Game Marketing Tips, Analysis, and News

Tuesday, March 22, 2016

PlayStation 4.5 And Xbox One Plus Make Sense

The latest rumor making the rounds is that Sony and Microsoft are both considering introducing new versions of their consoles, possibly as early as later this year. Microsoft's Phil Spencer even hinted at this in a talk, as reported by Polygon. The rumors are that these machines would not represent a full new generation of consoles (which usually means a new architecture), but instead they would be a speed bump for better graphics performance.

Of course there are many questions, starting with "Why?" There's an obvious answer from the perspective of Sony, which is still in the business of selling TVs: The PlayStation 4 cannot produce 4K output, and increasingly 4K TVs are taking over in sales. Additionally, a PS4.5 (which some are calling "PS4K") could potentially build in the additional graphics box that will be coming with the PlayStation VR.

There's precedent for this sort of speed bump -- Nintendo's done that with the New 3DS, for instance. Of course, fans instantly want to know if there will be some sort of upgrade path for those who bought the original console. That seems unlikely, though certainly GameStop would probably offer a trade-in value for your old PS4 or Xbox One.

One thing that's quite different with these consoles is that they use standard PC architecture in many ways, so dropping in a new CPU and a new GPU wouldn't necessarily be all that difficult. Given how component prices have dropped, we might not even see much of a price increase. It's likely that Sony and Microsoft would keep their current consoles around at a $299 price point, and then charge $399 for the speedier version.

As far as compatibility goes, there's no reason that these console would have any issues running current software. Would developers conceivably build new titles that would require the added horsepower? Sure, but supporting the older consoles would be easy enough that it should happen in almost all cases. Games would probably just detect what hardware they were running on and change graphics modes automatically, or give you a couple of options.

These new consoles would also likely be able to read the new 4K/Ultra HD Blu-Ray discs that will be coming out. Otherwise the consoles would probably look much the same, except for some obvious visual way to distinguish them from the original versions.

No doubt consumers would be annoyed to some extent if more powerful versions of consoles they already owned were introduced. Some sort of trade-up program, even if it were done through a third party like GameStop, would help mitigate this backlash. Sure, people could sell their old consoles and buy a new one themselves, but it would be better if Sony and Microsoft sweetened the deal somehow; a low-cost way to do that would be to offer some free games for trading up

While still only rumors, this sounds like a good idea. This would extend the lifespan of existing consoles (and the sales lifespan of existing software), and keep up with the relentless advance of PC graphics, and provide more horsepower for VR and AR. For Sony, it helps sell 4K TVs and makes the PlayStation VR more attractive. For Microsoft, it might make the Xbox One more competitive graphics-wise with the PS4 (or rather, the PS 4.5), and perhaps provide enough horsepower for the Xbox One to drive an Oculus Rift. That would be a very smart move on Microsoft's part, even if it meant losing some money on each console sold.

This is a chance for Microsoft in particular to reset the console race and to actually move ahead in the VR race. Microsoft has had a huge advantage over Sony that hasn't been used so far -- Microsoft's huge pile of cash in the bank (well over $60 billion), compared to Sony still struggling to turn a profit. Microsoft could provide more horsepower than Sony at the same price, even if the company had to lose $50 or $100 per console. Say that's over 20 million consoles, by which time the component cost would have fallen enough to make much of that differential disappear. So it costs Microsoft perhaps $2 billion to catch up to Sony in terms of installed base; given how much more software the company could sell that seems like a reasonable deal.

Tuesday, March 8, 2016

Nintendo's NX vs. Xbox One vs. PlayStation 4

Nintendo is currently working on its next console system, the NX. The company has announced no details as yet about the hardware, the software, the release date, or the price. Rumor has it that Nintendo has shipped NX development systems to key developers, who are already hard at work on software for the system. Given how Nintendo's sales of the Wii U and the 3DS are going now (the company just revised its forecast downward yet again for its current fiscal year), it's safe to say we should see the NX sooner rather than later.

The obvious, traditional launch plan (and Nintendo has great respect for tradition) would be to announce the NX at the E3 show this June, and ship it to stores prior to the Thanksgiving weekend -- perhaps as early as mid-October.This provides time to build up excitement and pre-orders, and maximize initial sales for the holidays.

