In 2006, after its acquisition by Activision, RedOctane dismissed Harmonix Music Systems as lead developer for the Guitar Hero brand of music games. Harmonix was then acquired by Viacom, which resulted in a bifurcation in instrument-based rhythm games. Since then, Guitar Hero (RedOctane) and Rock Band (Harmonix) have been in a neck and neck battle for dominance of the sub-genre.
For a time, both developers enjoyed a modicum of prosperity, but both brands have recently seen across the board declines in sales. Some have blamed the weak economy, while others have said that the entire Guitar Hero craze was nothing more than a fad. Neither of these explanations is adequate. Music simulation games are here to stay, but those behind the products were overly optimistic that demand would continue to increase.
In his discussion of foreign policy, Nobel prize winning economist Daniel Kahneman notes that governments “commonly overestimate their future success” when predicting the outcome of military campaigns. At the same time, they underestimate the ability of the enemy in what is known as “reactive devaluation.” Both of these concepts apply to other areas of human psychology, including investment and business decisions. It may also have played a key role in the decision of RedOctane to take the Guitar Hero brand away from Harmonix and in the decision of Viacom to launch the Rock Band brand.
In the years since the launch of the first Guitar Hero, the number of instrument simulation games has increased each year to unsupportable levels. Call it the Guitar Hero Bubble.
Number of Instrument Simulation Games Launched since 2005
As everyone knows bubbles happen when optimism causes people to invest in the stock market after long and unsustainable rallies. Investors ignore historical trends believing “this time will be different.” It happened in the 1990s DOT.COM bubble and it happened in the 2007 housing bubble. Just as investors ignored these bubbles, Viacom and Activision ignored the possibility that music games would follow the standard life cycle of new products.
A Typical Product Life Cycle
Viacom, Activision, and others clearly predicted that these games were in a prolonged growth stage as they introduced more and more games at a faster and faster pace. Nintendo fell into the same trap in the early 1990s when it began to release new Mario titles at an unsustainable pace. The resulting crash almost killed the Mario brand. Likewise, 2009 has seen a decline in across the board sales suggestive that the sub-genre has reached the maturity stage of the product life cycle (although we don’t expect to see the same kind of crash that accompanied the Mario bubble for reasons discussed at length in the book).
The above graph, published by Gamasutra shows that both major brands saw overall sales declines despite the launch of more games, including the much anticipated Beatles bundle.
Unfortunately, human psychology suggests that neither company will heed historical lessons. Instead, as Kahneman points out, leaders have an unconscious psychological bias to be overly optimistic even when faced with overwhelming evidence, resulting in an “aversion to cutting one’s losses, often compounded by wishful thinking.” For example, when asked if the market was over-saturated, Guitar Hero division president Dan Rosensweig recently stated,
All I can do is look at the numbers. At the end of 2008 — and I think at the end of 2009 — the second-largest video game category is going to be the music genre. And I think Guitar Hero could be the largest music-genre video game franchise.
The fact that Viacom continues to lose money on Rock Band may cause the company to continue releasing new titles as fast as possible in an effort to recoup losses.
One thing is certain. Neither company appears willing to accept the fact that instrument simulation games cannot continue to be released at the current rate indefinitely.
Further Reading
Kahneman, D. and Renshon, J. (2007) Why Hawks Win, Foreign Policy, pp. 34-38
Hastie, R. and Dawes, R (2001) Rational Choice in an Uncertain World: The Psychology of Judgment and Decision Making, Sage Publications
Bazerman, M. (2006) Judgment in Managerial Decision Making, Wiley
Gilovich, T. et al. (2002) Heuristics and Biases: The Psychology of Intuitive Judgment, Cambridge University Press
Prof. 
Hang on, are you compensating for the fact that we had a recession?
But, you might say, games have been less effected than most by the recession, and that these games have disproportionately suffered, compared to the average % drop.
True, but perhaps that can be covered by their reduced membership in the set of properties that make games attractive; they are perceived as a more substantial purchase, and while people will still make smaller purchases here and there, they focus away from big lump spending.
I’ve no doubt that market saturation effects exist (I can’t see people piling up six sets of drums in their front rooms), but I’m not sure whether this evidence is enough to say that we’ve reached them.
How could you compensate for the influence I mentioned? I’m sure there must be some at least approximate model for it.
Josh,
The recession is likely having some impact on overall sales, but I am looking more at overall trends. We provide a number of historical examples in the book and the pattern holds true regardless of the economic cycle. You could adjust for recession effects by weighting for the overall decline in software and peripherals sales over the same period, but I don’t think it would add any value to the discussion and might only create confusion, since it would introduce a number of questionable assumptions to the equation. Still, you make a good point that readers should consider.
You can look at all the historical examples you want of economic cycles, the problem is that this Depression is not your normal business cycle recession. Official Unemployment is currently at 10%, when you account for long term unemployment and underemployment the number is much closer to 17%. I would guess its even higher. People are saving right now, and videogames are very low on their priorities.
