25 years of covering games: My views of then and now

This is one of those posts where you get to hear a lot of what I think about gaming, from my own perspective. As a journalist, I often interview people about their perspectives on the game industry, and I keep my own views in the background.

As a blogger, I’ve been able to blend my journalism background and my own expertise on games. In this role, I spout my views in my Friday column on gaming, The DeanBeat. But I had a chance to do a fireside chat at the Game Developers Conference, where an industry expert turned the tables on me completely.

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Jeremy Coker, the group vice president for games at Digital River, interviewed me about my own views on covering the game industry for the past 25 years. We covered everything from the hype around virtual reality to monetization in video games. I was able to look back 25 years at my start in video game journalism and forward to what’s happening today.

Here’s an edited transcript of our interview.

Dean Takahashi: It’s nice to be asked to do this for a change. I’m usually interviewing someone else, but I have a lot of opinions that have built up over 25 years of writing about games, 20 of them full time. I just recently wrote a story on the 25th anniversary of Blizzard and was able to look up the story I wrote when they got bought for $6.75 million in 1991 or so. I wrote the very first story about Blizzard in the L.A. Times back then. It’s fun to go back and revisit and interview the same people, who all have gray hair now.

It’s been a fun 25 years of covering games. There’s not really anything else I’d rather do. I do cover tech news as well. I work at VentureBeat. I’ve been there for eight years. We started GamesBeat as a sub-section a while ago. We do about a half-dozen conferences every year and two of them are GamesBeat conferences that I run. We have our GamesBeat Summit coming up in Sausalito on May 3 and May 4 this year, and then our first GamesBeat in Los Angeles August 1 through August 3. That keeps me busy, but very focused and happy in my work writing about games.

Jeremy Coker: How is the show so far? What are you seeing? What’s the big thing so far?

Takahashi: For me, GDC has been taken over by press events. I’m not getting out to go listen to sessions that much. I’m pretty sure I’m missing a lot of what’s happening that way. But the press events are interesting, because they’re mostly about VR. They’re mostly something to do with the platform wars between the different companies that are trying to win over the hearts and minds of developers. GDC is, as usual, a real battleground for people who want to grab attention or mindshare and get developers on their side.

Coker: Speaking of that, we’re seeing a lot of new developments in terms of software and hardware for VR. Where are we at and where is that going this year and in the future? As developers and publishers concerned with making content and making hardware, what should we be thinking about?

Takahashi: The ecosystem is vast already. It was surprisingly big even before sales really started with Samsung Gear VR last fall. Billions of dollars have gone into creating hundreds of VR startups. We had a survey that we published in [October] that counted 234 startups in VR that had gotten funding. It’s much more than that now. Nvidia said they’ve been in touch with 600 different projects. Epic and everyone else involved in the ecosystem can count these projects by the hundreds.

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That tells you that whatever flywheel is going here is going to keep going for a while. You can believe that it’s real. When you get that many companies together someone is going to produce a hit. We saw that last with the iPhone. Eventually you had things like Clash of Clans emerging and driving the platform forward.

That’ll happen with VR. It’s a bit different because we all see the flaws in VR today. A lot of us get seasick. About half the population gets seasick. Half the population probably also doesn’t know what VR is. There’s a lot of education that needs to happen in the market. There are ways this market could stumble as it’s getting out of the gate. Some of the headset makers may have manufacturing problems. They may not have enough supply.

It’ll start this year in a big way and the momentum will begin. Then we’ll get very picky. “Using my hands like this in VR is nice. I can move my hands in different directions instead of using a controller. But I’d like to use all my fingers in VR.” Once you use your fingers, you’ll want to control things with your eyes or your arms or your torso or your legs. You’ll never be satisfied with the state of VR. That’s why it will keep changing. I’m not sure which form of VR is going to be the mass market form, but I expect that there will be one.

Coker: As you’ve made the rounds during this conference and previous conferences like GamesBeat, is there one device out there that you think is the game-changer, or one piece of software?

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Takahashi: Not yet. Although just an hour ago, Epic had a very nice demo of a character from Hellblade, a game by Ninja Theory, using the Unreal engine. They showed a very realistic heroine, this Viking character, in a scene from the game. She’s talking. Her eyes are watery. She’s very emotional. She’s going a little crazy. And then they pull aside this curtain and it’s an actress who’s mo-capping the performance in real time. You could see all the expressions on her face — the eyes, the blinking — translated to the screen in real time. I thought that was pretty awesome technology.

