Ebooks and Piracy

This thriller author thinks that piracy is an inescapable fact of life, and that it can be used to a writer's advantage. I happen to agree with him, in general. He has some specific data to back up his assertions, based on his own sales figures. (Caveat: of course he's not providing complete information, nor are his data audited, so he could be making this up to a greater or lesser degree. But let's assume he's telling it straight.)

I think the missing part of the whole equation is marketing. Once you have established yourself as a brand, a recognizable name that has qualities a consumer is interested in, then it's a lot easier to get people to pay for your ebooks. This is usually achieved by selling books in stores; getting noticed in the vast wastelands of the Internet when you have no name or reputation is much more difficult. Any author attempting to make money solely on ebooks, from a standing start, had better have a good marketing plan for building a paying audience.

Look, I was one of the very first publishers to sell ebooks. In fact, I'm pretty sure I was the first to put ebooks into retail stores (they were on floppy disks in ziplock bags, if you must know). Ah, the good old days of Acrobat 1.0... well, it did work, sort of. Anyway, ebooks can sell despite piracy. But you have to deal with the existence of piracy primarily through marketing, not technological fixes.

More iPad Thoughts

As I look over the information coming out of Apple's iPad presentation, I'm struck more by the potential of the product than its current capabilities. Others are already talking about what they don't like about the iPad. Most of the problems that are noted are easily solved by software updates.

The iPad reminds me very strongly of the iPhone launch. It was a sleek, sexy device, but there wasn't a whole lot it did right off the bat (aside from nifty web browsing on a phone). It wasn't until Apple finally decided to allow independent app developers to go nuts in their online store, and new features came out in both hardware and software, that the iPhone really took off. (Yes, lower price points helped, too.) The initial iPhone was more about potential than actuality.

Then, as now, most of the tech-types focused on more of what it didn't do. No cut-and-paste. No multitasking. No removable battery. Didn't work with Microsoft Exchange servers. No removable storage. Yup, there's a list of things the iPad doesn't do (some of them the same complaints). Which may indeed matter to the hi-tech early adopters... but they are not the market for this. You want a customizable box? Grab a Linux netbook and go crazy. For the other 99.99% of the population, they want something that doesn't require advanced technophilia in its users.

I think Apple is going after people who aren't heavy computer users, and/or people who are interested in a netbook because they want to have the ability to browse the web without lugging around a laptop (or squinting at an iPhone screen). I expect they'll sell quite a lot of them despite disparaging comments from hardcore geeks, and eventually as they come out with newer versions of the OS and new hardware iterations many of the objections will be dealt with. I think a year from now, when there have been one or two updates to the OS, perhaps new hardware, and certainly thousands of new apps, the positioning and market for the device will be much clearer.

This also illustrates a basic marketing idea: Don't confuse yourself with the target market. It's an easy mistake to make, and one that many commentators are making. Just because you like or don't like a product doesn't mean that its intended market will feel the same way.

iPad Launches

The iPad is officially here... or will be in a couple of months. The big surprise is the price point, which starts at $499 and heads north to $829 for a fully loaded unit with 64GB of storage and 3G connectivity. What I found most interesting was the prominence given to games and game play. Games have been assuming more and more importance for Apple, at least judging from how they're being featured in Apple's marketing (when you see billboards devoted to iPod Touch/iPhone games, you can reasonably assume that games are important to Apple).

Granted, the first games will be iPhone games, since you can play those immediately without reprogramming (at native size or pixel-doubled). I'm sure it won't be too long before we see games built specifically for this new platform. The longer term is where it becomes interesting for game development... the iPhone/Touch market is already at 75 million devices, and the iPad could add considerably to those numbers over time. Will the iPad swiftly gain a large market? I'd say Apple's made their chances much better with their aggressive pricing. At the low end it's a pretty reasonable comparison to netbooks... netbooks at the same price have some better features in terms of storage and connectivity, but definitely don't have some of the sizzle factor.

