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Can Vancouvers billion-

dollar videogame sectorsurvive the tectonic shiftsreshaping the industry?

By De e

Ho n p H o t o g r a p H B y

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It looks like pure fun and games at the sprawlinghalf-million-square-foot Burnaby campus of video game g iant Electronic

Arts Inc. (EA). Its noon and the cafeteria clatters with the sound of soft-

ware engineers digging into bento boxes while fellow employees bash at

arcade games in the Executive Lounge. Outside, a soccer game real,

not virtual is in full swing on the all-weather turf, while other workers

make use of nearby amenities including a weight room, yoga studio and

basketball court. Meanwhile, a gang of awestruck visitors stock up on

games and EA-emblazoned souvenirs at a store near reception laugh-

ing and snapping tourist pics of each other to capture memories of the

place where their favourite titles are made. Theres an energy in the airthat seems part university campus and part amusement park.

Despite appearances, however, this is serious business. Even as

industry sales seemingly defy the recession with 2008s US$11 bil-

lion in worldwide video game sales surpassing 2007s gures by 26 per

cent trouble can be seen in these hall s and in those of other B.C. game

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developers. Desks in Burnaby are being cleared to make room

for workers from EAs shuttered downtown Vancouver studio,

Black Box, as the company consolidates facilities in an effort to

cut costs. EA is bleeding cash quarter af ter quarter, losing US$641

million in 2008s fourth quarter alone. The California-based rm

announced in December 2008 that it was slashing its worldwide

workforce by 10 per cent, or about 1,100 workers; about 300 of

those jobs are coming out of B.C., leaving the local ofces with

1,600 employees.

EA is the bedrock of Vancouvers video game cluster, which,

according to UBC economic geographer Trevor Barnes, includes

some 140 companies employing about 3,500 people. Many of

the other studios in town none of which employs more than200 are startups founded and staffed

by people who rst cut their teeth at EA,

outts that werent even in business ve

years ago. And many of them are not faring

particularly well either, including Radical

Entertainment Inc., once the second-big-

gest video game employer in town, which

sacked about half of its 230 workers last

August. Other studios are cutting staff

too. We have an industry where 800

people were put out of work in the last

six months, says Jared Shaw, who runs

Vancouver-based video game recruitment

firm 31337 Recruiters. When software

developers stop getting snapped up, you

know things are really bad.

Changing consumer demands, the

global economic meltdown and compe-

tition among international video game

makers is re-sorting the industrys winners

and losers. The cost of developing games

is soaring and companies are losing their

stomach for risk cutting back on the

number of projects theyre developing, which means less work all

around. In addition, there are a growing number of jurisdictions

around the world pushing to compete with Vancouvers video

game cluster, offering various incentives to lure both companies

and prospective employees. For the local industry, estimated to

contribute almost two per cent annually to B.C.s GDP, the chal-

lenges are mounting.

Nowhere are the industrys seismicshifts more keenly felt

than in the increasingly precarious world of development. Withinthe business, there are essentially three players: console makers,

such as Sony Corp., Microsoft Corp. and Nintendo Co. Ltd.; third-

party publishers, such as EA, Activision Blizzard Inc. and Ubisoft

Inc.; and the usually much smaller developers, such as Radical and

Blue Castle Games. Console makers make the machines that run

the games, although Nintendo also develops and publishes a fair

amount of its own software. Publishers market and distribute the

games and typically own the intellectual property behind them,

while development studios employing anywhere from 150 to

just a couple dozen people and working on one or two games

at a time actually make the games, creating all the storylines,

artwork and programming.

In recent years, local studios Relic Entertainment, Action Pants

Inc. and Radical Entertainment have been bought out by publish-

ers (THQInc., Ubisoft and Activision respectively), making them

much more dependent on the fortunes and whims of their partner

or parent. Publisher-owned studios gain access to their parents

deeper pockets but lose a degree of control; the 120 jobs lost at

Radical last year came after Activision shelved two out of the four

projects it was working on. Independents, on the other hand, can

make games for more than one publisher as a hedge against col-

lapse. Vancouver-based Blue Castle, for example, recently more

than doubled its staff, from 70 to 165, thanks to its deal to make

Dead Rising 2 for Japanese publisher Capcom Entertainment Inc.,

even as the studio makes a sequel to The Bigs for 2K Sports.