On the other hand, many franchises have become stale. Is there any reason to buy Madden 25010? Or Halo 20? It boggles my mind that anyone would buy a Guitar Hero game, since its been such an inferior product to Rock Band. But that is the power of brand recognition.
“… the problem is that this recession is not your normal business cycle recession …”
Fixed.
Regarding the Gamasutra graph, wouldn’t a decrease in total revenue be expected, since people would have already purchased the expensive instrument bundles?
“Once people own a music game, there is less reason to purchase another one. Each additional music game purchase becomes subject to the law of diminishing marginal utility.”
I was under the impression that selling the game, without any instruments, was more profitable? So if someone bought the Rock Band bundle and the Rock Band 2 game, Harmonix would make more money than if they bought both bundles.
Also, most importantly, do any of the sales figures take into account downloadable songs? I know Gamasutra’s chart doesn’t.
Harmonix is doing exactly what they should be doing. They are relying on more and more revenue from existing customers, and releasing new games periodically to grow their overall consumer base.
They’ve said they are building a platform, and as someone that has spent probably around $300 on Rock Band music (over a few years), I would agree.
Activision is going about it the wrong way by releasing so many games (with instrument bundles) in one year.
I think the Rock Band Network could really shift the music game genre, for the better.
Yes, this article–while broadly accurate, if not old news for those of us who follow the industry–is missing a big piece of the story by ignoring the two companies’ differing approaches. While Guitar Hero started off with the better brand recognition, the more consumer- and profit margin-friendly DLC model of MTV/Viacom/Harmonix may well mitigate the decline Wesley describes and predicts.
Great article! A few months back I posted about how I figured that Rock Band: Beatles was going to end up being the hallmark of the genre’s decline. This is probably because of just how much it costs to make (licensing the Beatles was not cheap!)
I think one thing worth noting is that not all music sim games are probably going to be affected by this. I’m sure that Lips/Karaoke Revolution/Singstar have received boosts from the proliferation of music games lately. I doubt they’re going to be going anywhere.
Interestingly enough Bobby Kotick has expressed his desire to keep pursuing the DJ Hero franchise.
Love to get your feedback on my thoughts on Beatles: http://bit.ly/BtlsRckBnd
You make some interesting points, although they are separate from the issues of marginal utility and managerial decision making that are the focus of the article.
In my view, Viacom did a commendable job promoting Rock Band Beatles. There was the media blitz at E3 with guest appearances by Ringo and Paul. There was plenty of television advertising. And on launch day, large retailers had prominent displays in all of their stores. If Paul and Ringo had gone on tour, sales might have benefited. The question is by how much?
How about this revolutionary idea? There aren’t an infinite amount of customers.
Did that blow your mind? Because all of the presumptions about “sales declining” presume that sales will continue as long as interest continues. Why on earth would that be true at all? As the people who have interest acquire the game, they certainly don’t continue to buy more copies. Their interest is maintained, but with every sale there are fewer and fewer people left who are interested and able to purchase it. A market gets saturated.
Businesses that expect their sales to continue climbing forever unless some sort of “problem” arises are simply clinically insane, and they should be committed to an asylum.
“The target market of these types of games wants simplicity and adding more features will actually have a negative effect on sales.”
yowser. this may be the single worst statement about any video game [genre] in the history of gaming. I’m thinking you just used ‘target market’ to make this part sound businessey with little to zero understanding of what the ‘target market’ is at all.
all they want is more :
– more vocal harmonies
– more complicated drums
– more songs
– more realistic guitars
for example :
http://bit.ly/4DiHkI
http://bit.ly/8dlrMc
now i don’t know what a rain stick is or why any one would want to ‘play’ one. but they’d make at least one sale i guess ( though not the point nor worth the cost ).
and the lengths people go to mod the current offerings :
http://bit.ly/6C5rBl
http://bit.ly/4u1g5q
maybe you need to watch this :
http://bit.ly/7S8QxO
before making any more blanket statements about the gaming industry…
..
There will always be a market for the types of specialized accessories and features you speak of. However, it is not a mass market.
The entire concept behind games like Guitar Hero is accessibility by people who enjoy music but may neither have the time nor talent to master a real instrument.
Ultimately, the target market is one that maximizes profit to shareholders. Overly complex controllers, rules, etc. create entry barriers to new players and limit market expansion opportunities.
Another problem is too many peripherals and add-ons. This creates confusion in the minds of many consumers, a problem commonly referred to as “the paradox of choice.” You can find more about the paradox of choice in these related articles.
http://performancetrap.org/?s=paradox
When the book is released, it will provide a far more in-depth discussion of these concepts.
Wow, there’s a lot of people running their mouths who don’t really know what they’re talking about on this page, both in the article and the comments. I’m not at liberty to site specifics, but after another year has passed, a lot of people will realize how wrong they were.
