Let the games begin

The TV games console industry is worth around $100 billion a year. Not bad at all for an industry in complete turmoil.  

The macro / micro factors at play are all beginning to take their toll on the proprietary nature of the status quo. The cracks are beginning to show everywhere and now it is surely only a matter of time before the once strong ecosystems that have supported the incumbent console players’ collapse.  A collapsing eco system is a great incentive for entrepreneurs keen to create and finance a new breed of gamingcompany.  Companies that do not have the corporate or technical restraints associated with a successful but increasingly legacy business.  These start ups, PlayJam included, are able to harness a set of open standards, willing investors and above all consumers who want change. Step back and take a look.

The hardware market has evolved so significantly over the last few years, principally because of the innovations in the mobile sector.  Hardware specs across the high-end consoles and phones are now quite similar, with quad coreCPU,super high end GPU and enough memory to store 100s of apps. These devices are capable of playing the richest games and the hardware has never been cheaper or more accessible to new entrants.  The bottom line is that until recently it was pretty hard to create a fast, reliable games console and doing so was expensive and the preserve of a few. Now it is straightforward to create great hardware, and relatively speakingmuch cheaper than it has ever been.  As a result we foresee many new companies beginning to create HW/SW platforms to support richTV gaming without the need for a $300 console. PlayJam’s GameStick, Nvidia’s Project Shield, Steam’s SteamBox and Ouya all being great examples.

Linked to this, the hardware and software industry has seized Android as the change agent.  Andy Rubin, the creator and former head of Android, may have stood down but his legacy will be heralded as perhaps the greatest coup in the software industry.  My guess is that in 5 years time people will see Rubin as having been more influential in some respects than Steve Jobs. Jobs created a super business and delivered some great products. Rubin and his friends created what will probably be the most prolificsoftware platform known to man, and one that will touch the majority of people on the planet.

Let the games begin. It used to make sense to spend $100m on one game because, although risky, if the game was successful the recoup could be rapid and the profit would roll in.  But consumers are increasingly adverse to paying premium prices for new games, which is why GameStop, a shareholder in PlayJam, focuses so much of its attention on trade in games and re-sale product. The economics of producing console grade titles no longer stacks up, unless it is subsidized by hardware sales – but, because of the reasons above, we already know that won’t last for long.

As a result over 1500 console game studios were closed in 2012. Where has all the talent gone?  Well, mostly to mobile studios. In fact the growth in the number of new mobile studios setting up is tantalizing. Over 10,000 independent studios started up last year, all with the dream of creating a hit mobile game.  Companies like Hutch in the UK are great examples. A few ex console guys clubbed together and bet big on one game.  One year later Smash Cops is a top 10 iOS game worldwide. Awesome result. These success stories drive other hopefuls and create an environment in to which investor funds flow because the average cost of developing a great Android game is so much less (circa $100,000K), and the upside for the indie developer and investor so much higher because they retain the majority of the profits.

Hardware, software and games are now cheaper, more open and have a lower cost of delivery than ever before, but the TV has been a closed domain since its inception. Microsoft, Sony and Nintendo invested billions to break in and have enjoyed great returns in the first wave of the console industry, but my guess is that the upwelling of innovation will force them to do one of two things: 1) drift to the high end and offer great games services at a premium price for a smaller audience. i.e. more of the same or 2) accept defeat and go to a completely open ecosystem using Android as the platform. I cannot see the latter happening as it is against their ethos and against the huge fixed costs of their existing business systems.  But they should, because Android is entering the TV ecosystem at a huge rate of knots. China, perhaps the biggest TV market in the world, will be ‘all’ Android in 2 to 3 years time.  Europe and the USA are some way behind but there is little doubt they will follow because manufacturers cannot afford the overhead of maintaining a proprietary system. Even if they can ignore that pain, they will look to the future and see that not to do so puts them in the same boat as the incumbent console guys and that boat has a hole in the bottom. Time to buy Google shares?

We are at an inflection point in the industry.  Spotting the trends some time ago we at PlayJam began investing heavily in building a global games network for TV.  Our existing enterprise system brings global billing, analytics, tournaments, leaderboards, CRM and the entire back end infrastructure required the run such a service, but we wanted to take a bit more control of the consumer experience and so set about creating a reference device that would make playing our developers games as fun and rewarding as possible - enter GameStick.

The micro games console running Android, was launched on KickStarter in January and became the 8th most successful project in the history of the crowd-funding site; why? Because consumers want an alternative to the high cost of traditional console ownership; GameStick retails for $79 and the average cost of a game is a few dollars. Compare this to $400 for the consoler and $40 per game for a traditional console, question answered.

Now let's look at how these games are controlled on TV. Most mobile games currently use touch as a control mechanism.  Not much use on a TV unless through a second screen app. But with the influx of ex console talent in to the mobile market, who possess the skills and desire to create high-end 'console' titles in Android, this is changing fast. Companies like MadFinger Games are making full use of the Android frameworks for gamepad support and the Android Open Accessories initiative is enabling controller manufacturers to adopt common standards.

The work that Nvidia has done around creating a spec for Android HID controllers is beginning to incentivize developers to build in controller support as standard.  At the same time Green Throttle Games have developed a game controller platform that, amongst other things, allows for true impulse multiplayer games on TV.  And now many manufacturers, such as Nyko and Steel Series are making bluetooth HID controllers for Android games.  To tie these initiatives together PlayJam is talking to developers all over the world to engage them in the potential of the new TV gaming market.  Here’s why: in 2012 the Android games market grew by over 100%. The console market remained flat.

We are now at a point where great hardware is readily available. The Android software platform is now mature, stable and most importantly open to everyone and free to use. And game developers are flocking to mobile and by default Android.

Our aim at PlayJam is to stimulate and accelerate change within the TV games market by offering the tools, developer community and content to allow a best in class games service to be delivered to consumers via multiple partner devices. We have around 30 partners today.  Our relationship with Arm, where we will place PlayJam's games platform at the heart of the Arm ecosystem, is a hugely important deal for the company.

Together we see a future where developers can publish their games to TV as simply as they can to a mobile device. We think this opportunity is one worth fighting for and one that in a few years will be worth around $20bln per year.