Video Game Bankruptcy Then and Now

The recent demise of Curt Schilling's 38 Studios, developer of Kingdoms of Amalur: Reckoning, was really no surprise when it happened in June, following a substantial staff layoff in May, following a minimal-content "trailer" released for the company's planned MMO Project Copernicus.

I've just been catching up on the circumstances, and thinking about the mid-1980s industry crash, when many companies were forced into bankruptcy as retailer skittishness and customer boredom caused the U.S. industry to implode in short order.  Some products and intellectual property switched hands, like Imagic's titles which were acquired by Activision; others basically vanished into obscure asset pools, making it difficult to track down the rights should anyone hope to produce a remake or sequel today.  Everything happened so quickly that most publishers either folded or got out of the video game business, moving into home computer software or refocusing on existing lines of business; Quaker Oats doubtless lost money on its U.S. Games division, but the breakfast market remains viable to this very day.

38 Studios' wind-down is quite a bit different from the general situation circa 1983.  While some creditors and employees are still owed money while the bankruptcy gets sorted out, and may never get paid in full, the studio's failure isn't a bellwether for the industry as a whole.  And a rival studio reportedly held a job fair next door to its offices, snatching up talent,so the human impact is mitigated.

Today's industry has seen a bit of a slowdown -- we're in the tail-end of a console generation, and the global economy has not been great for a few years.  But why did 38 Studios go under?  Business is always complicated, but my guess would be that Kingdoms of Amalur: Reckoning simply failed to earn its investment back, and that the studio's executives could see failure looming even as the next game took shape.  A new developer, even one backed by a deep-pocketed entrepreneur like former star pitcher Schilling, takes a big risk when it develops any new game.  And a big-budget AAA title like Kingdoms of Amalur would have had to be a monster hit to justify the investment, with a scenario developed by author R.A. Salvatore for a reported fee of $1.7 million, and art design by Spawn creator Todd Macfarlane.  It's not unusual for a new game to cost tens of millions to develop -- but those blockbusters generally come from well-established developers and publishers with many irons in the fire, and not from ambitious startups with one or two products in the works.

By all accounts, 38 Studios' output was of high quality, and their debut title featured a deep storyline, well-written dialogue and imaginative character design; the game earned a respectable Metacritic score of 81.  Nobody on the team was slacking, and had KoA: Reckoning been successful there certainly would have been solid, improved sequels in the pipeline.  But there's a reason creative projects need budgets and producers willing to enforce them -- if all the financial eggs are in one basket and that game isn't a big hit, then it's all over.  Running into a competitive brick wall like Elder Scrolls V: Skyrim certainly didn't help; even though it preceded Kingdoms of Amalur's release by three months, it's still selling well at full price some seven months later, and with literally hundreds of gameplay hours on offer, many RPG fans could scarcely be bothered to consider the new kid on the block. 

It will be interesting to see if anyone acquires the Amalur intellectual property -- the universe is well-defined and gorgeous to look at, and if 38 Studios had had the chance to amortize that investment over a longer series of games they might have survived.  But, as I'm sure Mr. Schilling knows, sometimes a swing for the fences is less effective than a well-targeted bunt.