Games Brief

The death of single-A titles will challenge retail more than the rise of casual

2010-07-30T11:37:35Z

I wrote a post yesterday about the liquidation of Chipsworld, bemoaning the fact that the official announcement seemed to blame the recession, rather than structural issues in the games industry.

Commenters on the original story on MCV (including Develop editor Michael French) disagreed with me, but Chris Bateman of International Hobo put forward some strong arguments that focused on the changing nature of retail releases. It was so interesting that I asked Chris if I could reproduce it as a guest post.

In your post on the liquidatin of Chipsworld, you say "In short, we’re seeing fewer titles take a larger share of the revenue." I’m not sure this is entirely the correct analysis here, although you’re certainly gesturing in the right direction.

The revenue distribution in videogames hasn’t obviously narrowed in the last 10 years as far as I can tell – we’re still seeing about 5% of the games take 50% of the revenue. What we have seen is fewer titles competing in the same space, probably because the cost of development has risen so the number of titles (for the power consoles at least) has declined. Now weirdly this suggests that *more* titles are pulling in the big numbers, since the rough percentages haven’t shifted much. But it’s still the same small slice of the wedge getting those good numbers, we’re maybe talking about 3-4 strong hits per year rather than 1-2. Also, the rate of incidence of mega-hits has increased – Modern Warfare 2 being the example of this kind of title. More on this in a moment.

What does appear to have happened is the middle market has dried up. It used to be that there was a lively A market below the AAA’s – now it’s difficult to find any evidence of this space. The drying up of the once plentiful license tie-in titles speaks of this problem.

The reason for the loss of this market probably matches your analysis here – but it’s been a big hit for both developers and retailers, both of which rely on a solid throughput of titles.

In the 90′s, 8 million was the ceiling for core market games, now this seems to have risen to about 12 million (give or take) and my unprovable suspicion is that this reflects a rise in the numbers of people in the core market. If so, the hardcore market isn’t declining or static, it is continuing to grow, as can be seen from the relative sales of titles targeting a purely core market (at least, the big ones that get the marketing spend) which can now sell 3 million whereas in the 80s they topped out at a million.

But the rate of growth of this market is considerably slower than the rate of growth of the mass market, and anyway, because of the rising cost of development of AAA console titles it’s become harder and harder to make good returns targeting this market at the top end.

It seems that a lot of indie developers are able to fill the huge gaps in the diversity of the market by providing niche hardcore titles at the bottom end, but the economics of this is harder to track of course.

So on the whole I suspect nothing much has changed at the top, and it’s rather the middle of the core market which has been stripped away… with disastrous effects for both developers and small retailers.

As for boxed product, the AAA games continue to require boxed product – the development budgets demand the higher RRPs which can only be acquired in a box product because of consumer psychology; people are willing to pay more to get a physical item (no matter how illogical this may be!). The fall off in boxed products in the actual data in Nick Parker’s chart probably reflects the fewer titles being fielded *and* the narrowing of the target market of those titles. His extrapolations look excessive to me although I don’t doubt that you are correct to think that a greater and greater proportion of revenue will be obtained via downloads going forward.

Unlike you, I don’t see an end to boxed product any time soon, but without the diversity of titles that there was, say, during the PlayStation era, the indie retailers can’t make up the numbers, and the ability for supermarkets to undercut only makes their position even more tenuous. CHIPs, alas, have fallen prey to these changes in the shape of the market for videogames.

The death of single-A titles will challenge retail more than the rise of casual

2010-07-30T11:33:47Z

I wrote a post yesterday about the liquidation of Chipsworld, bemoaning the fact that the official announcement seemed to blame the recession, rather than structural issues in the games industry.

The reason for the loss of this market probably matches your analysis here – but it’s been a big hit for both developers and retailers, both of which rely on a solid throughput of titles.

The CHIPS are down: UK independent games retailer Chipsworld enters liquidation

2010-07-30T11:32:01Z

MCV today reports that CHIPS has gone bust, with the loss of 29 jobs at head office and at its wholly owned stores. The company is at pains to point out that its franchise stores are not affected. I

My heart goes out to management and employees. I have seen businesses die and I have been made redundant (although in the end that was one of the best things that ever happened to me), and it is not easy.

I take huge issue with CHIPs stated reason for the liquidation though. In their official statement, they say:

“Since the summer of 2008, Chipsworld Ltd has battled against the credit crunch, mounting unpaid debts and the recession in order to keep afloat. On December 31, 2009, it entered a Company Voluntary Arrangement in an effort to continue trading.

