p48 53 gaming june
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48 BCB June 2009
Can Vancouvers billion-
dollar videogame sectorsurvive the tectonic shiftsreshaping the industry?
By De e
Ho n p H o t o g r a p H B y
C li n
to
n H us
sey
. .
It looks like pure fun and games at the sprawlinghalf-million-square-foot Burnaby campus of video game g iant Electronic
Arts Inc. (EA). Its noon and the cafeteria clatters with the sound of soft-
ware engineers digging into bento boxes while fellow employees bash at
arcade games in the Executive Lounge. Outside, a soccer game real,
not virtual is in full swing on the all-weather turf, while other workers
make use of nearby amenities including a weight room, yoga studio and
basketball court. Meanwhile, a gang of awestruck visitors stock up on
games and EA-emblazoned souvenirs at a store near reception laugh-
ing and snapping tourist pics of each other to capture memories of the
place where their favourite titles are made. Theres an energy in the airthat seems part university campus and part amusement park.
Despite appearances, however, this is serious business. Even as
industry sales seemingly defy the recession with 2008s US$11 bil-
lion in worldwide video game sales surpassing 2007s gures by 26 per
cent trouble can be seen in these hall s and in those of other B.C. game
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developers. Desks in Burnaby are being cleared to make room
for workers from EAs shuttered downtown Vancouver studio,
Black Box, as the company consolidates facilities in an effort to
cut costs. EA is bleeding cash quarter af ter quarter, losing US$641
million in 2008s fourth quarter alone. The California-based rm
announced in December 2008 that it was slashing its worldwide
workforce by 10 per cent, or about 1,100 workers; about 300 of
those jobs are coming out of B.C., leaving the local ofces with
1,600 employees.
EA is the bedrock of Vancouvers video game cluster, which,
according to UBC economic geographer Trevor Barnes, includes
some 140 companies employing about 3,500 people. Many of
the other studios in town none of which employs more than200 are startups founded and staffed
by people who rst cut their teeth at EA,
outts that werent even in business ve
years ago. And many of them are not faring
particularly well either, including Radical
Entertainment Inc., once the second-big-
gest video game employer in town, which
sacked about half of its 230 workers last
August. Other studios are cutting staff
too. We have an industry where 800
people were put out of work in the last
six months, says Jared Shaw, who runs
Vancouver-based video game recruitment
firm 31337 Recruiters. When software
developers stop getting snapped up, you
know things are really bad.
Changing consumer demands, the
global economic meltdown and compe-
tition among international video game
makers is re-sorting the industrys winners
and losers. The cost of developing games
is soaring and companies are losing their
stomach for risk cutting back on the
number of projects theyre developing, which means less work all
around. In addition, there are a growing number of jurisdictions
around the world pushing to compete with Vancouvers video
game cluster, offering various incentives to lure both companies
and prospective employees. For the local industry, estimated to
contribute almost two per cent annually to B.C.s GDP, the chal-
lenges are mounting.
Nowhere are the industrys seismicshifts more keenly felt
than in the increasingly precarious world of development. Withinthe business, there are essentially three players: console makers,
such as Sony Corp., Microsoft Corp. and Nintendo Co. Ltd.; third-
party publishers, such as EA, Activision Blizzard Inc. and Ubisoft
Inc.; and the usually much smaller developers, such as Radical and
Blue Castle Games. Console makers make the machines that run
the games, although Nintendo also develops and publishes a fair
amount of its own software. Publishers market and distribute the
games and typically own the intellectual property behind them,
while development studios employing anywhere from 150 to
just a couple dozen people and working on one or two games
at a time actually make the games, creating all the storylines,
artwork and programming.
In recent years, local studios Relic Entertainment, Action Pants
Inc. and Radical Entertainment have been bought out by publish-
ers (THQInc., Ubisoft and Activision respectively), making them
much more dependent on the fortunes and whims of their partner
or parent. Publisher-owned studios gain access to their parents
deeper pockets but lose a degree of control; the 120 jobs lost at
Radical last year came after Activision shelved two out of the four
projects it was working on. Independents, on the other hand, can
make games for more than one publisher as a hedge against col-
lapse. Vancouver-based Blue Castle, for example, recently more
than doubled its staff, from 70 to 165, thanks to its deal to make
Dead Rising 2 for Japanese publisher Capcom Entertainment Inc.,
even as the studio makes a sequel to The Bigs for 2K Sports.