I'd look for the Kindle DX to undergo a price drop pretty soon... this makes it look like a pretty poor deal. Certainly publishers will be happier to work with less restrictive conditions, though exact details of publishing through Apple remain to be seen. Hopefully Apple will open their iBookstore to anybody with a book, not just big publishers.

For marketers, if you can get a product onto the iPad in the next six months you can expect to get a nice shot of publicity just because everything will be newsworthy for a while... though I wouldn't expect sales to be great for some time (unless you have one of the Gotta-Have apps for the iPad that demonstrate its coolness).

Ransom Publishing... Sort of

There's an interesting marketing method for funding development of new products: the threshold pledge model, also known as ransom publishing. In this model you announce a product (either one that's complete, or one you are working on) and a goal; once you've received enough orders to reach that goal, you publish the product (shipping out all the orders you've received).

A development group founded by veterans of Iron Lore and its popular Titan Quest action RPG (yes, it was a Diablo clone) are now trying a variant of this for their new game Grim Dawn, without setting a particular threshold. They're offering fans a chance to pony up some cash and get access to the beta, or even the alpha version, by buying in advance. Apparently they're hoping to avoid a standard publishing deal, using this method to assist their self-financing.

Here's the specifics for Grim Dawn: You can preorder for $20; the $32 Epic Fan edition gets you beta access, an in-game item, and your name in the credits, while the $48 Legendary Fan Edition adds alpha access to that package (along with the "holy reverence" of the creators). I do wonder about legal liabilities for the debt, if for some reason the development process halts.... but perhaps that's covered somehow.

It's an interesting variation on the threshold pledge system, with the variation being that they are not setting a threshold level in order to win the product's release. It is getting them some marketing exposure (at least mention on some different blogs). Will it be enough to actually pay for the development? Is this a model that could work for books or other media? I think the odds of getting enough money through this method depend on the size of your existing audience (created through other products you've done), and the cost of developing the product in question (both in time and money). Asking someone for money now for a product that's a year or more away seems dicey, especially given how reliable game software development is in general. Shelling out some cash now for an RPG supplement a month or two from now seems like a more acceptable risk.

I don't expect this to become widespread, but it's indicative of how experimentation with business models is ever more necessary as the business keeps changing.

DRM and Ebooks: The Statistical Bikini

Cory Doctorow posted an interesting note on his blog. Basically, he noted that O'Reilly had dropped Digital Rights Management (DRM) on its ebooks, and since they did their e-book sales had risen 104%. The most interesting part to me was reading through the comments... in which they proceeded to eviscerate the note for a number of logical errors.

First, and foremost, as several commenters pointed out, correlation does NOT imply causation. Just because two events happened in the same time frame, even in the same location, that does not mean that one caused the other. Additional evidence of a link must be provided to draw that inference. Data which was completely lacking in this post.

Second, other commenters noted that the absolute numbers were not provided. One commenter noted that his books sold through O'Reilly had only sold 1 e-book last year, so if they manage to sell 3 next year it would be a 300% increase... but not really impressive when you're staring at your royalty check.

Finally, others made the important point that sales of ebook readers had taken off like a rocket in the past year, so one would expect sales of ebooks to rise. A more logical investigation would be showing the number of new ebook readers sold, the installed base, and comparing those figures to the rise in ebook sales for O'Reilly. One might even find that O'Reilly's sales of e-books dropped relative to the increase in the total market size, or to an O'Reilly competitor. Which would put the whole blog post completely backwards from reality.

However you feel about DRM and its utility or value, you'd do well to use rigorous logic and statistics to make your arguments. Cheerleading with isolated facts does not advance your argument; it hurts it.

Always remember that statistics are like a bikini; what they reveal is interesting, but what they conceal is vital.

Piracy & Marketing

A recent study  by 24/7 Wall Street states that $450 million dollars have been lost by iPhone app developers due to piracy. Analysis by Ars Technica finds some of their assumptions questionable, and not really backed up by hard data.