Unfortunately, the recession has lasted far longer and bitten far harder than anticipated and Chipsworld Ltd has been unable to continue trading. Many of its customers, particularly in the North-east of England have been badly affected by the recession and to continue trading would only increase the company’s debts further.”

I just don’t buy it.

The recession has been bad, certainly. And i am sure that if CHIPS is saying that its customers are spending less money in store, that is true. I just don’t believe that the primary cause is the recession.

What caused CHIPs’ problems?

Just to be clear, I have no specific insight into CHIPs. MCV commenters have talked about the difficulties of getting credit insurance, poor merchandising decisions or not having the right stock. That may or may not be true, but it is CHIPS specific. I want talk about the malaise that is affecting retail.

Fewer, bigger products

Publishers are being squeezed and their response is to chase bigger, more impressive titles. Everyone wants to be a Modern Warfare 2, grossing half a billion dollars in retail in the first week. What does that mean for other titles? It means that if you are not a big title, you are not getting the retail sales. In short, we’re seeing fewer titles take a larger share of the revenue. And this will continue.The impact for retail is stark. Publisher strategies focus on people buying fewer titles and playing them for longer. That is not good for footfall or average basket size.

The role of online in boxed products

Increasingly, boxed products are not even that important in themselves. They are becoming the first stage in the publishers’ strategy of feeding the funnel. Boxed games may even become loss leaders for DLC: the publishers get free marketing in the retail store (paid for by the consumer) but aims to make most of its profits from upselling other elements of DLC.

Just to be clear, this is not viable yet – DLC is not yet a big enough segment of the market. But it is a sign of things to come.

The growth of other forms of gaming

For everyone complaining about a recession, there are other games business that are growing like crazy during the worst consumer slump for 20 years. Zynga with $400m+ of revenues. Playfish and Playdom with an estimated revenues of more than $100 million. Companies like GameForge, Jagex and Bigpoint with revenues of around $50 million. Lazard estimates that the global online market was worth $15 billion in 2009, growing to $20 billion in 2010.

That’s a lot of growth. $5 billion of growth in fact. Where is it all coming from? Some of it is coming from new users (see PopCap’s research on gamers on Facebook) but a lot of it is cannibalization of existing sales.

To illustrate the point, here is Nick Parker’s charts for boxed sales versus online games and streaming games. (Nick produces much of the games forecast for Screen Digest, among other things.) We hit the peak of boxed products in 2008 and we ain’t never coming back. It may have been kick-started by the recession, but, in Nick’s estimation, the only way for boxed products from here is down.

The erosion of the hardcore

This one is more of a belief than empirical evidence. I’m still researching it. But my belief is that the hardcore gamer market is stagnating. I wonder if we may have reached a plateau where the hardcore market has reached its maximum size.

As people get older, with families and other commitments, they are less able to dedicate time to gaming. they are still keen gamers, but will seek alternative, less-intensive ways of getting their gaming fix.

This is precisely what happens in the film / television industries. Single, dating, childless people go to the cinema more often. Older, married couples with kids watch television. They are still consumers of filmed entertainment: just through a different medium.

Of course, cinema went through its rough patch in the 80s and early 90s and has since recovered mainly by improving what it offered its consumers. The same may be possible for physical games retailers. But the easy assumption that people who liked games had to go to shops has long gone. And I’m not sure that retail is yet experimenting with how to replace it.

Conclusion

My point here is not to pick on Chips. It’s to challenge the assumption that games retailing is being hit by the triple whammy of a consumer recession, pressures on credit and competition from grocers. Physical retailing of games is definitely facing these things, but it is facing much more. When the economy recovers and credit comes back, there is nothing but a tough future ahead for physical retailers.

Added to the Job Loss Tracker.

Self-publishing lessons learned from Daniel Jones (aka Deejay) of Binary Tweed

2010-06-13T21:44:31Z

Welcome to the tenth in a series of 12 posts from games developers who have taken the brave step into self-publishing. They have all contributed to How to Publish a Game, and you can get the first two chapters absolutely free here.

Daniel Jones, better known as DeeJay, is the Managing Director of Binary Tweed, which makes “New games that are a bit like old games, but better.”

He started life as a web developer at a finance company (Head Of Web Development at a multinational online derivatives trading company, no less), but in 2008 he founded his own indie development company.

