"Recurring revenue is very key," he stated, but now it's nonexistent - "there is no tail." It's caused a "really unhealthy extreme" where it must sell fast, then do "anything else to get money."
Whereas before a game could sell for 20 years or so, now the first few months are all that seem to matter. The used game market sucks up the rest denying revenue to publishers and studios.
From the consumer side, in the last few years "we started seeing used games really come into fruition, and I believe that has caused quite a problem. I would argue that used games actually increase the cost of games," said Dyack.
"There used to be something in games for 20 years called a tail, where say you have a game called Warcraft that would sell for 10 years. Because there are no used games, you could actually sell a game for a long time, and get recurring revenue for quite a while. Recurring revenue is very key." Titles have to hit hard and fast now, or die.
"Now there is no tail. Literally, you will get most of your sales within three months of launch, which has created this really unhealthy extreme where you have to sell it really fast and then you have to do anything else to get money," continued the studio boss. It's what caused the surge in multiplayer and launching downloadable content.
If left unchallenged the trade-in market will greatly threaten the games industry.
"I would argue, and I've said this before, that used games are cannibalizing the industry. If developers and publishers don't see revenue from that, it's not a matter of hey 'we're trying to increase the price of games to consumers, and we want more,' we're just trying to survive as an industry."
"If used games continue the way that they are, it's going to cannibalize, there's not going to be an industry," he said. "People won't make those kinds of games. So I think that's inflated the price of games, and I think that prices would have come down if there was a longer tail, but there isn't."
US retailer GameStop offers a differing opinion to Dennis Dyack, claiming the used game market in fact boosts it.
"Remember that used video games have a residual value. Remember that GameStop generates $1.2 billion of trade credits around the world with our used games model. So, consider taking used games out of that, you'd have to find new ways to sell the games, and our partners at the console companies have great relationships with us."
"What we've done is created a way for that new leading edge consumer to dispose of their old games and that's what creates this great circle of life we talk about that so many try to imitate," said CEO Paul Raines.
Triple-A project costs skyrocketing don't help any, argued Dyack.
"On the top side of the triple-A, highly-funded titles, you have $100 million games, and looking towards next generation people once again are saying we're going to have development costs that are two or three times of what they were last generation. I cannot see how that economy is going to continue," said the Silicon Knights boss.
"I don't think as an industry we can afford $300 million budgets. I think some games can, don't get me wrong. For a game like Call of Duty, if they had a $100 million budget, or whatever their budget is, they can afford it. That's not the industry, that's sort of a one-off. But what is everyone else going do?"
Smaller studios investing $40-$60 million on a title that fails is catastrophic. "It comes back to that tail I talked about, recurring revenue. We need a system with recurring revenue and that's why I think digital distribution is going to play a big role in things to come. That's why I am still very big on cloud computing," noted Dyack.
Consumers want trade-ins because they're cheaper and let us put credit toward a new game release as we're done with the game being traded in - how can that ever stop? Consumers don't want it to stop. Therein lies the problem.
Dyack: "Used games are cannibalizing the industry"
28 March 2012 | By Simon Priest