The Videogame Crash of 2014

Microsoft predicts record-breaking console sales in the 8th Generation of gaming. Sony is looking towards a gaming-focused future, and Nintendo continues to march forward. Yet, are we ignoring the signs laid out before us? Both the Wii-U and the Vita are selling poorly, and there are still two more 8th-gen consoles that have yet to launch. I believe we are heading towards another Videogame Crash. All of the pieces are in place. All of the same symptoms are present. It is only a matter of time.

Blast from the Past
First, we should examine the fabled Crash of ’83. The popular answer as to why the console market crashed in ’83 is a simple answer, not necessarily a correct answer. Most of us did not live through that time, and history tells us that it was the fault of E.T., too many consoles, and too many bad games. While that may be the simple answer, it is not the right answer. The right answer may scare you, because the right answer is occurring right now, and it may cause another videogame crash to occur right before our very eyes.

Let’s clear a few things up. First of all, the Crash of ’83 wasn’t a full-blown crash. The home computer market and arcades were mostly unaffected. In the same way, the upcoming crash will likely leave home PCs and the smartphone market untouched. Back then, the console manufacturers and really terrible third-party companies where the only ones incinerated. When people hear “Crash”, they have this image in their heads of every single videogame company being destroyed in a final blaze of glory, but that simply is not the case. A crash often leaves survivors, but it is still a crash. Also, the Crash didn’t occur all at once. It took several years for the effects to take place. From ’82-’83 is when we saw the backlash against the crappy, non-working games, but everyone was still in business. It wasn’t just the upset customers who fought back (or simply stopped buying games). It was the retailers. If you can believe it, Sears was once the go-to place for videogames. It was the first retail store to take the risk of giving shelf space to a home videogame console, and Sears remained a key player in the market until the early ’90s. Sears began pulling a lot of games and even entire consoles from their shelves starting Summer ’82 up until ’84, to the point where several consoles and dozens of games were simply NOT available in stores.

atari5200
The Atari 5200 was one console that died in ’83

This loss of trust is due to how licensed properties and arcade games were abused beyond belief. Third parties would take a popular arcade game, buy the home console rights to it, and create a shoddy port, a port that was always a massive step down from the arcade version. Yet, the publishers were so brazen that they would use screenshots of the arcade version for the home console box art. Often, these licensed games and ports didn’t even function. This caused customers and retailers to lose faith in home consoles. ’83-’84 is when the console manufacturers and weaker third-party developers started to wither. Overseas in Japan, the crash had been almost entirely avoided because Nintendo launched their Famicom in ’83. While Western developers were dying left and right, companies like Capcom and Hudson Soft were thriving on the Famicom. By the time the Nintendo Entertainment System launched here, our domestic console market was completely dead.

I propose it wasn’t just the poor game quality that caused the crash. It was the leveraging. That’s an important word. Leveraging. The home console market was leveraging their consumers. Console manufacturers were coming out with bigger and better consoles every other year, promising graphics closer to the arcades. Third parties were leveraging licensed properties to essentially put crap in a box and sell it. The leveraging is what caused the crash, and it is leveraging that is causing the market to crash today. Downloadable content. Endless bugs and glitches and the endless patches to fix them. Online passes. Onlne-required for single-player modes. Increasingly complicated games with increasingly bloated budgets. And now we may be moving into an era of no used games, always online, and required motion controls. Alone, none of these issues would be enough to pull the trigger, but together they create a toxic environment.

Nintendo has a bad reputation for their behavior during those early years. They get labeled as the power-hungry Japanese company who restricted gaming, and that’s why third parties ended up fleeing to SEGA, and after realizing SEGA also had similar restrictions they fled to the Playstation, leaving Nintendo’s draconian policies in the dust.

Well, that may be the simple answer, but it isn’t the right answer, either. Now that we’ve discussed how the console market crashed, it should shed some light on the reasons behind Nintendo’s behavior. When Yamauchi brought Nintendo into the console business, he correctly ascertained that the reason why so many consoles were destroyed is because third parties were given too much freedom, too much power. He wanted to make sure that Nintendo wasn’t swallowed up by the same problems that caused much bigger companies (like Atari) to die. Nintendo implemented several restrictions. First, they created the Nintendo Seal of Quality. It acted as both a licensing tool (you couldn’t officially be on the NES without it) and a quality-control tool. The second practice they implemented was the 5-games-per-year restriction (and it is from here that Nintendo gets their “evil” reputation from this time period). The purpose was to prevent third-parties from flooding the market with games. Nintendo wanted to encourage companies to instead focus on quality.