EA, like other publishers, partners with smaller independent

studios to develop some of its games (including the next install-

ment of its blockbuster Need for Speed series being developed by

Slightly Mad Studios in London, England), though most of the

companys games are made in EA studios in such places as Shang-

hai, Istanbul, L.A. and Montreal; its Burnaby studio, or EA Canada

as its known, is the companys largest operation. Increasingly, the

push at EA is to shift development to cheaper facilities. At the end

of scal year 09, we expect to have 19 per cent of our employees

in low-cost locations versus 13 per cent a year ago, EAs CFO Eric

Brown announced in February this year.

But for EA, shifting operations may

not be enough. The company, once the

worlds dominant publisher, is now falter-

ing to the point where its key rival, Santa

Monica-based Activision, has a market

capitalization more than double its own

(US$13.4 billion versus US$6.1 billion). Both

companies took in about US$1.6 billion in

revenue in the fourth quarter of 2008, and

while both lost money, EA lost signicantly

more: US$641 million versus Activisions

loss of US$71 million. The chief problem:EA is spending too much money making

too many games that too few people are

buying. The company makes about 35 to

50 titles a year, spending 27 per cent of its

sales on research an development, whereas

its rival focuses on just 15 games and spends

about 10 per cent of its sales on R&D.

EA has responded by cutting back the

number of games its developing, con-

sequently trimming its staff. I think EA

needed to focus down on its priorities and

say, We make so many great titles, we are

cannibalizing our market ourselves, says

EA Canada vice-president and general

manager Pauline Moller. As a video game

industry, we have so much great product

out there; its a ght for the consumersdollars. While Activisions situation isnt as

dire, it too has stated a desire to avoid risk-

ing its fortunes on untested games, focus-

ing instead on sequels to successful titles.

Blame the recession for part of the

industrys new-found risk aversion. Con-

sumers are still snapping up games, but

with fewer dollars to spend they are more

selective about which titles they buy.

Buyers cant all shell out for ve different

games at $60 a pop, says Moller. Maybe

they can only afford to buy one great

game. So the most popular titles get all

the sales while the also-rans end up in the

bargain bin. There is growing separation

between the sales of the blockbusters and

those of the rest of the heap.

But even when the economy rebounds,

publishers will likely keep a tight rein on

the number of games they make which

for Vancouver studios means fewer proj-

ects to go around. Thats because the cost

of developing new games has risen to the

point where publishers cant afford as many

gambles. The video game industry movesin ve- to six-year cycles, reshufing every

time another generation of console, such

as Microsofts Xbox 360 or Sonys Play-

station 3, comes out. Each generation of

video game console has more computing

repower than its predecessor and, as a

result, the visuals of the games are more

stunning. The physics of the movements

are more realistic. The whole playing expe-

rience is simply more immersing. But con-

sequently, developers need to pour more

resources into the games to

take advantage of the tech-

nological advances and the

cost differences are striking.

In the last cycle of con-

soles, you could develop a

pretty solid Playstation 2

game for $5 million to $7

million, says Colin Sebas-

tian, senior research analyst

in San Francisco for Lazard

Capital Markets. A pretty

solid game for the Xbox 360

or the PS3 is probably $20

million; thats a pretty big

difference. You cant develop

20 games and just hope that one or two

are hits. You have to probably focus on a

fewer number of games and then put more

into each one.

More money is riding on the fate of

fewer products. Any failures will put acompany into a much deeper hole. Unfor-

tunately for EA, the key franchises that

once brought the company success have

stalled, leaving the company scrambling to

recover. Its Need for Speed series has deliv-

ered hit after hit since 1994, but the most

recent iteration, Need for Speed: Undercover,

bombed with critics and failed to meet the

companys undisclosed sales target. IGN

.com, one of the top gaming websites, said,

Need for Speed: Undercover is a poor game

with a ton of problems, both technically

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iron or putter. The Wii is the kind of system

even Luddite seniors can pick up quickly

and have a blast. I know: my retired parents

have one. The Wii is drawing all kinds of

people into the game-buying market, not

just the young male obsessives who call

themselves gamers. Nintendo saw it had

no chance competing in the arms race of

producing ever more expensive and power-

ful consoles and games, and went down a

different, more lucrative path.