Here's my own take: Piracy (whether of iPhone apps, books, music, video, software, or whatnot) is beyond the scope of a small publisher's ability to stop. You can certainly buy commercial solutions for many types of media that offer some form of copy protection, but all of those can (and are) circumvented by pirates. So, in accordance with my most basic marketing dictum, "If you can't fix it, feature it." Figure out a way to use the fact of piracy to your advantage. For instance, some iPhone developers can detect when a pirated copy contacts their servers, and then treat it as a trial version (allowing a limited number of free uses before shutting down its access). Publishers of game books often give away free PDFs of their rules to encourage purchase of their books; some include a PDF of their books with the purchase, for the convenience of the buyer. Some musicians rely on their performances to make money, and see the mp3 files as a form of advertising. Solutions vary depending on the media involved; your answer might be different.

The bottom line is that your business has to adapt to the conditions of the marketplace and reality, unless you have to power to change the market itself (which only the largest businesses can attempt). Piracy exists; find a way to turn it to your advantage, or at least to minimize the losses, without annoying your paying customers. That's part of marketing's job... finding opportunities where others see problems.

What Apple Might Do

Given that I don't have shadowy insiders feeding me rumors, I just have to speculate about Apple's "new creation" slated to be announced next week, and what it might mean for game developers and marketers. All the rumors seem to be centered around a tablet of some sort, which will be in some ways like a very large iPod Touch. Based on Apple's past product introductions, I bet it will be more expensive than most people will like... we'll have to wait a year or two before the price comes down to the point where the market for it will expand rapidly (just like with the iPhone).

Apple will no doubt be encouraging developers to support it along with the iPhone, which will probably mean supporting new features of the tablet (such as a larger resolution). Rather than having separate apps for the iPhone and the new tablet, in most cases developers will likely opt to put everything into one file, so downloads will get somewhat bigger. I think interfaces will have to change for some games; what's convenient in a device you can hold in one hand is not so convenient when you have to use two hands, or a lap or a table, to support the device. A larger resolution will make some things easier to do, no doubt.

A more important innovation for marketers will be when Apple debuts an integrated advertising market for the iPhone/Touch/tablet. This will probably not be announced until later, but since Apple picked up a major mobile advertising company, you can bet it's coming. This will be key for game developers trying to earn a living on free or 99 cent games... when you can integrate ads as easily as Google allows, this revenue stream may make up for the low average selling prices of Apps. (Now if Apple were to debut a leaderboard system and integrated gaming community like Xbox Live, that would be cool... but I'm not holding my breath.)

Yes, there's lots of speculation about what this tablet could mean for magazines and ebooks (imagine a full color, hyperlinked RPG manual with integrated GM assistance and mapping). But the true impact won't be felt for quite some time, as it will take a while for an audience to build to a reasonable size even if this thing takes off fast. Which is good, because it will give the smaller publishers (which is to say, most iPhone developers and the entire adventure gaming industry) time to get ready for whatever impact this might have.

So read all the hyperbole with a skeptical eye, but remember that Apple usually takes time to make their new technothingy into a true hit (the App Store concept took a year to take hold, after being dissed by Apple for months), and even longer before it becomes moderately affordable (the $99 iPhone took years to arrive). It should be an interesting year...

Digital Sales Small But Mighty

Digital sales are now 10% of total sales, even though that's not the way this article positioned it. Funny how that difference in phrasing makes all the difference in perception. I'd say the advance of the digital market is inevitable, but that all the implications have yet to be processed by the publishers, distributors, retailers, and consumers.

