This talk was interrupted by the fire alarm last year, so it was good to get through it unmolested this time. Again, I’m not sure just how relevant it is to a small developer, but it’s interesting to get a feel for the current climate at the top, as it feeds down the chain a bit in terms of work available for us.

Certainly the last couple of weeks have been bad for the majority of the stock market, and in general terms that means that risky investments are the first to be dropped. Unfortunately, games development is always a risky investment! Even the big players have suffered in the last couple of months, lots of volatility caused by a real lack of predictability. Not so good.

In Ed’s opinion, there were still opportunities, but they are in the low cost markets which are up and coming: mobile, downloadable games, casual titles, etc. Again, showing the risk aversion here – the big budget, big risk titles are not the sort of things investors want to deal with. Small scale, fast turnover games can show predictable results, without the all-or-nothing issue a AAA title might have.

Also covered was the massive growth shown in 2006, certainly a big surprise to me, but good news. Income across the market is up 68% to $995m, of which subscriptions make up a tad more than two thirds. Forecasts for 2008 are for more than $1.3bn, which is optimistic but doesn’t feel like crazy numbers to me.

More interestingly for us, the massive growth of outsourcing we were talking about in 2005 has outstripped even those projections, $1.1bn in 2006 (40% of costs). For a lot of companies it’s still about off-shoring to cheaper countries, but even local outsourcing is shown to keep costs under control, and reduce the risk that the publishers/developers have to take on for any given title. More work for us then. 🙂

Focusing on the upcoming challenges for Ubisoft – the second biggest player in the industry after EA. Almost entirely positive, which is a good thing for a keynote, but in my opinion dwelled a little over-long on the things that Ubisoft were doing rather than taking a more general industry-wide view.

The overriding theme was that of large market growth (backed up in a later talk quoting 68% growth of income in 2006). Ubisoft see the growth as being driven by 3 things: the new generation of console (increased power -> improved immersion -> increased sales). Not sure about that, but my cynicism relating to the new generation is well known. Also driving growth: accessible games, as evidenced by Nintendo DS and Wii. It definitely felt like Ubisoft view the Nintendo platforms as only good for family friendly, casual fun and learning titles, and the traditional AAA blockbuster titles are reserved for the 360 and PS3.

Finally, they echoed the sentiments from last year that user-generated content is driving growth too. Frankly, this rings hollow for me – where are the increased sales from this sort of content. Perhaps I’m too disconnected from the reality of mass marked gaming these days, but I’m just not aware of where this obsession with user generated content is coming from, or what evidence has appeared since last year to convince us that this new way of making games is actually here. I can understand wanting to build good community tools to improve the way people play their games and interact, especially in multi-player titles, but I’m not sure how that ties in to user generated content.

Onto Ubisoft’s actual strategy – for accessible titles on the Wii and DS, they’re focusing massively on usability and polish, and implied much smaller teams, and much smaller titles, developed quickly.. Fthey’re going for the big team, big cost approach for their AAA titles (200+ experienced staff is their idea of a ‘good size’ for teams). They know they need to increase sales to amortise their costs, but I’m not sure that they have any real way of doing that effectively. However, they do have the economies of scale, and the intelligence to try and maximise re-use of tools and engines to minimise their development costs.

Crucially, they know they face recruitment issues with such massive teams, not to mention the cost implications. As such, they are building whole teams (note, crucially they’re not outsourcing to independents, they’re building Ubisoft Studios), but in places where the cost is far cheaper.

Well, it must be nice to be such a big fish, but I’m not sure just how relevant that sort of strategy is to us, the little fish in the pond.

Chris Deering introed the conference (albeit with it’s old monicker, Edinburgh Interactive Entertainment Festival, but we can forgive him that. Prior to introing the keynote speaker, there was a bit of quiz-the-audience with the fancy voting devices they’d issued us. The gist of the results:

• Sector likely to experience most growth in the next year: spread results, favouring casual, handheld, mobile and MMO. Few people liked packaged console or PC titles to grow.
• Genre likely to experience most growth: Virtual life (a la Second Life or Home) topped the poll, with music titles a strong second. Not sure if I agree with that assessment, but that’s probably reflective of the general sentiment that virtual online communities are going to grow in popularity generally.
• Percentage of overall revenue to come from online (downloadables, subscription, ad-revenue, etc.): 20-40%. Fair enough – it’s definitely growing and becoming far more relevant, not just in our industry.

On a whim I checked my phone for available Bluetooth devices in the break-out area – an impressive 18 phones and PDAs which is I think the most I’ve ever seen. We do like our fancy toys. The Nokia N70 and N80 seemed popular, but the prize goes to the device cunningly labelled “Matt’s got AIDS”!

Aha! It seems that the Royal College of Physicians has joined the 21st century, and installed wi-fi in its lecture theatres. Of course, I’m at EIF, fueling up on coffee to fight off the hangover-induced grumpiness. More posts/updates as I go through the day of lectures, probably based on how compelling each lecture actually is! If I’d thought in advance, I would have brought my phone/USB cable, snapped a few pictures and added them to the posts, however that will have to wait until after the fact.

So I had a brief moment trying to be telegenic yesterday, being in front of the camera to do a bit for a promotional video being done for the EIF next week. I’m sure I will be edited to some extra small section as we don’t have much interesting stuff to say, but we shall have to see. Anyway, amongst the topics covered was “Why do you think VIS Entertainment went under” – which is sort of a tricky question to answer.

Sure, in the many times in Milnes after work at VIS we laboured long and loud over what we (the grunts) thought the problems were, and anyone for several tables around would be able to repeat them, but I think in the end it wasn’t as bad as it seemed then. Of course, we don’t have any insight into the real goings on, either financial or managerial, so it’s all supposition. However, from where we were sitting it seemed to boil down to one thing: cashflow.

VIS was pretty big at the end – probably still over 100 employees. That makes for a lot of salary going out the door each month. We had two big and one small project on the go (State of Emergency 2, Brave, and NTRA: Breeders Cup), and those had been going for a while, so there was probably little sales revenue from previous titles, only publisher milestone payments. Then of course Brave completed, with nothing to take its place – suddenly more than a third of those payments are gone, with potential sales revenue from it not likely to appear for many months. That’s going to hurt any company’s books, and if the balance is already tight…

That’s not really a ‘why’ so much as a ‘how’ though. The ‘why’ is even more supposition, but I think is reflected in much of what I’ve said here before. Publishers were being hit by tighter margins due to increasing costs, and were responding by tightening down on the developers. Slice the margins thinner and thinner, and the developer becomes so fragile that they cannot long survive if a project finishes with no follow-on, or worse, is cancelled early. In that sense, VIS were just another amongst many studios which died – Visual Science, DC Studios, and so many more across the UK and beyond.

Arguably had projects been cancelled or different decisions been taken things would have played out differently, maybe better, maybe worse. But it seems to me that even if a studio played a perfect game and made no wrong moves, they would still be only a small amount of bad luck away from failure. That for me is a symptom of a troubled industry, and is something I hope will improve. Certainly we all need to work smarter, not harder, to keep costs low enough that making games is profitable.