By Chris Wren, Chair, XDS Advisory Committee
The COVID-19 pandemic is undeniably a human catastrophe, and has impacted a great number of businesses in the video game development ecosystem. This article is intended to provide leaders a snapshot on the evolving landscape with respect to impacts to date, forecasted challenges and mitigation strategies to inform decision making.
Data was collected from over 300 professionals including Developers/Publishers and Service Providers (Ie. partners providing outsourcing services) during the dates of Mar 24 to Mar 31, 2020. This reflects an approximate 9-10 week period since the outbreak began impacting businesses in early February, 2020. This article is not a commentary on current or projected sales performance of video games.
The following addresses Who Participated, Key Observations, Impact to Developers/Publishers, Impact to Service Providers, Mitigation Strategies and General Observations. Special thanks to the XDS Advisory Committee for their contributions to this article.
The following provides demographic information on our over 300 anonymous survey respondents.
- Composition – 62% Service Providers, and 38% Developers/Publishers
- Top Countries – Of 37 participating countries, the top 5 by number of total responses include the following.
- United States – 32%
- Canada – 25%
- United Kingdom – 9%
- Japan – 4%
- Sweden – 4%
- Service Providers
- United States – 22%
- Canada – 14%
- India – 8%
- United Kingdom – 8%
- Ukraine – 7%
The following are abstracts of unique insights found further down in this article.
Long-term Impact: Of all survey respondents, 72% are moderately concerned about the long-term impact of the health crisis wherein businesses will be impacted but they will mostly recover. 14% reported they are very concerned, stating that businesses and game franchises could potentially not recover. The remaining 14% are not concerned about any lasting impacts.
Global Production Delays: Significant impacts to production in China is not surprising given the initial spread of the virus. However, the numbers show that westernized countries like the US, Canada and the UK have also witnessed significant disruption and are not impervious to the ongoing crisis – both for Developers/Publishers and Service Providers.
Impacted Disciplines: The top disciplines (or areas of game development) that have experienced the most significant disruptions include Art, Co-development, Animation, Motion Capture and QA as reported by Developers/Publishers.
Impact to Game Launches: Nearly 50% of Developers/Publishers reported no delays or cancellations, however 13% answered Yes and an additional 41% do not yet know, indicating greater disruption could be expected in the coming weeks and months.
Rate Changes: For a myriad of reasons it’s likely the health crisis will influence the rates Service Providers offer. 27% reported no foreseeable change to rates, whereas 13% do envision a possible rate increase or decrease. 60% do not yet know if rates will change, leading to possible volatility in market rates in the months to come.
Business Solvency: Service Providers shared insights on the health of their business as they navigate this crisis. Over 50% indicated a risk of solvency between 3 months to 1 year or greater. 27% predict they can sustain for 3-6 months, and 43% report very low risk of solvency for the foreseeable future.
Work From Home: This new reality has forced many businesses to adapt in order to maintain production. 94% of Service Providers impacted by studio closures have made allowances for staff to work from home (WFH). 61% of Developers/Publishers have rolled out WFH workforce policies to their external partners.
IMPACT TO DEVELOPERS/PUBLISHERS
The following addresses the impact felt by Developers/Publishers as a result of the global health crisis. Source data for this section with charts and additional info has been made available.
- As reported by Developers/Publishers, the following indicates the top 5 countries where significant external production delays have been experienced. China being #1 is not surprising given it was the first country to be impacted by COVID-19. It is interesting to see western countries such as the United States and Canada in the top 5 as these regions have not been impervious to the situation.
- China – 56%
- United States – 40%
- Canada – 28%
- India – 28%
- Spain – 14%
Significance of Impact to Engagements
- We asked Developers/Publishers how significant the overall impact of COVID-19 has been on their engagements with Service Providers. 72% indicated moderate impact to engagements alluding to project delays and reduced team morale. 7% reported high impact to engagements, citing canceled projects, unrecoverable losses and lost talent. 21% suggested there has been zero impact to their engagements with clients, although this figure could change as global infection rates increase and local governments clamp down on businesses to close.This data is very similar to what Service Providers reported.
- Moderate impact – 72%
- No impact – 21%
- High impact – 7%
Number of Staff Months Lost or Delayed
- We asked Developers/Publishers on average, how many staff months of production time have been lost or delayed by project. The majority at 47% indicated less than 10 staff months lost or delayed, with 11% at the high-end of 50-100 staff months. Only a small number of Developers/Publishers reported 100 staff months or beyond.
- Less than 10 staff months – 47%
- 10-15 staff months – 24%
- Zero staff months – 14%
- 50-100 staff months – 11%
Number of Projects That Faced Production Delays
- We asked Developers/Publishers how many of their projects have faced production delays as a result of your external partners being impacted. The majority of respondents indicated that only 1-2 projects have been impacted 45%. A collective 21% indicated 3-10 projects impacted. 32% said they have experienced no impacts.
