Games publishers are gradually losing their mojo

Similarly to music labels, games publishers 20 years ago had a bona fide hit-making capability. For music, this was the combination of funding, marketing, and an exclusive network to ‘make things happen’ (e.g., getting radio plays, the right gigs, sync, etc.). The star-making power had been significantly diluted by the advent of streaming, the accessibility of DIY publishing, and the lowering of barriers to entry for music making through the rise of increasingly simple-to-use and affordable music creator tools.

At the time, games publishers had a similarly important role – sourcing funding, handling marketing, distribution, feedback loops, and more. While a lot of that power remains with games publishers today (compared to music labels), there are potential similarities in the direction of travel regarding the value that traditional games publishers will continue to bring in the future.

Added value of games publishers is diminishing as the games industry’s value chain dynamics evolve

Twenty years ago, when the games industry was driven by the unit sales model, games publishers’ added value was unquestionable. However, with the games industry gradually migrating toward an engagement-based model, their added value is diminishing. Here is why:

• Physical distribution will become less important: Though physical retail still accounts for an important part of the games industry’s revenue; the direction of travel will likely be away from brick-and-mortar and towards digital distribution.

• Digital distribution is concentrated among a handful of key players: This makes the distribution aspect of a publisher much less complicated, potentially opening doors to more self-published titles. Key platforms such as Xbox and PlayStation, Steam, Epic Games Store, and a handful of others already enable this.

• Time spent creates more internal competition in a publisher’s portfolio: Under the traditional unit sales based model, the only cannibalisation publishers had to worry about was negated by ensuring a staggered approach to launches. The most important revenue generator for traditional games releases used to be the period around the launch. However, in the time-spent dependent business model of today, games need to be actively pursuing consumers’ limited time continuously. This means that a publisher’s third-party portfolio is in gradually increasing competition with itself. The larger the share of live service games, the more impactful this dynamic will become. Ultimately, this will negatively affect the developers’ incentive to partner with third-party publishers. 

• Alternative routes to funding are more available: Funding in general (current high interest rates aside) has become more accessible since the turn of the century, be it through the rise of venture capital (VCs), games funds, or crowd-funding opportunities. As a result, developers are increasingly able to self-publish.

• Successful digital marketing is more attainable: Twenty years ago, handling the marketing of a title was much more complicated than it is today, logistically speaking. Though there is still a big difference between DYI and top class professional marketing, games developers can utilise a plethora of platforms to find audiences effectively and leverage affordable marketing tools to help them reach their goals. Marketing is not easy, however. Alongside funding, it is probably the key remaining pillar of traditional games publishers’ value. However, the direction of travel in terms of marketing accessibility is also playing against the value a traditional games publisher can bring to the table in the mid-long term.

So, what is next?

The publisher landscape will likely consolidate. What used to be thought as a role of the publisher will increasingly become divided between those leading digital distribution and developers self-publishing. Indeed, 2023 has already seen companies (e.g. Take-Two) downsizing their publishing operations and there will likely be more to come. Games publishers need to start rethinking their value proposition to developers if they are to stay relevant and avoid seeing their margins squeezed in the mid-to-long-term.