A veteran’s view on marketing games

For over 25 years now PC games have been available on disks and in boxes at retail stores around the world. This business model is now well and truly broken because most people would rather steal games over the internet than pay for them. Game publishers have tried a number of protection strategies (DRM or Digital Rights Management) but none of them work and they cause a great deal of resentment amongst legitimate users. Why alienate your customers?

However there is a form of DRM that consumers like, and that is Steam. They like Steam because it adds value in lots of ways so they don’t even realise that it is mainly there for DRM, they just see it as a download service and as a community. The problem is that publishers tend to release a game in boxed retail format and on Steam. This is silly because the boxed version is the one that is going to end up being copied over the torrent network. It is obvious that the time has now come to release PC games only on Steam. This has many advantages:

• If your security (and Valve’s) is good then there will be no piracy. If software thieves want to play your game they will have to pay for it. Which is as it should be, but isn’t at the moment.
• No need to design and manufacture all that packaging and all those disks.
• No need to distribute physical stock around the world.
• No need to give sale or return.
• Higher gross profit percentage.
• Simultaneous global launch into every country on earth.
• Lots of added value services for the consumer.

Quite simply we have reached the point where making the boxed version actually reduces sales and costs money. The piracy that it allows costs far more than the income it provides. Publishing a game as a Steam exclusive will make you more money and involve far less work. In fact using Steam as the exclusive distribution fixes the broken business model. So it makes it worthwhile to develop PC games once more.

All this depends on the Steam DRM not being cracked. So Valve need to keep one step ahead of the thieves. Also publishers don’t have to use Steam. They can make their own Steam-alike. For the biggest publishers this may be viable but for most the existing Steam community is a very powerful reason to give this service the sole rights.

And now I am going to back my thesis up with this market research. 85% of these PC gamers are software thieves, 55% have avoided buying a game because of DRM and 58% have had issues arising on their computer from the DRM on legitimate games. Yet, and this is the big one, 51% would have paid for a game they have pirated if it had been available on Steam. 

So, if publishers have any sense, boxed retail PC games are dead. It is a pity EA didn’t realise this with Spore.

Obviously all three platform holders are working on their next generation consoles, we even know that Microsoft have given theirs the codename “phoenix”. It is also pretty obvious that all three will be scaled versions of the current generation consoles with up to four to five times the power. They will use massively enhanced versions of the same GPUs and CPUs  and will have a lot more memory. Backwards compatability will be 100%.

Nintendo are in the tightest corner. The Wii is looking very tired with its lack of HD TV support and lack of hard drive. It is still selling well, but on the back of a small handful of populist games that are now quite old. So sales numbers could implode at any time, there is nothing new driving them forward. The lack of first party Nintendo game releases for a long time now looks suspiciously like their internal teams are working on the SuperWii instead, to ensure a good supply of launch titles. This means that the SuperWii is not too far away.

Microsoft are obviously working towards a two model range with the 360 and the phoenix both available for many years. They have now moved the Xbox 360 down to the $199 price point so they are strategically positioned to launch the premier price point phoenix machine any time they want. Microsoft have pulled off brilliant long term strategy with the current generation machine so don’t be surprised if the phoenix arrives sooner than the analysts are predicting. The market is ripe for a premium machine that is up to four or five times more powerful with 100% backwards compatibility.

You have to wonder about Sony. The losses on the Playstation PS3 fiasco have wiped out the profits they made with PS2. So will they even bother with PS4? The answer is probably yes. Firstly because it will be far cheaper to develop, being just a scaled PS3. Secondly because as a company they need to make profits and the console business can be enormously profitable when you get it right. And thirdly because this industry is still at its beginning and will grow to be massively bigger, so the potential upside is huge.

One thing I think is very possible is that one of the upcoming consoles makes a step change in its sound capability. Generation on generation we haven’t had the same advances in sound that we have had in graphics so there is plenty of scope for such a step change. The main cost is development, after that you are just making silicon. So there is a big opportunity to get a substantial product differentiator here. Which would be nice after the 360 and PS3 were so close to each other in capabilities.

It seems that just about every young person in the world these days wants to work in video games when they get older. Mostly they want to be “games designers” when they have no idea what the job entails. Some know that they want to be programmers or artists and have a better idea of the skills that they need. To develop a game from scratch and get it to market takes a wide range of skills. And nothing is more important than marketing. You will not sell a single copy of a game without some sort of marketing. And the better the marketing, the better the sales.

So if you are very bright and hard working here are some tips for becoming a game marketeer.

