David Fisher : What is Noise Blog

Seeing the impending doom and gloom of the economy in 2008, many players in the video game industry parroted the phrase “the video game (and alcohol) industry is recession proof!”. The theory was that video games are cheap entertainment, and that when people have nothing better to do, like work, they would play games instead and shift their spending dollars.

Perhaps the industry itself is recession proof. None of the major players have had AIG or GM style downfalls. Blizzard is still the king of MMORPGs with World of Warcraft and the big companies keep getting bigger.

Yet, this doesn’t feel like the roaring 20′s for the industry either. Show me all the charts that you want to about major title releases selling more and more, but that doesn’t mean that it is any easier to release a title, raise Venture Capital funding, meet sales goals or hold a job in the industry. Nothing is going so well that people are about to call it a bubble.

Raising VC funds right now is damn hard. I’ve seen some great ideas and companies fall apart due to the inability to raise money for creating video game related products and companies. This isn’t 1999, or even 2007 and no longer can a 6th-grader raise 6M+ in an A-round of funding. This isn’t because there aren’t good ideas out there, or even lack of raw venture money being out there. It is largely due to the relatively small number of exits available in the market today. IPOs are nearly non-existant, and major acquisitions seem to have slowed down as well. Sure Google, Apple and friends still snap up stuff for absurd amounts occasionally, but things are getting more ‘realistic’ which VCs don’t really benefit as much from.

Even companies that are well past their funding stages and have major products released and selling well are having budget issues. You’d think that a company that started one of the biggest shifts in gaming in 10 years and had just released one of the best selling games of 2009 would have no problem budget-wise. Yet Harmonix (now owned by MTV) had to slash nearly 40 positions in December. Not all of those were QA positions as initially reported in the media and the damage done to the company internally was massive. Harmonix itself may have been recession-proof, but MTV with its heavily reliance on advertising as their primary income source wasn’t. The cross-collateralized risk meant that a hit to MTV was a hit to Harmonix.

EA, one of the largest gaming companies out there laid off over 1,500 employees in October and canceled around 15 games. At the beginning of 2009 they cut 1,100 employees. Crispy Gamer slashed their editorial staff and their CEO resigned in protest last month. Only months prior, they had acquired/merged with gamerDNA, prompting yet more layoffs. GamerDNA themselves had to cut staff earlier in 2009 (which I was a part of) due to funding difficulties. None of these decisions were made lightly for sure, but all of them have built up to effect the industry overall.

The stories of such happening are seemingly endless. To call an industry recession proof is to say that a recession won’t effect it, or would even have a positive effect. This clearly isn’t what is happening and those who thought it might be recession proof were either underestimating the effects that the recession would have, overconfident, or wanting to sell this story to their investors.

However there is good news! While I’ve only been in the industry for a short time, I feel that I’m seeing a nice resurgence of indie games and innovation. Delivery platforms like Steam, Direct2Drive and the iTunes Store for the iPhone/touch/pad, combined with tools that allow for rapid development like Unity are allowing more people than ever to get into the field and create rich and amazing titles that actually have the chance of reaching large audiences with minimal upfront cost. There will always be the need for blockbuster titles however and I don’t foresee this canabalizing the main studios in the way that the ‘home studio’ has killed much of the music recording industry.

What do you make at your job? I actually don’t care, but you should perhaps realize that it’s worth less today than it was yesterday. Surely that’s only a few pennies you say? Let’s figure that out.

In the US, we work an average of 1777 hours per year. Let’s say you’re making $30,000 a year, a fairly average amount for someone in the US. So you’re at 16.88 or so per hour for ~222 days a year (8 hr days). Our average inflation is 3% a year on average. Sometimes this is higher. For example, thus for in 2008 we’ve seen right around 4% inflation if not higher. Some items increase far more in cost, such as oil and health care costs. The consumer price index can show us this. For simplicity’s sake let’s choose 3%, as I don’t think anyone will say that the number is too high on average.

Very simply put, you’ll have to have 30,900 in wages after a year to equal 30,000 of the prior year. So you got a raise to 32,000 maybe? Only really 1,100 of that was a ‘raise’ on your abilities, extra work, experience, etc.

Let’s say you didn’t get the raise however. That $900 difference in purchasing power is huge. You work 222 days a year. That is $4.05 less daily that you can purchase that you work. That latte in your hand? Tomorrow you’ve made that much less in purchasing power. That’s something you can tangibly see.

If you make a bit more, its really startling if you aren’t getting your yearly raises as you should. Make 100K? That’s $67.50 less per week in purchasing power. That nice dinner you were going to have? Forget about it now.

So what’s my point? My point is this, if you aren’t getting raises (which in today’s economy you likely aren’t) you are getting kicked in the balls. It’s not just that you are making the same money, you’re making less money.

My suggestion for responsible employeers is this: offer continous cost of living increase raises. If you pay 24 times a year, increase each paycheck by 0.125%. Then your “raises” that you make yearly can be based on merit, not on economic inflation and stress. When I worked at State Street, I actually put this as a small quote on my monitor, “You are worth $4.05 to your employeer than yesterday”. They didn’t like that much.