InstantAction CEO: Game retail 'headed for a disaster'

InstantAction CEO Louis Castle is a big fan of "the kind of big, complicated games that cost a lot of money to make," he says. But he left a job making just those kinds of games at EA's Los Angeles studio in order to focus on finding "a new way to get the money needed to make those games." Without such a solution, Castle says we're "headed for a disaster in the retail space."

The core cause of this impending disaster, Castle argued in a keynote presentation at the Develop Conference in Brighton today, is the big-budget, hit-driven focus that has overtaken the industry. This mentality has made it hard to make a game with a budget of less than $20 million and hard to profit on a game that doesn't hit the top 20, Castle said. "Really, we're becoming the worst of what Hollywood did become at one point before the independent film festivals and such," he said.

Luckily, Castle said, the internet can provide the disruption that will save the industry from the retail realities and rampant piracy that are squeezing it. But it will take more than direct download services like Steam and Direct2Drive -- while they're more convenient than brick-and-mortar stores, they're still running on a fundamentally flawed buy-before-you-try model, Castle said. Ad- and subscription-based portals from the likes of Yahoo and Pogo didn't disrupt the market enough either, Castle said, because the advertising costs to get new users eventually overwhelmed the benefits. Streaming services like OnLive and Gaikai have the potential to really shake things up, but for most users "the technology just isn't there yet."

The real future for AAA game distribution, Castle said, can be seen in social networks like Facebook and MySpace. This model works because quality games can spread quickly and cheaply, and, crucially, users can sample games before deciding whether they're worth investing money in for a longer term experience. "This is what our industry will look like," he said. "It may not be exactly like this, and it may not be on Facebook, but it will be this."

There are barriers to transitioning to this new model, Castle warned. Schedules and budgets for big-name games are already stretched tight, so any new distribution solution that requires developers to spend more time porting a game is a non-starter. Publishers also risk losing potential customers to piracy and even browser plug-ins, which scare off many players before they even get to try a game.

But the most contentious threat to the game industry Castle mentioned in his talk was used game sales, which he called "parasitic." Castle didn't blame customers for choosing used games that provide largely the same experience for $10 less than a new game. Instead, he suggested developers focus on games like Red Dead Redemption and the the Elder Scrolls games that users want to hold on to longer.

But one member of the audience, a GameStop executive, took exception with the idea that his company was part of the problem. He argued that without high-margin used game sales, GameStop would be out of business and the game industry would be forced to deal with Walmart near-exclusively. "Good luck with that," he added.

But Castle didn't back down, arguing that brick and mortar retail stores have to become more boutique-oriented and provide actual valuable recommendations if they want to survive. "I can see the train wreck ... it's coming. The path we're on, it's not going to work for you, it's not going to work for us," he said.