A Call to End the Console Exclusive Arms Race

[Crypto]

Capcom is co-developing Street fighter 5 with Sony, which will also pay for publishing duties.

I was surprised and heartened to discover that the Official PlayStation Blog community did not respond too favourably to Sony trumpeting its Street Fighter V exclusivity deal.

Granted, negative internet comments are as rare as nitrogen, but what struck me about these complaints was how even the most diehard Sony fans are contesting that it's reasonable to restrict the free-flow of third-party franchises. These are, after all, the only people with consoles who are benefitting from the deal.

The most up-voted message, penned by "fps_d0minat0r", is far more erudite and level-headed than their online handle might suggest. I've quoted it verbatim below:

"And why would you think we would care about exclusivity on a game that should be multiplatform anyway? We are not hypocrites. We are not going to celebrate this after losing third party games like Dead Rising, Monster Hunter, and others from other publishers because of stupid exclusivity contracts. Consoles should compete on first party content… not compete by taking a game away from gamers on other systems. That is not #4thegamers."

It does seem terribly reductive for a platform holder to build a business not just on satisfying customers, but on dissatisfying fans of its competitors. It is unbecoming and unneighborly behavior fixated on small-term gains.

 

But what I fear most about this deal is that it represents an escalation of an exclusivity arms race betweenPlayStation 4 and Xbox One.

'Escalation' being the key word here, because exclusivity deals are hardly unusual. They can be traced as far back as 1989, when Nintendo secured the rights to distribute Tetris, "the first game from behind the iron curtain," solely on the Game Boy (Atari had the rights to the arcade edition). Since then, console manufacturers have indulged in a competitive lust to prevent the release of games on other systems.

But after the dominant era of the PlayStation 2, and during the subsequent rise of the Xbox 360, the games industry entered into an era of multiplatform stability. Neither side secured the rights to former exclusive franchises like Grand Theft Auto IV, Final Fantasy XIII, Metal Gear Rising or Resident Evil 5. This tectonic shift of power, from east to west, achieved a sort of equilibrium between both consoles. It was, in other words, peacetime.

So naturally I am unnerved by Phil Spencer's comments that, as head of Xbox, he will "work on making amends" for the Street Fighter V deal. Sony's announcement, and Spencer's response, is hardly an assurance that key third-party games will be multiplatform by default. After all, if it can happen to the likes of Tomb Raider and Street Fighter--two series that have historically spread their reach across dozens of systems--then it shows that publishers will narrow the reach of even their most garlanded IPs if the price is right.

Why, after a grace period of multiplatform serenity, might we be returning to an age of exclusive skulduggery? One key reason, in my view, is because the increasing financial risk in building triple-A games makes partnership offers from Microsoft and Sony that much more tempting.

Consider this: Microsoft will shoulder the burden of Tomb Raider's development and publishing costs, while Sony Computer Entertainment will foot the publishing bill for bringing Street Fighter V to market. They are actively lowering the investment that Square Enix and Capcom would otherwise have to make to bring these games to market. In an age where not just a million sales, but many million sales, are usually required to recoup investment, the temptation to lower those costs in the first place must be quite significant.

Nicholas Lovell, author of The Curve, a book on games development business models, and GamesBrief, a website documenting various industry issues, echoes my view on this point (which is, trust me, one of the first times we've ever agreed on anything).

"Third-party publishers are looking at the risks that lie ahead and are deciding on which they are most comfortable taking," he tells me.

"By going exclusive, as you say, they are reducing their upfront costs. Support might come via development funding, or co-marketing support, or console bundle support, or numerous other advantages."

Although Tomb Raider and Street Fighter remain big names within the games media, and are two series that cultivate fanatical core fan bases, the raw numbers suggest that both carry a risk that Square Enix and Capcom are duty-bound to contemplate.

Tomb Raider, in its crucial first four weeks, sold 3.4 million copies worldwide. Anything with that kind of reach should be applauded, but it wasn't enough to match the costs of investment. Square Enix memorably said its initial sales failed to meet targets, and nearly a year would pass before Tomb Raider broke even on its development costs.

"Breaking even, even after a year, is not great news," Lovell adds.

Street Fighter IV, meanwhile, represented a wondrous revival for a series that was battling to remain relevant. Yet it managed to shift 3.3 million copies, which is about half of what Street Fighter II achieved on the SNES alone. Capcom has been keen on supporting SFIV throughout its lifetime with expansions and DLC, which no doubt has maximised its revenue, but if the decision was down to you, is the baseline 3.3 million sales an indication that Street Fighter 5 is a safe bet or a risky one?

"Games development and publishing is a very high fixed-cost business, and what we're finding is that the risk is only intensifying," Lovell adds. "I'm sure you've noticed, like we all have, that we are seeing fewer triple-A releases. "

Phil Spencer, the head of Xbox, insists that he will "make amends" for Sony's Street Fighter scoop.

Let's be clear; I'm not trying to belittle the popularity of either franchise. But I speak to games developers and executives, on and off the record, on a daily basis, and what they are saying over and over is that triple-A games are not making enough money. I was even told by one publishing boss that, were it not for post-release DLC revenue, then his problems would have become far more apparent.

Microsoft and Sony apply the razzamatazz and corporate theatrics when announcing their flagship, must-have exclusives, which is fair enough. Personally I see more in these deals than the obvious frustrations that are tied with them. I see these deals as emblems of how only the biggest franchises--the Call of Dutys and Assassin's Creeds--can fend for themselves in the modern age.

What we're heading towards is a dilemma for the games publishing industry. There are three directions that third-party triple-A games can go in: either reduce the development costs, expand the audience, or make customers pay far more for the same game. For the last several years, the latter option has been applied, tying games with season passes and in-game payments.

But these new exclusivity deals show that the likes of Capcom and Square Enix are now looking at reducing costs altogether, and therein lies the irony and the danger, because the chances of expanding the audience only narrows when the enchanting joy of games are locked away to a single machine.

It's perhaps understandable that that most publishers aren't betting their business on any single game. But in avoiding those risks, argues Lovell, the likes of Capcom and Square Enix are simply walking into others.

"Companies that sign exclusivity agreements may be reducing how much cash they spend, but they are essentially exchanging one risk with another, which is, if this game turns out to be absolutely amazing, then an exclusive will be limiting its sales potential. It reduces their ability to produce a break-out game. That is not a solution, that is a shift of risk."