By: Laura Parker, GameSpot AU - Posted on February 5, 2010

　　Job cuts, studio closures, and loss of revenue made 2009 one of the toughest years for Australia’s game development industry. But with the worst seemingly now over and the global economy slowly gaining confidence, how will the Aussie game development industry perform in 2010? In this GameSpot AU feature, we talk to some local experts and game development studios to gauge what this year has in store for the Australian industry.

　　When it comes to sales, Australia’s local games market held its own during a tough 2010. In January last year, GfK Australia reported that local games and hardware sales had grown by 47 percent during 2008 from the previous year, generating A$1.96 billion in sales over the course of 12 months. This positive trend continued into 2010, with sales figures released earlier this month showing a growth of 4 percent in the local video game industry in 2009 compared to 2008. But while the market appeared to have endured the economic hardship of the last year without too much damage, prosperity was nowhere to be found in the local video game development industry.

　　The first studio to run into trouble was Melbourne-based Transmission Games, which was forced to lay off 28 staff members in early October 2009 following a failure to secure publisher support for one of the studio's three unannounced projects. At the time of the layoffs CEO of Transmission Mike Fegan told GameSpot AU that the economic climate had made securing new projects more difficult, despite well-received releases such as Ashes Cricket 2009 and Heroes Over Europe. However, by the end of the same month Transmission had permanently shut its doors, going into receivership and laying off the remainder of its staff.

　　Transmission Games closed down in late 2009, despite well-received releases like Heroes Over Europe.

　　The next studio to fall victim to the struggling economy was Krome Studios, Australia’s largest video game developer and one of the biggest independent studios in the world. In November 2009, Krome announced that it would be laying off an undisclosed number of employees across its three locations in Brisbane, Adelaide, and Melbourne. With more than 400 full-time employees and titles such as Star Wars: The Force Unleashed and Ty the Tasmanian Tiger under its belt, the studio’s layoffs came as a surprise to many. Krome CEO Robert Walsh told GameSpot at the time: "With declining game sales, the industry is really feeling the effects of the struggling economy. In spite of industry-wide cutbacks and Krome’s need to reduce costs, we’ve worked really hard to minimise the impact on our staff. These cuts, while incredibly difficult as they affect the coworkers we consider friends, are necessary as we position Krome for the future."

　　Finally, in December 2009, Brisbane-based Fuzzyeyes Studios revealed that it too would be laying off an undisclosed number of employees and simultaneously shifting the development of its upcoming title, Edge of Twilight, to overseas studios. In a statement to press at the time of the layoffs, Fuzzyeyes CEO Wei-Yao Lu revealed that all onsite development was suspended and that a deal to sell off portions of the company to an undisclosed third party had already been made.

　　With the world economy slowly gaining strength once more, will 2010 prove to be a better year for the Aussie game development industry? Does it have the talent and support it needs to get back on its feet?

Developers Have Their Say

　　With 2007 and 2008 emerging as strong years for the Australian development industry, analysts and developers were hopeful the trend would continue in 2009. But Australia’s reliance on US-based publishers meant this didn't happen. The global financial crisis saw US publishers take a massive share price hit, forcing them to restructure their business and put less money into overseas development. As a result, Australian dev studios began to receive less and less work, eventually leading to staff cuts and studio closures throughout the industry.

　　Australian developers rely heavily on US publishers, meaning the global financial crisis had a big impact locally.

　　President of the Game Developers Association of Australia (GDAA) and Tantalus studio CEO Tom Crago has kept a close eye on the local development industry and the changing economic landscape of the past year. He believes that while the games industry in Australia continues to remain volatile, there is hope ahead.

　　"I certainly hope things don’t get much worse," Crago said. "All we can do is wait for the industry globally to rebound, while focusing on the titles we do have in development, and thinking our way through new business models that may provide opportunities for growth.

　　"While I don’t expect that to change all that much in 2010, I’m confident we’ll see a string of quality, Australian developed games released this year. New gaming platforms like the iPhone certainly present an opportunity for startups and indie developers, and I’m really hoping that this will be the silver lining to 2009’s cloud. The prospect of a bunch of new companies forming to take advantage of this rapidly changing market is something that is very exciting. There’s no doubt we have the talent here in Australia; we just need the entrepreneurial spirit and business acumen to make a go of it."

　　Crago doesn’t think it’s healthy to focus on the lowlights of 2009, but rather celebrate the good moments in the game development industry. For him, that means award winners at the annual GDAA awards; the Game Connet: Asia Pacific conference; and indie games like Flight Control. He’s also confident there are more positive moments to come in 2010.

　　"My top five things that the Australian game development industry can look forward to are quality releases from the established companies; new releases from at least three solid startups; a thriving indie scene, producing multiple titles for digital distribution platforms; increased collaboration within the local industry, amongst both big companies and small; and at least one surprise hit (maybe another Flight Control?)."

　　Indie titles like Flight Control could take off in the current economic climate.

　　But achieving these goals won’t come easy for Australia, particularly in light of the ever-present challenges that the development industry already faces: the exchange rate that continues to hurt us, our geography and the size of our market, and the quality of work we produce with the budget we have. Crago believes that in spite of all this, overseas publishers will continue to hire Aussie developers in 2010.

　　"We have, for the most part, weathered the storm, and the quality of our work remains high," Crago said. "The publishers who have downsized their own internal development studios--and that’s most of them--will be looking increasingly to hubs like Australia, when the market rebounds."

　　And what about Crago’s own studio, Tantalus?

　　"We’ll continue our efforts on the DS, PSP, and Wii. We’re also bracing ourselves for the next generation of handhelds and are doing what we can to get ready for those. The games we’ll be shipping in 2010 have not been announced yet," he said. Click on the Next Page link to see the rest of the feature!