So where does all this leave Vancouver?

The bulk of its industrys fortunes rests onwhether EA can turn itself around, particu-

larly the sports titles produced in Burnaby.

I think all these problems can be recti-

ed, says Lazards Sebastian. Thats the

beauty of having new products ever y year.

You have to have the capital to be able to

invest in new products. You have to have

a sense of what the market is demanding.

You really have to have your nger on the

pulse of the business. And you have to have

execution, which is the hardest part.

EA has high hopes for its newGrand Slam

Tennisand tness program EA Sports Active

(both for the Wii) and plans major moves

into online gaming. So dont start writing an

obituary for EA just yet. Because of its sheer

size, the company has the ability to screw

things up and recover from it.

The smaller studios in town face dif-

ferent challenges. EA can shelve a couple

of titles from its catalogue of dozens and

keep rolling, but a studio that only pro-

duces one or two games would have to

shut its doors. And with jurisdictions from

around the world ghting tooth and nail for

diminishing development dollars, that risk

for local studios grows greater. Quebec, as

one example, offers a 37.5 per cent labour

tax credit something B.C. doesnt have

while fast-rising competitors such as Singa-

pore offer well-educated, English-speaking

workers and close cultural connections to

the critical Asian markets, in addition tolow costs and government incentives.

Still, recruiter Jared Shaw sees opportu-

nities for the smallest of Vancouvers devel-

opers in all the malaise. As much as I dont

like layoffs and real major shakeups in the

industry, I like them for the innovation that

they create, he says as we talk over lunch

at White Spot. Some of these unemployed

game developers, he believes, are going to

get off their couches, start their own com-

panies and build their own games. And

as the Wii has proven, there is a largely

untapped market of game buyers out there

beyond the hardcore console gamers.

The timing is actually good in some

respects when you look at casual online

games, the emergence of them, and things

like the iPhone, he says. One guy can make

a casual game thats downloadable. One guy

can make an iPhone game. Five or six guys

banded together can make some kick-ass

casual games and kick-ass iPhone games.

Shaw puts down the shrimp sandwich

hes eating and pulls his iPhone out of

his pocket. He ips through some of thegames and shows me one called Slotz Racer.

For $2.99 you can download the software

and make a little slot car go around a track

on the iPhones 3.5-inch screen. Its not

the kind of thing you play until 5 a.m., just

something to kill time waiting for your bus

or plane. Companies are also discovering

a market for easy-to-play casual games for

the home computer. Vancouvers Hothead

Games makes a $15 downloadable title

called On the Rain-Slick Precipice of Dark-

ness, rendered in gorgeous (and relatively

cheaper) 2-D. It plays more like a choose-

your-own-adventure graphic novel than

an adrenalin-fuelled console shooter.

The development cost on it is nil com-

pared to a console game, says Shaw of the

new technologies. Indeed, anyone with

$100 for Apples iPhone development kit,

some skills and spare time can start their

own game company. To build a console

game, youd need half a million dollars for

an Xbox development kit and a similar sum

for a game engine, he says. What were

seeing is all these scrappy little develop-

ers starting up all over the place.

Maybe just maybe some of these

startups will make money. And maybe still,

one or more of them will turn into some-

thing big. EAs giant studio in Burnaby,

after all, began as a little project started by

two Vancouver high school students, Don

Mattrick and Jeff Sember, back in 1982.They sold their company, Distinctive Soft-

ware, to EA in 1991 for $11 million, bringing

the publisher to Canada and launching the

countrys video game industry. This could

just be fantasy: thinking that the citys

recent turmoil is a seed that will blos-

som into a reborn industry whose iPhone

games, online casual titles and other, yet-

unforeseen, kinds of interactive software

make Vancouver the envy of the world. But

when it comes down to it, fantasy is what

this business is all about. n

and in terms of design. (The game, produced since

inception at EAs downtown Vancouver Black Box

studio, will see its next sequel made in the U.K. by

Slightly Mad Studios. EA denies the move has any-

thing to do with poor performance.)