EA, like other publishers, partners with smaller independent
studios to develop some of its games (including the next install-
ment of its blockbuster Need for Speed series being developed by
Slightly Mad Studios in London, England), though most of the
companys games are made in EA studios in such places as Shang-
hai, Istanbul, L.A. and Montreal; its Burnaby studio, or EA Canada
as its known, is the companys largest operation. Increasingly, the
push at EA is to shift development to cheaper facilities. At the end
of scal year 09, we expect to have 19 per cent of our employees
in low-cost locations versus 13 per cent a year ago, EAs CFO Eric
Brown announced in February this year.
But for EA, shifting operations may
not be enough. The company, once the
worlds dominant publisher, is now falter-
ing to the point where its key rival, Santa
Monica-based Activision, has a market
capitalization more than double its own
(US$13.4 billion versus US$6.1 billion). Both
companies took in about US$1.6 billion in
revenue in the fourth quarter of 2008, and
while both lost money, EA lost signicantly
more: US$641 million versus Activisions
loss of US$71 million. The chief problem:EA is spending too much money making
too many games that too few people are
buying. The company makes about 35 to
50 titles a year, spending 27 per cent of its
sales on research an development, whereas
its rival focuses on just 15 games and spends
about 10 per cent of its sales on R&D.
EA has responded by cutting back the
number of games its developing, con-
sequently trimming its staff. I think EA
needed to focus down on its priorities and
say, We make so many great titles, we are
cannibalizing our market ourselves, says
EA Canada vice-president and general
manager Pauline Moller. As a video game
industry, we have so much great product
out there; its a ght for the consumersdollars. While Activisions situation isnt as
dire, it too has stated a desire to avoid risk-
ing its fortunes on untested games, focus-
ing instead on sequels to successful titles.
Blame the recession for part of the
industrys new-found risk aversion. Con-
sumers are still snapping up games, but
with fewer dollars to spend they are more
selective about which titles they buy.
Buyers cant all shell out for ve different
games at $60 a pop, says Moller. Maybe
they can only afford to buy one great
game. So the most popular titles get all
the sales while the also-rans end up in the
bargain bin. There is growing separation
between the sales of the blockbusters and
those of the rest of the heap.
But even when the economy rebounds,
publishers will likely keep a tight rein on
the number of games they make which
for Vancouver studios means fewer proj-
ects to go around. Thats because the cost
of developing new games has risen to the
point where publishers cant afford as many
gambles. The video game industry movesin ve- to six-year cycles, reshufing every
time another generation of console, such
as Microsofts Xbox 360 or Sonys Play-
station 3, comes out. Each generation of
video game console has more computing
repower than its predecessor and, as a
result, the visuals of the games are more
stunning. The physics of the movements
are more realistic. The whole playing expe-
rience is simply more immersing. But con-
sequently, developers need to pour more
resources into the games to
take advantage of the tech-
nological advances and the
cost differences are striking.
In the last cycle of con-
soles, you could develop a
pretty solid Playstation 2
game for $5 million to $7
million, says Colin Sebas-
tian, senior research analyst
in San Francisco for Lazard
Capital Markets. A pretty
solid game for the Xbox 360
or the PS3 is probably $20
million; thats a pretty big
difference. You cant develop
20 games and just hope that one or two
are hits. You have to probably focus on a
fewer number of games and then put more
into each one.
More money is riding on the fate of
fewer products. Any failures will put acompany into a much deeper hole. Unfor-
tunately for EA, the key franchises that
once brought the company success have
stalled, leaving the company scrambling to
recover. Its Need for Speed series has deliv-
ered hit after hit since 1994, but the most
recent iteration, Need for Speed: Undercover,
bombed with critics and failed to meet the
companys undisclosed sales target. IGN
.com, one of the top gaming websites, said,
Need for Speed: Undercover is a poor game
with a ton of problems, both technically
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iron or putter. The Wii is the kind of system
even Luddite seniors can pick up quickly
and have a blast. I know: my retired parents
have one. The Wii is drawing all kinds of
people into the game-buying market, not
just the young male obsessives who call
themselves gamers. Nintendo saw it had
no chance competing in the arms race of
producing ever more expensive and power-
ful consoles and games, and went down a
different, more lucrative path.