Digital distribution means a fundamentally different relationship between the publishers and the consumers. There are several established digital distribution points (like Steam for PC games, or Xbox Live for Xbox 360 games) and more are jumping in. And, of course, publishers can establish themselves as digital distributors, though most haven't wanted to do much along that line for fear of angering traditional retailers. Even retailers like Gamestop are getting into digital distribution, though it seems to me they are going to have a difficult road ahead. Customers and easily move from digital storefront to another with a single click (except, of course, for the consoles and handheld devices that are locked into their respective stores... which goes to show why making hardware is still an important thing). So why will customers favor one digital distributor over another? Answers to that question are just beginning to be developed. Price is an obvious one, but no one wants to destroy their profits if they don't have to. Customer service? Exclusive titles or content? And this doesn't even begin to get to other issues like live-streaming of games... or non-resaleability of digital titles... or non-lendability... It's a vast territory where data is scarce and opportunities for success and failure abound.

One thing I do think is true: There will still be a market for physical goods (especially with special items like custom controllers, maps, figures, posters, etc.). But it will be a much smaller market... and that day is approaching faster than most publishers are prepared to accept.

Electronic Game Market Declines

NPD has the figures in for 2009, and reports an 8% drop in sales for electronic games in the year. On the plus side, though, December showed a gain (and was in fact the best month ever in electronic game sales). It should be noted that NPD's figures include all hardware as well as software, and of course the reduction in console prices had some effect on sales (though not nearly as much as the manufacturers had hoped). The big news was really the collapse of the "music games" genre, which some analysts believe was responsible for about 75% of the sales decline. Perhaps the marketplace was oversaturated with music games; I tend to believe that was the case, and as a contributing factor the price of the instrument controllers (especially when dollars got scarcer for consumers).

I also think the essential shallowness of the music games meant that there would be a burnout sooner or later. Yes, the songs are different, but basically the actions are pretty simple. Now Project Natal comes along, and you can use the sophisticated sensors involved in that to actually have the software judge someone's performance with their body language as well as their facility in hitting the notes, it might revive the genre.

This is also a good object lesson in the limitations of marketing. The Beatles release had a lot of money spent on marketing, including a widespread TV ad blitz, yet turned in disappointing numbers (especially given the massively difficult job of getting all the proper licenses). At seventh and last, it was yet another music game, and with music that is increasingly less relevant to the core audience for the genres (due in large part, I think, to the Beatles' refusal to allow their music to be sold as downloads, thus locking themselves out from a new generation of fans). You can do a really fine job of putting lipstick on a pig, and giving it a wonderful wardrobe and hair styling, but it's still a pig. Marketing is ultimately, and in the long run, limited by the inherent quality of the product and its appeal to the customers may be limited by factors beyond the control of marketing. Caveat vendor.

Game Development Costs

A very interesting study by Wanda Meloni at M2 details the cost of various forms of electronic games. They estimate $10 million for the average title on one console, with $18 to $28 million for multiple platforms. (What they don't say is that some titles have cost more than $50 million to develop; rumors are some have approached $100 million.) Note that those are just development costs; marketing costs (including costs associated with sales) can easily double or triple that number. Call of Duty: Modern Warfare spent over $120 million in marketing costs, from what I've heard.

Contrast that with the cost estimates for casual and social games ($30K to $300K) or mobile games ($5K to $20K). Yes, revenues are usually less... but then you have to look at Zynga, where they have raked in over $100 million in one year on the strength of a few social games that certainly didn't cost like console games to develop. ROI, anybody?


Of course, the downside for mobile and social games is that the marketing channels are not as mature, so unless you get lucky (and go viral) you have to put a lot of thought and effort into marketing just to make people aware of your title, much less spend money on it.

DLC Not Widespread Yet

According to a survey conducted by a media consulting firm, only 15% of those surveyed said they were awre of or had purchased downloadable content (DLC). This is both good and bad news. Bad, of course, for companies planning to make DLC a centerpiece of their profitability and future designs. Good, in the sense that DLC is already doing well, and this shows just how much upside potential exists.

