Video game industry in chaos as Visceral Melbourne closes its doors

Another local video game studio has shut its doors, one of several in the past year, in yet another sign the Australian development industry is hurting as publishers of blockbuster titles opt to cut costs.

The closure of the Melbourne division of Visceral Games, which worked on the internationally successful horror title Dead Space, comes after SmartCompany revealed the makers of blockbuster game LA Noire, Team Bondi, collapsed into receivership last month.

This also comes after international publisher THQ shut down the Blue Tongue studio in August, also in Melbourne, along with its Brisbane division. It follows a disappointing few years for major publishing work in Australia, with EA-owned Pandemic also closing in 2009 and general employment opportunities thinning out.

Visceral’s owner, EA, announced the closure yesterday, saying in a statement that with no active project in development, “we’ve decided to close the Visceral Melbourne office… they are talented individuals and may find other roles elsewhere in EA, if they choose”.

The closures come despite the most recent PwC Media Outlook report pinning interactive entertainment and video games as the fastest growing sector over the next few years, to be worth $2.5 billion by 2015.

IBISWorld senior analyst Craig Shulman says the industry is undergoing a structural shift as casual gaming becomes more popular and more developers opt to experiment in the mobile space.

“The developers in Australia that are succeeding, such as Iron Monkey and Firemint, are in quite comfortable positions when it comes to investment because that area is growing much quicker and is a much lower risk.”

“The studios that have closed down, the work they were focusing on were much higher risk.”

But Shulman says the decision by EA to pull out doesn’t mean the industry is paring back on that type of material, but instead is concerned over the fluctuation of the Australian currency and how it will impact their ability to spend overseas.

“Ever since the financial crisis, publishers have been quite hesitant to sink money into high risk projects such as these. There will be a general worldwide lowering of Triple A gaming investment.”

Shulman says even with the introduction of the research and development tax credit, larger publishers will be hesitant to enter the local market, especially as they start focusing on material they know will do well in subdued retail markets such as the United States, such as well-known brand extensions and sequels.

And while that may change over time, Shulman says the conditions need to be right for major publishers to consider opening up again.

“Factors that do help include specific industry focused training, and the exchange rate definitely makes a difference. But one of the big factors is the console cycles, because when new hardware comes out you have studios and other developers trying to be innovative with it.”

“When the PlayStation 2 was released and it had its dominance for quite awhile, you see a large amount of investment because it had such a wide market share.”

However, major hardware manufacturers – Microsoft and Sony – have indicated the current life cycle for console hardware will be longer than previous cycles.

“There is definitely a trend towards accessorising, which would prolong current console cycles,” Shulman says.