Tim Sweeney of Epic said that you can imagine this is going to get translated into social media at some point. You could go online and play your World of Warcraft character or simply go on Facebook and have a conversation this way. It might take a while for that to happen, but it’s amazing technology.

Coker: You mentioned that you surveyed 200-plus startups getting into the space last year, and then Nvidia talking to 600 projects. These are scary numbers when we think about where the market’s going. SuperData released some information last week saying they think the market will grow slower than most people think. They cut their estimates and their time frame for how the market will grow. Are we headed into bad times with VR given the amount of investment and how quickly some people want a return?

Takahashi: I don’t think they can count on the return coming early. I saw some estimates this morning from an analyst who said he expects Sony to sell 1.6 million units of PlayStation VR this year, when it launches in October at $400. By then, Sony could have a 50-million-unit base of PS4 users. 1.6 million is not that impressive. It’s not going to support hundreds of companies. They have to have more dry powder to last them for years. Revenues may not come right away.

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If you think back to the dawn of the Xbox in 2000, it was a tremendous success when the Xbox sold 1.4 million units in its first season. Sony selling 1.6 millions of PSVR in its first season could turn into something bigger 10 years from now. The Xbox launch adds a little perspective to it.

Coker: It’s an interesting point. It’s going to evolve into a big boys’ game. The companies with staying power, that can last as the market matures and grows, it may finally pay off for them.

Takahashi: The big boys always want to count on that return. Maybe the smaller folks who can survive on coffee and ramen, as Tim Sweeney says, are the ones who can wait this out and experiment and find what works. They can try over and over again and eventually find the right VR content before the big guys.

Coker: As we look at the market, testing some of the new headsets out there, it dawns on me that gaming maybe isn’t the preferred application for VR. We’re at the Game Developers Conference. A lot of people here are focused on games. But is there a different application or medium that’s better and will push VR?

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Takahashi: 360 video is pretty compelling. Even 360 photos at the moment. Hollywood is starting to do a lot of these story-based VR experiences, like the Martian from Fox. A lot of filmmaking talent is focusing in on VR right now. I saw a demo of this Gary the Gull animated film that had some interactive parts to it. It was clearly a film where this seagull was trying to steal some food from you on the beach and having a conversation with you and trying to distract you. When it distracted you and looked in one direction, the seagull knows that and tries to steal something over here. It’s reacting to your movement in virtual reality.

There are very interesting experiences that you can only create in VR, and Hollywood is going to discover that. That’ll be a big industry. And yes, I think a lot of other industries, like education and medicine and product design are all going to benefit from both VR and AR.

Coker: We’ve seen, as VR has been making a lot of noise in new cycles of the business—at previous GDCs the big noisemaker was mobile. That was the big push, the big concern. We work with a lot of very large triple-A publishers that have core PC titles, and we’re seeing some consolidation in the market. Where is mobile in the mix today? Where is it going? Why is it important?

Takahashi: This morning a couple of mobile game veterans started a $50 million fund to invest in VR game companies. There was another one that formed in the late fall with $10 million. One of these rules you always have is “follow the money.” Where is the money going? The money’s going into VR for sure.

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Funplus also had this interesting counter-cyclical strategy where they announced a $50 million fund to invest mostly in mobile games. The theory that’s caused a lot of the investors to flee out of mobile game investment is that all that money just goes into user acquisition, and you can’t knock Clash of Clans out with just paid user acquisition. It’s just too hard to win in mobile game investments now. But Funplus is counting on all that money leaving, and then other companies will still succeed in a market that reaches a billion devices.

VR right now reaches however many units Samsung has sold since December. It’s basically a zero-unit market. You have a billion mobile devices out here. Why would you invest money in zero devices versus a billion? That’s not a bad strategy on Funplus’s part, to build against the cycle and find some companies that have a pattern of doing well with their first mobile game or two and funding those. They funded the guy who made Freeze already and counting on his next game, if he makes it with 10 people or so, being a good investment.

Coker: Following the money, as you said, if the money comes out of mobile that’s being spent on user acquisition and those user acquisition costs go down, is there an expanding space for smaller developers to win there? Or is it quickly going to become a space that’s dominated by big publishers?

Takahashi: There’s still an “all of the above” possibility in that scenario. The one that caught my attention a lot in the last year was Fallout Shelter. Bethesda is a triple-A game company that makes the Fallout series. They worked for five or six years on Fallout 4. They had an interesting press conference at E3 in June where they announced Fallout 4 and said it would ship in November, but then they also announced that Fallout Shelter would be ready for download in the app store that night, as millions of people were watching.