EA built much of its business around its award-

winning sports games. Its industry-leading titles

such as NHL, NBA Live and FIFA, among others, are

produced in Burnaby. Sequels are pumped out each

year as surely as the seasons. But lately, success has

not followed. The sports business in games has

actually declined, says Sebastian. So has the racing

genre. Racing games are not as big as they used to

be. Where EA historically had a lot of strength has

actually been a weakness in this cycle. Activision,

on the other hand, has scored hits in its massively

popular Call of Dutyrst-person-shooter series and

in its music game Guitar Hero.

The real game changer in the business, however,

has been Japanese console maker Nintendo. Most

of the industry had predicted that either the Xbox

360 or the Playstation 3 would lead the most r ecent

generation of consoles. Publishers developed games

for those machines accordingly and largely ignored

Nintendo. But Nintendo shocked everyone. Its Wii a cheaper,

less powerful machine with an innovative motion-sensing control-

ler has outsold its rival consoles two to one since being intro-

duced in 2006, leaving publishers scrambling to build games for

it. None has been very successful so far. Of the top 10 games sold

in the U.S. in 2008, ve were published by Nintendo for play on

its own machines. Wii Sports recently became the worlds number

one selling video game of all time, selling more than 40 million

copies to surpass the lifetime sales of 1985s Super Mario Bros.Need for Speed: Undercover, by comparison, has sold about four

million copies across all three platforms plus the PC, according to

vgchartz.com.

Why has the Wii been such a hot seller? Because itsfun: to

play it, you swing your arms and throw your sts like youre a kid

on a playground rather than just twiddling your blistered thumbs.

It turns out that a massive segment of consumers have a different

idea of what fun is compared to the games-industry insiders who

thought the Xboxs horsepower or the PS3s Blu-Ray capabilities

would rule the day. EA and the other big publishers have spent

hundreds of millions ghting each other for what is a mere frac-

tion of the game-buying public.

As I nish my tour of EAs studio andlunch hour comes to an end, the halls deaden

into silence. Few industries squeeze as much

passion and talent out of their workers as EA

does here. On the oor where developers

are making the companys upcoming tennis

title, dozens of 20-somethings sit unblink-

ing before twinned LCD screens lit up with

the green of a Wimbledon lawn. These guys,

like the gamers who will one day forego

sleep and nourishment to play the product,

are in the zone. Every pixel has to be per-

fect. Each stroke of the racket is repeated

again and again. This is the studio, after all,

that brought in developers from 18 different

soccer-mad countries to ensure that its FIFA

Soccer 09 would be made by people with the

beautiful game in their DNA.

Ever the diligent journalist, I pick up an

Xbox 360 from London Drugs on my way

home from Burnaby and pop in EAs highly

decorated hockey title NHL 09. Im absorbed

into a world of stunning realism. Each play-

ers face is masterfully rendered. Their move-

ments are the product of hours spent recording real NHL stars

actions in EAs motion-capture studio. True hockey fans would

recognize the individual players characteristics: the Canucks

Sedin twins are slick but soft; Calgary defenceman Dion Phaneuf

practically runs opponents through the boards. But only after

ve hours of frustration learning to pass, shoot and check do

I nally manage to score a goal. Another ve hours later, with

dawns light approaching, I start to win a few games. EA and the

other big publishers have for years targeted such hardcore gam-ers: players with the time and dedication to invest countless hours

mastering the games. Sports titles, with millions of dollars spent

on improving their ever-growing realism, further demand that the

players have passion and knowledge of the sport at hand. If you

dont know your slapshot from a wrist shot, youd never appreciate

the intricacies of a 2-1-2 forecheck.

Nintendo, on the other hand, gured out that there are legions

of people who want to play but arent necessarily sleep-deprived

gaming addicts. Wii Sports, for example, has geometrically shaped

characters lacking even arms to wield their clubs, bats and rack-

ets. To play tennis, you just swing the Wii remote like a racket

to whack the ball. To play golf, you swing the controller like an

52 BCB June 2009 June 2009 BCB 53

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Why has theWii been sucha hot seller?Because itsfun: to playit, you swingyour armsand throwyour sts likeyoure a kid ona playgroundrather than

just twiddlingyour blisteredthumbs