Video games are risky, expensive, and a really good business

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Making video games is an exercise in cognitive dissonance. It is a hit-driven business where you can never know how consumers will respond. And yet you have to invest tens (sometimes hundreds) of millions of dollars just to have a shot at success. Despite that risk and expense, however, a lot of companies are learning that it’s riskier to get out of the games business. That’s a lesson that Konami and Disney learned the hard way throughout the ongoing pandemic. And it’s leading those corporations to dive back into the gaming market.

After spending years going through the motions with its annual soccer franchise and mobile games, Konami is returning to the console space. The publisher has plans to bring back Metal Gear, Silent Hill, and Castlevania. Likewise, Disney is in talks to partner with developers and publishers for a number of games based on its properties. In particular, Lucasfilm has several public and unannounced Star Wars projects in negotiations. But we even see Disney playing nice with Nintendo to get Sora, the star of the Square Enix-Disney co-production Kingdom Hearts, into Super Smash Bros. Ultimate.

This heavy trend back into gaming for Konami and Disney is easily explained by looking at their other businesses. Konami produces gambling machines and arcade cabinets. It also operates casinos and health clubs. Disney owns theme parks and produces motion pictures. Disney and Konami both saw how vulnerable these markets are to something like a pandemic. And when they looked around for something more resilient to invest in, they each saw video games as an obvious opportunity.

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Konami began its retreat from console-style games around 2014. By the time Metal Gear creator Hideo Kojima left, it was obvious that the publisher’s emphasis was not on games like Silent Hill. But while making big-budget blockbusters is an expensive and risky preposition, Konami’s decision to prioritize mobile still looks like a strategic mistake. That’s especially true compared to Capcom, which is the publisher of similar blockbusters like Resident Evil and Monster Hunter.

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While Konami focused on mobile games and its amusement businesses to the exclusion of console games, Capcom expanded into mobile while honing in on and reinvesting in its most successful console projects. That led Capcom into a cadence of regular Resident Evil and Monster Hunter releases. Those franchises are proven sellers, so that is where Capcom placed its bets. And gamers have rewarded Capcom for its efforts.

Both Monster Hunter and Resident Evil have grown as the games business itself has expanded. And Capcom just reported its highest first-quarter results ever with revenue of nearly a half-million dollars.

Capcom’s properties are not special. It just continued to show interest in gaming where Konami did not. And it’s difficult to argue that Konami could not have replicated Capcom’s success with Metal Gear and Silent Hill.

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So now Konami and Disney are going to attempt to make up for some lost time. And that’s because as challenging as making games is, it’s silly to avoid a market where consumers are so emotionally invested and also so willing to spend a huge percentage of their entertainment budget.

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