My Name is Daniel and I am a Genre Addict
Publishers: How the Drug Lords of the Industry Profit
A great business
Unfortunately, publishers are in the early days of the game market and competition is fierce. Those who understand the Business stand to make great profits and those who don't will simply be acquired.
Luckily, most game genres are not yet outlawed. Organized crime would make a killing if they got their hands into illegal game distribution. The rapidly growing industry of online gambling can attest to that.
Economic forces rule
First off game making is a risky business. If you randomly put money into developing a game, you will lose your shirt since is has a horrible chance of making back money. Most games don't.
So instead, you play to win using the following strategies. If you look at Game Developer Magazine's "Top 20 Publishers" article each year, you'll see these patterns over and over again.
Strategy #1: Portfolio-based risk reduction
Publishers exist because the market bankrupted the alternatives. They are a proven economically viable strategy for making games and aren't going to go anywhere anytime soon.
Strategy #2: Navigating the distribution bottleneck
The result: most games have extremely short shelf lives and only the best of the best (from a financial perspective) make it onto the shelves in the first place.
An amusing dynamic occurs with end cap promotions and overstocking. You've seen it before - the store displaying 20 copies of a hot game. For every extra copy of the game on that shelf, there is a game that did not get funded by the publisher. There simply wasn't enough space to sell it.
Strategy #3: Portfolios heavy in 'proven' products
Strategy #4: Higher per product development costs
The result is that costs escalate dramatically from generation to generation. My competitors will drop $15 million on their next title in the hopes of beating my $10 million development team. Naturally, the only course of action for me is to spend $20 million. And the cycle of spiraling costs continues.
Strategy #5: Minor investment in experimental genres
A new genre is the equivalent of a new drug line for a pharmaceutical company. Sims, GTA, Tony Hawk, Ultima Online, Tomb Raider, and Dune 2 were all genre busters funded by major publishers. These genre busters ended up contributing massively to the economic success of the publishers that created them.
So innovation will never die. It will, however, slow to a trickle. The owners of innovation in this industry are portfolio managers that err on the side of caution. For every 1 game that takes a risk, you need 10 or 20 games that are surefire money makers in order to balance the portfolio's total risk.
Strategy #6: Culling of genres past their prime
It is often financially better for a publisher to fund an additional FPS then it is to fund a turn-based strategy game. With an additional FPS title, the publisher increases their chance of getting a mega multi-million copy hit in a big market segment. If they get a big win with the turn-based strategy game, they'll at best move a couple hundred thousand units. Why even bother?
Best to stop investing in the genre completely.
Strategy #7: Consolidation
These factors lead towards a strong consolidation trend amongst publishers.