The first thing is to read game industry websites instead of game consumer websites. Then you will see the industry from a different perspective. Look at Gamasutra, Gamesindustry.biz and MCV. I read these all the time. Next you need to get some real world hands on experience. This will give your CV a competitive advantage.
Try the following:
1) Write to the HR departments of game companies asking if you can work an internship (probably unpaid)during your summer vacation.
2) Find home coders working on XNA and iPhone games. There are many thousands of them. Classifieds and forums will help you find them. Ask if you can join the team as unpaid marketing person.
3) Get to trade exhibitions like GDC and E3. You need a trade pass but that shouldn’t be beyond your imagination!
4) As soon as you have the slightest credibility as being a game industry person join Linkedin, then Link in to all your contacts and join the game industry groups there.

Here is an example of someone who wants a career in game marketing proactively enhancing his CV with a game marketing blog:  http://thomcult.blogspot.com/

Obviously you need to go to a good marketing school to get the relevant degree. Be sure to build your management skills. Marketing contains a lot of management. Managing projects, managing money and managing people. Once qualified and working it is very well worth doing an MBA. Marketing people have the skillset to run the industry. And if you are going to run anything it helps to have the training.

• Spore cracked by the “Reloaded” group. Presumably they think that they are clever and are proud of what they have done. Would they think it so clever if they shot themselves in their feet with shotguns? Because that is exactly what they have done here.
• Microsoft announce new Zune lineup, preloaded with two games, Hexic and Texas Hold ‘em. Which may show the direction they are going in. The top model boasts an impressive 120Gbyte hard drive, but still there is no leap in utility to leapfrog the iPod.
• Apple App Store users have downloaded more than 100 million games and applications in the last 60 days. No wonder that Steve Jobs says it is ”the best portable device for playing games on“. And the iPod planned obsolescence rolls on with further primped up models. A lot of people are taken in by this and purchase each successive iteration.
• Massive boost in Microsoft Xbox 360 sales at the new price points, with some models reported to be selling six times more than before the drop. And this is before Microsoft turn up the marketing wick for the holiday season. If they get it right the 360 could become the definitive gift this year.
• It looks like Microsoft are abandoning PC gaming. Giving up because the business model is palpably broken and because they would rather have gamers on the Xbox platform.
• People are beginning to notice the lack of new first part Nintendo Wii games this year and the abysmal shovelware that most third parties are producing. It is almost as if everyone doesn’t have enough faith in the future of the Wii to invest in proper AAA titles. Which makes it look increasingly likely that the SuperWii is just around the corner.
• Google to become a game publisher. This speculative article in Forbes looks at this possibility and the routes Google may use. When you look at the online power of Google and their need to enter new business areas this makes eminent sense. Time will tell.
• Internal development teams are more expensive than external teams. This is pretty obvious stuff and I can recommend a good book by Adam Smith that explains why it should be so.

Since 1981 the PC has been a fantastic platform for video games. We have seen the likes of Quake, Diablo, Half Life, Unreal Tournament and Civilisation. But the business model that brought you these classic, high street retail, boxed games is broken beyond fixing. All PC gamers are going to be far worse off, but they brought it on themselves, by stealing.

Just look at this. Spore is out today, one of the most eagerly awaited titles in ages. And one that could change gaming forever with its intelligent take on user generated content. Yet over 1,200 people have already given it a one star review on Amazon. And none of them have played it. The reason is quite simple, they don’t like DRM.

The fact is that DRM is essential to the industry. Without it you have no sales. Consoles are just DRM dongles that force you (when it works) to only play legitimate games. And often only games sold in your territory. Steam is a DRM service. It forces gamers to have legitimate copies of games. Yet nobody complains about these forms of DRM.

When the DRM is broken people just steal the games and with peer to peer networking and broadband this is actually easier than not being a thief and going to a shop and buying it. So game publishers put ever more powerful DRM software on their PC games. And it interferes too much with people’s PCs. To the point that some honest people buy the game from the shop (so they are not thieves) yet download it using torrents.

The simple fact now is that every single boxed PC game is thieved many more times than it is bought. To the point where it is not worth spending money developing PC games. So only a trickle now come to market compared with the massive previous popularity of the PC amongst developers. And even this trickle will dry up. If people won’t pay for the work to be done then it won’t be done.

So the future of PC gaming is not nice. There will be the MMOs and casual gaming. But beyond that new business models will be the only way forwards. New business models that are far more intrusive to the gaming experience. Like advertising and micro payments. But that is the way it is going to be. The boxed, high street retail PC game is dead. Killed by thieves.

