Joystick Labs in Durham is fading as a startup hub for videogame companies.

Launched with great fanfare two years ago, Joystick’s business model has changed with funding virtually no longer available for startups, says John Austin, who runs Joystick.

The Triangle is home to one of the nation’s largest videogame industry hubs, but the Joystick decision could hamper new companies emerging from university and college programs geared to help students become gaming entrepreneurs.

Meanwhile, most of Austin’s efforts have shifted to Groundwork Labs, which shares the same space with Joystick at The American Underground in Durham’s American Tobacco Historic District.

In a Q&A with WRAL Tech Wire, Austin discusses the changes at Joystick and also the turmoil within the videogame industry itself, which is struggling with plunging sales across games, software and hardware. Sales have declined for 10 consecutive months. The Joystick program includes 12 weeks of office space and support, but funding isn’t necessarily an option now.

Austin says several factors played a part in the decision to put less emphasis on Joystick and more pay more attention to Groundworks, which is focused on helping startups. Joystick and Groundworks are backed by NC IDEA, the economic development group that is closely tied to venture capital firm IDEA Fund partners, and Capitol Broadcasting, which owns the American Tobacco complex.

Did you see a falloff in number of applications or quality of applications or both?

The number of applications declined after we changed the model to no longer offer investment, however I would say the quality of the applications was unchanged. The challenge has been those applications are now competing with Groundwork Labs applications and so the competition has been much stiffer for the game studios.

Why do you believe this has changed?

I believe there have been two factors – one is obviously we are no longer providing funding, which means that some teams simply don’t have the financial resources to pursue their game full-time. Second, with additional emphasis on Groundwork Labs, we really have not been promoting Joystick Labs as much as in the past.

Is the move of the industry itself to more social and lower revenue model games vs. platform games at $70 a copy affecting the creation of new game companies with big profit potential?

The rise of the phone and tablet as a game platform, the social game genre, and free-to-play business models have absolutely created a challenging environment for startup game companies. It is easier to build a game – developing for iOS is much simpler than for a console, and require a fraction of the budget of a console game. But there are now two significant hurdles. While it was challenging for a console game to get noticed amongst a few hundred boxes on the shelf at Best Buy, it is nearly impossible to get noticed amongst the hundreds of thousands of games and apps in the App Store. And monetizing a game with the free-to-play business model requires an integration of monetization into the gameplay that was not required in previous generation games.

Is the continuing decline of videogame-related sales making potential investors more risk averse?

I don’t know if it’s making them more risk averse, but I do know investing in a mobile game and an independent developer is a much riskier proposition.

Will Joystick continue to operate or be phased out?

If we get a compelling application from a game team, we would bring them in under the Joystick Labs brand, but given the falloff in applications, we expect it to fade. We do continue to support and maintain a stake in several teams that continue to show promise, particularly Mighty Rabbit Studios, Nix Hydra Games, and wefiends.

How do all these changes affect you as the manager of these operations?

It’s very similar, just in a broader context – lots of different technologies and markets rather than just mobile games. Day-to-day most of my time is the same – coaching teams, making connections, and evaluating new applications.

Do you remain bullish on the videogame industry or is a shakeout coming as the industry continues to evolve?

Every time the industry has gone through a platform transition (PC, console, handheld) there have been challenges and shakeouts and then the business as a whole has continued with great success. We are essentially going through the most disruptive transition the industry has faced and so there will be new players emerge and some of the old players fade away.

(Coming Tuesday: An update on Groundwork Labs.)

Editor’s note: Capitol Broadcasting is the parent company of WRAL Tech Wire.