All Your History: Year in Review Part 2 – On the Rhode to Ruin

The beginning of 2012 was rough on the video game industry: THQ faced worsening financial woes, uncomfortable truths about the business’s manufacturing process came to light, and Mass Effect 3’s ending alienated the game’s biggest fans. But the year started to turn around with the breakout success of Double Fine’s Kickstarter project, Telltale Games’ The Walking Dead, and the long-awaited release of indie-darling, FEZ.  As May approached, so did the release of one of the most highly anticipated games of the last ten years: Diablo III. But before the month ended, one of the newest names in the business would grab attention for more than just its games—and would soon be making headlines across the country. And by the end of the year, the industry seemed to be transforming the very way it did business…

On the Rhode to Ruin

The month of May’s infamy began at midnight on the fifteenth. Over 8,000 stores across the globe held midnight-launch events for Activision-Blizzard’s Diablo III. It had been over ten years since Diablo II’s release, and fans were rabid for the series’ third installment. So it wasn’t surprising when Diablo III racked up two million pre-orders, and sold over 3.5 million copies within its first 24 hours. It was later named the fastest-selling PC game ever. For gamers and Blizzard alike, Diablo III’s launch seemed like a dream.

That is, of course, until customers tried playing it. Then it seemed like a nightmare.

The problem stemmed from its always-on internet connectivity, a feature meant to combat piracy. To play the solo campaign, the game had to log onto Blizzard’s servers first. But with millions of players suddenly connecting, it wasn’t long before reports of problems and error messages surfaced across the Internet. Players who’d waited over a decade for Diablo III were enraged that they couldn’t even play offline if they’d wanted to. Overnight, much of the goodwill fans felt for the Diablo franchise evaporated. The game was still a commercial and critical success, but the botched launch would be tough to ignore.

Luckily for Blizzard, that very same day a surprising report spun out of Rhode Island, shifting focus away from Diablo III’s release issues. 38 Studios, the co-publisher and co-developer of February’s Kingdoms of Amalur: Reckoning, was apparently struggling financially. The news was surprising considering Amalur’ssolid sales and reviews.

Rhode Island Governor Lincoln Chaffee had met with the studio’s executives, including its founder, former Red Sox pitcher Curt Schilling, to discuss the developer’s seemingly sudden money problems. Though it was a matter of public record, the relationship between 38 Studios and Rhode Island’s government wasn’t widely known in the media—until that day’s fateful meeting.

Two years earlier, before Chaffee’s 2011 election, Schilling’s company accepted a $75 million loan from the Rhode Island Development Corporation on the condition that 38 Studios relocate from Massachusetts and create 450 jobs in Rhode Island by the end of 2012. But by the middle of the year and only a few months after Amalur’s release, the money was gone, the jobs weren’t in place, and the governor pointed the finger at Schilling.

Over the next few days, details of 38 Studios’ precarious situation mounted. On May 16, it was revealed that the developer had missed its first loan payment of $1.125 million. On May 17, Schilling wrote a check to cover the payment—but it bounced. Worse, reports emerged that 38 Studios’ staff hadn’t been paid since the first of the month, while its temporary and contract workers were laid off amid the crisis. May 18 seemed to pick up for Schilling, as he found the cash to make good on the missed $1.25 million payment. But a week later, the news grew dire again. On May 24, 38 Studios laid off its entire staff and shuttered its subsidiary, the Baltimore-based Big Huge Games. Finally, by June 7, 38 Studios filed for bankruptcy, its assets to be liquidated by the Rhode Island government, and the state’s taxpayers saddled with paying off the loan.

The collapse of 38 Studios occurred in just three-and-a-half weeks. The story of its swift demise exploded out of the gaming media and into mainstream outlets like Bloomberg and the New York Times, dominating the New England news cycle for months. But there was a happy ending for a few caught in the fallout. In early June, Epic Games’ president Mike Capps announced plans to create a new Baltimore-based studio that would hire many former employees of Big Huge Games, who’d lost their jobs during 38 Studios’ meltdown.

Meanwhile, May 30 brought a sliver of hope to another long-struggling company: THQ appointed Jason Rubin, co-founder of developer Naughty Dog, as its new president. The appointment of a fan-favorite industry figure signified that THQ might be able to turn its fortunes around. The celebrations were short lived, however. Two weeks after Rubin’s appointment, news broke that THQ was under investigation, stemming from allegations that it had lied to its investors regarding demand for the failed uDraw Tablet. Over the next two months, investors filed two class-action lawsuits against THQ over the allegations.

