Games Brief

Did GTA IV really cost 30% more per copy than Modern Warfare 2

2009-11-13T10:52:50Z

Modern Warfare 2 has not only shattered all records for day one sales for a video game, it did it despite the furore over Activision’s price. Which turns out to be much cheaper than Grand Theft Auto IV.

Activision has just announced that Modern Warfare 2 has sold an estimated* 4.7 million units in the first 24 hours of being on sale. (I reckon that’s not quite true, given how many shops broke the street date, and probably means “in the first 24 hours that it was officially allowed to be sold”)

That generated $310 million in estimated* retail sales. And all of those figures only include North America and the UK, leaving out tens of millions of gamers in mainland Europe, Asia, Australasia and elsewhere.

The previous holder of the crown was Grand Theft Auto IV, which sold 3.6 million units on its opening day with a retail value of $310 million, and that was globally.

This success has come despite Activision slapping an unusually high Recommended Price Tag on the title (£55 in the UK). Although it seems as if hardly anyone was selling it at this price with most gamers paying close to £30 – according to the Guardian at least.

But it seems that gamers were prepared to pay much more money for GTA.

Both titles apparently grossed the same amount on day one – $310 million. But Modern Warfare 2 has sold 30% more units than Grand Theft Auto IV, suggesting that GTA’s average selling price must have been 30% higher than MW2’s to generate the same revenue. The table below sets out the arithmetic.

	Estimated retail sales	Estimated units sold	Average selling price
	($m)	(m)	($)
*Modern Warfare 2*	310	4.7	$65.96
*Grand Theft Auto IV*	310	3.6	$86.11

Assuming that both companies’ press releases and estimates were correct, it’s a pretty surprising result.

The game that was reviled for pushing up the price of a game to unprecedented levels actually cost gamers significantly less than last year’s hit title.

Amazon.com is selling Modern Warfare 2 for $59.99. As is GameStop. Best Buy is selling for $49.99. (And for all those people who complain about Rip-Off Britain, £29.99 is approximately $49.83 at current exchange rates).

The higher ASP is probably due to Prestige editions (the one’s with night vision goggles, which retails for somewhere over $200) or Hardened editions, which Amazon is retailing at $79.99.

It sure shows little control publishers have on what consumers actually pay.

Of course, that may not matter: Activision probably increased the RRP in order to increase the amount it charges retailers for a copy. If retailers want to reduce the selling price to encourage footfall or stay competitive, that is their choice, but they are doing it at the expense of their own margins, rather than Activision’s

But (assuming Take Two’s numbers are accurate) did GTA IV really achieve an Average Selling Price of $86.11? That’s a hell of an achievement if it’s true.

* Activision has been very careful to make sure that it is clear that these sell-through figures are estimates, repeating the word three times in its short press release

David Gardner and the Skype founders the latest notch on Playfire’s investor bedpost

2009-11-13T09:43:48Z

If you wanted money to invest in games, I think you could do a lot worse than placing your bets where David Gardner places his.

The former head of EA Europe and current CEO of Atari seems to have backed most of the companies I really rate.

He was an investor in Playfish, which has just been acquired by EA for up to $400 million.

He invested alongside Sequoia Capital in Unity, the development platform for web, PC and iPhone games that just raised $5.5 million.

And now he’s invested alongside Atomico Ventures (the investment fund of the founders of Skype, Niklas Zennstrom and Janus Friis) in Playfire, which has just announced a $2.1 million fundraising.

Playfire is a gaming social network. It helps gamers stay in touch, track achievements, create a “killer profile” and generally communicate with gaming friends in the same way that Facebook lets you stay in touch with real-life friends. (If I called them “meatbag” friends, would I be betraying my gaming geekiness? 10 points for the first person to name the source of “meatbag” in the comments).

It’s a crowded space: Rupture, Raptr, GamerDNA, GameShadow and others are competing for gamer’s attention not to mention the threat from Facebook and Twitter. It’s so competitive that there have been layoffs at both Rupture (now part of EA) and GamerDNA in the last month.

However, the investors are smart (and the Skype founders have a background in companies fuelled by network effects and Moore’s Law like Skype, Joost and Kazaa, so I’m betting that Playfire has something interesting up its sleeve.

So far, the most unusual thing about Playfire’s appears to be its fundraising strategy, which has almost seemed to be one of “how many entrepreneurs can we bag?” So far, alongside David Gardner and the Skype founders, they’ve notched up on their investment bedpost:

Chris Deering, former head of Sony Computer Entertainment Europe
Michael Acton Smith, founder of Firebox and CEO of MindCandy
Will Reeve and Alex Chesterman, cofounders of LOVEFiLM
James Booth, founder of TangoZebra
Michael Birch, former CEO of Bebo
Brent Hoberman, founder of Lastminute.com

Birch and Hoberman have recently set up PROFounders Capital to invest in “capital efficient, early-stage companies operating in the digital media and technology space”. It’s not clear whether they made this investment personally or via PROfounders.

