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Monday, September 19, 2005

Why Is Financing Game Development Hard?

Dean Takahashi is a long time game journalist who has written multiple articles, a blog with the San Jose Mercury News and a book about the development of the XBox. At a speech to conference on video game investment, he's asking a simple question to the crowd. Why is it so hard to get funding?

One assumption that has been a barrier to funding game companies is that it’s all over. It’s all played out. Electronic Arts has the console market all locked up. Look what happened to Sega when it tried to go up against EA in sports. Now EA has something like 20 percent of the market for platforms like the PlayStation 2 and the Xbox. This is a big deal, if you consider that Intel has only about 15 percent of the chip market. But scratch the surface and you’ll see that EA has plenty of strong competition in companies like Activision, Ubisoft, THQ, and Vivendi Universal. EA has stumbled during recent months, missing its numbers as its tried and true, conservative formula of making sequels and games based on Hollywood brands is looking a little tired. So there’s a big gorilla in the market. But is that enough to scare everybody away from the biggest market? The answer is that if you look closely at some of the executive departures from EA, you’ll find that some of them are going into competition with EA.
-- Why Is It So *&@#$% Hard To Finance Video Games

Dean ticks off more than a few excellent points, including the real size of the video game market (not as close to movies as rumored) and the pros and cons of making investments only "sure" bets like Halo 2 (or similar "sure" bets like The Sims Online). Largely he places the blame onto a series of "disconnects", which many gamer have heard about from other malcontents. The lack of synergy between publishers and developers, VC groups and major game companies leaves the games industry at a disadvantage. An insightful read into the trends that underscores the issues about hardships in getting good games out there.

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