While THQ’s fortunes continued to fall, by July, another story emerged to create excitement in the industry. After the success of Double Fine’s Kickstarter campaign, other video game-themed projects began appearing on the crowd-funding site. But none managed to capture as much attention as OUYA, the brainchild of Julie Uhrman, a former vice president with IGN and GameFly. The concept was an inexpensive, open-source, Android-powered home console that would offer new gaming options to those who loved games on the TV, but didn’t love the sticker shock linked with traditional consoles and games. The project sought nearly a million dollars in funding—and managed to hit that goal within its first 24 hours. By the end of its 30 day fundraising period, OUYA had nearly $8.6 million pledged, over nine times its original goal.

But as uplifting as OUYA’s success might have seemed in July, August brought 2012 back down to earth. OnLive, the game-streaming service founded in 2003, had suddenly been the subject of reports that it was out of cash and laying off its employees—and was immediately being resurrected by another company that had taken hold of all its assets. Soon reports emerged that OnLive owed creditors between $30 million and $40 million before its assets were transferred to investment firm Lauder Partners. Amazingly, many of the laid off employees were rehired by the company’s new corporate owners. Before the month was over, OnLive’s CEO and co-founder, Steve Perlman, left the company. The company’s bizarre death and resurrection caused many to scratch their heads. Did the company go out of business? Was this all a way to get around the debt it had piled up over years of unprofitable strategies? Just what was going on?

The OnLive episode faded from memory as September and the start of the industry’s annual blockbuster season approached. On September 18, Gearbox Software released Borderlands 2 to rave reviews and million and a half in sales in its first two weeks.

October brought more big game releases: cult-classic remake XCOM: Enemy Unknown; the next installment in Ubisoft’s hit franchise, Assassin’s Creed III; and a brand-new IP from Bethesda, Dishonored. All three earned high critical praise, while Assassin’s Creed III managed to move seven million units in only a month, becoming the fastest selling title in Ubisoft’s history.

November kept the ball rolling, with the release of Halo 4 and Call of Duty: Black Ops II, both shattering previous sales records. Halo 4 earned $220 million in its first 24 hours of release on the Xbox 360. A week later, the multi-platform Black Ops II pulled in over $500 million in its first day. After 15 days, it had earned a billion dollars worldwide, a whole day faster than 2011’s Call of Duty: Modern Warfare 3.

And that wasn’t all: on November 18, Nintendo launched the first new home console in six years, the Wii U. In its first week, it sold over 425,000 units in North America, with another 307,000 sold in Japan during its early December launch. While it’s too soon to say what kind of impact the Wii U will have on gaming, the console seems to be off to a solid start so far.

But just as gamers said hello to new hits and a brand new console, they bid farewell to some legendary figures. In September, BioWare cofounders Ray Muzyka and Greg Zeschuk announced they were retiring from the industry. And only a month later, Epic Games’ design director Cliff Bleszinksi—Cliffy B to his fans—announced he was leaving the studio with which his name had long been synonymous.

Meanwhile, autumn brought yet more shake-ups. Following in the footsteps of Double Fine and OUYA, in September Fallout: New Vegas developer Obsidian Entertainment had launched their own Kickstarter campaign for a brand-new RPG called Project Eternity. Within a day, it earned its $1.1 million funding goal, and then some. Once its 30 day campaign ended in mid-October, Project Eternity finished with $3.98 million in pledged funding.

Towards the end of 2012, it seemed as though the industry had experienced a major shift. Despite the big numbers earned by Halo, Black Ops,and Assassin’s Creed,video game sales as a whole had declined for twelve straight month, having dropped from $2.87 billion to $2.55 billion in North America, a slide of roughly 11 percent, according to consumer research tracker NPD. A few months earlier, Kickstarter released data announcing that video game projects managed to raise over $50 million in funding directly from fans in 2012. The video game category was the second-most funded in the site’s history, and represented the most-funded category that year.

While it’s too early to say that Kickstarter is the new revolution in video games, it’s difficult not to speculate on the trends of 2012. Will big budget publishers and developers continue to see declining revenues? Will more studios engage their consumers directly, making smaller scale games funded by the fans, cutting publishers out entirely? No matter what the answer, it seems clear that 2012 will stand as one of the video game industry’s most dramatic years. From the triumphs of Kickstarter, or the tragedy of 38 Studios, there’s no question that 2012 will remain a memorable part of all your history…

Part 1 | Part 2