it's an industry that's revolutionized every area of entertainment from television to sports
to movies the video game business rakes in more than 20 billion dollars a year
making bigger bucks than even hollywood in the early 2000s something remarkable
happened the video game industry brought in more revenue than the movie industry
at this time video games had only been around for a few decades at most
and most media companies still viewed them as a toy to entertain children and computer nerds
today the video game industry is worth more than the movie and music industry combined
and the companies that make these games are some of the most valuable businesses in the world
the only thing is they don't really make video games anymore movie studios are pumping out record
numbers of big budget movies which are being viewed by more people on more platforms but video
game studios are doing the opposite rockstar the creators of the infamous grand theft auto series
used to release a new game every four months on average but as of mid-2022 their latest
game is now almost four years old and there is no news of any new releases coming soon
despite this dry spell rockstar's parent company just had its best financial year ever why well
the reason is simple video game companies don't make money producing video games anymore in fact
game companies will try to do whatever they can to avoid producing new games because their businesses
do better the less they make i think a lot of you are already muttering microtransactions under your
breath but that's only half the story so it's time to learn how money works to find out why video
game publishers stopped publishing video games this week's lesson was made possible by click up
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video games are a major industry and their development
has become a major business endeavor as i said the industry's on fire
more people have recognized the value of games cyberpunk 2077 cost cd projekt red 316 million
dollars to produce in market this is more than only a handful of the biggest budget movies ever
it was also a poorly received video game which tanked the game company's
credibility with their audience and their stock price with their investors i'm sorry
their 2021 annual earnings report showed that they generated gross sales of 207 million dollars from
the title they may go on to sell more copies as time passes but so far this game is shaping up
to be a staggering loss for the company i and the entire leadership team are deeply sorry for this
and this video is me publicly owning up to that now you might think i'm cherry picking a famously
bad example but many game publishers have found themselves investing heavily into aaa game titles
only for them to fail upon launch fallout 76 battlefield 2042 and destiny all being big budget
stinkers aaa games have become incredibly complex to develop they now require unique dedicated work
of thousands of people the more moving parts these publishers try to put into their games the more
chances there are for things to go wrong the original halo produced by a team of around 100
people was quite substantial halo infinite which was released two decades later had more than 100
voice actors video games becoming more expensive to produce is not by itself a problem an industry
this big is always going to have room for massive budgets but if companies are going to make these
investments they need to be worthwhile shut up and take my money most big budget games just like most
big budget movies do make money but despite both being products designed to entertain people movies
and video games are very different most people will only ever watch a movie once or twice whereas
video games are designed to be played for hundreds of hours video game companies have learned to
take advantage of this by selling more and more features to players as they continue to play these
microtransactions for many titles have become the primary revenue generator with actual game sales
being a nice little bonus some companies have made their games free to play because they know
that more online players is more opportunities for them to sell virtual upgrades or cosmetic items
on the game's marketplace releasing a new version of the game can cannibalize these potential sales
as players move over to the new game with the new store if rockstar released grand theft auto 6 this
year there is no doubt it would make a ton of money but it would also reduce revenue coming in
from grand theft auto online the company's biggest earner it might still be worth it but it's a huge
risk the company would need to spend hundreds of millions of dollars to produce a new game and run
the risk of it being a buggy mess it's the same engine right that i worked on when i was there
the core of it it's the same content they've really perfected the systems again there's a
beautiful machine there that you'd have to try really hard to [ __ ] up not only can
game companies lose a source of revenue from an upgrade they can also annoy the big spenders who
would be left with hundreds of dollars worth of virtual items in an outdated video game
rockstar would have a choice do they a let people have all the stuff they paid for in grand theft
auto 5 in grand theft auto 6 or do they be make people start from scratch option a would mean that
their new project is going to miss out on a lot of revenue from people who are happy to spend real
life money to have the coolest stuff the game has to offer leaving potential revenue on the table
is not going to be popular with the investors that need to greenlight such a large project
around gta 6 so the question is is there how do we think about um remaster and console cycle
potentially impacting the the timing of gta 6 and any interest in giving uh giving a year right here
right so so rockstar hasn't announced any new titles for the market option b will make the
most financially valuable players angry if the new game doesn't have enough new features they might
not take the leap at all and choose to continue playing the old version with all of their stuff on
the topic of new features putting them into games has become both easier for small projects and
harder for larger ones we have already seen that massively ambitious games chalked full of features
where you can do everything have the potential to be massive embarrassments when even a few of these
features don't work the problem big game companies face is that they can't push these large projects
without promising something to differentiate them from the long list of titles that already exist
there was a time when new features could be as simple as updated graphics gran turismo games used
to make headlines about what at the time looked like photo realistic graphics now game development
tools like unreal engine give developers access to high-end graphics right out of the box without
