(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Dominic Elliott
LONDON, Sept 18 (Reuters Breakingviews) - The fifth edition of Grand Theft Auto exposes the brutal economics of blockbuster video games. Technological advances mean games have grown ever more complex, turning the industry into an electronic Hollywood. The latest instalment of the gangland series, set in a warped version of Los Angeles, took five years to produce and may end up costing $250 million including marketing, according to analysts.
Creating a top video game now takes many months and involves armies of actors and designers, not just programmers. The biggest titles cost as much to produce as the priciest films - Activision Blizzard's Call of Duty: Black Ops 2, cost $350 million. That in turn breeds caution, meaning as with the film studios, sequels are preferred over untested new formats. Call of Duty has gone through nine iterations.
On top of this comes technological risk. Developing for multiple consoles adds extra costs. Consumers might shun a platform or switch to playing cheaper games on tablets or mobiles. Meanwhile, an alternative group of "casual gaming" companies, such as Facebook specialist Zynga or British upstart King, turn out far cheaper and simpler games for a much wider audience.
In between are squeezed smaller players, who cannot afford the huge upfront investment for a console smash. Britain's Blitz and U.S. publisher THQ are recent casualties. There are fewer obvious examples of titles bombing as badly as films like Disney's flop John Carter, but that risk surrounds even the biggest developers, such as Electronic Arts or Activision.
For the moment, things look good for Take-Two. Wedbush Securities, another brokerage, reckons GTA 5 could ultimately make it as much as $1 billion in revenue. That's quite a few car heists worth of cash. And the new generation of consoles from Microsoft, Sony and Nintendo could be good for future demand.
Still, compared to films, music and books, this is an extreme example of a hit-driven industry. The lumpiness of profits and the risks of getting a game wrong are certainly not for all investors. As with the big scores pursued by GTA's crooked protagonists, there are huge potential payoffs - but big risks too.
- Rockstar Games, a unit of Take-Two Interactive Software, launched "Grand Theft Auto V" on Sept. 17 for use on Sony's Playstation 3 and Microsoft's Xbox 360 gaming consoles. Rockstar aims to release a separate online Grand Theft Auto game next month.
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(Editing by Quentin Webb and Martin Langfield)