MGSV’s Struggle to Profit Shows Why Konami Is Moving Away From AAA Development

Since Konami began shifting away from AAA game development, many gamers have been in uproar. The publisher once known for its extensive gamer-centric line-up redirected its attention toward mobile gaming, leaving behind dozens of great IPs and an unfinished release of its last big project, Metal Gear Solid V: The Phantom Pain.

Even with months having passed, many gamers struggle to understand what Konami is doing. It's only when you look at the trends and numbers that the unfortunate sequence of events begins to make sense.

 

Game Development Isn't a Charity

Gamers often misconstrue the intentions of a publisher. While, yes, they want the games they publish to be received in a positive manner, that's only in the interest of making money.

Konami is just one example of a publisher with a lot of money on the line. As with any public company, the core focus of its executive cast is to grow the company and satisfy shareholders. When performing well, it's able to increase in value, hire additional employees, and work on more projects simultaneously. When it's in the red, as it has been for a few years, job insecurity infiltrates the work environment.

The last few years haven't worked for Konami, and it'd be unfair to say that it didn't try. It spent tens of millions of dollars funding MGSV: The Phantom Pain's development as well as its all-new Fox Engine. It rebooted Castlevania to bring it up to modern times, earning acclaim in the process. It even established a yearly franchise that earns high marks among soccer fans in the form of Pro Evolution Soccer. 

Unfortunately, these games didn't bring in as much money as Konami hoped for. Shareholders asked for dramatic change, and it happened.

Game Sales Aren't As Profitable As You'd Think

MGSV: The Phantom Pain is confirmed to have sold three million units. To the average spectator that number may seem to be enough to break even on development costs, but the reality is it doesn't even come close.

MGSV: The Phantom Pain is a game that cost, at the bare minimum, $80 million to create. The truth is that game releases are much more complicated than just making a game and then tossing it onto store shelves. Konami had to account for many different costs, some of which reside on the supply chain, others come at the expense of the marketing necessary to create product awareness. With these elements factored it wouldn't be surprising if the game and its release has cost anywhere between $100 and $120 million.

Making a profit on a game that cost $100 million to make is a major deal. The publisher makes less than 50% on each physical game sale, meaning that when a game disc is sold at $60, a company like Konami will only receive around $25 to $28. The rest of the money goes to the retailer, distribution, platform royalties, and more.

With these numbers in mind, you can safely say that MGSV: The Phantom Pain will have to move anywhere between five to six million units to break even. Considering that a sizeable portion of game sales come within the first month, and the game is only edging above the three million mark at this point, it has a long road to profitability ahead.

Mobile Is Where The Money's At

If this were 10 years ago, Konami wouldn't have many options for how to make its business model sustainable. But this is 2015, a time in which mobile gaming makes more revenue than consoles, and at far less risk. Anyone who is watching the trends and follows the path of least resistance has every reason to make the transition to mobile.

The appeal of mobile gaming from a publisher perspective is quite simple. Mobile revenues are on the rise, reported to be at above $20 billion in 2014, and estimated to surpass $35 billion by 2017. This is led by games with shorter development cycles that in virtually every case don't come even close to costing $80 million to develop. With a massive install base to reach that has a wide variety of tastes, it's a huge opportunity for publishers and developers alike.

Meanwhile, AAA game development is becoming less attractive with time. Any game that doesn't meet the remarkably high presentation and gameplay standards of today's gamers has almost no chance at making a modest profit. Some of the greatest developers in history have fallen off as the industry shifts toward a focus on risk-adverse annual releases (i.e. Call of Duty, Madden NFL, and Assassin's Creed) and first-party exclusives (i.e. Halo 5: Guardians, Super Mario Maker, and Uncharted 4: A Thief's End) that are used to push hardware.

With all this in mind, it's understandable that a struggling corporation like Konami would alter its business strategy in such a dramatic manner. Sure, it's painful to know that Silent Hills was killed along the way, and that things will never be the same, but the outcome is a lot better than having more than 5,000 individuals out of a job.

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