His first title is Clover, an adventure platform puzzle game.

What’s been the best thing about self-publishing your game?

Publishing through XBLIG gives up-to-date stats, and whilst the peer review process can be unpredictable, it’s much less hassle than XBLA/PSN certification. It’s also great only having to work with people I choose to, and being able to make creative choices freely.

What’s been the worst thing?

Lack of marketing spend really hurts. Luckily XBLIG has a core of devoted fan sites, but the PC release of Clover: A Curious Tale really suffered from low visibility. If the game had a publisher there would have been marketing funds, and existing relationships with key players.

What would you do differently if you did it again?

A 9-month development cycle was far too long for my initial title. Really I would have been much better off making something very simple with wide appeal, to get a better grasp of the technology and market. I’d also not take the word of ‘experts’ – a few times I did things someone else’s way because I believed that they were more experienced, and lived to regret it. I’d much rather make my own mistakes than have someone else’s affect me.

What advice would you give someone thinking about self-publishing for the first time?

XBLIG is a great easy-access route to market; you might think self-distribution on PC would be even easier, but it’s really hard to sell anything if you’re not on Steam. Start small, and be prepared to make games you don’t find particularly creatively satisfying in order to pay the bills.

You can find DeeJay at www.binarytweed.com.

Has the acquisition of Playdom created a disgruntled workforce for Disney?

2010-07-28T13:37:00Z

I was reading the TechCrunch report of Disney’s acquisition of Playdom and this comment leaped out at me:

“The sad truth is that 90% of employees got nothing immediately from this deal. 90% of Playdom employees joined the company less than a year ago.

Typically what happens in a giant acquisition like this is that employees, senior employees and relative new ones, those who joined the company less than a year ago, will get at least one year’s stock option vested, thus getting at least some carrots when the acquisition happens. No, this is not in this case.

And, that is MEAN. And, 90% of employees are NOT happy!

Did you hear this, Playdom execs?

Or recruiters will hear this – it’s great time to poach Playdom employees.

Playdom execs, and now DIMG President Steve Wadsworth – please revise the terms and give 90% of Playdom employees at least something, like one year accelerated vesting. Please."

This is a genuine problem for Disney. I can understand why they didn’t accelerate the vesting on acquisition: for many employees, the stock options are an important part of their remuneration and their commitment to the company. Paying too much out too soon and employees might take their windfalls and run.

On the other hand, most employees want equity so that they can get rich when the company goes public or gets bought. Playdom no longer has that carrot to dangle in front of people. At best, employees will have had their options transferred into a Disney option scheme that vests in safe, sensible Disney stock over time, and that is not the kind of equity that excites people who join fast-growing start-ups.

Against a background of a massive dearth of social gaming skills – and very high salaries for those who do exist – this is a problem for Disney.

How they handle this issue will be a critical part of whether this acquisition works or goes horribly wrong.

Disney buys Playdom, but will its IPs work in social games?

2010-07-28T11:10:57Z

The acquisition of Playdom by Disney is all about exploiting Disney’s IP on social plafforms. But will it work?

Disney has paid $563.2 million, mainly in cash, plus a $200 million earnout for Playdom. that’s a total value of $763.2 million if the targets are met. I don’t have insight into the financials of Playdom, but it’s a big number. Playdom had better deliver for Disney (Disney’s other big online acquisition has only partially worked out. Club Penguin failed to meet its earnout target, halving the acquisition price).

What are Disney buying?

Disney can see that social games are a large part of the media future. In Playdom, they are acquiring:

Users: According to AppData, Playdom has 38.8m MAUs (not d-duped), making it the #4 Facebook app developer behind Zynga, EA/Playfish and Pencake.
Revenues: Playdom expected to make “upwards of $50 million” in revenue in 2009, says Inside Social Games.Given the trajectory of virtual goods across the market, that seems like a conservative estimate. it wouldn’t surprise me if it were going to make 2-3x that figure in 2010 (although I have no insight into this at all).
Management: John Pleasants, CEO of Playdom and ex-COO of EA has played his hand well, and particularly has managed the company’s transition back from its nearly-disastrous decision to back MySpace over Facebook as the platform for social gaming.
Expertise: This is the biggie. In this market, there are few companies who really get social games, and finding employees who can make them is really tough (and very expensive). Disney is buying a head start.

What about IP?

