Sunday, February 02, 2014

21st century market failure: what the rise and fall of Guitar Hero teaches about gamification

My oldest wants to learn to play drums. Learning is difficult for him, and the Smart Music program his school uses is obviously too sophisticated. We need something simpler, something more accessible, more like a game ...

Something like the Guitar Hero music education program I remember from a few years back. Fun, teach the basics, work with our Wii ... perfect!

Ok, I'll just Google that ....

Right.

Guitar Hero is gone. There is nothing like it any more.

Why Guitar Hero died News • News • Eurogamer.net (Feb 2011)

As the dust settles on Activision's decision to put an end to its world-famous peripheral-based music franchise Guitar Hero and the difficult work of sacking those who helped create it begins, one question remains: where did it all go wrong?

Only three years ago Guitar Hero shot through the $1 billion revenue mark – in the US alone.

Now, in what can only be described as a spectacular fall from grace, Guitar Hero is no more. Why? Why did Guitar Hero die?...

... "Guitar Hero was a victim of its success," said Wedbush Securities' Michael Pachter. "The game was incredibly well-conceived, the peripherals were great, and the music offering was deep and broad. All of those factors led to unprecedented success, and each contributed to its demise."

For Pachter, the fact gamers could play new Guitar Hero games with the peripherals they already owned proved to be the killer blow.

"Once people bought the band kit, for example, they didn't feel compelled to upgrade, as the one they bought was high quality and did the job well," he said. "Once people bought a game, they had 60 - 80 songs to master, and few mastered all of the songs offered...

... "There is absolutely nothing Activision nor anyone could have done to save the music genre. We should remember Guitar Hero for what it was, not where it's at now."...

... "It is possible that Guitar Hero will return, but a re-launch would have to be managed on a far smaller scale. Production costs would have to be minimized to enable profits on unit sales in the hundreds of thousands rather than in the millions."

Pachter's conclusion? "The franchise can support sales at the $200 million level annually, so it will still generate profits, but with license fees and manufacturing costs, margins are not that great, and certainly not enough to keep 200 - 250 people employed working on a new version each year."

So to recap - about 5-6 years ago we had a mini-cultural phenom -- a low cost high fun solution for music education. The Wikipedia article on gamification is written in 2010, around the peak of the Guitar Hero story. A few years later and it's all gone - the game, the console, the hardware, everything. In 2014 some replacements may slowly emerge on the iPad, but we're basically starting over again.

What's going on here -- besides our 21st century penchant for rapid cycles of creation, destruction, and recreation?

Maybe the root problem with gamification is that education doesn't have the economics, or the life cycle, of entertainment. Entertainment has visciously short lifecycles with massive floods of money. That can bring great products out quickly, but this amphetamine fueled growth has a cost. The entertainment products wipe out the weaker educational market -- and when Guitar Hero burns out there's nothing left to replace it. The education market has to be slowly grow back -- only to be wiped out again by the next cycle of the entertainment market.

Ultimately, the entertainment bubble is destructive, and the end result is a peculiar form of market failure.

PS. Garage Band is an interesting exception. It was clearly driven by Steve Jobs passion rather than any kind of business logic. It endures as a monument to Jobs, and because Apple doesn't have to put much money into it. It works, it's done, and the Mac platform is far more stable than entertainment-oriented consoles.

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3 comments:

  1. Anonymous2/5/14, 7:06 AM

    1) Guitar Hero was actually not a very useful music education tool. It did not teach how to read music, understand music, or play any instrument. The exception is, to some extent, the drums, but Guitar Hero was very much a game and had very little educational content.

    2) The economics of Guitar Hero are peculiar. The economics of video games are basically those of most IP-based reproducible media, in which you invest capital into creating a widely reproduced media that IP allows you to sell for well above marginal cost. For various reasons this works pretty well in video games, better than music or movies, so it generally succeeds. The Guitar Hero games, though, had an unusual quirk - they were dependent on securing expensive rights to popular music. Whereas most games are designed off existing "enginges" that allow them to be produced at relatively lesser cost, the existing Guitar Hero engine was dwarfed in cost by the cost of paying recording labels for the rights to songs that were popular enough to sell the game. This was compensated for, initially, by selling peripherals necessary to play the game at extraordinary markup, but unlike the games themselves where there is always some market for new editions, the peripherals were a one-time purchase, and therefore once that well was dry, they were stuck with games whose potential profitability was being sucked away by the IP of others. That plus the recession toasted this very unusual franchise.

    A counter-example may be Civilization or SimCity, which have been a persistently and successful franchise for decades, and I'm sure have some uses for education about history, politics, governance, and economics.

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  2. beth2/7/14, 9:04 AM

    Have you considered using a person to do the teaching?

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  3. JGF2/19/14, 8:03 PM

    Great analysis sr! i did see on the GH blog that they were trying to carry on despite the high cost of the song license.

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