Eventually Fallout 4 sold more than 12 million units over the holiday at $60 a pop. But Fallout Shelter benefited from having so many eyeballs on that press conference that in its first 24 hours, it generated 12 million downloads. There were more users for the mobile game on day one versus the whole season of sales for the triple-A game.

Bethesda was surprised by this. Then you start thinking, “Why were they surprised?” They said this was like a lightning strike and you just can’t plan for something like it. You’re just lucky when the surprise happens. But all the veterans of the mobile game industry were watching this. They saw Fallout Shelter rise through the ranks and pass Candy Crush Saga, which was making millions of dollars a day, in the top-grossing list.

Fallout Shelter stayed there a few weeks, but it had no new content, so it dropped off the top-grossing ranks pretty quickly. People ran out of things to do with it. If you hit 200 people in your shelter, that was it. You couldn’t do anything more. You look at that and think–They’re a triple-A game company. Their main task at hand was Fallout 4. They had a team of 30-some people making this on a subcontractor basis in Montreal. They could have benefited from a decade of mobile game experience.

There’s all this hindsight on what they could have done. One of the principal game designers was Todd Howard. He told me in an interview, “Last year it felt like I had three or four jobs.” Clearly, Fallout Shelter was a distraction. But the opportunity with Fallout Shelter, had they followed the rules of mobile game design that we’ve learned over a decade – do live operations, keep the content coming on a regular basis, expand to as many platforms as possible, get these things done fast – they could have kept their game in the top-grossing ranks.

If it stayed in the top-grossing ranks they could have seen something like Supercell’s results. Supercell had $2.3 billion in revenue last year from three mobile games. Clash of Clans alone was probably $1.5 billion, and it grew in its third or fourth year. Atriple-A game company cares a whole lot about getting triple-A games done, but if they had looked to mobile and planned for it they could have hit that game out of the park and generated enough money to make three or four more triple-A games. The success of this mobile game could have been great enough to finance every dream they ever had as far as hardcore games.

Coker: It’s an amazing example, seeing a traditional studio used to long production cycles with “core” content—it experimented and found its feet in mobile. It didn’t follow the right pattern, but it did realize that there’s a new area it can expand its IP into and create more value that it’s not touching right now. It’s an extraordinary shift.

Takahashi: The final outcome is that they did acquire that mobile studio. They’re working on several unannounced projects. I’m pretty sure mobile is part of their plans going forward.

Coker: What do you think that does to the rest of the mobile market, as large publishers with core brands and core IP or big licenses come to the market?

Takahashi: Sometimes it works and sometimes it doesn’t. Blizzard, with Hearthstone and the Warcraft brand and all the Warcraft characters they brought into that game—it’s very familiar content for gamers. Hearthstone on mobile and PC has generated half a billion dollars in sales. It’s a home run hit in the collectible card space. That’s a great example of a known core gamer brand coming into mobile and doing very well. The Call of Duty games have almost zero market share in mobile, however, even though they dominate on console and PC.

Coker: Is that because of a missed opportunity? Is the IP not extending to mobile?

Takahashi: That’s almost like a platform problem. Shooters don’t necessarily do that well on mobile compared to, say, strategy games, turn-based games, or asynchronous games. Everybody should look at things like—Machine Zone was very interesting just because of the speech Gabe Leydon recently gave at ReCode, talking about performance-based advertising. Brands have yet to learn this, but he thinks that they do it much better because they’ve grown up in mobile and understand it. Mobile-first monetization and ad strategies are things they’ve mastered.

Also, the success of Clash Royale on mobile recently—It tells you that game design still matters. Creating a game that appeals to hardcore gamers and mainstream gamers alike, simplifying the hardcore nature of gameplay to a point where anybody can play it, making a game really accessible, all that can result in a tremendous hit.

Everyone before was saying that you can’t make a game that will crack into the top five anymore. It was made by Supercell and they can benefit from cross-promotion with their other games, but that hasn’t even started yet. Clash Royale succeeded on the basis of its own game design. It’s a lesson for everyone else. If you come up with the right game you can reach the top-grossing charts in mobile.

Coker: There’s obviously a space for big brands or big licenses to succeed, but game design is still important. If you build good mobile-first games you have a chance. As far as your predictions for the year in mobile, are we still ripe for consolidation? Are big moves going to be made here?

