• by Josh Lovison , June 15, 2007

Gaming may be in danger of becoming a bubble. I started thinking about this when reading a forwarded press release about the founding of a new game studio specifically to make film-to-video-game adaptations. The company, called Brash Entertainment, had secured $400 million in financing and had a deal in place with Lions Gate. Included in the press release was the following quote from Nicholas Longano, the new company's president: "It still surprises some people to learn it is an industry bigger than Hollywood, and the growth rates... we're talking about double-digits on an ongoing basis."

This kind of thinking worries me. Generally speaking, when a company comes out of the woodwork because things look good on paper -- instead of defining a market need and addressing that need -- it's a bad sign for both that business and the market in general. It'd be one thing if the company said, "We've seen movie to game adaptations historically fail because of poor and rushed design, and we believe we can build adaptations built upon film properties that are at their core quality games." That would have set off no warning bells. But this "bullish" statement did.

And with good reason; we may be heading into a bubble. The Wii is having outstanding sales catering to a "casual" gaming audience by marketing an innovative idea. Unfortunately for the Wii, a console built around an innovative idea is only fun for so long. Eventually you need innovative games to sustain the life of that console, and I have yet to see any system sellers in the Wii's lineup that aren't banking on prior successes.

The idea of expanding to casual gamers in general is a risky prospect. During periods of economic prosperity it may be easy to drop $250 on the latest cultural chic, but if spending becomes tight, are casual gamers going to drop $49 on a software title? Hardcore gamers self-identify as gamers; economic troubles or no, they will have the latest "Final Fantasy," even if it means macaroni and cheese for a month. Should the economy slip, is gaming going to take a harsher hit than other markets because of an expansion onto fickle ground?

Then there's Second Life, a title that increases the likelihood my head will explode with each new press mention. A cute idea, yes. But sustainable growth? I seriously doubt it. The subscription-based MMO market does seem to have sustainable growth, such as Blizzard's "World of Warcraft," which in January passed 8 million subscribers, each of whom pay $15 a month, offering the prospect of $1.4 billion in annual subscription fees. But some of the governmental litigation generated from the buzz of Second Life may put this business at risk.

The PS3 was a mini-bubble, generating a massive amount of buzz with no launch titles to back it up. With that pop, now previously exclusive PS3 titles have almost all decided to launch on both the Xbox360 and the PS3, seriously damaging the PS3's prospects. If Sony can pull off "Home," and the concept of user-generated gaming hinted at with "Little Big Planet," it may be back in the picture, but right now the PS2 is still far outselling the PS3.

The biggest threat of a bubble really rests on the developers. The development costs for games have risen dramatically, and as a result there is very little room for innovation -- it's too risky. There are innumerable sequels, and very few new properties with significant backing. This is not a sustainable development cycle, at least not when everyone is doing it (Nintendo has stayed in the picture for years with just a handful of properties).

Is gaming in a bubble? Not just yet. I do think there are a few over-hyped segments (i.e, Second Life) and that some of the casual gaming growth is unsustainable, but ultimately there is still significant life in the industry. I think gender-neutral gaming has expanded the market to access a stronger female demographic, and that largely the Wii's success is going to act as lead generator, finding hardcore gamers that didn't realize they had the capacity to be hardcore.

As for innovation, I think digital distribution is going to open the doors to a long tail of creative, allowing independent shops to make simpler but innovative works and get them out to a large audience. The rumored E3 revelation of a hard drive for the Wii would be a perfect set-up for Nintendo to create this opportunity. So, no, we are nowhere near popping. But I will admit some parts of the industry are starting to look a little, well, bloated.