Last June, amid the sun, surf and palm trees of southern California, 46,800 people piled into the Los Angeles Convention Center for the Electronic Entertainment Expo. Known as E3, the massive annual event is mecca for the video-game industry. The convention centre’s 720,000 square feet were packed with elaborate exhibits for giants such as Microsoft, Sony and Nintendo, featuring enough futuristic tech gadgetry, life-sized game character reproductions and leather-clad “booth babes” to make any gamer’s head explode.
E3, where major game developers came to unveil new blockbuster games such as Uncharted 3, Skyrim and BioShock Infinite, is a kingdom ruled by Xbox, Playstation3 and Wii. Last year, Nintendo celebrated the 25th anniversary of Legend of Zelda, and Microsoft unveiled plans for two new additions to its massive Halo franchise. Meanwhile, Electronic Arts, one of the biggest video-game developers in the world, hyped a new impending blockbuster called Mass Effect 3.
Travis Boatman, EA’s senior vice-president for worldwide studios, was primarily at the event to drum up publicity for the company’s new lineup of traditional console games. (Titles like FIFA 12 and Mass Effect 3 would go on to become massive hits, the former selling 3.2 million copies in its first week, and the latter 900,000 in its first day in stores.) But when approached by a New York Times reporter, despite the copious signs of console game success all around him, Boatman seemed to be more interested in a whole different type of game: the simple, cheap apps that millions of people around the world were starting to download to their smartphones and iPads. “The iPhone was a long time coming in this industry,” he told the reporter. “I think mobile is one of the most important gaming platforms that will ever exist for gaming.”
Just two months later, perhaps not surprisingly, Boatman left EA to become senior vice-president of mobile for Zynga, which develops simple, free games such as Farmville for Facebook and mobile devices. And he wasn’t alone. EA’s interactive executive vice-president, Barry Cottle, and chief operating officer, John Schappert, also jumped ship to join Zynga during the past year.
Why did Boatman and the other EA execs defect? Likely because it’s becoming increasingly obvious that mobile and social networking games are the future. That’s not to say that traditional console games aimed at the hard-core, sit-on-the-couch-with-a-headset, four-hour session gamer talking trash online to another dude named DeathPudding aren’t still staggeringly popular—they are. But that’s not where the growth is. Today, the action is centred around regular folks with a smartphone in their pocket who want to kill time playing Angry Birds while waiting for the bus.
A quick look at the numbers bears this out. As a whole, the video-game market shows signs of healthy growth. According to a recent report from technology research company Gartner, total global video-game-related spending is expected to reach $112 billion by 2015, up from $74 billion in 2011 (all figures in U.S. dollars). But over the past three years, retail sales of hard-copy console games have stagnated—they peaked in 2008 and have been declining ever since. Meanwhile, the amount spent on mobile games worldwide is skyrocketing, projected to go from $5.6 billion in 2010 to $11.4 billion by 2014. This shift has serious implications for Canada: we’re a huge player in the global video-game development market—in fact, we’re the third largest in the world. The industry here employs roughly 16,000 Canadians and contributes about $1.7 billion to the economy. However, a full 68% of Canadians in the industry work on traditional console games. And respondents to a recent survey by the Entertainment Software Association of Canada (ESAC) cited changes in the industry’s dynamics as a top risk, and feared an inability to adapt quickly enough.
The question now is whether the largest video-game developers in Canada, such as Ubisoft, EA and Activision, are reacting quickly enough to this sea change in the industry. Already, aggressive studio startups have taken over 68% of the global mobile-gaming market, leaving the sector’s traditional leaders wondering what the hell’s going on. Arcadia Investment Corp. analyst John Taylor says the slow reaction time of major developers to the influx of mobile games, combined with the market’s fast development cycle has already cost them significant market share. “They clearly lost control of where the market’s going, and the scariest thing for them is that the balance of power has shifted away from the things that they can control—brands, distribution and the power of TV advertising,” he says. “Now the consumer basically gets to decide what they play and what they want to pay for it, if at all. And that’s been really hard for publishers to internalize.”