Takahashi: Consolidation is something you can see companies getting ready for. Kabam is certainly signaling that it can’t afford to assign talented game design teams on small projects anymore, projects that might not have blockbuster potential. They’re so large that they have to swing for the fences on every single game. They can’t have 100 games. They can’t have 50 games. They need to succeed with half a dozen games that are all big, top-grossing hits.

They’re taking action on that by shedding some studios and selling off old games, trying to concentrate all their capital and resources on smaller numbers of big projects. That’s what Machine Zone did as well. It worked out great for them, having just two games in the market, one of which was a reskin that wound up in the top ranks.

Everybody’s starting to look at those companies that are sitting on the top of the charts and thinking, “What can we do to be like them?” They’re not the kind of companies that have well-balanced portfolios of 30 games across a bunch of genres. That strategy always has this danger of spreading you too thin. It sounds very similar to the way companies behave in the triple-A space.

Coker: Any predictions coming out of this conference? Anything you’d like to lay on us as far as what you think is happening in the market?

Takahashi: VR will command a lot of attention this year. It’s hard for other companies to fight against that and grab some mindshare. Maybe it will settle down at some point.

I think there are some interesting things that could still happen in the world, though, like Google Play emerging in China. That may help simplify that market for people who want to go into it, like western companies. They may have more opportunity if Google Play becomes one of the biggest stores in China, as opposed to having 300 stores. A lot of western companies can’t go into China, either by law or just because they can’t navigate those 300 app stores. If that starts to change there’s some opportunity for western game companies to go that direction.

All the capital that’s been amassed in the industry is in the east. You don’t see western venture capitalists pouring a ton of money into games right now. You see companies like Nexon or Alibaba acquiring things out here. There’s been a pause in that as we want for the Chinese stock market to go back to normal, but still, I think that trend—Western companies want to go in that direction, but eastern companies are going to acquire a lot of western talent.

There’s a lot of fear about that. If you look at some other technology markets, even though the capital structure has been similar – the east has the money and the west has the innovation – that balance is still there across a lot of industries. In the semiconductor industry, Intel is still the largest chipmaker in the world, even though the Chinese government has actively plotted to create a lot of semiconductor development in China.

Question: You mentioned Fallout Shelter as an example of a game that climbed the charts and disrupted a bit. You’ve talked about Clash Royale reaching the top of the charts as well in mobile free-to-play. The strategy for launching Fallout Shelter was obviously well-conceived, and they had a good idea of how to do free-to-play right. What do you predict that free-to-play done right will look like in this coming year? What does that execution, as well as perception among audience—Is that changing? Will the west welcome free-to-play as much as the east traditionally has?

Takahashi: There is that division, still, in the acceptance of free-to-play monetization. In China, Kabam is adding a VIP system to Marvel Contest of Champions, where if you pay for a lot of stuff you have all these advantages in the game. That’s natural and accepted and even respected in China. But in the west, “pay to win” is a hated phrase. Traditional core gamers especially don’t like free-to-play tactics. You wind up with things more like Fallout Shelter, where you buy things that you can also earn in the game if you choose not to pay. The monetization you see in games like Clash of Clans has wound up being acceptable to western audiences.

I don’t know if there’s a way to hurry along those purchases. People don’t like time limits or being stalled out and making progress only if they’re buying something to accelerate their game. I do think that you have to be much more conscious of “evil” monetization tactics in the west. You have to come up with something that’s more balanced and more acceptable to players.

Coker: Fallout Shelter is an interesting one because frankly they didn’t pay much attention to monetization. Ultimately, it became a success because of their core audience and because they found a mass-market appeal to it. Did that mass-market appeal pay off more than thinking about monetization? Or did Bethesda leave money on the table by not focusing on monetization?

Takahashi: They did well with their core group of fans who hate free-to-play monetization. Todd Howard did say that they were advised by a lot of people to be aggressive on monetization, and they chose not to be because it just didn’t seem right to them. They went with what seemed right, which was kind of a “gacha” monetization where you buy a pack of random things and you get some surprises in there. Those surprises could help you in the game. You could either earn those in the game over time or just buy them outright, and if you bought them outright maybe it was more fun. It was just an option to monetize that was not aggressive. But people wanted it.

Question: Looking back on the rise and fall of Rovio, what do you think it did wrong? Do you think it’s just as simple as going too wide, as opposed to developing three or four games that are very deep?