Rock Band is playing this one correctly overall. They are concentrating on releasing DLC for Rock Band 2 whereas Guitar Hero is shipping several specific band titles as well as new versions each year.
Get your game engine where you want it, then your money is made by DLC. New periphs will also sell (due to breakage mostly) but don’t underestimate the appeal for really nice fake instruments.
http://en.wikipedia.org/wiki/Bemani
Too much of a good thing? Try asking Konami about that, where in Japan they’ve done a DJ simulation, a colorful music-based button-pressing game, a guitar sim, a drum sim, a dancing sim, and a keyboard sim, and two different hand-motion music games. And all but the keyboard sim and the hand-motion games are still being made.
I hate sounding like an elitist but for the past 2 years blogs and gaming sites have been all over Guitar Hero and Rock Band like it’s something revolutionary, when this stype of stuff has been around for literally a decade overseas. America does what it does best: Takes an idea and commercializes it into oblivion.
You make a good point. In Chapter 11, titled “Guitar Hero Nation,” we discuss the various Konami products that were introduced in the late 1990s and why Konami was not able to break into the North American market.
Can you speak more on this “Mario Bubble?” Cite any sources or anything?
The Mario “bubble” is discussed in Chapter 2 of the book, titled “Nintendo’s Dark Age.” Basically it refers to the rapid expansion of the brand in the late 1980s and early 1990s, a time when Nintendo enjoyed a near monopoly in console gaming worldwide. Nintendo then made a number of serious errors that saw its market share drop off sharply against competitors, namely Sega and later Sony.
One mistake occurred when Nintendo saturated the market will ill-conceived Mario games that gave Nintendo the reputation of being an educational company that offered games for small children. By this time, the demographic had matured and Sega was able to capitalize on it with Sonic the Hedgehog.
George Harrison, Nintendo’s marketing director at the time, recognized the problem in 1994 when he said, “We got stuck with the reputation that we were the brand parents wanted their kids to have, which is the kiss of death.”
UPDATE: I recently posted an article that provides a more detailed discussion of this topic. See:
The Decline of Mario: How Nintendo Mismanaged Its Top Franchise
I’m going to talk more about Rock Band because I don’t really play Guitar Hero. Rock Band was initially a great game but they seem to be losing their focus.
Spin off titles are a bad idea, even if they do export to the main platform the way Rock Band is going about things.
It saturates the market. It caters to the artists’ ego so they will no longer accept releasing songs as mere DLC. Most importantly, it takes the choice away from the customer, who might just want a few tracks but now has to get the full game or none of the songs they wanted.
There is also a lot of talk about appealing to the casual consumer, which is fine but Rock Band seems to have alienated their hardcore player base (by softening the competitive aspect) and I think that’s hurt them. Believe it or not, star players are more inspiring than intimidating to the “newbies” so it’s a bad idea to demotivate them.
The Beatles game was not a victim of a bad economy. It was just a bad idea. The Beatles made a huge impact on popular music but they really don’t translate into good rhythm gameplay. And who was the demographic target for this game? I don’t think of console gamers when I think of Beatles fans. What could go wrong with a game that features only one band, super easy charts, and no export? It will sell because “It’s the Beatles!” No, it didn’t, because it really isn’t that simple.
Lastly, the DLC choices have been kind of bad. There have been some good releases but not enough. If it’s not the wrong artist, it’s the right artist but the wrong songs. Or too much of one artist. People say that Harmonix is giving filler to keep good songs for other releases but this is a terrible strategy. Strike while the iron is hot! Putting out DLC should be looked a lot like DJing a dance party. You want to excite the crowd and keep the floor moving. Give them a breather once in awhile but don’t play too much filler or you’ll lose momemtum and the crowd will leave for good.
Doesn’t Harmonix have some kind of royalties over the current Guitar Hero brand ? I can’t find the source, but I’m pretty sure they do. I highly doubt the revenues are really significant to cover the overall cost of Rock band, though.
The nice but weird thing in the Guitar Hero / Rock Band market evolution is that one is a “spin off” of the other.
The royalties Harmonix receives are only for the Guitar Hero games that they developed, namely I and II. They signed a contract with RedOctane that gave away most of their rights to future royalties. I believe that both companies pay royalties to Konami, which was the first company to develop the technology and which owns patents for some of the technologies employed in both games.
I’m pretty sure Harmonix have some substantial royalties over something in the current Guitar Hero franchise. I swear I read it somewhere, but of course, I can’t find it anymore. I did find something related however :
http://www.variety.com/article/VR1117982251.html?categoryid=20&cs=1
Viacom-owned Harmonix Music Systems, the developer of the first two “Guitar Hero” games and “Rock Band,” on Monday filed a lawsuit alleging that Activision owes it royalties of more than $14.5 million for “Guitar Hero III” and other spinoff products from the hit franchise