A veteran’s view on marketing games

I have written about this before, but now some commentators have had their $0.02 worth, so I thought I would revisit the topic.

Game executives and financial people all over the world must be looking at how quickly Modern Warfare 2 romped to a billion dollars at retail and thought to themselves “I want some of that”. They are deluded and misguided even thinking about it and here’s why.

• There are too many AAA games in the market. Not slightly too many. Vastly too many. And most are making a loss. Just look at the accounts of the big publishers. The ones whose AAA titles miss the mark are making very big losses.
• There are too many publishers trying to churn out AAA games. We need more industry consolidation so that the production pipeline comes under some sort of control. At the moment Darwin is at work and some publishers who are structurally incapable of making a profit in the current market will find themselves subject to major externally exerted change.
• AAA games now cost far too much to make. The PS3 and 360 have HD that requires far more content to be hand crafted. So their games consume several times more man hours than previous generation games. Publishers are getting round this to an extent by making some games a lot shorter, but the public are not stupid. Next generation platforms will have the power to run a lot of middleware, considerably reducing the effort needed to make a game.
• Competition from other gaming platforms. The original Playstation had the market to itself. Now the typical gamer has many platforms to spend their time and money on. Facebook, iPhone, DS, MMOs etc. The average gamer is now promiscuous with their attention.
• To generate a hit that is profitable requires global marketing and distribution resources. And a huge investment in that marketing. Modern Warfare 2 spent more on marketing than some publishers’ entire budget for a AAA game. This is a big boys game at the top table and very few have the resources to play.
• Brand dilution. Executives see a game succeed so they just rush in and pillage the brand to make money. Meaningless sequels geared up for maximum exploitation are not the long term road to success. To get it right just look at Nintendo, who are one of the few game publishers on planet earth who understand managing a game brand properly. Their management of their key brands is a lesson that the rest of the industry refuses to learn.
• Customers who enjoy your game without paying you for it. Piracy and secondhand sales can often be bigger than legitimate purchases. Will Activision even bother putting Modern Warfare 3 on PC? And if they do, how will they protect their IP?
• Stupid game themes. Interactive computer based entertainment has infinite possibilities, the human imagination is the limit of what can be achieved. So what does the industry give us? Shooting. Then more shooting, then yet even more shooting. Can they not see how limited and stupid this is? Once again look at Nintendo for inspiration. They manage to run some of the biggest AAA gaming brands on earth without shooting in them. Or look at other entertainment media like books, television, the theatre, even the cinema. They all have shooting, but not the incessant, mindless glut that the gaming industry is currently serving up.
• Too little of retail revenue gets back to where the value was created, in development and marketing. A AAA console retail game has to give the retailer their retail margin, also in many territories give their distributor their cut, then there are the logistics costs such as warehousing and transportation, the game has to be manufactured so there is plastic and cardboard to pay for, finally there is the platform holders’ substantial cut. Not much left for those who have done most to earn it.
• Games have a very short tail. This is getting a little better with Downloadable Content (DLC) but it is still pretty bad compared with music and film which have multiple revenue streams providing income for years. Decades in some cases.
• There are far, far better things for a game company to do with their money, brands and human resources. Obviously I am not going to tell the world here and now, when I can actually get paid for the knowledge. Read the nearly 800 articles on this blog and you might get a bit of an idea.

So there you have it. At the current state of the current platform generation AAA games are a very dangerous place to be investing, unless you happen to own one of the handful of “dead cert” global blockbusters.

Neil Young (not the Canadian grunge musician) is a man who knows what he is doing. Like me he was involved in the Sinclair Spectrum game industry in Britain in the early 1980. This was a creative and commercial hothouse where much that we now take for granted about the game industry was invented. He subsequently spent 11 years at Electronic Arts rising to Group General Manager of the EA|Blueprint Studio group. And now he is the founder and CEO of ngmoco, one of the leading publishers of mobile phone games.

