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TOKYO – I’m third-generation Japanese-American. My grandparents came from Japan as farmers about 100 years ago. I considered it an honor to be able to speak at three events in Japan about my 20 years of experience covering games.
The best part of my job is traveling and talking to people from the game industry and listening to their wisdom, what inspires them, why they do what they do. These journeys have taken me across the globe, and so on my first trip to Japan in 24 years, I spoke on the topic of how I believe “the gaming world is flat, but you can tilt it in your direction.”
I borrowed the title from Thomas Friedman, the New York Times columnist, who wrote The World is Flat. The idea is basically that nobody has an advantage over anybody else anymore. The playing field is level. It’s flat. It’s based on things like merit and ability, and the access to information through the internet.
Competition has become global. Or you can think of it as competitive between countries or game companies, but as long as the game industry is growing it’s not a zero-sum game. If you’re not sure what a “non-zero-sum game” is, you should see the movie Arrival, an excellent movie I just saw. They explain that concept of the “win win” very well. Here are the slides from my talk to go with the words below.
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What Siberia tells us
As I said, you can make a game anywhere now. The proof is these two brothers here, from Siberia. They grew up in the cold in Yakutsk. It was too cold for them to go outside and play, so they had to play indoors. They played video games. Soon enough they started teaching themselves how to make games, the technology behind games. They were self-taught. By the time they made their 15th game, they had a hit hidden-object game that a Swedish company published. It was downloaded 30 million. They employ 100 people in Siberia.
This is proof, I think, that the world is flat when it comes to making games. Mobile, when it exploded with the rise of the iPhone and other smartphones, helped spread out the game industry throughout the world. It globalized the game industry in a way that nothing had before. The audience is now in excess of a billion people. You can make a game with 10 people. It’s sort of the fable of the mobile game industry, that we’ve all learned over the last few years.
Tilting the playing board in your favor
But you can tilt the odds in your region’s favor. Some regions are known for having a strong foundation in the game industry. They have their advantages, like a very deep history, going back to the very beginning of games over the decades. I recently interviewed a woman named Theresa Duringer. She’s a second-generation game developer in San Francisco. Her mother was one of the original developers for Electronic Arts. She grew up playing games. Theresa has a board-game night every week at her home. She’s someone who is born and bred to make games. You don’t have that kind of person growing up in every part of the world yet. It’s only possible in some regions that have a deep history with a culture of playing and then developing games.
It helps to have related industries. Los Angeles game companies have the advantage of being close to Hollywood movie studios. A lot of those Hollywood giants own their own game studios, like Warner Bros. and Lion’s Gate. They’re thriving because of the close association between games and movies.
The relationship between tech, games, and entertainment
I’ve been writing a lot lately about what I call an accelerating inspiration cycle between science fiction and technology and games. I think that’s only going to get faster. The disconnect between these three usually different fields is disappearing. Science fiction used to give us things like ray guns and flying cars. Now it’s giving us artificial intelligence and self-driving cars. These things are actually being worked on in Silicon Valley by many of the tech companies. The wall between science fiction and technology has disappeared in some ways.
I can bring up two examples of that. I recently did an interview with the CEO of Nvidia. He’s shifted his company’s focus from graphics chips to A.I., to making the technology for self-driving cars and other things like that. I said, “It sounds like you guys are really going science fiction.” He said, “I don’t watch so much science fiction anymore because I am science fiction. The things we’re doing in our R&D labs are on the cutting edge of the imagination.”
Another example was with Masayoshi Son, the CEO of Softbank here in Japan. He recently came to Silicon Valley to talk about the acquisition of ARM. His firm bought ARM, a chip designer, for $32 billion. ARM chips are in most of the cell phones in the world, for example. Masayoshi had a breakfast with the press where he talked about why he did this. He actually sold off Supercell, for a $10 billion valuation, to Tencent, and he sold his interest in Gung Ho as well. He said he didn’t want to get rid of those companies, but he needed the money to buy ARM. The reason he bought ARM, he said, was because of the Singularity.
The Singularity is a concept that different people like Ray Kurzweil and the science fiction writer Vernor Vinge came up with a long time ago, predicting that artificial intelligence would one day surpass the collective intelligence of humans. Masayoshi Son believes that this is going to happen in the next 30 years. He bought ARM in order to prepare himself for that. He’s also raising a $100 billion investment fund with the Saudis because he wants to invest for the singularity.
That may sound absolutely crazy on a lot of levels. But he’s thinking about it already. He was saying that yes, in some ways it could be dangerous. A.I. could be a threat to humans. But he also said that fire was a threat to humans. It also gave a lot of good things. He thinks that we’re going to have benefits like self-driving cars and whatever else if the singularity happens.