Playfire CEO Kieran O’Neill is young (23), ambitious and on his third startup. He’s assembled an impressive array of talent as advisors and investors.

The trick now is to take the $2.1 million and ensure that there are enough indians to do the chiefs’ bidding.

No related posts.

Gamesbrief’s Weekly Tweets for 2009-11-13

2009-11-13T06:04:00Z

Just posted: Did GTA IV really cost 30% more per copy than Modern Warfare 2 http://tinyurl.com/yjajeqr #
Just posted: David Gardner and the Skype founders the latest notch on Playfire’s investor bedpost http://tinyurl.com/yzgwnec #
Just posted: Modern Warfare blows away all records http://bit.ly/1c22A0 #
RT @Michael_French: 1 in 49 people in the UK bought #mw2 yesterday (says @OPM_UK ) or 1 in 24 households (say @MCVMagazine & @TSIngham) #
Just posted: Hard-a-port! Is Riccitiello’s strategy to turn the Electronic Arts supertanker working? http://tinyurl.com/ylj7yx3 #
The key to successful blogging: Have one point. Make it. Stop. #
Go Tom Watson MP http://bit.ly/Py5E0 #
the many millions of games users, rather than collaborating with the Daily Mail to create moral panic over the use of video games?" #
"Does the Minister agree that it would be better for this House to support the many thousands of games designers and coders and #
Some interesting comments from Adam Martin on why Playfish will beat Zynga http://bit.ly/4mC5×0 #
I'm not sure that Google should have been allowed to buy Doubleclick. Equally unsure about letting them buy AdMob #
Just seen that Jolt Online received a major investment from Gamestop yesterday. A good week to be a casual games co. http://bit.ly/2kIxZn #
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Why the future of news is blogs, not papers – based on the NYT's rubbish reporting of virtual goods scams http://bit.ly/2vYe8I #

Modern Warfare blows away all records

2009-11-12T21:14:17Z

ELSPA has just announced that Modern Warfare has broken every sales record in the book.

In just one day, the game sold an estimated 1.23 million copies and generated £47.7 million of revenue at retail. The previous record holder, Grand Theft Auto IV, sold 631,000 units with revenue of £27.2 million on 29th April, 2008.

Modern Warfare has been helped to its success by broken streetdates and controversial content, but even so, these are impressive statistics by any measure. Many games would be happy to sell a million units. Worldwide. Over their entire lifetime. EA recently cut a dozen games from its development slate fearing that they weren’t on track to deliver 2 million units.

Modern Warfare has delivered over 60% of that target.

In the UK.

In a single day.

As @Michael_French tweeted:

“1 in 49 people in the UK bought #mw2 yesterday @OPM_UK points out. And as @MCVMagazine & @TSIngham say, 1 in 24 households have it. Crazy.”

It’s a staggering achievement, and testament to Infinity Ward’s development and Activision’s marketing nous. Bobby Kotick famously said that he wasn’t interested in franchises that weren’t likely to be worth at least $100 million and implied therefore that Activision is likely to invest (and invest heavily) in titles that can deliver year-in, year-out.

Modern Warfare is one of those. It is, after all, a sequel. But it’s a sequel that seems to offer elements of innovation, controversy and entertainment in a neatly-packaged whole.

And if that’s how Activision plans to continue to dominate the industry, maybe that’s not so bad for us gamers after all.

Hard-a-port! Is Riccitiello’s strategy to turn the Electronic Arts supertanker working?

2009-11-11T19:28:17Z

Electronic Arts’ Q2 announcement yesterday was pretty electrifying: 1,500 jobs lost to save $100 million a year, while also spending $275 million in cash (and up to $400 million in total) to acquire Playfish. Some critics have struggled to understand the strategy (and the Playfish valuation) but it’s really further evidence that the EA supertanker is charting a course through stormy, rock-strewn waters.

Electronic Arts has had a rough ride over the past few years. While Activision has gained on the strength of World of Warcraft, Guitar Hero and Modern Warfare, EA’s stock has tumbled by more than 60% since the start of 2008.

