Games have implemented such a method to great success. Why couldn’t other companies do this?
I am not naive enough to presume with a snap of their fingers a studio could switch to this method, but with the turmoil plaguing the industry right now, a new business model would serve many companies well, and variable pricing is becoming increasingly viable with the utilization of modern technology.
The second, budget cuts, may be misleading. I don’t think developers should skimp on the quality of the game (in terms of gameplay, story, voice acting, graphics, or anything else). The primary problem, quite obviously, is marketing. Looking at the list provided by Kotaku, you’ll see the budget for most game is followed by saying it was the cost to “develop,” meaning many of the numbers listed don’t include marketing costs. In fact, if you look at the projection for Battlefield 3 (under 2011), you’ll see the studio sunk $2.75 million on Facebook advertising alone. That doesn’t include any other marketing efforts.
Is marketing a bad thing? No (and I’ll be the first to say it, given I’m a marketing graduate), and in fact, many companies fail or struggle because they cut marketing to save on costs. Can it be overused? In the case of video games, I would say yes. A large part of marketing is to spread awareness about new products. The problem with that is most gamers are already aware of upcoming games, and seeing the same commercial every day won’t convince a gamer to buy a game, and certainly won’t prompt a non-gamer into becoming one. I am by no means saying companies should cut marketing altogether; that would be stupid. What I am saying is marketing efforts should be more focused on specific targets and the costs should be reined in.
One would hope game launches such as Tomb Raider would be a wake-up call for publishers. Sadly, it doesn’t even seem Square Enix has learned their lesson. Tomb Raider: Definitive Edition is set to release later this month. Why the company thinks this port will net them a profit when the original release just broke even a month ago, I’ll never know.