Again, the walls are coming down between tech and sci-fi. As far as games go, we can see it in games like Watch Dogs 2 and Deus Ex: Mankind Divided. The themes in those games are closely connected to what’s actually possible in the real world. In Watch Dogs 2, the theme is about hacking a smart city. Deus Ex is about human augmentation. They’re set in the near future, and they’re basically taking inspiration from the headlines of today — about hacking, about artificial limbs — things that are real. In fact, you can take an arm from the main character in Deus Ex and, through a company called Open Bionics, 3D print that arm and use it as your own real prosthetic. It’s decorated in the same way as the character’s arm in the game. The walls are coming down between these industries. That’s going to be important for the inspiration behind video games for a long time to come.
Your region, of course, gets a lot stronger if you have a gaming hub, with many companies that give birth to startups or spinoffs and keep everything going. Japan has such a rich culture in video games compared to someplace like India. You can easily understand why India hasn’t been a hub for games yet because people there aren’t growing up playing video games.
Having that history is a strong way to succeed. Silicon Valley goes back to the 1940s, with Atari and homebrew computer clubs. Games have a history in Silicon Valley going back to the 1970s. Japan is strong with companies like Sony, Nintendo, and Sega. One of the more interesting ones here is the Demo Scene in Helsinki, which started in the 1990s. You might think that Nokia was the source of the mobile game expertise and mobile technology expertise of the Finns, but it goes back farther than that, to a club that they formed among hackers who really just wanted to learn how to do things. They started making games back then when nobody cared about mobile devices. Eventually that gave birth to companies like Rovio and Supercell and games like Angry Birds and Clash of Clans.
These games don’t just happen. The world is flat, in some sense. Mobile games can be made everywhere. But it’s not a surprise to see those particular games being made in areas where the expertise goes back for decades. Id Software made Dallas into the capital of first-person shooters, a sort of dubious title to have, I suppose. 3D animation software companies like SoftImage in the 1980s set Montreal on the right track. You need these different ingredients to get a region off on the right track.
Here’s a bunch of those ingredients. It’s easy to underestimate the value of being a region where people play a lot of games, but this cultural engagement is very important. Leadership is also very important — people who have foresight like David Packard and Bill Hewlett back in the 1940s. They worked for Stanford University to groom it as a first-class technology university so they could get enough employees to start Hewlett-Packard. Specialization is something I’ll talk about more later. Financial support in the form of venture capitalists. And international talent. Does your country or your region attract people from other countries because they want to work at the companies you’ve created?
Another good example of a zero-sum game here is Silicon Valley versus Boston. This is something AnnaLee Saxenian, a professor at UC Berkeley, studied in a book called Regional Advantage: Culture and Competition in Silicon Valley and Route 128. She found that Silicon Valley beat Boston, in a way, because it was more open. It embraced a more open approach to companies and industry. In Boston you had vertically integrated companies like Data General and Digital Equipment Corporation. They tried to do everything themselves, everything from designing chips to making the software that ran on their minicomputers. When the PC era came along, they weren’t flexible enough to move fast. Intel and Microsoft specialized in doing one thing well — making chips or making operating systems.
We all know that history, how Silicon Valley won. Everything was there — venture capitalists, startups, the ability to fund dozens of chip companies or hardware companies to move into the space with enough speed. But we can find another interesting lesson there about the origins of the platform owners and where they happened to grow up. Seattle is strong because of Bill Gates. Intel is strong because of Gordon Moore and Andy Grove, where they lived. That heritage continues. The bay area as a region is strong because of companies like Oculus, Facebook, Google, Apple, and Intel. Like Microsoft and Intel in the PC platform era, these companies are platform owners who have handled the platform changes and business model changes well.
Shervin Pishevar created SGN in Maryland. In the early days of Facebook and the Facebook Canvas platform, he moved his company from Maryland to Palo Alto so he could be close to where Facebook was. That turned out to be an advantage.
The U.S. game industry is not measured that well. But once in a while they measure how big the U.S. game industry is. This data is from a few years ago, collected by the Entertainment Software Association, but it points out that it’s a pretty big industry. With more than 500 games companies in California alone, that’s many times bigger than some countries have. 150,000 jobs high-value jobs are helping the U.S. economy grow faster.
Some of the facts about the largest public game companies in 2014 are also interesting. China’s Tencent was number one. But again, we have platform owners in the form of Sony, Microsoft, Apple, Google, and Nintendo on that list. The biggest game companies are the ones that also own the platforms. If your region has a platform, your region can control its destiny in games.
This industry would be very boring to write about if nothing changed. What I find very fun about it, just about every day, is that I always see something new. Games are growing across the $100 billion mark. Supercell, with just 200 employees, is valued at $10 billion. Ubisoft, with 10,000 employees, is only $3.7 billion. Does that make sense? It’s possibly because of the amount of cash that Supercell generates, and its games are played by more than 100 million people every day.