Bob Iger, Disney CEO, had this to say:

“We see strong growth potential in bringing together Playdom’s talented team and capabilities with our great creative properties, people and world-renowned brands like Disney, ABC, ESPN and Marvel.

This acquisition furthers our strategy of allocating capital to high-growth businesses that can benefit from our many characters, stories and brands, delivering them in a creatively compelling way to a new generation of fans on the platforms they prefer.”

So there is little rationale in buying the IP of Playdom (fair enough, there isn’t much yet) and more in bringing Playdom’s social gaming expertise to the Disney family, particularly Disney and the $4 billion acquisition of the Marvel mine.

Will it work?

For me, the jury is out. Playfish and now Playdom are now touting branded content as the next big thing on social games.

Well they would, wouldn’t they, being owned by massive brand owners who want them to exploit those brands in the social space.

The problem is that brands and “iterative development” don’t go together very well. It’s all very well putting out a low-budget test title with an unknown IP. It’s another thing to make a social game with Mickey, Thor or John Madden that dies on its arse.The proven model of social games has been to try – learn – iterate, which is not something that businesses steeped in old media thinking are naturally well-positioned to do.

So big publishers will try to make social game development like traditional development: risk-averse, driven by committee, full of focus-groups and arse-covering.

I don’t say that it won’t work, but I do say that these acquisitions are fraught with risk. i was much more comfortable with the EA/Playfish deal because I believe that John Riccitiello is totally committed to adapting EA to the new games market.

The jury is still out on Disney.

The death of the portal

2010-07-28T10:17:27Z

With the news that GameSpot has acquired Kongregate, I thought it was time to put forward my thoughts on why portals are vastly less relevant than they were four years ago.

It’s a brief extract from How to Publish a Game and it’s included in the two sample chapters I give away for free. Apologies if you have read it already.

Traditional games portals have been hit by a perfect storm. They used to offer developers one of the only routes to market and had access to a key revenue streams – advertising – that developers were rarely able to get for themselves.

The global recession hit those revenues hard but it masked a much deeper malaise: developers don’t need portals any more.

Developers don’t need their distribution, which was very expensive: Kongregate, for example, takes up to 75% of the revenue from a game (see p. 86 – I’ve added this below) whereas Facebook offers free distribution (although this may rise to 30% if Facebook Credits become mandatory, which is looking increasingly likely).
Developers don’t need their sales force. Advertising is no longer the primary revenue stream for free to play games; virtual goods are. Portals don’t help increase this revenue, unlike with advertising. Worse, they try to take a share of it.
Developers do need their financing. Unfortunately, portals rarely offer it.

If I were an independent developer, looking to launch a game on the web, I would choose Facebook over a portal every time.

Portals need to do something radical to increase their value to developers or they will go out of business fast.

* * *

Extract on how Kongregate remunerates developers

Flash game portal Kongregate pays developers up to 50% of the advertising revenue as follows:

25% of all ad revenue generated from their games as standard
15% if the game is exclusive to Kongregate
10% if the game includes Kongregate’s API for leaderboards and challenges

Or to put it another way, Kongregate takes up to 75% of the revenue of a developer’s game. Let me show you what that means for an independent developer .

Revenue from an ad-funded Flash game

These figures are not particularly attractive. Even a wildly successful game, getting 1 million plays a month, which would be a huge achievement, would only generate £1,500 a month in revenue for the developer. Of course, these assumptions might be flawed:

There might be than two ads displayed per game play session
The CPM of £1.00 might be low (although in my experience, they are falling, not rising)
The portal might offer more than 25% of the advertising revenue to the developer

It is no wonder that many Flash developers seem to just churn out games as quickly as possible. They need volume and a back catalogue to have any chance of paying the bills.

Kongregate also offers monthly contests for its top rated games. But with a top prize of $1,500 and thousands of games on the site, these are unlikely to make a difference to any but the smallest development teams.

How to make money from social games: Become an employee

2010-07-28T09:43:31Z

The goldrush is still on for social games, and employees seem to be the biggest beneficiaries.

That’s the message from Vonchurch, a specialized recruited that has placed 120 candidates in social games companies since September 2009, in an interview with Inside Social Games.

There is some inherent bias in this story. Vonchurch says “it’s a seller’s market” and that means that their biggest challenge is to find new candidates, not new clients. So it is in their interest to talk up potential salaries and remuneration to get more inbound calls from candidates.