Electronic Arts five year share price

View the full NASDAQ:ERTS chart at Wikinvest

Electronic Arts versus Activision over the last six months

View the full Electronic Arts vs. Activision chart at Wikinvest

Stormy weather ahead, Captain

Under John Riccitiello, Electronic Arts has been restructuring the business. Since he rejoined EA as CEO in April 2007, he has overseen two massive waves of job cuts. The first saw 600 jobs culled in October 2008, rising to 1,000 by December and adding a further 100 layoffs in February. This latest tranche sees another 1,500 redundancies – by March 2010, fully 25% of the employees who worked at Electronic Arts when Riccitiello came back will have been made redundant.

The restructuring aims to take over $600 million of costs out of the company each year, which will improve the underlying performance of the company.

Financial performance of Electronic Arts over the past five years

Which is entirely necessary, as the chart above shows. In the year ended March 2008, Electronic Arts made a loss of $384 million. In 2009, the loss was $340 million.

(The reported losses – $487 million and $827 million respectively – were much higher due to one-off restructuring costs and “goodwill impairment charges”. Any incoming CEO has an incentive to clear out the balance sheet with lots of financial adjustments that he can blame on his predecessor – the goodwill associated with the Jamdat acquisition being a good example – and Riccitiello followed the usual strategy of “kitchen sinking”)

These cuts not only give the company a chance of being profitable in 2010, they are preparing the company for the strategy of the future: fewer mega-hits taking the lion’s share of consumer spend on consoles and new digital distribution businesses (iPhone, Facebook, virtual goods on the web) offering the best route for growth and innovation.

These be uncharted waters

Unlike its complacent competitors, Electronic Arts knows that it’s sailing into uncharted waters, and it’s getting ready. It’s innovating with new products like Battlefield Heroes that embrace the freemium model of allowing users to play for free but to pay for virtual goods if they wish to enhance their experience.

It invested heavily in the iPhone version of The Sims 3, a game which had a development cycle of 18 months – short by console standards but mammoth for the iPhone. And not only did this title bring high-quality games to the platform, but it innovated with virtual goods on Apple’s handset at the same time.

Most recently (and the timing showed more focus on the views of the stock market than the sensibilities of the 1,500 people affected by the job cuts), EA announced the acquisition of Playfish, the “best” developer of games on Facebook. That statement is subjective since Zynga is clearly much larger, but Playfish has lavished care and attention on its products, shunned the worst excesses of the “offer scams” and clearly aimed to create and nurture long-term, innovative, intellectual properties, something that even the most ardent supporters of its rivals could not say about them.

I’ve already posted about why I think an acquisition of Playfish is a steal for $250 million (the originally rumoured price) or even $400 million (the price including $275 million of cash, $25 of “equity incentives” and $100 million of earnout), but I think it will turn out to be a landmark in the revivial of EA’s fortunes under John Riccitiello.

Land ho!

Taken together, these changes – a reduction of traditional games development/publishing headcount by 25%, investment in new business models like Battlefield Heroes and The Sims 3 on iPhone, the acquisition of Playfish – herald a clear strategy.

Riccitiello has seen the rocks ahead. He’s sounded two short blasts on the whistle and turned the wheel hard to port. EA’s a big vessel and it will take some time to respond.

But respond she will, and she’ll start 2011 (yes, I mean 2011) aligned on a new course – just as Activision, THQ, Take Two and others start noticing that they need to do something about these new businesses that are eating into their profits.

And John will look over his shoulder as he slams the engines to flank speed and leaves them all struggling in his wake.

1,500 jobs to go at Electronic Arts as it replaces traditional games with social games

2009-11-11T15:23:55Z

Electronic Arts have announced a further 1,500 job cuts.

In the Q2 earnings announcement, EA said:

Cost Reduction Plan

EA has announced a plan to narrow its product portfolio to provide greater focus on titles with higher margin opportunities

This action will result in the closure of several facilities and a headcount reduction of approximately 1,500 positions, of which 1,300 are included in a restructuring plan. The majority of these actions will be completed by March 31, 2010. This plan will result in annual cost savings of at least $100 million and restructuring charges of $130 to $150 million.

The job losses will include 900 jobs in development, 500 in publishing and 100 within the corporate structure. Many studios have been hit including Black Box, Redwood Shores, Tiburon and Mythic. According to Kotaku, they also include the entire team working on Command & Conquer 4: Tiberian Twilight, and staff working at Sims-developer Maxis, social network Rupture and Pandemic Studios, the developers of Mercenaries and Saboteur.

As many as a dozen projects may have been cancelled, and EA is concentrating on franchises that generate over 2 million units.

The announcement of the job losses came on the same day as Electronic Arts announced the acquisition of Playfish for $300 million and an earnout of up to an additional $300 million.

Added to the Job Loss Tracker.