My analysis is that DLC does quite well among people who know that it exists, but that the publishers have yet to work at letting customers know about it. For the most part, the publishers haven't seen DLC as being that important, so it hasn't really featured in their marketing. Really, isn't it time the big publishers got behind this? The margins on DLC are terrific since there's no physical cost of goods. You're just looking at the cost of making the content, which in most cases needn't be more than a couple of man-months. We have yet to see a AAA-funded title with a development cycle and marketing campaign built around an ongoing stream of DLC, carefully planned and timed, with the customers ready and eager for each new item. Remember, it's not just a new item, it's new characters, classes, scenarios, levels, and all sorts of things big and small. Promotional opportunities abound... shouldn't you get an energy drink to sponsor that mana potion? Collectability is a design feature that has huge potential in DLC... no one has touched it yet. (OK, that's a both a design issue and a marketing issue... I can't help it sometimes, being both a designer and a marketer.)

This is just the dawn of DLC... in a few years, launching a game without it will seem archaic at best.

Competitive Analysis Made Easier

One of the more important tasks for marketers is to keep track of the competition. Not just in general terms, but in detail. Why? There are several reasons.

• Sometimes it really is a zero-sum game (that is, if the other guy wins, you lose), and you need to know the competitor's tactics in order to counter them.
• Whether or not it's zero-sum, you can always borrow good ideas.
• You see how to add product features to respond to your competitors.
• You learn if you're under direct attack.
  

This being the age of the internets, there's a web site to help you track all of this: Competitious. It's especially useful if you have several competitors you're trying to track, and lots of features you need to keep tabs on.

It's important to note that while many game companies don't see themselves as having a direct competitor to their games, you're always competing for the time and money of your target audience. Not only with other game companies, but with other calls on their time... movies, books, TV, the internet, sometimes even real life. So when someone has some leisure time and some dollars to spend, you want to make sure that your product is the best choice for them. Which means being fully aware of the market, the competitors, their products, and their marketing efforts. Even if you're not going head-to-head with a competitor, you need to find the openings in the market that you can profitably fill.

2009 Layoffs

Last year was very hard on the game industry, at least on the electronic side... 11,500 people lost their jobs (starting in late 2008), according to this study. Here's the most interesting quote for me:

“Aside from the cost of retooling, others were so focused on their retooling efforts they weren't able to see the changes in the market and the impact things like digital distribution, casual, and social gaming was starting to have on the market.”

Ya think? It's so tempting to keep doing business as usual; changing your whole business model is painful, wrenching and expensive. The alternative, though, can be even worse when the market is changing so rapidly. I expect major publishers to continue to change by acquisition, as the grab developers in the mobile and social areas. I'd think that some big company might be looking at a move into digital distribution via acquisition, as a hedge against further growth in that segment.

It's made even more difficult with games that have multi-year development cycles... expect more changes, folks. Marketers have to stay nimble in this sort of environment.

Game Marketing in 2010

Marketing for games is in flux, and technology is to blame. Old marketing methods just don't apply as well in the fast-moving game markets. Game magazines are much reduced in reach and influence; game web sites have mostly taken their place. Social networks have made person-to-person marketing more important, but it requires a personal touch.

Conventions continue to be an important venue in adventure games, and are now becoming more important in electronic gaming as well. Classic game conventions have a growing electronic game presence, and new conventions catering primarily to electronic gamers are springing up. Many other types of conventions offer opportunities for marketing games that are connected to them; SF conventions, anime conventions, comic conventions, and more.

Now there's even more in-game marketing. Sometimes you used to see a flyer or catalog inside of a boxed game; now you can see ads for other games in many iPhone games.

Free-to-play games are in essence a marketing tool... as are special free weekends for online games. Many iPhone games offer free and paid versions. Many RPG publishers give away electronic copies of their basic rules, hoping to get more people to buy their books.

Marketing options have multiplied, and there are no easy choices that work for every game. I expect that we'll see more efforts to help with advertising for mobile and downloadable games, as Apple and Google intensify their rivalry.

