Gaming industry is "high risk, high reward"

Just over ten years ago, Final Fantasy VII's release was hyped with a marketing campaign that promised a "multi-million dollar production". Nowadays, pumping stacks of cash into development is a given if you expect to break even on an investment and get a foothold among other next-generation mainstays, the BBC reports. Though the gaming industry is booming in every major region, "production costs have tripled in recent years with the introduction of next-gen consoles, [and] sales and revenue have hardly changed."

The average cost of production for a mainstream PS3 release is $15 million; most of that money is funneled into living up to modern graphics standards, hiring the teams and licensing the tools necessary to craft a visual feast for the eyes. As production costs soar, profit margins remain brutally tight, turning the joyful holiday season into a make-or-break period for many companies.

Those companies who find success in creating the Next Big Thing, however, stand to benefit from game development's peculiar business model in which most of the seed money is wrapped up in research and development. "The key feature in all of these digital goods is that they are expensive to create in the first instance, hence the heavy research and development outlay," says Professor Danny Quah of the London School of Economics. "But subsequently they are practically costless to reproduce in billions and billions of copies."

This model isn't without alternatives, as demonstrated by the surge of downloadable content and the strength of the casual gaming market through the last few years. Creating cutting-edge graphics for the latest PS3 and 360 titles might put a tight financial bind on developers, but new audiences cutting their teeth on the Wii and Peggle don't place the same premium on visuals as hardcore players do. A renewed focus on accessibility might relieve a bit of pressure on developers, but it might not be enough to mute their push for that "wow" factor that plays such an expensive part in a game's creation.