The NX Hardware
There's a persistent rumor that the NX system will be both a home console and a handheld device, merging Nintendo's two main hardware lines into one line. This would simplify the company's production and marketing, as well as third-party development efforts. However, it leads to the core design problem facing Nintendo: Cost versus power. Nintendo could make the NX more powerful graphically than the Xbox One or PS4 with the advantage of the relentless advances in CPU and GPU power -- the NX design is at least a couple of years in advance of the Xbox One and PS4, which means CPUs and GPUs have gotten much better at the same price. Portability, though, is much harder to achieve with graphics that exceed current consoles. You quickly run into issues of power consumption and heat, not to mention increased costs for trying to put powerful chips into a portable package.

Even if the handheld rumor is not correct, Nintendo will still have to decide what the NX retail price should be -- which controls how powerful the console is. Nintendo could conceivably beat the Xbox One and PS4 in terms of graphics power, but probably not for much less than those consoles are selling for right now.So, will Nintendo try for a higher price point for the NX than the competition (roughly $349 now) or will it try to undercut the current console pricing?

Nintendo has had great success before with undercutting the competition's price (the Wii was a great example of this), but may well choose to make the NX more expensive in order to put in desired features. A hybrid home console/handheld will have to deal with screen costs and battery costs, and if the entire system is to be competitive graphically with current consoles (or better than them) that means there will actually be two parts to the system -- a portable part and a base station, where the base station has additional graphics capability (at least; it may also have more storage and connectivity options). That adds significant costs as well.

The bottom line is this: If the NX is more powerful than Xbox One/PS4 and has a portable component, it's going to be more expensive than Xbox One/PS4. Now, Nintendo has stayed away from the technological arms race for decades -- it's been content to be less powerful graphically than the competition, preferring to have a lower cost and some unique feature to set itself apart, as well as its own extremely popular IP.

The NX Software
If the past experience from Nintendo's previous hardware is any guide, don't expect too much from the system software or interface for the new NX console. All of the basic functionality will be there, of course, and there may be some added features like connecting with mobile devices.

The issue of backwards compatibility will n doubt be raised, but this is something you shouldn't expect -- at least not right away. If Nintendo changes the basic system hardware to a different platform (a distinct possibility), then compatibility will be much harder to achieve. The company's resources would be better spent on getting new games ready for the system.

The most important thing for Nintendo to get right is its first-party software. The Wii U should have shown quite clearly the danger of not having key Nintendo franchises ready at launch. The really good Wii U games didn't begin to arrive until the console had been out for almost a year, and that certainly didn't help sales. Thankfully, we have an obvious candidate for an NX launch title in the new Zelda game, which coincidentally (ahem!) is due to come out this year. Hopefully the game will launch for both the Wii U and the NX, with the NX version showing some very clear improvements that will help convince fans to buy the new hardware. A truly compelling Zelda game for the NX could motivate more than a few people to spend $400 or $500 for the new console, regardless of what else is available.

NX Marketing
We can hope that Nintendo will budget a significant amount for NX marketing. First, though, the company should make sure to name the system properly -- "Wii" was widely acknowledged as a lousy name, and Wii U compounded the error by giving many people the impression it was not a new console at all, but merely some sort of peripheral. Or, if it was a new console, Wii U didn't make it clear that it was better in any way. If Nintendo uses the word Wii in any way for the NX console's name, that would be a huge mistake.

We should expect plenty of TV advertising, because that's what Nintendo has done in the past. It would be nice to see some events (Nintendo has done well with these in the past few years), and hopefully get the new hardware and software into the hands of influencers. Maybe Nintendo can truly embrace social media for the first time, and let people stream NX experiences. Building a launch around streaming would be a clever plan, but it requires that Nintendo break free of its inherent conservatism. Let's hope they can.

The Prospects for the NX
It's one thing to point out all the positive things Nintendo could do to make the NX launch a success, but what Nintendo is likely to do is quite different. Nintendo will probably price the NX higher than it should, design it with less power and fewer features than it really should have, and have fewer software titles than it should have at launch. That's just the way the company has tended to do things in the past decade.