Social Gaming Gets Huger

According to this analyst the social, mobile and online gaming segments could total 40% of revenues for 2010. With traditional console games expected to decline, this represents a continuation of the tectonic shifts in the industry. Whither marketing in this brave new world of social gaming? Elements of marketing become incorporated into the game design... encouraging people to dragoon their friends into joining the game and giving them free gifts, or help with their game. Of course, it's the virtual goods that are really bringing in the revenue. Some predictions figure a $1 billion market in a year or two for virtual goods.

Much as publishers and developers have to rethink their product development model for these new platforms and distribution methods, marketers are having to rethink how they market games. Old school: spend a lot of time designing the package, create an ad campaign to run in all the major gaming magazines. New school: Spend time developing a web site, orchestrating a buzz campaign on social media, get game designers to throw in features that help connect users together and interest them in DLC and updates... magazines? Oh, yeah, that dead tree stuff last century.

Oh, it's going to be an interesting year ahead...

Will Game Prices Fall?

Seems like some people are starting to think the unthinkable: that retail prices for console games might not stay the $60 price point. A future where perhaps the game might be at a lower price point, and profits gathered by selling downloadable content (DLC) later on. This was an obvious strategy years ago, if you were paying attention, but I guess it's hard to pay attention when you're focused on the retail channel. Now that downloads are available on every platform, and revenue from them is growing, and retail is starting to shrink... now the idea begins to take hold.

It's going to mean huge changes in the business model of big publishers, which they will fight kicking and screaming. Let's hope they start experimenting with this idea soon before smaller and more agile publishers beat them to it.

Or maybe we should root for the smaller, more agile guys... this just seems like a way to make development less expensive and more predictable, though designers will have to change how they design games. And marketers will have to get busy and convince customers that this is the type of game they should look for, rather than the huge megablockbuster with hundreds of hours of content and years of costly development time.

Adventure Gaming in 2010

It's traditional to look back and to project forward at the beginning of a year. Since I haven't been running this blog that long (yet), I'm going to restrain myself to looking forward. What's happening in the Adventure Gaming market in the next year?

• An interesting bit of news is that Fantasy Flight Games is abandoning the CCG market in favor of LCG's... what they call Living Card Games. Essentially it's a different way of delivering boosters and expansions... it will be interesting to see how the market responds over time.
  

• Expect a continued decline in the number of retail stores carrying adventure gaming products, though the rate of attrition will probably slow.
  

• Expect direct sales of adventure gaming products to contribute a larger share of revenue and profits for most adventure gaming companies. If that's not going to be true for your company, you should do something to make it so.
  

• Expect more e-book sales, more print-on-demand sales, and perhaps some new ways to generate revenue without killing trees to do it.
  

• The most important trend is the explosive rise in smartphones, which is a new gaming platform that impacts the adventure game market. Why does it impact adventure games? Because many different things compete for the free time (and available dollars) of the target audience, and smartphone apps are usually very low-priced (less than most booster packs or supplements). Games are a type of entertainment, so the rise of lower-cost entertainment on smartphones is a competitor. Especially as prices continue to rise for adventure gaming products, driven by lower print runs. Adventure gaming used to be the greatest deal in leisure time; invest $20 in a game and get hundreds of hours of play time. (Well, you'd be spending a lot of hours preparing for the game if you were the Game Master, but that was part of the fun, too.) Now you're looking at $50 to $100 or more as a basic investment. The books have gotten bigger and the rules lengthier and more complex. World of Warcraft has grabbed many of the people who would have played D&D... it's easier to get into and find a group to play with. (Yes, it gets very complex, and finding a good group is not easy... but overall it's still easier than wading through hundreds of pages of rules, and the computer makes recordkeeping easy.) Smartphones don't offer much to the RPG player (other than dice rollers) yet, but just wait. New e-book readers (such as Apple's rumored device) may offer even more possibilities once the prices drop to where people can afford them (in a few years).
  

We'll see how well I do at predictions next year when I review these.