Marketing costs 'jump when dev budgets climb'

Marketing costs 'jump when dev budgets climb'

By Rob Crossley in Edinburgh

August 11th 2011 at 12:15PM

Edinburgh Interactive 11: 'Soaring spend on triple-A has created a hit-driven business'

Profit opportunities from triple-A games have become increasingly dampened by rocketing marketing costs, a leading analyst firm has said.

Edward Williams, managing director at BMO Capital Markets, said advertisement and promotion budgets for blockbuster games have soared since the dawn of the current console generation.

And the spike in marketing spend, he said, is partly driven by development costs.

“When you spend more developing a game, publishers now spend more marketing them,” Williams said.

“As costs have gone up, the margins have come under considerable pressure.”

Speaking at the Edinburgh Interactive industry event today, Williams presented graph data which appeared to suggest that marketing spend increases have driven profits down.

The market has thus become more hit-driven, he said, with publishers needing their most exorbitantly developed games to be backed to the fullest.

It has previously been suggested that the marketing budget for Call of Duty Modern Warfare 2 was as high as $50 million, though Activision never confirmed the rumour. At launch, the Call of Duty shooter became the fastest-selling of its time.

Yet this trend, in turn, can lead to a boom and bust culture for game studios. A studio, even one in a relative position of strength, can collapse on the failure of a single game.

Realtime Worlds was dismantled within weeks after the release of All Points Bulletin, a game thought to cost above ₤80 million to launch but failed to pick up significant sales. A similar pattern followed Bizarre Creations and Black Rock, whose final games required significant investment but struggled to recoup that.

Epic Games chief Mike Capps recently said his studio, like many others, could not survive two market flops in a row.

Elsewhere in Williams’s speech, the analyst shaped the view that software sales at retail were coming under the most pressure from rising costs, and that the major future growth opportunities are now in digital sales.