We may or may not see Nintendo rally good third-party support for the NX, but that's probably not the deciding factor in how successful this new platform will be. The alliance with DeNA may be more important, if it means Nintendo gets a good back end for online services and perhaps some help in creating mobile titles that connect with NX titles.

The difficult thing for Nintendo to realize is that the world is fundamentally different in many ways from the world of Nintendo's greatest success. Back then, there was no Internet to speak of; multiplayer games were something you did with all players sitting in front of the same TV. Consoles had the best animations, graphics, and sounds. Mobile gaming was only available on a Game Boy.A free-to-play game? Oh, you mean a demo?

Nintendo thrived in that world, especially with the lock-in provided by its console hardware. Selling hardware was a key part of the strategy. Now, great gaming hardware is all around -- everybody has at least one great gaming device, and usually more than one (a tablet or a PC in addition to a smartphone). Yet Nintendo is persisting in trying to sell proprietary hardware, with its low to non-existent profit margins. Meanwhile, a company like Supercell has 100 million daily active users across only four games, and pulled in over $1.5 billion last year with about 100 employees.

Yes, Nintendo has created many iconic characters and memorable game franchises. But how long has it been since Nintendo created the last such character or franchise? A decade? Two decades? When its greatest hits of the last few years have been the third or fourth or 8th or 10th version of a franchise, you have to wonder how creative the company still is. Splatoon is great, and fresh, but it's not a new Zelda title.

So I'm skeptical that the Nintendo NX will change the overall course for Nintendo. At best, it will help keep the company going forward, as it overall share of the market dwindles with the continuing strong growth of the rest of the industry. Nintendo was once directly or indirectly responsible for about 90% of the game industry revenue, some 25 or so years ago. Now it's under 5%, and that percentage will continue to fall. Let's enjoy it while we can, and celebrate when the company can come out with another great game, for as long as that continues to happen. Unless major changes in direction happen, that won't be forever.

Sunday, February 7, 2016

Glu Mobile's Celebrity Game Strategy Stumbles

When Glu Mobile released Kim Kardashian: Hollywood, few thought the game would be successful. Yet it quickly demonstrated great strength, notching up $50 million in revenue in short order and gaining millions of fans. As the success of the game continued, Glu Mobile went all in on signing licensing deals with popular celebrities, signing deals with Katy Perry, Britney Spears, Nickie Minaj, Jason Statham, and now signing up famsou chef Gordon Ramsay and mega-pop star Taylor Swift.

The grand strategy hit rough times in the latter half of 2015, with Glu's revenues and profits declining and Glu laying off 50 employees in December. What happened? The company's two new games, Katy Perry: Pop and James Bond: World of Espionage were flops. De Masi explained what happened with Katy Perry: Pop like this: "Poor technical decisions coupled with the newly hired team led to all key metrics being below thresholds required for an ROI positive title," he said. "Additional development time was not provided due to contractual restrictions as well as the team's mediocre trajectory." The James Bond game failed, with low installs and poor retention, because of "creative decisions made in partnership with the licensors to avoid firearms and classic shooter mechanics."

I think the celebrity license strategy is a good one in the abstract: Sign up a celebrity who has millions of social media followers, and you have an instant audience for your game. What Glu seems to have forgotten, or not felt important, was that the success of the strategy depends on a couple of key things. One, you have to have a good game -- one that's fun, has good retention and that generates good revenue -- regardless of what license is attached to it. Second, the game has to have a strong appeal for the celebrity's fans.

Kim Kardashian: Hollywood started with a good game -- one that already existed and had a proven audience appeal and ability to make money. Glu took the Stardom: Hollywood game and re-skinned it with Kim Kardashian, and it worked brilliantly because the games' activities were exactly what Kardashian's fans wanted.

Now, I don't know what the Katy Perry: Pop game is like, but I'm pretty sure there are significant differences between her fans and Kim Kardashian's. For one thing, Perry is a singer, so certainly her fans like her music. Maybe her fans want to sing with Perry, or dance with here. I don't know, but you'd sure want to know what Perry's fans want in a game before you started creating one. And it's a good bet you wouldn't be successful taking the Kim Kardashian: Hollywood game and re-skinning it with Katy Perry.