Canada’s video-game industry is massive, but it started off modestly in 1983 with two now almost-forgotten games: Evolution and B.C.’s Quest For Tires, published by Vancouver-based Sydney Development Corp. Evolution’s developers, Jeff Sember and Don Mattrick (who now heads up Microsoft’s interactive entertainment business), went on to form Distinctive Software and became one of the largest publishers of video games not owned by a console maker in the 1980s. But it was in the ’90s, when global developers started putting down roots in Canada, that the country’s video-game industry really began to flourish.
In 1991, Electronic Arts acquired Distinctive and rebranded it EA Canada, where today major game franchises like FIFA and NHL are developed in its Burnaby, B.C. studios. France’s Ubisoft set up shop in Montreal in 1997, and that studio has become the company’s largest, with more than 2,000 developers pumping out console hits like Assassin’s Creed and Tom Clancy’s Splinter Cell. Two years ago, the company added a Toronto studio, built to accommodate a staff of 800. Now Canada houses outposts for most of the world’s major game developers, including Activision, Disney Interactive, Warner Bros. and more.
Ever since the Atari 2600 and the original Nintendo became living-room accessories in the late ’70s and early ’80s, video games have largely been a console-based entertainment. Fast-forward a few decades, and the likes of Microsoft’s Xbox 360, the Sony PS3 and Nintendo’s Wii have put consoles in one of every two homes in the U.S. and helped make video games a bigger business than the entire music industry—and almost as big as the movie industry. Activision’s Call of Duty: Modern Warfare 3 earned $1 billion in just 16 days last year, one day quicker than it took the movie Avatar to do the same. With eye-popping graphics and innovative gameplay, we’ve come a long way from Pong.
But mobile technology has essentially packed 30 years of video-game evolution into the past five. As recently as 2006, many of us would flip open our cellphones to play Centipede, pixilated bowling games or simple puzzles. Now, smartphones and tablets are quickly approaching the resolution and computing power of today’s consoles, and that’s opened up a whole new market for games. There are about 223 million game-console owners in the world right now—but there are 500 million smartphone owners walking around, and that’s expected to reach 1.5 billion by 2015.
As millions of people embrace the new mobile games, hundreds of new game developers have sprung up like swarming aliens in Halo. Part of the reason for the rapid growth is that it’s much easier and cheaper to set up an indie game-development studio than it used to be. The average cost of making a major console game for Xbox 360 and Playstation3 is about $20 million, but almost anyone can churn out a new game app for the iPhone. And independent developers need only pay Apple’s $99 fee for a developer’s account to get their creations to the market—no Best Buy or Walmart shelf space required. To get a sense of how this is changing the industry’s dynamics, consider that a recent Deutsche Bank study estimates that just 5% of traditional console games released since 2001 have sold more than a million copies (they typically retail for about $60 each). Meanwhile small Finnish developer Rovio’s mobile hit Angry Birds has been downloaded more than 700 million times.
A recent visit to the cramped Toronto offices of three-year-old indie mobile game developer XMG Studio reveals that a new breed of savvy new startups is set on changing the rules for the whole gaming business. The company, which has grown from five people to 45 since 2009, has made its name on simple mobile games such as Drag Racer, Cows vs Aliens and Powder Monkeys. “Where’s the market? It’s where we are,” says Ray Sharma, founder and president of XMG. “It’s in casual games.”
Sharma says that even just a few years ago, the big industry players gave no respect to mobile. “Everyone thought it was a fad. They laughed at the flying birds. But once we got almost 10% of industry revenues, then they noticed,” he says. “Now we can be a bit more bold, confident and aggressive in our assertions and say this market is absolutely affecting the console industry. We’re competing for time market share and we’re winning.”
Over at Toronto’s Capybara Games, the award-winning independent studio that created this year’s hit mobile adventure game Sword & Sworcery, co-founder and president Nathan Vella says Apple’s App Store should get much of the credit for the avalanche of new startups. There’s a reason gaming blog Kotaku recently named Apple CEO Tim Cook the most powerful person in video games. Years ago, to get a game into your living room, a developer would have to jump through any number of industry hoops, whether finding distribution through a major publisher or navigating the approval labyrinth of the various console gatekeepers. “Now you don’t have to be invited to the party anymore,” says Vella. “You just have to put something cool together, and you now have the chance to control your destiny a bit more. For small studios, this is an amazing opportunity.”
