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Last Updated: Thursday, 17 November 2005, 11:11 GMT
Cost of making games set to soar
Microsoft's Xbox 360
Next-generation games could prove costly for developers and gamers
The cost of developing games for the next generation of consoles will soar, analysts predict.

The current cost of console games development is between $3m (1.7m) and $6m (3.4m) per title.

This could rise to $10m (5.7m) for games for forthcoming games consoles from Microsoft, Sony and Nintendo, according to a report from research firm Screen Digest.

In some cases costs could even rise as high as $20m (11.5m), it warned.

High costs coupled with the risk of games flopping mean developers are likely to focus on fewer and higher quality titles in future.

It is likely to have a knock-on effect on the cost of buying games, said Screen Digest chief analyst Ben Keen.

The current average cost of an Xbox game is around 23 and this will rise to around 38, he said.

The new machine from Microsoft, the Xbox 360, is due to go on sale in the US on 22 November, with Europe and Japan following shortly afterwards.

Licensing costs

In the brave new world of games development, it will be the large American publishers that will be best placed and most capable of success, according to the report.

Screen grab from Madden NFL 2005
Games that rely on licensed content are safe bets
There could be fewer profitable titles. The top 10 publishers produce around 300 titles each year, most of which are profitable. This could fall as low as 80, the report said.

Games that are based on content owned by others such as movie studios or are sports based have traditionally been a safer bet for developers than original content titles which have either sold extremely well or flopped completely.

According to Screen Digest, games using third-party intellectual property (IP), such as Madden NFL 2005, have sold nearly a quarter more units than original titles.

But in the list of the top 40 best-selling games ever, only eight are non-original games.

Buying in content is likely to get more expensive as owners of IP learn that their material is valuable and charge more in licensing costs.

"It will be down to games firms to strike a balance between mitigating their risks by buying in content and making their own original stuff," said Mr Keen.

The report predicts that while 2005 will be a flat year for games developers, the arrival of the next generation consoles from Microsoft, Sony and Nintendo will herald a period of growth.

Over the next four years, it forecasted the games industry would grow by 10%.

The online PC games market is expected to exceed $2bn by 2007, with mobile and other distribution platforms boosting incomes.

As well as creating innovative games though, firms must also keep an eye on the more down-to-earth realities of business strategy.

"Games companies must complement their formidable creative and technological achievements with strong business planning and analysis in order to reap the benefits of the next phase of console market growth," said report author Marc de Gentile-Williams.


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