Without enough time to do a thorough job of understanding the Perry fans, and a team with technical issues, the inevitable result is a bad game. Signing up celebrity licenses is not all you have to do; you have to make sure the license agreement gives you the time and the creative control you need to create a good game.

One major drawback of the celebrity licensed game is that you may lose the chance to effectively cross-market your game to players of your other games. Maybe a Taylor Swift player might like to see the Katy Perry: Pop game, but they probably won't be interested in the Jason Statham game.

I wish Glu success in the future, but they should realize by now it's that easy to have a hit game, whether or not you have a celebrity license. They've got some great licenses, but they also have great challenges in making hit games for those licenses.

Wednesday, January 27, 2016

EA Avoids E3 Show Floor

Electronic Arts announced today that it's not going to be on the show floor for the Electronic Entertainment Expo (E3) this year. Instead, the company will hold a press conference on Sunday, and no doubt have the usual conference rooms for important meetings. THis doesn't mean EA is passing up the chance for major publicity; the company is planning a public event at the nearby Nokia Center, and another at the same time in London, where the public can come and and get its hands on EA games. These EA Play events will require tickets to attend, though EA has not yet said how it will distribute those tickets.

A few points spring to mind about this development. First, this isn't really going to save EA money over its usual presence -- it may well end up costing more, and it certainly will be more difficult to organize and stage. So this isn't being done as a cost-saving measure. Clearly, EA is doing this because it feels the effort will generate more interest (and perhaps more press) than its traditional showing. I wonder if they'll allow the public to stream from within the event? That would be clever.

The hardworking development teams will find no relief from this change; there will be just as much pressure to get games ready for E3 as there was for a more traditional show.

The key here is EA really wants to get the public in to experience new titles first-hand. Going direct to customers is far more important than impressing some retail buyers these days, as sales move to digital distribution -- and a direct relationship with gameplayers. These EA Play events, no doubt with others to come at other shows (Gamescom, certainly -- and PAX shows? Other consumer shows? Not a surprise if they do) will help build even stronger connections with gamers.

The larger question is whether any other game companies plan to follow suit, or will the wait and see. The E3 show already began experimenting with letting in some of the public last year, when companies exhibiting at the show were given some passes to distribute to the public for one day. How long will it be before the show is opened up completely to the public? It's bound to happen sooner or later...

Monday, January 25, 2016

Working With Game Startups

Dawn in Kuala Lumpur, from my hotel room
I'm back from a week in Kuala Lumpur, Malaysia, where I had the honor and privilege of working with a number of game startup companies under the auspices of GameFounders (check 'em out, particularly if you're interested in starting a game company). I came in to offer advice on marketing for game companies as well as game design principles, and some thoughts on starting and running small game companies. It was a tremendously fun experience for me, and as always I learned a great deal by working with these enthusiastic game creators.

I delivered two lectures, one on the state of the game market and game marketing, and one on game design, both around and hour or so  plus another half hour of questions. I then spent two long afternoons in one-on-one sessions with the startups, addressing their particular questions and concerns -- and delivering specific advice for their games and their studios.

Those sessions were intense, because in a twenty-minute session I had to absorb and understand their game(s) and their intent, and come up with specific, creative advice. I felt a great responsibility to make this advice as specific and actionable as I could, knowing that in their position that's exactly what I'd want -- and need. By the end of those days I felt like my brain had gotten a thorough workout, but that's good -- stretching those mental muscles will build them up, right? At least, I hope so.

It's a big challenge these days for game startups. While the tools to create games are better than ever, and more accessible than ever (many of them being free for small companies), the competitive picture is far more difficult. In decades past, the challenge was building a game: Tools were expensive, and distribution required a huge amount of capital or (almost always) getting a deal with a big publisher who had access to distribution. Now the distribution part is easy and almost free -- upload a completed game to an app store or Steam and poof!, your game is available to millions. The challenge is that none of these millions of people know or care about your game, and you have to figure out how to create, maintain, and grow an audience. Those are skills most new game developers don't have, or even know how to acquire.