So where does all this leave Vancouver?
The bulk of its industrys fortunes rests onwhether EA can turn itself around, particu-
larly the sports titles produced in Burnaby.
I think all these problems can be recti-
ed, says Lazards Sebastian. Thats the
beauty of having new products ever y year.
You have to have the capital to be able to
invest in new products. You have to have
a sense of what the market is demanding.
You really have to have your nger on the
pulse of the business. And you have to have
execution, which is the hardest part.
EA has high hopes for its newGrand Slam
Tennisand tness program EA Sports Active
(both for the Wii) and plans major moves
into online gaming. So dont start writing an
obituary for EA just yet. Because of its sheer
size, the company has the ability to screw
things up and recover from it.
The smaller studios in town face dif-
ferent challenges. EA can shelve a couple
of titles from its catalogue of dozens and
keep rolling, but a studio that only pro-
duces one or two games would have to
shut its doors. And with jurisdictions from
around the world ghting tooth and nail for
diminishing development dollars, that risk
for local studios grows greater. Quebec, as
one example, offers a 37.5 per cent labour
tax credit something B.C. doesnt have
while fast-rising competitors such as Singa-
pore offer well-educated, English-speaking
workers and close cultural connections to
the critical Asian markets, in addition tolow costs and government incentives.
Still, recruiter Jared Shaw sees opportu-
nities for the smallest of Vancouvers devel-
opers in all the malaise. As much as I dont
like layoffs and real major shakeups in the
industry, I like them for the innovation that
they create, he says as we talk over lunch
at White Spot. Some of these unemployed
game developers, he believes, are going to
get off their couches, start their own com-
panies and build their own games. And
as the Wii has proven, there is a largely
untapped market of game buyers out there
beyond the hardcore console gamers.
The timing is actually good in some
respects when you look at casual online
games, the emergence of them, and things
like the iPhone, he says. One guy can make
a casual game thats downloadable. One guy
can make an iPhone game. Five or six guys
banded together can make some kick-ass
casual games and kick-ass iPhone games.
Shaw puts down the shrimp sandwich
hes eating and pulls his iPhone out of
his pocket. He ips through some of thegames and shows me one called Slotz Racer.
For $2.99 you can download the software
and make a little slot car go around a track
on the iPhones 3.5-inch screen. Its not
the kind of thing you play until 5 a.m., just
something to kill time waiting for your bus
or plane. Companies are also discovering
a market for easy-to-play casual games for
the home computer. Vancouvers Hothead
Games makes a $15 downloadable title
called On the Rain-Slick Precipice of Dark-
ness, rendered in gorgeous (and relatively
cheaper) 2-D. It plays more like a choose-
your-own-adventure graphic novel than
an adrenalin-fuelled console shooter.
The development cost on it is nil com-
pared to a console game, says Shaw of the
new technologies. Indeed, anyone with
$100 for Apples iPhone development kit,
some skills and spare time can start their
own game company. To build a console
game, youd need half a million dollars for
an Xbox development kit and a similar sum
for a game engine, he says. What were
seeing is all these scrappy little develop-
ers starting up all over the place.
Maybe just maybe some of these
startups will make money. And maybe still,
one or more of them will turn into some-
thing big. EAs giant studio in Burnaby,
after all, began as a little project started by
two Vancouver high school students, Don
Mattrick and Jeff Sember, back in 1982.They sold their company, Distinctive Soft-
ware, to EA in 1991 for $11 million, bringing
the publisher to Canada and launching the
countrys video game industry. This could
just be fantasy: thinking that the citys
recent turmoil is a seed that will blos-
som into a reborn industry whose iPhone
games, online casual titles and other, yet-
unforeseen, kinds of interactive software
make Vancouver the envy of the world. But
when it comes down to it, fantasy is what
this business is all about. n
and in terms of design. (The game, produced since
inception at EAs downtown Vancouver Black Box
studio, will see its next sequel made in the U.K. by
Slightly Mad Studios. EA denies the move has any-
thing to do with poor performance.)