One thing he has always said is that the iPhone / AppStore gaming market is just like the Sinclair Spectrum market was. And here are a few reasons why this is so:

• Very low barriers to entry. Download the SDK and you are away. This is a huge contrast to the established platform holders like Nintendo, Microsoft and Sony who make you jump through lots of hoops and invest in expensive hardware development kits.
• Huge flowering of creativity. Anyone can have an idea, no matter how oddball, and realise it. Then (theoretically) in the Darwinian world of the AppStore the fittest succeed. New genres of game are being created without anyone realising it. It will take historians to unpick  because so much has happened so quickly.
• Equally huge upsurge in new game publishing companies. I bet that more new game publishers were set up last 18 months than in the preceding 18 years. The problem here is that a publisher has three main functions 1) Editorial control 2) Finance 3) Marketing. Most of these new publishers don’t realise this yet. The ones that survive will be the ones that do.

So far all a reader will be seeing here is a rosy story. But the reality is that, just like the Sinclair Spectrum market before it, the AppStore business model is largely broken (as I predicted would happen in 2008), and for much the same reasons.

• Piracy. People will mainly steal a game if they think they won’t get caught. The barriers to stealing iPhone games are very low. So more are stolen than bought.
• The collapse of prices. Inexperienced marketeers use the price mechanism to gain competitive advantage. Experienced marketeers use the price mechanism to beat the game thieves. Together they drag prices down so there is no budget for marketing. This creates a downwards spiral so there is no money for development.
• Imperfect market knowledge. The AppStore has happened so fast that the mechanisms are not in place to inform people properly what is on it. So a total gem of a product can be hidden from view because of all the dross that surrounds it. This is partially Apple’s fault for having an inadequate front end to the AppStore. It is partially the fault of the news media who are not reporting sufficiently in depth, the volume has overwhelmed them. And it is partially the fault of the users who mostly take a very casual attitude to their downloads and who would be massively rewarded if they did more research.

So the net effect is that you are lucky if someone finds your game, even if they do you have to sell it to them at an uneconomically low price. But even then they are most likely to just steal it from you.

Which brings us back to Neil Young. He has given up selling games on AppStore. Now they are free. Really he had no option, because of the broken business model. So instead he charges for in game stuff with micro transactions. And it works. He has already had two successes with Touch Dogs and Eliminate Pro. Both of these allow a daily amount of play time, over which you have to pay.

A measure of just how broken the pay before you play business model is on the AppStore is that Neil Young has just cancelled the latest iteration of one of his biggest properties, Rolando 3. It was just not worth throwing good money after bad. The IP isn’t dead though, obviously, it will just appear in a new micropayment form.

So the lesson here is that the AppStore is a broken business model for selling Apps. But you can still make money and do good business on iPhone, it is just a matter of selling a service instead of a product. This is a very big and very serious lesson for the whole future of gaming.

So at long last the day has come, I don’t use a mobile phone very much. And when I do I don’t use the extra features, I don’t even text. I bought my trusty Nokia 6300 when it first came out and it is just about perfect. In fact all the Nokia phones I have bought over the years have been good. And every non Nokia phone less so. There is a reason they tend to have a 40% market share.

The thinking behind the move is to use the new phone as a web browser and email terminal. To carry the internet in my pocket.

After much looking at the market (and not being swayed by fashion) my new smartphone is a Nokia 5800. And there are some very good reasons why:

