By Columnist
updated 6/2/2005 1:00:03 PM ET 2005-06-02T17:00:03

The weeks following E3 are traditionally the quietest in the video game business as developers take a rest before the inevitable holiday grind and industry analysts begin the process of separating the news from the noise.

Everyone and their grandmother should know by now that Sony's PlayStation 3 and Microsoft's Xbox 360 promise artistic and techical innovation in game play complete with HDTV compatibility, surround sound and broadband connectivity.

Almost lost in the hoopla is the belief shared by game industry leaders that making games for the next generation consoles will require more people, more time and more money. 

"Our aim towards reality or hyper-reality is putting pressure on the size of development teams," said Scott Steinberg, Sega's vice president of entertainment marketing.  "The big titles, those with a more epic scale are going to cost a lot more to make."

And more to purchase.  The game retailer EBGames already has a list of Xbox 360 games listed on their site retailing for $59.99.  That's $5 to $10 more than new titles released for the current Xbox.

Today console games production and marketing costs often soar past the five million dollar mark with some big budget games exceeding $8 million.  With games for the Xbox 360 and PS3 expected to demand larger teams, production costs for some games could double or worse.

"Imagine that bell curve where going from preproduction work to actual development leads to a bubbling up in cost and manpower," Steinberg explained.  "Now with the new consoles you're going to see that peak in the curve double in height."

Sega was one of a handful of publishers at E3 showing off games for the Xbox 360; "Condemned: Criminal Origins" a bloody single-player sleuth game and a racing game called "Full Auto."

Although still in their alpha stages, both games demonstrated the capabilities of the next generation.  They still looked expensive.

"There are tools and techniques that help simply with the spade work but the rule is go bigger or go home," Steinberg said.  "If companies aren’t as well capitalized like Sega and EA they may not make it."

For the short term it appears that certain big publishers will become even bigger winners. 

"I think by this part of the cycle in the next generation of consoles there will be fewer big companies making video games," said Neil Young, vice president and general manager at California-based Electronic Arts.

Electronic Arts, owner of one of the largest — and definitely the loudest — E3 booth, is positioned to dominate no matter which console consumers eventually choose.

Electronic Arts publishes much of the gaming software that runs on consoles.  Games like the popular football series "Madden NFL," the war-gaming "Medal of Honor" series and "The Sims."  Three of the top 10 video games sold during the first quarter of 2005 belonged to Electronic Arts.

EA also has the benefit of funding studios around the world where technologies developed for one title — say, for example, new physics for controlling a hovercraft — could be built into another; negating the cost of building it from scratch.

Having studios worldwide also have the benefit of another potential barrier against prohibitively expensive next generation game development: inexpensive overseas game development.

"There's no reason why something developed in China couldn't be used here," Young said. 

Accessing qualified (and cheap) overseas development will likely be a determining factor for surviving development cost increases.

Jay Cohen, the vice president of publishing at game publisher Ubisoft described to a development studio matrix spread across the world from California to Canada and beyond into China.

"We have people literally working around the clock in different time zones," he said.

All this talk of increased development costs leaves open the question of what will happen to the mid-size and small game developers and publishers.

Speaking to a group of reporters at E3, Doug Lowenstein expressed a necessary, if fuzzy, desire to find new ways to finance game development.

"Where's the money going to come from?" he asked.

Where indeed?  Are we going to see mid-size companies forced into the ditch by the costs associated with creating games for the next generation consoles? 

This questions have been rattling around in my head since the close of E3. 

Sega's Steinberg dipped into a little gaming history to try to ease my fears.  "Back when the PlayStation 2 came out I thought we’d see decrease in the number of PS2 game developers because PS One games were so much easier and cheaper to develop."

Yes, with a few notable exceptions many game publishers and developers managed to ride that wave.  And it's a given that the more ingenious companies will find methods to offset next generation development costs by becoming more efficient (or die trying).

But back in the PS One days I also remember games costing $25 brand new.  Those days are long gone.

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