Even so, there were two big take-aways for me

1. Employees are getting a lot of reward

Vonchurch says that the average salary for someone it has placed is $95,000. More specifically, people with expertise (not even very much expertise) can command high numbers:

Flash engineer, mid-level: $90,000 – $115,000
Flash engineer with social gaming experience: $150,000
Front-end web developer: $120,000
Product Manager: $115,000
Artist: $65,000

In addition, 98 per cent. of placements received equity. And money isn’t enough: employees want perks and to work on cool interesting games, not just Farmville clones.

2. Employee retention is becoming tough

With this explosion of salary levels, so employee retention is becoming tougher. Vonchurch refer to the “Zynga effect” which they describe as:

“Zynga has 1) hired in mass and worked their talent to their max and 2) have quickly replicated basic games …

Candidates are ready for an environment where they are no longer a number within a mass organization. They want some semblance of work-life balance. They want a larger contributing piece to the project they are working on, and they want a project that is going to be unique and not a replicated version of a Farmville.”

Of course, there are many developers who view Zynga as all that is evil and cynical about social games, but you can’t deny that they are phenomenally successful and for existing employees, a potential route to fabulous wealth.

But, if even Zynga, with its massive franchises and rumoured high profits, is struggling with retention, it will be tough for everyone.

Making social games is about to get really expensive

The bubble for social games is great news for anyone who can make them (anyone who remembers the dot com boom will remember what a wonderful time it was to be a young tech-savvy marketer, commercial web person or developer).

It’s bad news for companies. More downwards pressure on margins and a real challenge of human resources.

If you’re going to make the leap as an employee, though, do it soon. Supply of social games developers will eventually catch up with demand, and then salaries will fall again.

Which is better news for companies than coders.

I’m confirmed as a speaker at the EIEF on “Whales, power laws and the future of media”

2010-07-27T09:56:00Z

I’ve been asked to speak at the Edinburgh Interactive Entertainment Festival. I’ve never made it to EIEF before, and I’m honoured to have been asked.

My topic is Whales, power laws and the future of media.

The emergence of free-to-play games has revealed new truths about media consumption. Not all users are created equal. Some have little interest in a game and will only play it for free; others are so committed they will spend tens, hundreds, even thousands of dollars on a single title. Drawing on examples from the music and games industries, Nicholas Lovell charts the end of the “one price fits all” business model, the emergence of high-rollers as the primary driver of revenue and the dire consequences for games and media companies that fail to adapt.

I’m really looking forward to it. If you’re going to EIEF, come and say hi.

Be careful what you wish for: UK games industry gets parity with films as government abolishes the Film Council

2010-07-26T12:23:40Z

The video games industry has long cried foul that it is not treated equally. We are upset that Canadian companies get better tax breaks than British ones and we whinge that film is treated with respect by government with tax breaks and a Film Council and quangos galore.

“We want parity with film,” we cry. “After all, they’ve got the Film Council.”

Well, be careful what you wish for. Because as of today, we don’t have a Video Games Council. But nor does film have a Film Council.

Parity at last?

(Note: this is a rapid response to breaking news – DCMS may announce a new, revised quango later. My point is tthat beggar-thy-neighbour politics are rarely successful)

Games Brief

The death of single-A titles will challenge retail more than the rise of casual

The death of single-A titles will challenge retail more than the rise of casual

The CHIPS are down: UK independent games retailer Chipsworld enters liquidation

What caused CHIPs’ problems?

Fewer, bigger products

The role of online in boxed products

The growth of other forms of gaming

The erosion of the hardcore

Conclusion

Self-publishing lessons learned from Daniel Jones (aka Deejay) of Binary Tweed

What’s been the best thing about self-publishing your game?

What’s been the worst thing?

What would you do differently if you did it again?

What advice would you give someone thinking about self-publishing for the first time?

Has the acquisition of Playdom created a disgruntled workforce for Disney?

Disney buys Playdom, but will its IPs work in social games?

What are Disney buying?

What about IP?

Will it work?

The death of the portal

Extract on how Kongregate remunerates developers

How to make money from social games: Become an employee

1. Employees are getting *a lot* of reward

2. Employee retention is becoming tough

Making social games is about to get really expensive

I’m confirmed as a speaker at the EIEF on “Whales, power laws and the future of media”

Be careful what you wish for: UK games industry gets parity with films as government abolishes the Film Council

1. Employees are getting a lot of reward