The gaming industry is a very risky business, just like any other entertainment industry. Generally, players have to bet on a very narrow set of products, which demand high volumes of investments. If we think it through from a project manager perspective, we have a very, very, very risky business to invest in. These companies invest mountains of money in very few products that narrow correlations between quality/sales.
The latest graphics, motion capture, and Hollywood actors for voice-overs all cost money. Trucks of money. Like films, AAA titles consume millions of dollars to be built.
Because the volume of money required to create a game is very bulk, the companies that want to create a portfolio (publishers) have to choose the projects with care and criteria. Even that, they can only concurrently create a very narrow range of games. Essentially they have to bet on very few horses to generate a very large amount of money to finance another cycle. The problem relies on the worst scenario: the current bet does not pay out. The whole company puts itself in a very dangerous financial position.
But the final analysis must consider games as art products. You cannot follow a formula to make people fall in love with your product.
Now always they pay off. The recent cases of THQ and 38 Studios illustrate this.
38 studios, the makers of the excelent Kingdoms of Amalur: Reckoning, recently bankrupted. The company took around 100 million from the government to create an AAA title, but the game, while selling well, didn’t sell the amount needed to stay afloat.
THQ invested in a few AAA titles that demanded loads of money. When the failure rate rises a bit, the whole operation starts to be financially compromised.
Homefront, unfortunately, will be remembered as the milestone for THQ’s potential fall. Unfortunately, because it was a critically acclaimed game (at least it receive good greats), due to external reasons it didn’t sell well to the point that compromised the THQ cash flow. Homefront was being considered the cash cow internally, the new IP that would generate loads of money, and safety. But the forecasts were nothing but dust.
It answers the question several gamers make: why do game makers keep building sequels? Now you know…