- 1-2 projects – 45%
- No projects impacted – 32%
- 3-5 projects – 14%
- 5-10 projects – 7
Top Disciplines Impacted
- We asked Developers/Publishers the top disciplines (or areas of game development) that have experienced the most significant impact with their external partners. The top response was Art at 61%, which is not surprising given that much of this work may have been in China. Co-development at #2 is significant as it can span multiple disciplines including game design, creative direction, art, engineering, etc.
- Art – 61%
- Co-development – 33%
- Animation – 27%
- Mocap – 25%
- QA – 25%
Increases in Demand for Externalized Development
- We asked Developers/Publishers if they have seen an increase in the need to drive more external development, which may have resulted from internal mitigations and development delays. Nearly half of respondents reported minimal to high increased need, whereas the majority indicated no increase due to the health crisis.
- Zero increase – 55%
- Minimal increase – 27%
- Moderate increase – 13%
- High increase – 5%
Impact to Game Launches
- We asked Developers/Publishers; have you had to delay or cancel a game launch due to disruptions in production on the side of your external partners? Fortunately nearly half of respondents reported no disruptions to game launches attributed to the health crisis. However, 41% do not yet know what the impact could be, therefore these numbers could change depending on possible future internal production disruptions, or further disruptions for Service Providers.
- No – 46%
- Not yet known – 41%
- Yes – 13%
IMPACTS TO SERVICE PROVIDERS
The following addresses the impact felt by Service Providers as a result of the global health crisis. Source data for this section with charts and additional info has been made available.
- We asked Service Providers; in what country(s) does your company have production where you have experienced disruption? Although the high numbers for Canada and UK coincide with those who participated in the survey, the data shows that western Service Providers have been just as susceptible to the global health crisis.
- United States – 44%
- United Kingdom – 26%
- Canada – 25%
- China – 21%
- India – 14%
Significance of Impact to Client Engagements
- We asked Service Providers how significant the overall impact of COVID-19 has been on their client engagements. 67% indicated moderate impact alluding to project delays and reduced team morale. 11% reported high impact to engagements, citing canceled projects, unrecoverable losses and lost talent. 22% suggested there has been zero impact to their client’s engagements, although this figure could change as global infection rates increase and local governments clamp down on businesses to close. This data is very similar to what Developers/Publishers reported.
- Moderate impact – 67%
- No impact – 22%
- High impact – 11%
Number of Client Projects Impacted
- We asked Service Providers to indicate the number of client projects that have been negatively impacted. Nearly 3 out of 4 of Service Providers reported having projects that were impacted. The 27% for 1-2 projects is less than what Developers/Publishers are reporting, possibly because these are on the frontlines and know what is coming down the pipe. 14% of respondents indicated 5-15 projects impacted, with 5% reporting a staggering 30 projects. 28% have witnessed no impact to client projects.
- Zero projects impacted – 28%
- 1-2 projects – 27%
- 2-5 projects – 25%
- 5-10 projects – 10%
- Over 30 projects – 5%
- 10-15 projects – 4%
Changes to Rates & Percentage Increase/Decrease by Country
- We asked Service Providers; in the near term, do they foresee a change in their rates as a result of the COVID-19 situation? Changes may be due to companies adapting rates in order to retain clients, or to cover increased costs, or perhaps as a result of capitalizing on gaining new clients and projects. 27% reported no foreseeable changes, whereas 13% do see a possible rate change. The highest category of 60% do not yet know if rates will change, which could lead to volatility in rates across the market.
- Unknown at this time – 60%
- No – 27%
- Yes – 13%
- As a follow-up, we asked those Service Providers who responded Yes to rate changes what the approximate increase or decrease could be. The following figures vary greatly.
- With respect to decreases;
- 10-20% decrease – 18%
- 5-10% decrease – 15%
- 5% decrease – 9%
- 20-30% decrease – 6%
- With respect to increases;
- 5% increase – 18%
- 5-10% increase – 15%
- 10-20% increase – 9%
- 20-30% increase – 6%
- With respect to decreases;
- The following represents top 10 countries where companies said Yes to foreseeable rate changes, based on top regions where Service Providers indicated they have production locations. Inconsistent responses as reflected by broad ranges in the same country may be an indicator that companies still do not understand the full impact of this global pandemic. (Numbers represent averages. Countries are in descending order).
- United States – Broad range from 10-20% decrease to 5-10% increase
- United Kingdom – 5-10% increase
- Canada – Broad range from 5% decrease to 5-10% increase
- China – Broad range from 10-20% decrease to 5-10% increase
- India – Broad range from 10-20% decrease to 5-20% increase
- Japan – Balanced distribution of 5-10% decrease to 5-10% increase
- France – No data provided
- Germany – Balanced distribution of 5-10% decrease to 5-10% increase
- South Korea – 5-10% decrease to 5% increase
- Ukraine – Broad range from 5-20% decrease to 5% increase
Future State of Business Solvency
- We asked Service Providers; how long do you feel your company can remain in business if the COVID-19 crisis continues? Over half of respondents indicated a risk of solvency between 3 months to 1 year or greater. 27% predict they can sustain for 3-6 months. 43% report at this stage a very low risk of going out of business.