Takahashi: It’s a tough question, why they didn’t stay at the top. They had the most successful game in the market, but it came out as a paid game. They didn’t know free-to-play. They didn’t have everything in place that they needed to do in-app purchases from the get-go. They had to learn a lot of that, and in the process of learning that they fell behind other companies.

The brand is something that’s hard to assess. It spread very quickly across the world. It became better known than a lot of other brands out there, as well-known as Mickey Mouse or something like that. But somehow that wasn’t a deep enough brand to last beyond the one interesting physics game mechanic they had. If they didn’t come up with more interesting things for people to do, more game mechanics and more ways to play, then you wind up seeing that the brand could only go so far. It wasn’t a Mickey Mouse that could last 100 years. It was a brand that would last only so long as it had a good game behind it.

They started doing all these brand-related things – movies, theme parks, T-shirts, merchandise – and that was all find. But you can’t forget about making games that can go to the top of the charts. They tried. They made a lot of games, including a lot of non-Angry Birds games. They just didn’t have lightning striking a second time.

Question: We all know that user acquisition is getting to be more and more expensive over time. The market is predicting some insane numbers. I’m curious what you can say about how developer-created communities and player-created communities are improving retention and reducing the need for paid user acquisition, or if those communities are coming into play at all.

Takahashi: If you had something like, say, Minecraft on mobile, something that was that successful on mobile first, then that would be your answer, that it is possible to do that. But I don’t know that Minecraft has had that impact on mobile. It started on the PC.

The jury is out, I’d guess. Companies like Epic are arguing that user-generated content can create spectacular results the way it has for Ark Survival. But it also seems like these things follow great content that’s created by the game designers themselves. Developers have to do their job to create the initial interest that fans have in a world. Then, later on, the fans will start wanting to build their own things in that world. Then you can update for it and that allows them to mod whatever they want. That can bring an additional life to a game that’s already popular.

Ark followed that pattern. As a game designer you have to do your job and show you can create a fascinating world and story, something compelling for gamers. Then they’ll want to mod it on their own and that will generate a lot of your user virality after that.

Question: Traditional games, the Call of Duties and Assassin’s Creeds, how do they fit in a space where VR is proliferating? Do you see VR as an expansion alongside the game market, similar to mobile, where rather than replacing traditional games it simply turned new people into gamers? Or do you see VR gaming as an evolution of triple-A gaming? And in that case, what do familiar triple-A games look like in 10 years’ time?

Takahashi: VR is a new platform and a new medium. You can do different things with it compared to consoles or PC. You have to design experiences that fit with it. The thing that VR has going for it is that there are many kinds of experiences you can only get in VR. You can feel that sense of presence, being somewhere else, in a way that you can’t just looking at your TV.

I’ve tried Gear VR on my family. The first time they tried it, you see what a joyful experience it can be for them. There mind really gets blown. “Wow, I’m really in another place.” I tried it on my then-11-year-old. She got down on her knees and started crawling around this 360 photo. I said, “What are you doing?” She says, “I’m trying to get to the water over there.” She had no idea what to expect from this experience. I tried it on three grandmothers and they each stayed in it about 20 minutes their first time.

Still, there’s this problem where, after that first joyful experience, how often will you go back to it? VR still has to provide an answer to that. Are you generating a $10 game experience, where you go to the mall and try some experience for a short time and pay $10 for that and then never try it again? Or are you creating something more like a $60 experience that you’ll come back to over and over again, or that has lots of content to enjoy?

I don’t know what the answer is yet. I hope the industry can provide bigger experiences over time. If they get there, that’s where the Call of Duties are going to fit in and provide some compelling content. There are opportunities all across the spectrum, though. As a developer you can focus on that first joyful experience and try to create a $10 experience that just amazes people. But they may lose interest after a while.

Question: If you had to make a bet on whether TVs were going to be replaced entirely by VR displays in the next 10 or 20 years, which way would you go?

Takahashi: Tim Sweeney made that prediction. He said that it’s going to happen in about 10 years, where the quality of your AR and VR goggles and glasses will be so great that it’ll be like having a 40-foot screen in front of your eyes. It’ll be a wireless experience with video coming straight to your glasses. Then you don’t need a TV or a smartphone screen or a movie theater.

Technologically, about 10 years from now is when that kind of thing becomes possible. But changing behavior is still a more challenging issue. The advent of television didn’t kill off radio. Radio found a way to survive. Screens are going to find a way to survive for social reasons, maybe. VR and AR don’t automatically do that great a job in social situations. But it’s an insightful prediction that Tim made. I’m betting that at least part of it will come true.