Things changed a little bit in 2015. You have NetEase, another Chinese company, joining the list, as well as Bandai Namco and Mixi. It’s a nice representation across the whole globe there. Japan of course has a very rich heritage games, not only with platform owners but also third-party companies.
The arcade industry is still very interesting here. The stars of the entertainment industry here in Japan are more like the makers of games. It’s exporting things like manga and anime and games to the rest of the world. It has a strong influence, an outsized influence that many other companies just don’t have.
Canada has a lot of government help. One of the best things any country can do is set up a program to give grants to game companies. Then you’re able to start measuring just who is in your country and what companies are at work. Canada knows exactly how many game company it has. They measure that on a year-by-year basis.
With 472 game studios, that’s about a third as many as the U.S. has, but the population of Canada is just one-tenth of the U.S.’s. Again, it’s over-represented in the game industry relative to how you think it might be. It has some very strong studios for companies like EA, Capcom, Ubisoft, and Activision Blizzard. It also has a lot of good homegrown talent, like BioWare, Behaviour, and Relic Entertainment. Costs are pretty cheap compared to the U.S. as well, and they have tax breaks. The Canadians definitely have a smarter government when it comes to encouraging the game industry to do business in their country.
If you think back to the transitions that have happened — from minicomputers to PCs, from PCs to mobile — every time new platforms came along, the epicenter of power in the industry also changed. Redmond, Washington became very important in the game industry when Microsoft came along. These new platforms may be on the fringe right now, just one percent of total game industry revenues, but it’s important for companies to keep up with them and focus on them because they may become the bulk of the industry at some point when a shift happens.
Here’s a success story about Behaviour Interactive, a Canadian game studio that started in 1992. 24 years later, they came up with a hit called Dead By Daylight, a multiplayer horror game. It’s doing very well for them. This is an example of how you can start as something very small, an amoeba, and you evolve over time. You can grow up doing things like outsourcing until you hit the next level of the food chain. This food chain example is something you can apply to any industry in any country. The object of this game is to evolve and grow your industry higher up the chain because you don’t want to be eaten by somebody else.
China has very much recognized that. Its government leaders are urging worldwide expansion in the game industry. Everybody in the world should be aware that’s their intention, to expand the presence of Chinese game companies throughout the world. China Joy is an interesting show, because the government mandates that every Chinese game company go there. It’s a very successful show, drawing more than 300,000 people. China didn’t have much history in console games, but it’s very strong in PC and mobile. It’s pushing very hard into VR, converting internet cafes into VR entertainment centers.
Financial power and geographic arbitrage separate the powerful from the weak
Geographic arbitrage creates enormous financial power. Different countries have had this over the years. Basically, the stock market in China overvalues the companies there. Companies can, relatively speaking, be far more valuable in China than they are in the rest of the world, and they can use that valuation to acquire other companies around the world. This happened in France a while ago. French companies started acquiring a lot of others. Infogrames acquired Atari at one point, because of this geographic arbitrage that existed at the time. This is another thing to think about. The value placed on game companies throughout the world is not flat. It’s tilted in many directions.
China also has a lot of problems. They have censorship. They have trade restrictions. Overseas companies can’t operate their own games in China. They have to have a Chinese partner. That has a limiting effect on their industry. Censorship also has a limiting effect on creativity. If your creative people aren’t in an open and trusted and safe environment, they’re not necessarily going to be as creative as they could be.
This is what I meant when I was talking about specialization. A whole region can specialize in something. The Israelis have what they call a startup nation. They’ve specialized for decades in online gambling. That gave birth to social casino games in the age of Facebook. It’s helped them create companies like Playtika. They also specialize in marketing tech companies and mobile games as well now. They’re growing their game industry. Per capita they have more game companies than they should, because of that history of specialization. The same goes for Finland and mobile games. Canada is more stable as an economy by comparison, because it’s more broad-based across a bunch of different cities and a bunch of different categories of games. That’s good for them.
Regions will often rise or fall because a company gets acquired. A Chinese coalition acquired Playtika in Israel recently. The decisions that get made for that company are now made in China instead of in Israel. It’ll be interesting to see whether that’s good for Playtika or not. Companies like Looking Glass — Looking Glass was a pioneer in games in the Boston area, but when it shut down, Boston lost a lot of its advantage in games. Small changes like this can really affect the strength of the game industry.
Geopolitics matters as well. A lot of companies in either Israel or Ukraine have had different divisions in both places. When Russia invaded Ukraine and the Ukrainian civil war began, many studios there were simply lost. A lot of them moved to Israel, only to find themselves in the middle of Gaza’s unrest in time.