- Very low risk of going out of business – 43%
- 1 year or greater – 28%
- 6 months or greater – 14%
- 3 months or greater – 13%
- Less than 3 months – 2%
Positive Increase on Business
- We asked Service Providers; has your company seen an increase in business in recent months? The majority of companies at 54% have seen an increase. This may be due to standard annual increases, and/or result from an increase in opportunities due to disrupted internal production for Developers/Publishers. Some Service Providers in less impacted regions may also benefit from projects being shifted to their company as a mitigation strategy for Developers/Publishers.
- Yes – 54%
- No – 46%
- As a follow-up, we asked those who responded Yes to an increase in business what the percentage increase was. Responses varied, however the average increase was 25% with a range of 5 to 75%.
The following aims to capture mitigation strategies both sides have taken in order to reduce disruption to business, people and projects. Source data for this section with charts and additional info has been made available.
- We asked Developers/Publishers; for any of your projects, have you shifted production to an alternate Service Provider to mitigate production delays? 24% reported that they have in fact shifted work to an alternate company, either in the same region or to what they perceive as a less impacted region.
- No – 76%
- Yes – 24%
Top Steps Developers/Publishers Have Taken to Mitigate Production Delays
- We asked Developers/Publishers to indicate the most prevalent steps their teams have taken to mitigate production delays. The majority at 47% have provided WFH policies to their external partners, followed by shifting work to Service Providers in regions less impacted. 20% of Developers/Publishers have not yet put mitigation strategies in place.
- Providing a Work From Home policy for external partners – 47%
- Shifting work to other regions that are less impacted – 24%
- Decreasing the scope of our games – 22%
- Delaying game releases- 22%
- No mitigation put in place – 20%
- Hiring more staff internally to take on the work – 13%
Top Steps Service Providers Have Taken to Mitigate Delays to Client Projects
- We asked Service Providers to share the top steps their company has taken to mitigate production delays to client projects. Resoundingly they have allowed staff to work from home, followed by providing a safe workplace to allow staff to work in the office – although it’s assumed these two approaches are mutually exclusive. In few cases, Services Providers have subcontracted work to their competitors in order to retain the business.
- Allowing staff to work from home – 94%
- Making our workplace safe to allow staff to work in the office – 37%
- Adding multiple shifts to decrease the density in the office – 14%
- Shifting work to our other production locations – 8%
- Subcontracting work to other service providers – 5%
Developer/Publisher Work From Home Policies
- We asked Developers/Publishers if their company has implemented a WFH workforce policy for their service providers to minimize impact to production. The high figure of 39% saying No indicates it’s possible a number of Developers/Publishers are in the midst of creating new policies, and perhaps others that will soon be forced to follow. It’s also possible that a subset of these companies already have WFH policies in place.
- Yes – 61%
- No – 39%
- As a follow-up we asked; what are the top 3 measures that are most important for Service Providers to implement in order to comply with your company’s requirements? The following represent the top responses in descending order.
- IP & data security (secure connection, encrypted data, company-owned hardware)
- Communication (frequent updates, tracking software, communication tools)
- High bandwidth (ensuring fast, uninterrupted file transfer speeds)
- Revised legal agreements (amended NDAs, liability insurance, NDAs for roommates)
- Employee health (safe work environment, work/life balance)
- On-time delivery (ensuring as little disruption as possible)
Outlook for Attending Events: As games industry events like GDC and E3 have been significantly impacted by the crisis, we asked respondents to provide their outlook on this space. 58% reported they will begin attending events again “only after it is safe to do so”. 24% indicated interest in “attending virtual (Ie. online) events” in the interim. Interestingly 11% said they will “continue attending events” amidst the risk, however the majority of these respondents are Service Providers as events are an important component to discovering new business opportunities, and maintaining existing relationships.
Quotes from our Community: The following are anonymous select quotes taken from the survey data. An additional article may be written that attempts to capture more of these sentiments.
“I think we will lose roughly about 5-10% of our business in the short run. The industry will bounce back hopefully when this is over in 2-3 months. There will be higher demand as the demand for content from players during the healthier crisis is higher. New console releases will be around the corner, though delayed. What’s more interesting is to understand what permanent changes will result at the end of this. Are there new measures and/or requirements of the Service Providers for disaster recovery?”
“Service providers do not have the revenue streams that developers/publishers have, so help support them while this crisis plays out. We all need them to survive and be functional when things do begin to return to ‘normal’. Commission work and pay partially up front, enabling them to keep cash flowing and avoid having to lay everyone off. Help them out now and they will happily work their collective asses off once lock-downs start to lift, safe in the knowledge that they have cash flow to survive.”
“This is a paradigm shift for distributed (external) development. When we all survive this crisis EVERYONE will be familiar with working with remote teams and will hopefully embrace the opportunities they provide.”
External Development Summit (XDS) is the only annual, international games industry event held in Canada, with a primary focus on external development for art, animation, audio, co-development, QA and localization. If you would like to contribute to future XDS surveys and receive news, please subscribe to our mailing list. More info at www.xdsummit.com