So how do the traditional console giants such as Ubisoft, EA and Activision feel about the legions of new competitors? On the surface, at least, they seem unconcerned. Ubisoft Montreal CEO Yannis Mallat says the real potential for mobile doesn’t lie in simple games to play when you have a minute or two to spare, but rather as a way to attract new paying customers to console games. “We’re talking about an online ecosystem that for us is an opportunity to give more to our consumers and make sure they stay with our offerings. That’s a very interesting part of this.”
But Mallat isn’t taking any chances. Last year, Ubisoft released the Montreal studio’s first mobile-only offering for the iPad called Monster Burner, an arcade-style game where you flick fireballs at descending crowds of monsters. Ubisoft has also been indirectly in the mobile game market for more than a decade through its sibling developer Gameloft. Founded by Michel Guillemot, brother of Ubisoft CEO Yves Guillemot, the company is seeing success through its licences of popular Ubisoft titles.
Still, making mobile games for mobile’s sake doesn’t seem to be the priority for most of the gaming giants. Instead, their strategy seems to lie in using mobile apps as a gateway drug to attract more console players, often tapping the brand strength of existing franchises. EA, for example, has created mobile versions of its FIFA soccer games, while Ubisoft has a mobile version of Assassin’s Creed. Jade Raymond, general manager of Ubisoft’s Toronto studio, thinks there is room for both major developers and the little guys. “I think what’s great about this open platform aspect is that there are a lot of innovative ideas that appeal to different target markets and push the game industry in new directions,” she says. “They’re also expanding the consumer base for video games. New people are starting to realize they enjoy playing games, so that’s an interesting way to bring people into the industry who may become our customer on the console.”
Other major developers, through acquisition, have begun to invest heavily in the potential of mobile. Last summer Electronic Arts shelled out upwards of $1.3 billion for PopCap Games, which had its game apps downloaded more than 150 million times worldwide, thanks to mobile hits like Plants vs. Zombies. Disney bought social game maker Playdom in 2010 for about $563 million and last year hit the mobile jackpot with the children’s game Where’s My Water? which stars a sewer-dwelling alligator named Swampy.
But other traditional game developers don’t seem to be reacting to the mobile incursion at all. Last summer at E3, Activision CEO Eric Hirshberg, whose company is the fourth largest in the industry after Nintendo, Sony and Microsoft, said that the company’s primary focus remains on consoles. “What we’re trying to do is use new technologies and new devices in gaming to strengthen our core business,” he said. “We don’t just want to go and spread our roulette chips around the table.” Not much different from the year before, when then-Activision CEO Bobby Kotick said: “We don’t view the App Store as a really big opportunity for dedicated games.… Right now, we don’t see an opportunity for us to participate in that market.”
There’s no argument that in this industry, the game is changing, and it’s changing rapidly. There will always be a market for hard-core gamers who spend every weekend hunkered down playing the likes of Halo, Call of Duty or Skyrim. But there’s also no doubt the existing console market will shrink to make room for the new platforms. Radio didn’t die when television came along, but it was kicked off the throne. And just as traditional media have been forced to adapt to the digital world, traditional game developers will have to fully embrace mobile or risk the financial consequences.
How this affects Canada’s prime position in the marketplace, however, is a fate still unsealed. If enough new studios pop up in Vancouver, Toronto and Montreal, and existing studios truly invest in the new platform, we could become an even more powerful gaming force to be reckoned with. On the other hand, if the major studios drop the ball and successful new studios never materialize, we could lose out in one of the few creative tech industries where Canada is a real player.
So far, the Canadian industry is sitting in the enviable position of having the best of both worlds: a sizable, established roster of major studios pumping out giant console-based revenue magnets like FIFA 12 and Tom Clancy’s Rainbow Six, as well as one of the globe’s most robust independent gaming scenes, tapping into the emerging mobile market.
“The industry is adapting,” says Matt Bilbey, vice-president and general manager of EA Sports’ soccer business in Burnaby, B.C. “Soon mobile devices will have as good a technology as any of the consoles today, and the skill set of our console developers will be even more relevant.” It’s undoubtedly a rare opportunity for Canadian talent in an increasingly global business, but only if those at the top come to grips with the fact that console games are already on the decline. They better get there fast. By the time the fourth generation iPad hits shelves, we’ll already have a good grasp as to whether the next decade of game development will belong to Canada—or someone else