Exploring Advertising and Sustainability in the Video Game World

As gaming devices become more powerful, the costs of AAA videogame development have also exponentially increased, often to prohibitive budgets. For example, Marvel’s Spider-Man 2, released in 2023, had a budget of 300 million dollars, as revealed by a data leak from Insomniac Games.

This escalation has led some in the industry to question the sustainability of the AAA videogame development, especially when compared to the mobile market, as the latter leverages in-game purchases to generate massive revenues with a fraction of the budget.

Can AAA studios remain viable in the current video game development landscape?

In an interview with Adam Boyes, co-CEO of video game developer Iron Galaxy Studios, we examine the potential viability of various strategies, such as outsourcing, integrating advertising, and pursuing billion-dollar acquisitions.

Who Is Adam Boyes?

As a co-CEO of Iron Galaxy Studios, Adam Boyes is responsible for the company’s overall strategic vision and core partnerships. Before this role, Boyes was the VP of Third-Party Relations & Developer Technology Group at Sony Interactive Entertainment America. Throughout his career, Boyes served in the roles of executive producer at Midway Games and director of product development at Capcom.

Iron Galaxy Studios has an outsourcing business model, focused on helping develop and adapt other studios’ games. Can you share when you realized this was a viable strategy?

Adam: We’re seasoned veterans of this industry.

Our collective experience has equipped us with an intimate understanding of the problems that game creators face. Working in game development taught us all about the essential services that every studio needs, so we created a company that could be an effective partner to any team that makes games.

At the outset, our focus was on engineering.

We began as a hired gun to participate in final bug bashes and systems integration. Over the years, our collaborative services have expanded to cover every aspect of video game development, including art, design, testing, and even community management.

Iron Galaxy has become a specialized service provider that can help external devs overcome their biggest eleventh-hour challenges or take ownership of the creative process from beginning to end, and beyond.

With rising concerns about the sustainability of the AAA business model due to high development costs, do you see Iron Galaxy's outsourcing model as a way for studios to survive?

Iron Galaxy exists to augment any team in our industry with irreplaceable, top-tier talent. Our developers are some of the best in the business, so we don’t necessarily equate to a cost-cutting resource.

We can work in any genre, on any platform.

We’re a great partner to anyone who values their IP and wants to see it evolve in all the best ways. Companies with an unwavering commitment to quality can work with us to help them scale their teams to meet the needs of any project.

We can also help them to extend the life cycle of the entertainment product. Having a partner that can sustain a live services offering over time frees the original team up to explore new ideas or innovations.

Free-to-play games, especially in the mobile sector, have achieved considerable revenue with in-game advertising. Do you think that’s something that can transition into the AAA space?

In many ways, the AAA gaming space is defined by the precedents that have been set over years of entertaining players. Premium gaming experiences need to be immersive. It’s very difficult for gamers to tolerate interruptions to that experience for the sake of marketing or sales.

Charging a price point for entry gives them the pure escape that they prefer.

Gamers are willing to pay for a clean experience, much in the same way that movie fans will buy a Blu-Ray or subscribe to a premium streaming service like Netflix to keep the experience free of advertising breaks.

Mobile gaming has been registering crazy revenue numbers for years now. Some even say it may spell doom for the AAA business model. What’s Iron Galaxy Studios' take on this subject?

Basic consumer insights reveal that everyone on the planet is a gamer in some way, shape, or form.

There is such a ubiquitous appetite for interactive entertainment, that the industry has an opportunity to grow and diversify to meet every person where they live.

That includes everyone from the puzzler who enjoys solving word games on their phone to the competitor who thrives in a cutting-edge game room. To suggest that mobile games will replace AAA games would be like predicting that YouTube would spell the end of IMAX.

No one touchpoint cancels out another.

People want to be challenged as gamers in their homes, in theme parks, on airplanes, or anywhere else where they have free time.

Another avenue publishers and studios could pursue is ads and product placement as part of the actual game world. Could this become a trend as development costs become even more unsustainable?

Historically speaking, gamers are not at all likely to be marketed to when they are enjoying their experiences. We have seen Fortnite and Roblox serve as platforms where players can interact with brands, but they are the innovators and outliers.

The other notable examples include games that take place in a world where advertising is common.

Sports games can inhabit locations or arenas where advertising is part of the scenery. Oftentimes, the best opportunity to advertise to gamers happens outside of the game.

There is a huge market for selling them products that complement their lifestyle, whether it is peripherals for their hobby, furnishings for their game rooms, merchandise to celebrate their passions, or fashions to enable their self-expression as people who love to play games.

Some companies seem to be using AI to reduce costs, but that has been met with accusations of intellectual property theft by artists, voice actors, and writers. What’s Iron Galaxy Studios' stance on the impact of generative AI in game development?

Our commitment at Iron Galaxy is to our people.

Every decision we make is motivated by our mission to empower our talented developers to create irreplaceable entertainment. If AI enters our workflow, it's only a tool to benefit those experienced professionals in the earliest phases of ideation.

We don’t see a lot of value in outsourcing the function of creativity to an algorithm.

Anything created by generative AI doesn't make it into anything we ship. I might have accessed ChatGPT to pen the toast for our 15th Anniversary celebration, but that was a joke more than a proof of concept – and the laughter at the party proved my point.

There have been significant acquisitions in the gaming industry in recent years, such as Microsoft's purchase of Activision Blizzard. As an independent game studio, how do you look at this trend?

It does breed tumult, and we’re deeply sympathetic to the people affected, but companies in any industry will look for opportunities to consolidate their teams or assets.

Videogames are no exception, as the events of last year proved.

Iron Galaxy remains independent, which keeps us in a unique position to work with everyone in our industry. Our dedication to creative excellence is balanced by our commitment to stability. One strength of our company is our ability to collaborate with anyone who wants to create an interactive experience for people.

Right now, we’re talking to leadership at different studios and parent companies to remind them that we exist to help them manage the chaos of creating top-tier entertainment in a fluctuating job economy.

Unlike other entertainment media, hardware has always been essential for video games, as new tech is required to play more advanced games. Will we ever reach a point where the device itself won’t be as relevant and such a requirement?

It’s hard to imagine a video game being played without a dedicated device, but the nature of those devices will certainly evolve. At Iron Galaxy, we’re motivated by enhancing the fidelity of the experience we provide.

The more powerful the device, the better the game.

We’ve seen recent innovations where video games can be played through the cloud, with a browser as the game client, but that still relies on a computer and controller.

The processing and delivery may become more distributed, but a gamer will still need to outfit themselves with the gear they need to play.

To our readers who may not be as familiar with the gaming industry, why should they consider investing in it, and where should they start looking first?

Video games are the most profitable sector in the entertainment industry.

The power of this medium is immersion and agency. We put consumers in control of their experiences, which is why they spend more money on video games than the combined revenue for movies, music, books, or professional sports.

Gamer communities are powerful audiences to which any company can market.

It’s not easy to appeal to their interests in a way that they’ll find sincere or authentic, but the strength of the demographic is evident if you can create a compelling offer for them.