　　CEO of Interactive Games and Entertainment Australia Ron Curry also recognises that while the Australian games market did reasonably well against the global recession, developers in Australia have had it tough in the past year. The iGEA is an Australian industry body representing overseas publishers such as Activision, EA, and more.

　　"On the upside we have seen the Australian market remain fairly resilient this year," Curry said. "In an environment where the international markets have shown a decrease in sales against last year, Australia has held its own. Secondly, we have finally seen the Commonwealth Government take a leadership role in having a public consultation on an R18+ classification for video games.

　　"Conversely, 2009 was a tough year for developers, and we sadly saw the loss of some studios and a winding back of others. These closures saw talented Australians out of a job and trying to find employment in a very tough local environment; one that doesn’t operate on a level playing field. Unlike other territories such as Canada, the Australian government continues to resist the call for screen production incentives and producer offsets."

　　But some developers believe the global financial crisis is not the only catalyst for the downward spiral in Australia’s game development industry. George Fidler, general manager of Sega’s Brisbane-based studio Creative Assembly, says the majority of developers and publishers in the local industry have become unprofitable in the last few years. Fidler founded Creative Assembly in 2002, a few years before the studio was acquired by Sega. The studio has worked with publishers including EA, Activision, and Sega, with Rome: Total War being the most successful title Creative Assembly has developed in Australia, based on sales and review scores.

　　"Last year was the toughest year I’ve experienced since joining the industry in 1989," Fidler said. "But I don’t think we can blame it all on the global financial crisis. The fact is, many developers and publishers have made losses of a magnitude never before seen in our industry. The consequences have been huge layoffs and studio closures. For many years we considered the video games industry to be recession proof. Clearly that is no longer the case. The global financial crisis was, in my opinion, the final nail in the coffin."

　　Creative Assembly's George Fidler says the local development scene has been in trouble for some time.

　　Fidler says this can be traced to the turn of the century, when current-generation consoles became capable of producing extraordinary levels of realism. Game development costs grew as a result of this, and developers felt compelled to match and exceed current production values and game experiences in order to compete.

　　"Australia was not insulated from this trend. Most Australian developers position themselves as being great value for money, but we’ve been competing with projects whose budgets have greatly outstripped our own. Further financial pressure has also come from the strengthening Australian dollar which effectively makes us a more expensive option, when you’re spending pounds or American dollars," he said.

　　"So, competing on big-budget titles is becoming increasingly difficult, and as the major publishers continue to tighten their belts as a result of decreasing margins, this will only get worse over the coming year."

Looking Forward

　　Looking ahead, Fidler believes it’s not all bad news for Aussie developers. He says new and exciting secondary markets are emerging, which involve lower development costs and can therefore afford to attract a high degree of innovation.

　　"iPhone games, Facebook games, games for both XBLA and PSN are all examples of new and exciting opportunities for smaller development studios to innovate," Fidler said. "These new markets are characterised by relatively lower development costs, direct to consumer distribution, and higher degrees of gameplay innovation. Over the next few years we will see many more markets emerge and many more opportunities for highly creative teams to excel. There is every opportunity for Australian developers to be at the forefront of these new markets."

　　The next few years could see more opportunities for innovation and creativity in the local game development scene.

　　This thought is echoed by Kevin Chan, general manager of THQ's Melbourne studio, Blue Tongue. He believes the current economic situation has created an opportunity for smaller teams to emerge and create original and innovative games that will help grow new Australian studios.

　　"2009 was a year of ups and downs for the local industry," Chan said. "I was very sad to hear about the studios that closed, but I’m confident the talent in Australia will find new avenues to thrive. I think the increased popularity of new gaming platforms will make it possible to create projects for the iPhone with smaller teams, and the smaller budgets will mean there’s opportunity to take risks and innovate.

　　"I also think a number of indie developers will pop up. Some will grow to create larger-scale projects as the market for the smaller apps starts to saturate. I also think there will be some fantastic games coming out of the Australian studios for various platforms."

　　Blue Tongue was launched as a dev studio in 1995 by a handful of entrepreneurial graduates working out of the University of Melbourne's IT incubator program. After a slow start, Blue Tongue was acquired by publisher THQ in 2004 and now has more than 80 staff working on THQ-exclusive titles. To date, Blue Tongue has worked with such publishers as Hasbro, Vivendi Universal, and Konami. The studio's biggest game to date has been the critically acclaimed de Blob, winning five of the nine categories at 2008’s GDAA Industry Awards (Best Game, Best Console Title, Best Gameplay, Best Graphics, and Best Audio).

　　De Blob proved to be a very popular game for Aussie studio Blue Tongue.

　　According to Chan, the Australian government could do a lot more to nurture local game development talent.

　　"To keep projects in Australia and nurture the local talent pool, our government could look into offering tax and other benefits similar to countries like Canada and Singapore. Besides that, local studios need to continue raising their profile as high-quality developers and create original IP that gamers fall in love with. For teams working with publishers, this strengthens reasons for publishers to continue working with us. For teams going the digital distribution route, this is important for establishing relationships with the end users. These are items that the industry has been aware of and have been working to address. I think we’ll continue to make progress through 2010," he said.

　　In the meantime, Chan and his team are making their own preparations for the year ahead. While hesitant to reveal anything just yet, Chan says Blue Tongue is currently working on two projects which should keep the studio busy.

　　"We have a few projects in production. The games are looking great, and I can’t wait for people to play them. We’re excited about both projects, and it’s going to be a busy year. We’re planning some slow growth to ensure we have enough hands to complete these projects," he said. Do you think the Australian games industry will have a positive 2010? Or will we see more job losses and studio closures this year? Leave us your comments below!