Analyst: Profitability hasn't grown for Western developers

At the Edinburgh Interactive Conference, BMO Capital Markets' Edward Williams told attendees that the gaming market has suffered "significant disruption" to its business model.

"For Western publishers, profitability hasn't grown at all in the past few years and that's before we take 2009 into account," he said while stating that the opposite could be claimed from the Chinese sector.

Chinese firms were seeing improved profits due to the PC market and direct download methods rather than the traditional way used by Western firms releasing titles on DVD per retail outlets. Developers in China also do not have to pay as much in royalties to console makers because of the low number of console users.

Three factors, Williams explained, are causing the Western games market to decline:

• Games are getting larger, which meant longer development time and larger staff costs.
• In the 1990s the PlayStation accounted for 80% of the market, today the console space is very fragmented, so developers have to work on many platforms at any one time.
• The cost of licensing intellectual property or gaining official sports body endorsement (such as FIFA or FIA) has gone up.

Speaking to the BBC, Peter Moore agreed that while there's a difference in the markets, Westerner will start warming up to digital distribution soon.

"In China, PC and mobile platforms will continue to dominate," he said. "There isn't the necessity to buy other pieces of hardware and it is our job to service that. In Europe we are going to see more content that's delivered electronically, be that through Steam, Xbox Live or whatever."

"The release of Tiger Woods online as a free to play experience will be the real test of the Western consumer's appetite for digital downloading."