Reflecting on the Risk and Reward of Investing in New Game IPs

In the video game industry, where financial success is often tied to established franchises, investing in new and emerging intellectual properties can be a daunting task. As development budgets escalate, so do expectations, making it increasingly difficult for original games to stand out. Despite this, some new titles, such as Helldivers 2 and Palworld, have managed to achieve fame and success, while others, like Immortals of Avenum, have struggled, leading to significant setbacks for their developers. Acquiring existing franchises can also be a gamble, as seen in Embracer's recent restructuring efforts. Saber Interactive CEO Matthew Karch highlights the importance of creating engaging entertainment at an affordable price, citing the upcoming release of Warhammer 40,000: Space Marine 2 as a prime example. To better understand the current state of the gaming industry, we spoke with Mike Fischer, the former CEO of Square Enix of America, who has experience working with both established and new IPs. Fischer now works as a professor of Interactive Media at USC, where he teaches game developers the business fundamentals necessary for success. He emphasizes the need for creators to balance their vision with market opportunity, ensuring that their games can reach their full potential. The intersection of market demand and developer vision is evident in the success of Palworld, which has attracted over 25 million players in a month by catering to a mix of popular niches. However, building something new at this scale, especially within an established studio, can be challenging. Fischer recalls his time at Square Enix, where he encountered friction when trying to publish experimental games, citing the example of Quantum Conundrum, a puzzle game that received positive reviews but was only partially released. Today, subscription services like Game Pass and PlayStation Plus have become crucial discovery avenues for emerging IPs, allowing games to reach a wider audience without the need for massive marketing campaigns. Fischer points to Squanch Games' High on Life as a success story, which found success through subscription services, and notes that these platforms can help middle-tier games, which are neither small indie projects nor AAA titles with massive budgets, gain traction. As a professor, Fischer focuses on teaching game developers the business skills required to succeed, stressing that understanding the industry's dynamics is essential for achieving creative potential. He draws parallels with the art world, where renowned artists like Van Gogh and Rembrandt struggled due to a lack of business acumen. The current state of the gaming industry, with its string of layoffs and closures, underscores the importance of sustainable business practices. Fischer concludes by quoting a Kazakhstan developer, who likened game development to cooking pancakes - even if the first attempt is not perfect, one can learn from it and build upon that foundation, emphasizing the need for perseverance and adaptability in the industry.