The New Evolution of AAA

When I first started in the games business the notion of working on a AAA game was akin to getting called up to the major leagues. At the time, some of the most impressive work in development was being done at studios pumping out fan favorites like GTA, Meta Gear Solid, Batman: Arkham Asylum, Uncharted, WoW and many more. The development process was far less transparent and custom technology was the rule not the exception. Everyone had their own proprietary engine and at the time Unreal was better known as a game that hosted tournaments on the floor of E3 (a fantastic marketing campaign to promote the engine that would eventually change the landscape).

For the longest time the AAA monicker was associated with impressive titles that brought immense joy to gamers worldwide; in part because technology and mindshare was heavily centralized.? Of course this was done by design. The first parties took a page straight from the golden age of cinema’s playbook. Platform competition was intense and IP was being used to court gamers toward one brand or another. Ultimately this one-upmanship was good for the industry. It lead to massive growth and innovation, creating new business sectors and producing hall of fame titles. This period, and this way of doing business, built a solid industry that continues today. The question at hand, is it still good for the industry?

Twenty years ago game development tools were cumbersome and it was nearly impossible to raise the capital needed to produce titles for the mass market outside the mainstream studio infrastructure. An indy team cranking out cult favorites faced insurmountable challenges when competing with any of the top publishers. Digital distribution barely existed, and the path to in-store shelf space would have been considered a black box to anyone unfamiliar with publishing processes. The famed investor Charlie Munger would consider the combination of these circumstances a ‘moat’ for publishing companies - a massive tactical advantage, that’s hard for upstarts to overcome, and helps secure their market dominance. Twenty years later and those moats are looking more like oases.

A quarter way through the 21st century: digital distribution is ubiquitous, cost of technology has drastically decreased, services/platforms removing friction between players & developers are in abundance, and knowledge distribution has never been more fluid. Teams can be built remotely which allows different perspectives to coalesce and create unique approaches. Diversity in development and execution of game ideas produces hits that can come from anywhere. Combine all of this with the continued increases in players YoY and the games business should be experiencing a renaissance similar to how streaming ushered in the golden age of television.

A renaissance is on the cusp, we’re just not giving it enough attention. In a post layoff environment, many talented folks are joining together to hang out their shingle and give it a go. These folks spent years honing their craft inside the big studios and like any great apprentice, they’re eager to test their skills on their own terms. Armed with skillsets geared toward streamlining & efficiency, combined with high value/low cost technology, add a little chip on the shoulder, and we have an interesting recipe. New studios are trying fresh tactics, telling interesting stories, and introducing novel gameplay mechanics.

What’s missing in this upstart revival is a solid apparatus to support them, both from a financial and publishing perspective. Generally speaking, large publishers aren’t actively scouting projects that won’t do blockbuster numbers anymore. However, current market dynamics are far better suited to these upstarts than the big studio model. Install bases for next-gen consoles are less than half that of the previous generation while PC growth is seeing a sharp decline to around 1.5% YoY. In short, the market is plateauing, retail prices are increasing, and publishers are fighting for mindshare in a very crowded market. What was once considered a successful project no longer moves the needle for the big publishers. Meanwhile, the upstarts have found a goldilocks zone, and with a bit of support they might just usher in a golden age of gaming.

Along with market dynamics, the economics to generate blockbuster releases has changed. Large studio projects are well over the 100M mark, often by several multiples. Meanwhile, a smaller install base means you have to fight significantly harder for mindshare. As an example, take Marvel’s Spider-man, which broke sales records on the PlayStation 4. When the first iteration is released in 2018, it ends up doing approx. 14M units in the first year. The PlayStation 4 had an install base of around 100M by the end of 2019, so Insomniac cornered an estimated 14% of the market. In order to achieve the same performance today you’d have to garner 26% of the Playstation 5’s current install base. We know that’s wishful thinking because the much anticipated sequel, which easily lived up to and surpassed expectations, sold around 5M units which was about 10% of the nearly 50M PS5 installs by the end of 2023. Spider-man will continue to sell units and be a success for both Sony and Insomniac but they’re in the upper echelon and have a few key advantages being a first party title (bundles, cross-promotion, advertising share, etc.).

For big publishers releasing AAA IP, 3-5M units isn’t going to cover the cost of development in most cases; but that’s not a reality absent the traditional pipeline where hit games don’t need to be as expensive to make. A title conservatively priced at $39.99, which cost 20M to produce, generates roughly $98M in revenues. That’s a solid base hit, and in order to see continued growth in the industry, we need more high quality singles that fit within a different economic model? - 15-50M budgets that are selling 3-9M units made by teams of less then 50 people, and are competitively priced.

Most new studios are typically great at game development but lack experience on the business side of games. The current ecosystem has been taking full advantage of that for a long time. In order to change the paradigm, we need more groups on the frontend shaking up early-mid stage funding, and on the backend, more resources driving toward self publishing. It isn’t a blackbox only publishers can understand, it’s a learned skill like most things in life.

The big guys should be swinging for the fences and making home runs but not the gatekeepers or obstacles to content. Advancements that come from taking big risks will benefit everyone and will always be good for the industry. However, it’s not just about taking risks; it’s about maturing as an industry and being humble enough to know when evolution is necessary - giving up power to support the next iteration can be hard but necessary. Most importantly, we need to change the way we talk about development. We need to stop lionizing big expensive titles and diminishing smaller projects based on budget and brand awareness . What worked for the industry over the past decade won’t work for the next. If the film and TV world only relied on Lucas, Camron, and Lorre the streaming landscape would be pretty boring and we’d never know great talent like Jonathan Nolan (Fallout/ Westworld), Matt & Ross Duffer (Stranger Things), and Taylor Sheridan (Mayor of King’s Town/ 1883). Change is inevitable, how we adopt determines the future we live in - squabbling over class distinctions for games seems irrelevant and unnecessary at a point when we need expansion of ideas not myopic trains of thought.