• It has multitasking. I cannot believe anybody selling a general purpose computer that isn’t. Non multitasking is a primitive restriction from our historic past.
• It supports Adobe Flash. You know, the industry standard for moving images on the internet.
• The battery is removable and replaceable. So I can carry a spare, charged battery in my pocket. And replace any batteries that get tired in their old age.
• It has a very nice form factor. Ergonomic in the hand and relatively light. Some smartphones are far too wide to actually comfortably use as a phone.
• No keyboard. Thought about this and concluded that the smaller size when you go without is advantageous. If I find I am inputting a lot of text then maybe my next phone will need one.
• High resolution screen. 640 x 360 is more than some offer.
• 2 cameras. One on each side, so you can videophone. How cool is that?
• When using the satnav the (free) maps download into the phone. So you can use it on the plane! And it doesn’t eat up expensive airtime when you are navigating.
• Swappable memory on Micro SD cards. And web rumours say that the 32MB cards work.
• Carl Zeiss autofocus camera with flash, autofocus and zoom.
• It’s a Nokia, so all the actual telephone functions such as signal strength, network compatibility, global roaming, voice quality etc will be spot on.
• Frequent firmware upgrades. The 5800 is a vastly superior phone now to the one they released just over a year ago. They even increased the processor clock speed in one upgrade!

There’s loads more, but those are the big ones. I have bought the phone outright so can put it on any service I want and upgrade as and when I feel like it. Smartphones are going to drop massively in price this year and the operating systems are going to become a lot more capable. But, as before, I won’t be swayed by fashion and will only replace the 5800 when there is a very good reason to do so.

The stupid British government is misspending a fortune. One example is forcing climate change propaganda down our throats. Mainly to justify hitting us with more and more “green” taxes. And part of their propaganda effort was a video game.

According to the Tax Payers Alliance: “The Yigal Allon Educational Trust received a grant of £49,480 to produce a “fun and engaging multi-player computer where the player’s role is to decide on local environmental policy, and interact with other players to decide global policy…………The report says that 1,048 active sessions (games with at least one player) created between July 2007 and April 2008. That implies that the project cost around £47 in grant funding per game played…..”

Under this government the British video game industry has gone from being third in the world (behind America and Japan) to almost certainly sixth (behind Canada, Korea and China). One of the main reasons for this decline (which has cost the country many billions) is government ignorance, ineptitude and apathy. Especially compared with more enlightened governments elsewhere. One example was the tax regime that they devised for the film industry (reflecting the risk and financing problems) which has been a great success. But which they did not extend to the game industry which was beset with identical problems. Yet they can throw money away at misguided propaganda when it suits them

There is a solution to this problem. Shortly there will be a general election and we can vote in a better regime (it can hardly be worse, can it?) and this interview with Ed Vaizey gives us some idea what to expect.

The internet is changing very fast. Take video for instance, last year (2009) YouTube was bigger than the whole internet was in the year 2000. And in many ways Facebook is now the biggest thing on the internet. Right at the very beginning of the history of this blog I said that social networking and gaming would converge to become the same thing. The evolution in this area since then has been astounding.

So Facebook has 400 million active users worldwide. Let’s compare that as a gaming platform with some of the others. Wii 67 million, 360 38 million, PS3 32 million, DS 125 million, PSP 54 million, iPhone 43 million. Do the maths, Facebook is bigger than all these platforms put together.

With such a huge audience you would expect Facebook games to reach a substantial audience. And they do. FarmVille has over 75 million active users (and it is just 8 months old). Compare that with some other games. World of Warcraft is perhaps over 11 million active, RuneScape is probably about the same, Modern Warfare 2 has maybe sold 16 million units. You must be getting the idea now, Facebook games can dwarf those on any other platform in terms of popularity.

Which brings us nicely to Facebook on smartphones. According to research published by the Guardian it is the number one website for mobile popularity, and their research showed that already over a quarter of the UK’s population is accessing the internet by phone. And, by coincidence, a quarter of Facebook’s users in the world are accessing it from their phone. That is 100 million smartphone facebook users.

So these are impressive number. Now they get more impressive. In September ’09 there were just 65 million smartphone facebook users. So it has gone up by over 50% in just 5 months. Show me any other gaming platform that is exploding in popularity at this rate.

And there is a huge amount more to come. The world makes about a billion new mobile phones each year, currently very approximately10% of these (100 million) are smartphones. This percentage is going to ramp up massively, already £100 at retail smartphones are predicted for this year, so hardly anyone in the first world will buy a non smartphone. But as the price collapse continues this will spread to the rest of the world.