It was highly educational for me to work with these teams and see their enthusiasm and skills. I hope I was able to help them in some small way, at least. The game industry needs continued innovation and new blood, and I hope all of these teams find success in the future.

Sunday, November 8, 2015

Activision's Sweet Acquisition

Activision's $5.9 billion acquisition of King Digital (creators of Candy Crush Saga) was a surprise, but it make sense in a number of ways. Still, this is not a move that synergizes with Activision's existing portfolio, and it may or may not pay out well in the long run.

Where did Activision get the money for this all-cash transaction, which paid 20% over King share closing price? According to the company's press release, "The cash consideration payable by Activision Blizzard under the terms of the Acquisition will be funded from approximately US$3.6 billion of offshore cash on the balance sheet of the Activision Blizzard Group and by an incremental term loan committed by Bank of America Merrill Lynch and Goldman Sachs Bank USA, as incremental lenders, under Activision Blizzard's existing credit agreement in the amount of US$2.3 billion."

So Activision used all of its offshore cash, which means that it's an effective discount of somewhere in the range of 30% on that money -- that cash was earned overseas and parked there, and couldn't be returned to the USA without losing a big chunk to the IRS. For the rest, Activision put it on the credit card. It's also worth noting that King has $900 million in cash lying around, which means the purchase price was more like $5 billion. Still, this does mean that Activision is more heavily leveraged, and its ability to make any other major purchases is going to be hampered for some time to come.

On the positive side, King's audience is very different from Activision's -- overwhelmingly female, and with a broad international reach. King's titles are casual, with Candy Crush Saga and Candy Crush Soda Saga accounting for about two-thirds of the company's revenues. Rumor has it that the company has some midcore titles in development, but it's known for its wide range of casual titles.

King is profitable, but the prospects for significant growth are unclear -- one reason, perhaps, why a sale looked good. Finding another hit on the scale of Candy Crush Saga is not predictable -- it could happen next month, or next year, or never. Doing midcore games holds the prospect of a different audience appeal, but looking at the mobile game industry overall one has to conclude that megahits are rare beasts, and companies with more than one are scarce indeed (arguably, Supercell may be the only example, though none of its games does quite as well as Clash of Clans).

As for synergy with Activision's non-mobile properties, that doesn't seem like a strong prospect. Activision has been doing its own mobile games, most notably Skylanders on mobile, and it seems unlikely the company would shift that development to King. Similarly with Blizzard, which has had great success with Hearthstone on mobile -- it seems likely they'd want to handle any future mobile projects in-house. As for King, a match-three game based on Call of Duty seems more than a trifle out of place with the company's current products.

Still, the King acquisition adds a solid profit contribution in a gaming segment where Activision didn't have much presence, so that's a welcome diversification. Activision will leave the King leadership team in place and let it run independently, a wise decision when things are going well. Perhaps one of the significant benefits of the deal is that Activision is now the clear #2 game company in the world, pulling well ahead of Electronic Arts and second only to China's Tencent -- which owns about 10% of Activision. Activision Blizzard King will be making well more than 50% of its revenue digitally, too, which is important as the digital distribution revolution continues.

Activision, congratulations on a sweet in-game purchase. Hopefully now you can get past that pesky level in Candy Crush Saga that's been giving you so much grief.

Sunday, October 25, 2015

Why VR and AR Games Won't Be Profitable Soon

The excitement over virtual reality (VR) and augmented reality (AR) games has been reaching high hype levels lately, but if you're expecting to make a profit you'll need to have patience and deep pockets. There are several reasons for this, and some strategic ways around the problem. First, though, why is there so much excitement about VR and AR?

Much of the enthusiasm is infectiously transmitted through those who have experienced it directly and have a following. When John Carmack gets so excited by something he leaves his company and goes to work for a startup, that means something to a lot of people. As demos spread for Oculus and other platforms, and videos began to be distributed, we saw more well-known people in the industry get excited. Science fiction thrills that were imagined long ago are on the verge of becoming available... at least in a crude form.