the need for teams of developers to build a game from scratch not only is it harder for big budget
games to distinguish themselves on features it's harder for them to justify their need at all
the marketing people marketing i thought we were supposed to have total creative control
welcome to the matrix the original doom launched in 1993 and quickly became the game people thought
of when they thought of a combat video game less than 10 years later in 2001 halo combat evolved
arguably stole that title and quickly became the most popular first person shooter ever up until
that point shooter should really enjoy the game as you know should anyone you know besides being
you know easily the best game of the xbox launch it's one of the best first person shooters ever
on any platform it was easy to see why the technology was vastly different and the overall
immersion and enjoyability of the first halo game was far greater than that of doom now 20 years
later people are still playing the first halo game because it really has everything you could ever
want in a shooter yes the graphics are obviously dated but the difference between combat evolved
and the latest halo game are significantly smaller than the differences between combat evolved
and doom for many players the nostalgia and lower hardware requirements of the older game
are actually a draw companies are forced to get more and more ambitions in order to justify
new games and while technology can make some things possible that simply weren't 20 years ago
it still depends on an ever larger number of human developers to stuff these features into a game
video games have changed the you know the course of human evolution to some degree
when existing games exist that people are already perfectly happy with they are also going to be far
less accepting of any bugs or mistakes made by any of the thousands of developers now involved
in bringing these games to life alright so games have become more expensive and riskier to produce
technology has hit a plateau where there is less need for new games to keep up and game
companies have found new ways to make money much more predictably now i said at the beginning of
this video that microtransactions were only half the story behind why game companies could get
away with going so long between new big releases yes it's true if gamers were not happy to spend
hundreds of dollars on a single game over many years these companies would probably be forced
to release more games to keep the money rolling in in fact the predatory monetization of video games
is something i have already made a separate video on but there is something else that has arguably
been an even better business opportunity for the big players in the video game industry and this
is providing tools to other game developers there is an old saying that if you want to get rich in
a gold rush you don't dig for gold you sell the shovels there are thousands of small game studios
all trying to make the next pub g or fortnite some of them will make millions of dollars
and most of them will make very little money at all bigger games with more money behind them do
have a better chance of making a return on their investment but that is still digging for gold in a
very crowded and competitive marketplace valve was once a very successful game studio now producing
games is just a side hustle for them because they make more money running the steam marketplace
why doesn't valve make games anymore because they don't have to they have enough money
end of the news epic games also started off as a video game developer but they have now branched
out into running the epic game store as well as licensing the tools that they use to make their
games to other aspiring developers unreal engine costs fifteen hundred dollars per developer per
year there are twenty two thousand self-reported video game businesses operating in america
even if all of these companies had five developers each that is over a hundred thousand unreal engine
customers unreal engine currently has 13 market share meaning that epic games could be making 20
million dollars in licensing fees alone which is actually not that much really but epic games isn't
done there they actually intentionally make their software cheap to use in many cases they make it
totally free why because they also charge a five percent royalty fee on any sales a game makes over
one million dollars just like free to play games are designed to bring in big spending players
unreal's free to develop model is designed to bring in big earning titles that 13 market share
could be bringing in as much as 650 million dollars from the american game market alone
epic is a privately held company so they do not release their financials but it is estimated that
the company earns more than a billion dollars a year worldwide from their game engine alone
some other companies have taken a less technical approach to generate new income streams
some of the biggest names in gaming like ea and ubisoft have just acquired dozens of smaller game
studios not only does this share overhead costs amongst lots of different projects it also makes
for much more predictable revenue go buy your mama house go buy your whole family houses put
this money in your savings account go spend some money for no reason come back and ask for more
instead of putting all of their eggs in one basket these companies spread the risk out over dozens of
studios and hundreds of different titles some of them will do well and some of them will fail but
as long as those winners pay for the losers and then some the business is sound managing lots
of smaller developers also means that these big companies get exposure to lots of different areas
of the gaming market there's money to be made in hardcore competitive games story driven games
social games and mobile games but it's impossible to make a game that makes money from all of
these markets at once unfortunately big budget games are going to become less and less common
video games are a business and businesses need to go where the money tells them to
candy crush is one of the highest grossing games of all time and it was made on an initial budget
of less than a million dollars tasty for as long as customers are content with the games
they currently have and are willing to spend more money on the titles that came out decades ago game
companies are going to avoid taking risks that could sink their entire business now if you want
to find out just how creative these companies have become and squeezing as much money as possible
out of their players you should go and watch my video on the predatory monetization of video games
a special thanks again to click up for making it possible for everybody to keep on learning how
money works are you winning son you're gonna be smaller than my own channel mostly because i just
want to highlight channels that might be harder to stumble upon than your gram stefans or whatever