So then you have to ask the question. Do you develop games for Application Stores or for FaceBook? That looks like the subject of another article.

Day one of the Mobile World Congress and already Microsoft have delivered, massively. But they needed to, they were being left well behind. In fact Microsoft could have been reading this blog. What they have done is to integrate many bits of Microsoft together to create a market leading product.

Windows Phone is a synergistic combination of Xbox Live, the Bing search engine, Zune MP3 player and the Windows Mobile operating system. All these elements have been upgraded to become state of the mobile art and to work together seamlessly. And it looks like Microsoft have designed it for real people instead of for “business”, which is a massive step in the right direction.

This has changed the smartphone game. The Apple App Store may have lots of applications, but it has nothing like the user resonance the Xbox Live provides. Google may have lots of very nice proprietary software, but then so does Microsoft. Android may be used by many different phone manufacturers, but so is Windows Mobile.

So now the war has hotted up. Between iPhone/iPad, Android, Symbian/Maemo and Windows Phone. There are others such as RIM (Blackberry), which is currently still the second most popular smartphone, but whose “business” bias and walled garden could see them left behind. Also Palm, who have their Treo operating system but have also used Windows Mobile, so they will probably major on the new Windows Phone O/S. And finally there is Samsung Bada, of which little is known.

This is going to be fantastic for consumers as the industry brings out new models, update their software and bring out new services and apps, all at breakneck speed. This is a billion handset a year business they are fighting for so they are playing for massive stakes.

No, Bruceongames isn’t turning into a Smartphone blog. It is just that it is pretty clear that smartphones are soon going to be the most common computers on earth, with over a billion a year being sold. Which means they will be the most common gaming devices. So if you have anything to do with gaming then you need to know about smartphones.

This week it is the 2010 Mobile World Congress in Barcelona, the world’s largest mobile technology fair. Things are getting critical now as manufacturers, operating systems and browsers jockey for position ahead of the big explosion.

The big news is that Nokia, who make 40% of the world’s smartphones, won’t be there.

The next biggest news is that that Eric Schmidt, the CEO of Google, is giving the event’s keynote address. His Android operating system is the fastest rising star of the smartphone firmament. This is vital for Google as web traffic, and the advertising revenue that goes with it, moves away from the desktop and onto mobile devices. There are going to be more than 50 new Android phone models announced at the show from manufacturers such as  HTC, Samsung, Motorola, Dell,  and Sony Ericsson. Also Android is developing very rapidly with Swype word input, voice recognition and lots of location based services all on the way.

Also addressing the conference is Steve Balmer, CEO of Microsoft, who have lost their way in the mobile marketplace. He is there to launch Windows Mobile 7, which is going to be called just Windows Phone. Microsoft need this to be very special as they are drinking in the last chance saloon here. The good news is that the interface is based on Zune (maybe they are reading this blog!) and more good news is that Microsoft are going to lay down the law regarding handset specification so that Windows Phone doesn’t end up on any dodgy devices.

The war just now is between the handset manufacturers and between the operating systems. New developments are almost alarmingly fast. Because these devices are online their operating software can be and is constantly updated to try and keep up with or maybe even ahead of the opposition. Handsets that are a year old are virtually obsolete. Take out a two year contract and you will be using a museum piece by the end of it.

But it isn’t the handsets and the operating systems that will make all the money. Just like with your desktop PC, the handset manufacturer will become increasingly irrelevant. Also the operating system on its own will generate little revenue and people will replace their operating system on a whim, much as they now do with PC web browsers.

The real money will be in advertising (and other marketing) and applications. Our current best effort at smartphone applications, the application store, is close to being a broken business model as price has collapsed and piracy run rampant. Expect more and more applications to be offered as services, with subscriptions. And we know all about that in the gaming world, just look at World of Warcraft and Xbox Live.