Where there's enthusiasm among leaders, money follows. We are now seeing billions of dollars being invested in startups like Oculus and Magic Leap, and companies like Sony, Microsoft, and HTC/Valve are investing heavily. Dozens if not hundreds of developers are working on VR and AR titles. Some of the hardware will be arriving soon -- Samsung's $99 Gear VR, created in connection with Oculus, is slated to ship before the end of the year. (It's basically a holder for the latest Samsung smartphones, but is said to work quite well.)

So there's plenty of money being spent, lots of developers working on titles, and hardware that's going to arrive soon. Shouldn't profits follow quickly? No, and there and some good reasons why.

First, the hardware's going to be relatively expensive at first... and it's hard to say how long it will be before the cost drops. The Oculus Rift is, according to founder Palmer Luckey, going to be more than $350 -- not counting the fact that you'll need a very powerful PC to drive it. (The short version is if you didn't buy your PC at the high end of the power scale in the last couple of years, you'll need to spend about a thousand dollars on new PC hardware.) Sony's PlayStation VR will likely be in the $400 to $500 range from hints they've dropped, not counting the PlayStation 4 you'll need to have. Microsoft HoloLens... we have no idea, but the development kits are going for $3,000 each. HTC/Valve's Vive is probably going to be well over $500, not counting the beefy PC you'll need to drive it. Magic Leap's hardware is a complete unknown, but don't expect all that investment ($542 million so far, with a rumored $1 billion round being readied) to go into a low-priced consumer item.

Price is critical for mass market sales numbers, unless the value proposition is so obvious people are happy to spend high prices. Apple can sell 50 million new smartphones in a quarter at prices north of $500, but that's because people already know all the uses they have for the device, and they feel that's worth it. For VR and AR gear, we still don't really know what complete applications will be like -- and what they'll be charging for them. The value proposition is unknown, which means the initial sales will be to deep-pocketed enthusiasts. There are perhaps a few million of those, but that's not enough to generate massive profits for software.

Which brings us to the virtual elephant dancing on your palm -- software. There's plenty of great demos being shown, but hardly any complete experiences. No killer app has emerged, though Minecraft has some potential given its power on other platforms. How long until we see a killer app? Unknown. It could be months... or years... or maybe never. These are difficult things to create -- every designer I've spoken to working on VR and AR tells me the same thing: "You have to rethink every aspect of the design." And then you have to create some things, and try them out, and until they're in the market where people can buy them, we don't really know if ten people or ten million will love them.

The business model (or models) for VR software is also unknown. Should we expect a ten-minute experience for $10? For $50? Nothing I've seen so far looks free-to-play with virtual goods on VR, and I wouldn't expect that model right away. Experiences may have to be brief because of motion sickness concerns, at least the more intense experiences -- and the more intense experiences are what you're likely to pay more for. This all makes trying to predict how much money you can make from your VR game, and when you can make it, a complete fantasy not anchored by any facts. This must make things fun for venture capitalists trying to evaluate investment in VR developers.

One investment banker I talked to said he doesn't expect profits from VR for three to five years. That sounds about right to me. Why, then, is money rushing in now? Because many of these people feel that AR and VR has the potential to be the next big market -- perhaps exceeding the mobile mrket in size. Placing your bets now, and going through the learning curve early, will position you better for success when the field becomes profitable.

So what's a small developer to do? Find a sugar daddy -- an investor with deep pockets and plenty of patience. A major publisher who's looking to make a mark in VR, or a venture capitalists with a long view, or perhaps one of the makers of VR hardware that wants to have software to take advantage of the hardware. If you don't have one of these connections, the best way to get there is to do something dazzling with one of the VR development kits already available. Find something interesting that's not already being done, or solve a problem that's been identified, Whatever you do, be different.

One final thought: Gaming may not even turn out to be the biggest market segment for VR and AR devices. Certainly vertical markets will have more money to spend on expensive hardware early on. Yet much of what game developers come up can be used in non-gaming applications as well, perhaps to great effect. Keep your mind open to other possibilities for VR and AR, and make sure you've got plenty of funding lined up. You're going to need it.