Silicon Valley has become way too expensive. People in the indie game space in Silicon Valley now can’t afford the rent in San Francisco. They’re all having many people live in the same place in order to survive, or they’re moving elsewhere. One company called Mino Games in San Francisco decided to leave and relocate to Montreal. The CEO, Josh Buckley, told me that their company is far better off now. The costs that they face are a third of what they were. In an ultracompetitive mobile game industry, they had to do that in order to survive.
Failures and acquisitions can take a toll on regions — or help them learn
Silicon Valley is also a very resilient place. One of its advantages is that it sees so many failures. Paul Saffo, of the Institute for the Future, says that one of the area’s advantages is that the spires of Silicon Valley are built on the ashes of many failures. You learn from your mistakes. They make a lot of mistakes in Silicon Valley, but they keep on going. It’s not the end of the world. In other places, it can be embarrassing. It can mean a loss of face if you fail. But it’s not like that where I come from.
So what’s coming next? I talked about Masayoshi Son here. He’s predicting that we’ll have a trillion things connected to the internet of things soon. I’m sure everyone who’s imaginative here can figure out how games will fit into that internet of things. We have drone games coming, lots of robot games. We have retro movements as well. Virtual reality has some definite epicenters right now — in San Francisco, in Los Angeles, in China, and in other places like Montreal. A.I. is also extremely strong in places like Silicon Valley, Montreal, and Toronto.
I’ve talked a lot about the intersection of sci-fi, tech, and games. Shows like Westworld, to me, bring that home. The producers of Westworld spent a lot of time in Silicon Valley doing their research before they created their androids and A.I.-based story on HBO.
If you look at this map, you might not see a real pattern here. But I feel like colder climates are probably good for games, like I mentioned with the Siberian gamers. If you’re in a stay-indoors environment, making games is going to be more attractive than if you’re able to enjoy the sun.
The real map of the blockbusters and game geniuses that matter
Here’s a notion about what really matters for your region and the strength of a whole ecosystem. You have to create blockbusters. Pokemon Go was created in San Francisco under license from the Pokemon Company in Japan. That game was downloaded more than 500 million times in its first 90 days and generated more than $600 million in revenue. It’s seen a big fall, but I hear that they’re ready for an update soon. That game company started with just 35 people going into Pokemon Go. They rapidly staffed up to 70 people, and I’m pretty sure they’re hiring a lot of people now to cope with the massive growth of their game. Game of War, made by Machine Zone, also known as MZ now, they have more than 900 people on the strength of just two games.
If you look at this map of the world — I wish somebody could do some big-data crunching here and create an actual map. One of my big complaints is that there just isn’t enough data about the game industry across the globe. Places like Canada measure things really well, but nobody else does. But if you just map all these blockbuster games onto the world, it’s interesting to see what you come up with. Blockbusters are the things that create powerful companies with hundreds or maybe thousands of people, if you consider companies like Blizzard for example. Blizzard and Activision employ over 10,000 people on the strength of just a handful of games. That’s what you need to aspire to if you want to be at the top of the food chain. If your region doesn’t have many games listed right now, it’s something to worry about. You can have large numbers of studios and large numbers of game companies, but blockbusters count.
As I said, the gaming world is flat, but you can tilt it in your direction. This relatively small number of regions has created lasting franchises that keep the game industry going and generate the most jobs.
If you’re a multinational company, if you have some of these hits already, if you have some good franchises, your move has to be toward becoming a global game company. If you don’t become a global game company, you’ll be the prey of other companies that do. You need a wider talent pool. You need access to cultural expertise in every region of the world where games are consumed. Diversity works. It matters. Again, nobody has a monopoly on good ideas. It pays to diversify your company across all the regions of the world.
A line in Jurassic Park mentions how life gets through all the barriers put in front of it. Some of the scientists in that movie were surprised that the dinosaurs could get over and through barriers, but the phrase went, “Life finds a way” to get where it has to go. Games also find a way. They find a way to platforms that aren’t created for games. Many of the platforms out there were created for other reasons, but things like the iPhone became havens for game developers.
As a conclusion, you can think about opening your own company, but you should also think about building up your region. Your region has to produce those blockbusters. You can grow the video game economy over time, but it takes decades. Cost isn’t your only advantage. Talent has a lot to do with it as well. Those blockbusters come around thanks to brilliant people, individuals — maybe 25 people in the world are the reason that we have some of these outstanding game franchises. Shigeru Miyamoto at Nintendo has created more of these outstanding franchises than anybody else over time. Doing everything you can to encourage those brilliant people is your path to having a great game industry.
If you do all these things — foster your veterans, create a source of fresh talent, have a culture of fun and creativity, low costs, a critical mass of companies, government support — if we have all this, games are going to take over the world.
Disclosure: The Canadian government paid my way to Japan. Our coverage remains objective.
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