Videogames have come a long way since PONG for Atari was introduced in 1972. The industry has advanced from simplistic 8-bit geometric shapes descending from players’ screens (Tetris) and a side-scrolling, overall-clad plumber saving a princess in a faraway land (Super Mario Bros.). Today, the global videogame industry is a $67 billion enterprise, consisting of hardware (gaming consoles like Nintendo and Playstation), software (the actual videogames themselves), and secondary markets (online games, mobile phones, and other devices). The major players in this enterprise are few—the “AAA” game developers. In the videogame industry, an AAA game is analogous to a Hollywood Blockbuster: big budgets, big special effects, and big profits.
For videogame developers, AAA game development is a risky undertaking; according to one industry case study, “developing a AAA game is rapidly becoming one of the most expensive enterprises humans can undertake, outside of building battleships, launching space vehicles, or making movies.” The typical cash flow cycle for a AAA game is defined by a heavy front-end period of negative cash flow, wherein resources are spent and debts are incurred, and a back-end period of positive cash flow, wherein revenues are collected.
AAA game developers invest millions of dollars over long periods of time to design and build games for the various hardware platforms, requiring large budgets and teams to successfully complete the task. After months, and possibly years, these developers hope (and, in fact, require) that their hard work results in big sales—otherwise, they may find themselves in a situation like that of former powerhouse, THQ Inc. (THQ), once a premiere developer of videogames for the global market.
Hildebrand, Henry Ned; Salas, Carlo Julio; and Wirth, Taylor K., "In re THQ Inc. "Game Over"" (2013). Chapter 11 Bankruptcy Case Studies.