It’s funny how Nintendo is portrayed as an evil game-baron because some of the best third-party games of all time came from this era (mid ’80s to mid ’90s). Not only was the quality of third-party games at an all-time high, but it is the only time in history when licensed properties (typically handled by Capcom) were worthwhile games as well. However, many third parties didn’t like Nintendo. They wanted freedom to do whatever they wanted, even if it meant sacrificing the reputation of the console (which is what happened in the Crash of ’83). Electronic Arts was one such company. Trip Hawkins flat-out refused to put games on the NES. The board of directors essentially had to force him to comply, and it was no coincidence that EA jumped ship over to the SEGA Genesis the first chance they got. That’s an interesting story, too. EA reverse-engineered the Genesis and essentially told SEGA “we’re gonna put our games on your system whether you like it or not, so you might as well license us”. Talk about an abuse of power.

NES

Market Concerns
This history lesson isn’t just for show. It is very important to understand why the console market crashed. Leveraging. I told you that was an important word. Companies are leveraging their customers – both the so-called casuals and so-called hardcore – to create the games that they want to create, ignoring any concerns for budget, market viability, or desire from the fans. The gaming audience as a whole is not being served. We have an incredibly top-heavy market. Games with the highest profit margins are indie games, smartphone games, and (though they have decreased in popularity) Wii games. The $100 million games are too risky, too bloated, and far too common for the industry to support them. THQ went out of business. Square Enix and Capcom are reporting record losses and are forced to cut back on their projects. The number of “big” publishers is decreasing, and as competition within the market shrinks, we see publishers leveraging the consumers more frequently.

Of course, when we run into “problems” like used games, the rising cost of retail games, and more piracy, the third parties want to blame everyone except themselves. Used games? That’s killing the market, even though retailers were starving for profits from new-game sales (most estimates say that retailers make about $2-6 off a retail game, with the rest going directly to the publisher) and had to create a used market to keep themselves alive. Rising cost of retail games? Yeah, that’s because of piracy and used games, NOT because of $60 million development budgets plus $40 million advertising budgets, right? Low sales are blamed on piracy and used games? Right, because Nintendo DIDN’T find a way to turn a profit on the Gamecube, right? They just went belly-up, didn’t they? Piracy? Piracy is to blame for your game not selling well? How about a drastic decrease in quality?

I’ve played videogames long enough to remember how publishers once accused rental stores for being the source of decline in the gaming market, and then when that proved to be silly, they chased after pirates. After the piracy theory crashed and burned, now they’re chasing after those evil used game sales.

The True Foe
Third parties are wimps. They’re bullies. They’re that one kid who brags he can beat you up but he bawls his eyes out when he skins a knee on the schoolyard concrete. Third parties never take the risk of releasing console hardware (a multi-billion dollar investment these days) and yet they cry if hardware isn’t aimed squarely at them. Third parties milk their own franchises into oblivion, yet they cry if their games don’t sell on a console with strong first-party software (as is often the case with Nintendo hardware and it was also that way with SEGA). Third parties have been gradually taking over the industry, and it is no coincidence that this has been occurring alongside a decrease in game quality and an increase of game restrictions. There was a time that developers spent time crafting their games because they knew they only had a few shots per year to make a hit. Nowadays, every third-party game ends up on everything. Try to name a developer that has gotten better this gen after going third-party multiplatform. Bioware? Please, please, you’re going to make me cry. Insomniac? Hmmm, how are those Fuse review scores turning out? Do you think the quality of sports games have increased or decreased since EA forced 2k out of the professional sports market? As gamers, we have always said that competition is a good thing. Well, we’re watching market competition die before our very eyes.

New XBOX ONE

People are putting Microsoft through the ringer right now because of their Xbox One announcement. I have a hunch that the Xbox One’s policies are mostly the fault of third parties like EA and Activision and are not entirely the brainchild of Microsoft. It is no coincidence that EA and Activision announced “unprecedented partnerships” with Microsoft at the Xbox One unveiling. Remember, most of Microsoft’s big-name 360 games did not have online passes. Sure, they charged for Xbox Live, but always-online and a used-game fee benefits publishers more than Microsoft. This is yet another form of leveraging that will erode customer trust in the game industry.