EA built much of its business around its award-
winning sports games. Its industry-leading titles
such as NHL, NBA Live and FIFA, among others, are
produced in Burnaby. Sequels are pumped out each
year as surely as the seasons. But lately, success has
not followed. The sports business in games has
actually declined, says Sebastian. So has the racing
genre. Racing games are not as big as they used to
be. Where EA historically had a lot of strength has
actually been a weakness in this cycle. Activision,
on the other hand, has scored hits in its massively
popular Call of Dutyrst-person-shooter series and
in its music game Guitar Hero.
The real game changer in the business, however,
has been Japanese console maker Nintendo. Most
of the industry had predicted that either the Xbox
360 or the Playstation 3 would lead the most r ecent
generation of consoles. Publishers developed games
for those machines accordingly and largely ignored
Nintendo. But Nintendo shocked everyone. Its Wii a cheaper,
less powerful machine with an innovative motion-sensing control-
ler has outsold its rival consoles two to one since being intro-
duced in 2006, leaving publishers scrambling to build games for
it. None has been very successful so far. Of the top 10 games sold
in the U.S. in 2008, ve were published by Nintendo for play on
its own machines. Wii Sports recently became the worlds number
one selling video game of all time, selling more than 40 million
copies to surpass the lifetime sales of 1985s Super Mario Bros.Need for Speed: Undercover, by comparison, has sold about four
million copies across all three platforms plus the PC, according to
vgchartz.com.
Why has the Wii been such a hot seller? Because itsfun: to
play it, you swing your arms and throw your sts like youre a kid
on a playground rather than just twiddling your blistered thumbs.
It turns out that a massive segment of consumers have a different
idea of what fun is compared to the games-industry insiders who
thought the Xboxs horsepower or the PS3s Blu-Ray capabilities
would rule the day. EA and the other big publishers have spent
hundreds of millions ghting each other for what is a mere frac-
tion of the game-buying public.
As I nish my tour of EAs studio andlunch hour comes to an end, the halls deaden
into silence. Few industries squeeze as much
passion and talent out of their workers as EA
does here. On the oor where developers
are making the companys upcoming tennis
title, dozens of 20-somethings sit unblink-
ing before twinned LCD screens lit up with
the green of a Wimbledon lawn. These guys,
like the gamers who will one day forego
sleep and nourishment to play the product,
are in the zone. Every pixel has to be per-
fect. Each stroke of the racket is repeated
again and again. This is the studio, after all,
that brought in developers from 18 different
soccer-mad countries to ensure that its FIFA
Soccer 09 would be made by people with the
beautiful game in their DNA.
Ever the diligent journalist, I pick up an
Xbox 360 from London Drugs on my way
home from Burnaby and pop in EAs highly
decorated hockey title NHL 09. Im absorbed
into a world of stunning realism. Each play-
ers face is masterfully rendered. Their move-
ments are the product of hours spent recording real NHL stars
actions in EAs motion-capture studio. True hockey fans would
recognize the individual players characteristics: the Canucks
Sedin twins are slick but soft; Calgary defenceman Dion Phaneuf
practically runs opponents through the boards. But only after
ve hours of frustration learning to pass, shoot and check do
I nally manage to score a goal. Another ve hours later, with
dawns light approaching, I start to win a few games. EA and the
other big publishers have for years targeted such hardcore gam-ers: players with the time and dedication to invest countless hours
mastering the games. Sports titles, with millions of dollars spent
on improving their ever-growing realism, further demand that the
players have passion and knowledge of the sport at hand. If you
dont know your slapshot from a wrist shot, youd never appreciate
the intricacies of a 2-1-2 forecheck.
Nintendo, on the other hand, gured out that there are legions
of people who want to play but arent necessarily sleep-deprived
gaming addicts. Wii Sports, for example, has geometrically shaped
characters lacking even arms to wield their clubs, bats and rack-
ets. To play tennis, you just swing the Wii remote like a racket
to whack the ball. To play golf, you swing the controller like an
52 BCB June 2009 June 2009 BCB 53
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Why has theWii been sucha hot seller?Because itsfun: to playit, you swingyour armsand throwyour sts likeyoure a kid ona playgroundrather than
just twiddlingyour blisteredthumbs