Realtime Risks

In a pattern familiar to producers in the independent television production sector the games industry has been squeezing out middle sized development companies as development costs, overhead and the risks attached to banking on a hit to support the business become ever greater.  Back in February Investment Bank IBIS Capital’s Tim Merrill commented on gamesindustry.biz:

“In the middle, the solution seems to be either dream outrageously big and take major risk capital (like RealtimeWorlds with APB), or get bought out by someone with the muscle to take on the majors.”

Well the gamble that Realtime took with APB has, sadly, not paid off, dealing a major blow to the staff and to Dundee.  Though I rarely agree with the Scotsman’s George Kerevan his observation today that tax breaks and competition from Canada aren’t, in this instance, the real issue is a point well made.  Which to be clear isn’t to say that the fiscal treatment of the games sector and other support mechanisms aren’t a real and pressing issue if the industry is to stay internationally competitive, just that its misleading to finger them as the cause of Realtime’s demise .

There is no avoiding the high stakes of entertainment product development. As in the rest of the entertainment business, the games industry is increasingly hit driven (industry observers generally accept that 80-90% of revenue comes from 10-20% of titles) and just like film production  if you can’t spread risk across a number of products the stakes become very high when you have to gamble a lot of development cash over a sizeable period of time on a single bet.  APB isn’t the first online game to fail to get into orbit. Back in 2003 the eagerly anticipated The Sims Online, which reportedly racked up $20m in development costs, needed to garner 1 million subscribers and fell far short with paying customers in the low hundreds of thousands.  Electronic Arts could afford to take the hit from its lack of a hit, a company the size of Real Time Worlds couldn’t and its far from being the first UK company to call in the receivers having pinned all on a new product launch.  (see http://www.develop-online.net/features/751/Whoops-The-noughties-most-damaging-games)

None of this is news to games developers, indeed RealTime Worlds Chairman and Chief Strategy Officer Ian Hetherington has made the point forcefully, noting recently that “Some Risk is inevitable!  Are we still too risk averse? What are we waiting for?”  As in the movies no amount of fiscal engineering can remove the risk of the audiences staying away in droves and when independent UK companies take the risk onto themselves and their backers (to get a bigger share of the rewards) rather than sharing it (at a cost) with the deeper pockets of the distribution sector, it becomes even more of an all-or-nothing game.

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