I also believe that third-parties are the reason why we are already entering the next gen of gaming consoles. In fact, that is precisely why Nintendo made the Wii-U. It was meant to cater to third-party companies and the core gamer. The Xbox One and PS4 have nearly-identical architecture. That, also, is likely due to third parties, which will allow them to cut down on development costs. I am excited for the new consoles, but did we need these new consoles right now? Sony seems to be just fine with the PS3 for now, seeing how Gran Turismo and Naughty Dog’s newest game will both launch on PS3 this year. Microsoft doesn’t seem to be complaining about their success with Kinect and continuing Xbox Live cash-cow. Again, I’m all for new hardware, but no one is asking the most important question: can we afford it? Times are tight. We cannot turn a blind eye to the fact that people had more spending money in 2005-2007 (when the 7th gen of consoles launched) than they do today.

Cautiously Advancing
The crash is coming. 2014 is when the first big dominoes start to fall. Smaller dominoes have already tumbled, like THQ dying and the dismal sales of Wii-U and Vita. You think I’m crazy? Just watch. Wii-U ($300) and Vita ($250) are already selling very poorly. Year-to-date, neither the Vita nor the Wii-U have crossed the 1 million mark (each). Yes, you read that correctly. Vita and Wii-U have each sold less than 1 million within the last 5 months. What do you think will happen when two consoles each costing $450 or more hit the market? Do you think they’ll fly off the shelves? Oh, they’ll definitely fly off the shelves this holiday. Guess what? Wii-U and Vita flew off the shelves when they launched, too (Wii-U especially) and then sales dropped off a cliff. Do you think that won’t happen to this generation’s two most-expensive consoles? You’re on some strong peyote if you think a $450+ console is magically going to sell better than a $300 one.

What about games? You think everyone will spend $60 on a brand-new game if they can’t sell it back to Gamestop? Used-game sales are already on the decline because videogame sales as a whole are on the decline. Yearly releases are on the decline. The only yearly releases that are still selling are Call of Duty and Assassin’s Creed. Everything else is on the decline.

What is the solution? I’m not an executive or a CEO at a big videogame publisher, but the only thing that seems sensible right now is for the entire game industry to take a breather and slow down. The PS3, 360, Wii-U, 3DS, and PS Vita are all in the same ballpark as far as hardware power goes, so why not take the time to invest in these platforms instead of rushing forward?

As gamers, we do not want our favorite hobby to be damaged. We do not want another Crash. Share your thoughts in the comment section below.

the author

Brian has been writing freelance for a variety of gaming websites since 2009. Once per year, he gets it in his head to replay Ghosts 'n Goblins, and it never ends well. During the rest of the year, he can usually be spotted playing the latest RPG or rocking out Wii Sports Resort for some inexplicable reason.

  • anonymous

    Read most of it. Lost interest round the Xbox One part. I have no problem with this always online and no used games deal that they’re looking at. I haven’t bought a used game in over 3 years simply because I hate Gamestop and their money grubbing hands. I only go on my Xbox to play on live anyways. I could see how there could be a crash, but there is a lot more ease of access to make indie games now than back in 84. Right now i’m working with my friend to make a game. The way I see it people are blaming companies for what companies do. Make money. Its capitalism at its finest. Yay.. more money and consumers. Mmmm corporations so I really couldn’t give a crap. Its be a long time coming and just like the economy it’ll happen again and again.

  • genoboost

    Great article. I don’t agree with everything you said, but you make a great point about the influence of 3rd parties on the creation of new consoles. I think Nintendo in the past (GCN, Wii) did cater to themselves and not 3rd party interests which led to their lack of 3rd party support.
    It makes a lot of sense to me at least as well. I rarely play online, buy maybe two big budget releases per year (the rest is spent on significantly cheaper used or older games) and cheaper indie/dlc titles. I rarely have the money for big budget releases and superfluous collector’s editions, Perhaps it is the influence of these third parties and what their money-crunchers think will sell that makes me feel like there is no console that feels like it is trying to reach me, even as an avid and lifelong gamer.

  • plsburydoughboy

    On possibility of pending crash; I do see many things adversely affecting industry coming together: rising costs of AAA games, the squeezing out of mid-tier, always online requirement, and worst of all, the move against the used games market.

    You didn’t really dwell on these things going on now, but what do you know? These can all also be blamed on third parties.

    Like everyone else, I don’t agree with everything you say here (might be too narrowminded to just blame 3rd party developers, Wii U IMHO has problems specific to it and separate from industry) but you make good points here. The possibility of Sony’s pending breakup makes me think next gen will go through some serious disruption as well.

  • anonymous

    Let it crash. It’s probably about time we put the controllers down, went outside, and started talking to girls…..

  • Ryan Sample

    The industry may be beyond reprise. We’ll have to kill it off.
    Thankfully, the industry may be like a phoenix from Ancient Greek mythology, being able to rise back from it’s ashes and brush off any mistakes the old industry had.