Why EA’s acquisition of Playfish is still a steal at $400 million

2009-11-09T16:39:43Z

There’s no smoke without fire, they say, and the rumours of EA’s acquisition of Playfish would have stupefied all the bees in the US (not that there are any left, of course).

And today it was confirmed on Playfish’s blog that they had been acquired. The acquisition price is $275 million plus $25 million to retain top talent, plus an earnout of $100 million. Playfish is rumoured to be making $75 million in revenue in 2009.

Pretty impressive for a business that is two years old this month.

When the rumours first broke, I posted that $250 million for Playfish was a steal for six reasons:

Social games are big and growing
Playfish is an extremely successful games developer
Playfish has lots of users
Playfish is making a lot of money
Playfish has great management
Playfish will turn the EA supertanker, and benefit from EA’s strength

At $400 million, the points still stand. And EA has protected itself against the risk of overpaying by making $100 million contingent on performance over the next two years.

Massive congratulations to the Kristian Segerstrale and his team, and you can read my full analysis here.

Which UK games companies got £577,000 from the Technology Strategy Board?

2009-11-09T12:35:07Z

According to a written answer from David Lammy, MP and Minister of State (Higher Education and Intellectual Property), in response to a question from Philip Davies MP (who appears to be wanting to demonstrate his interest in the business of video games:

During the financial year 2008-09 the Technology Strategy Board offered grant funding of £117.1 million to new projects involving UK businesses. Of this, £577,000 went to projects involving UK video games businesses.

Anyone any idea who got the money?

4 routes to an investable business plan

2009-11-06T09:17:00Z

Entrepreneur Corner over at Venturebeat is a fabulous site. It offers plain-talking advice from experienced entrepreneurs and angel investors, and nearly every post there is worth reading.

Yesterday’s advice came from Jason Cohen, founder of SmartBear Software (and two other companies) and now an angel.

He identified four things that put him off a business:

Competitive analysis that dismisses the competition, rather than admitting their strengths and identifying their weaknesses
Five year plans: because it means the entrepreneur wasted time that could have been focused on thinking about to get to cash-flow positive and ensuring that for each new customer, revenue exceeds costs
Customer acquisition strategies with no details, which means it’s just what everyone else is doing
Following “advice” rather than following your gut.

Like most of the posts in Entrepreneur Corner, it’s worth reading. Check it out.

VCs give advice on how to pitch, and how not to

Gamesbrief’s Weekly Tweets for 2009-11-06

2009-11-06T06:04:00Z

To get the best sense of "fiero", you need to find a massive adversity <- hard to reconcile with mass-market games #developnorth #
Fiero is the academic word for "triumph over adversity" #developnorth #
Decision and pleasure centres are most closely linked part of brain: We're wired up to feel rewarded for good decisions #developnorth #
Biochemically fear and excitement are identical. The amygdala chooses whether you experience it as terrifying or exhilarating #developnorth #
Amygdala, hippocampus (isn't that a horse in a field) and a hypothalamus #
visual cortex, check; cerebellum, check; orbito-frontal cortex – eek what's that. #developnorth #
Listening to the "neurobiology of play" at #developnorth. Hope I understand it. #
In Korea, 25% of Universal's digital biz is an offer that lets blog owners choose 10 tracks their visitors can listen to #developnorth #
In Asia, gifting is v important: some music sites show one price to download for yourself and a higher price to give it to someone #
Music industry talking about what games can learn from freemium (like Spotify), then admitted games thought of it first #developnorth #
No games is top 10 on all three of iPhone, Android, Blackberry. Only Bejewelled is on 2 (iphone and blackberryy) #
Any questions for CEOs of devs behind Backbreaker (iphone), TrialsHD (XBLA), Darwinia (Steam/360) etc #developnorth? Tweet me #
Will chair a panel at #developnorth this afternoon with top bods from NaturalMotion, Introversion, RedLynx and PlayReplay #
Blackberry prices points are high $4.77 (but lowest price allowed is $2.99) #developnorth #
Blackberry still has a higher share of the smartphone market than Apple, and 80% of new buyers are consumers #developnorth #
Android runs the risk of fragmenting in the same way that Jave/Brew games did #
Android games average price is $2.67, but avg price of Top 10 $3.42, suggesting Android users will buy expensive games #
Average Android user has downloaded 40 apps, and on average Android owners download one app a week #developnorth #
Android makret as 12,000 apps and $5 m of app revenues per month #developnorth #
@K_0 Thanks for the retweet – glad you liked the post #
@samhouston It's just that GamerDNA was the hook that enabled me to blog about those thoughts in reply to samhouston #
@samhouston Sorry you didn't like the article – would be happy to discuss further in the comments in reply to samhouston #