In the past Electronic Arts developed a reputation of buying up smaller but very highly talented development companies and assimilating them into corporate EA, whereupon the spark of inspiration would be lost. This was bad business because time after time the investment was wasted. And the underlying problem is that this is a creative industry so you have to foster that creativity and let it flower.

Obviously EA want to bring a flow of superior product to market so they have cleverly worked out how to get the best out of developers. Basically they use a mix and match bespoke policy with each developer, which contrasts strongly with the one size fits all policy they used before. Each developer gets what they need from EA, no more and no less. If they want to be owned by EA then OK, if they don’t want to be owned by EA that is also OK. If they just want money, fine. If they just want marketing that is also fine. What matters is nurturing the creativity to create great games.

David DeMartini runs their partners programme with a staff of sixty. He says: “EA looks at the top 20 developers in the world and we try to sign anything those guys are working on.” Speaking to developers of all nationalities will bring a global feel to EAs catalogue. Most recently, for instance, he has recruited Resident Evil creator Shinji Mikami working with developer Suda 51, which has to be a feather in his cap.

This whole operation is vastly more sophisticated than anything any other publisher is doing. It promises to bring the very best talent under the EA umbrella (in one way or another) and so bring EA the very best games being made. The payoff won’t be quick and they will have failures as well as successes, but over time this policy must work to consolidate and enhance EAs position as one of the top global publishers, even in the face of the global entertainment media giants muscling into the market.

Firstly let’s look at how the numbers stack up. According to the best guesses there are about 30 million Nintendo Wiis in the world, 20 million Microsoft Xbox 360s and 15 million Sony Playstation PS3s. So the Wii has currently sold 50% more than the 360. And 10 million is a lot of units to make up. Here is how it will happen:

• As this site has been predicting for a long time the Xbox 360 is now $199. This is the price point at which historically 75% of consoles sell. However the 360 has got to this point very early in its life, so far, far more than 75% of 360 sales are yet to happen. Currently the Wii is above the magic $199 price point, expect it to come down as predicted here. But even at a new, low, price point the Wii will have difficulty in perceived value against the Xbox 360.
• Sony are making massive losses on the PS3 so cannot bring the price down. All they have been able to do recently is pass on lower hard drive prices by giving customers bigger drives at the same price. As the PS3 and the Xbox 360 are very similar in their capabilities Sony will now lose a huge number of potential sales to the Xbox 360.
• The Wii is for many people little more than a glorified toy. It is just a box for playing Wii Sports or Wii Fit. If these people want proper gaming they will buy a 360.
• The 360 has by far the best catalogue of games in this generation. This is because they launched first, because it is far easier to develop for than the PS3, because Microsoft have invested a lot in exclusives and because 360 owners buy more games than owners of the other consoles. The Wii has some brilliant first party exclusives, but these are relatively few and most third party games are little more than shovelware.
• The Wii is very stunted in capabilites being largely just an uprated gamecube. It’s capabilities are far behind those of the Xbox 360. This is especially damaging in the lack of HDTV support and a hard drive. Comparing the two machines side by side is like looking ar a Ferrari next to a bicycle.
• The Wii is going to have a very short production life, perhaps four years, before it is replaced by a SuperWii that will correct its weaknesses. The Xbox 360 is going to be in production for at least eight years, the last half of that life as the low cost partner to the Xbox 720 (Phoenix) in a two model range. So the 360 has a long time to catch up and overtake the Wii for total sales.
• The 360 is being engineered into a single chip (+memory) combining the GPU and CPU. The effects of Moore’s Law are such that this will become cheap enough to incorporate into televisions, which Microsoft seem to be gearing up to do. Nintendo have no chance here with the Wii, who would want a non HD console built into their HDTV?
• The Xbox 360 has Xbox live which is by far the best online gaming portal there is. Microsoft have built a formidable USP here and are not about to lose it anytime soon. They will invest what it takes to keep their online offering well ahead of those of its competitors. So great will the power of live become that every keen gamer will be forced to buy the hardware necessary to access it, just so as to remain a viable member of the gaming community.
• Microsoft have now made the Xbox 360 commercially viable in Japan by creating the games that the Japanese want. This is a huge turnaround and adds a lot to the potential total sales of the console.

The success of the 360 goes against Microsoft’s traditions, normally they wait for the third iteration of a product to become the market leader. And of course if you add the sales of the Wii to the sales of the SuperWii then Nintendo have the potential to still end up ahead.