2019: What Lies Ahead in Games

2018 was a banner year for gaming, with the overall market size growing to somewhere north of $130 billion worldwide. Mobile games became the largest single segment of gaming, and China was the world's largest market for games -- with Tencent the world's largest game company. What's in store for 2019?

The market for games gets bigger.
Let's start with an easy one: the global market for games will continue to grow. Despite China holding back Tencent from introducing new games; I expect that will only be a temporary setback. (I also expect we'll never know the real story behind the Chinese government's throttling of Tencent in 2018. Too bad, it's no doubt fascinating.) The overall market will crack $140 billion, and may end up closer to $150 billion. Mobile games will retain their leadership as the biggest single segment.

Games will be increasingly scrutinized and regulated by governments around the world.
It's not just loot boxes, though those will continue to cause problems for game companies. The lines are getting blurred between gaming and gambling, and that brings oversight. Publishers will continue to push the boundaries because there's a lot of money at stake. Laws will be passed in Europe and Asia putting more restrictions on games. The USA will lag behind in this regard, mostly because other political issues will continue to dominate legislative time and attention. Major industry players will continue to deny there's a problem, though they may get closer to that point.

The Digital Store Wars get into high gear.
Prior to 2018, Valve's Steam store had some competition, but nothing particularly large or well-funded -- or very effective at competing with Steam. For 2019, there's plenty of competition: Discord, Epic, Robot Cache, and others. Moreover, some of that competition has billions of dollars to spend, or a user base larger than Steam's, or technological advantages. Epic is offering developers a much larger revenue share -- 88% of sales instead of 70%. Valve, after years of not paying attention and just raking in money, will have to wake up and start working if they want to maintain market share. The competition will be good for developers and consumers.

Mobile games will continue to grow strongly and innovate.
We've seen multiple billion-dollar mobile games this year, and new innovative game play on mobile (Fortnite and HQ Trivia are good examples). I expect there's plenty more innovation to come, in game design, business models, and marketing, for mobile games.

VR/AR/XR will continue to underperform.
Despite new hardware and software releases, a mass market for various alterations of reality does not yet exist. While games seem like an obvious choice for new hardware, we have yet to see really compelling game play (except at some location-based entertainment spots, like the Star Wars experience). The hardware is still clunky and expensive, and we have yet to see games that people want to play for tens of hours let alone the hundreds of hours top games are played on other popular platforms. Someday the market will appear... but it won't be in 2019.

Game streaming will continue to be a vision, not a viable market.
Despite attention from companies like Google, Microsoft, Sony, and Electronic Arts, game streaming will not become a major market. Why not? The technical issues are difficult and ongoing; hardware requirements are a problem (not the display, the controllers and the network and the back end); and the market of people who want to play console-style gaming with complicated controllers isn't really all that large, not compared to mobile games. Here's my main example of why streaming isn't needed: Fortnite on mobile. Epic rethought the interface, and it's good enough and fun enough -- and you don't need a new piece of hardware or a finicky connection or a subscription. If Epic can do it, so can others -- and they won't need some expensive and clunky arrangement with a big company to make it happen.

Indies will continue to have difficulty making a living until they put more emphasis on marketing.
The fundamental problem in the game industry is no longer making a game that works -- it's making a game that makes you money. Building games is easier than ever before, but building an audience for a game (and one that monetizes well!) is harder than ever. Most indies focus almost entirely on game design and execution, and only turn to thinking about marketing when their game has failed to become an instant mega-hit. Smart indies would think first about how they will build an audience for a new game, then start designing a game that works with that vision. Sadly, more indies will struggle without understanding this.

Games will continue to grow as a cultural force.
As the number of game players around the world continues to grow (over two billion by some estimates!) the influence of games on popular culture (TV, movies, books, social media, etc.) will continue to grow. For those of us in the industry, I hope we can work towards making games a force for good in the world, and fight against the negative effects. In particular, let's try to make trolls into an endangered species.

Happy New Year!

Magic Leap: A Long Way From Real Money

Now that Magic Leap has finally been unveiled, and had a convention to promote its launch, people have had a chance to use their Mixed Reality device and see a variety of apps that are available or in the works. So far the response has been that some people are excited about the future, and some less so… but right now, the product really doesn’t look like something that will sell millions of units and transform society.

Let’s start with the price tag: $2,295 for a pair of goggles that connect to a box you wear on your belt. The field of vision is small (the same complaint held out against Microsoft’s Holovision goggles. The images are not great, especially when you move around and things get chopped up or look low res. Text is blurry and white screens look harsh, so look at standard desktop apps is not easy. This review by Brian Merchant lays out a number of the problems.

It’s clear that there’s no immediate, obvious use that’s going to drive sales of a device that costs $2,295 and has plenty of limitations. Ah, but in the future… there’s plenty of interesting visions put forth with lots of hand-waving. Some of them may even come to pass. But between here and there lie many years of improving the hardware, figuring out useful software, and hoping that hardware and software companies can keep going until the time comes for a robust, profitable market. That may be the hardest point of all to reach.

To me, this feels much like Virtual Reality (VR) which underwent a flurry of excitement for a couple of years, then fell back into the steady grind of improvement and search for a killer app or three to boost sales. The VR hardware is getting better and less expensive, but we still don’t have an app that’s going to generate a billion dollars in revenue in a year. Nothing that even looks like that, either – such an app would have people spending hundreds of hours with it, or at least dozens, and there’s nothing on VR like that.

While Magic Leap works on improving their hardware and getting developers to create apps, other companies like Apple and Google are working towards AR/XR hardware. Who’ll find a market first? I don’t know, but ultimately being first isn’t critical. It’s being able to exploit the market with the right hardware, software, and business model. Apple’s iPod wasn’t the first MP3 player, but they found the right combination of features at the right price point to sell hundreds of millions.

Now, I do think VR/AR/XR has a future – maybe even one that might surpass smartphones eventually. But someone will have to come up with some killer uses for the right hardware that doesn’t cost too much – and I think we’re some years away from that point.

Now, if you could show me a way to play Fortnite on Magic Leap that would give you a big advantage over other players – or be a lot more fun – then you’d have something that would sell hardware, even at $2,295 each. Good luck with that…

Why Telltale Games Died

Before I begin, it's important to note that I have no inside knowledge of Telltale Games, other than what has been published. My opinions are just based on observation of the company and the game market. Keep that in mind as you read this -- there may be factors at play I know nothing about.

I was saddened to hear about the fall of Telltale Games. The company isn't quite dead yet, maintaining a crew of 25, but it seems the end is near from their public statements. Apparently the suddenness of the demise was due to a failed investment round. When that fell through, the company didn't have the revenues to go forward. Still, though, either the CEO shouldn't have been playing hardball in the negotiations, or should have had a viable plan B for the employee's sake if things fell through. The company must have been in bad shape financially for some time, and had to keep the employees on board in order to land the investment (who would invest if the staff was gone?) -- so couldn't give the staff any warning of potential impending doom. I understand why that was the thinking, but that puts the employee's welfare completely out of strategy entirely, which is obviously wrong. Or it should be obvious, anyway.

The bottom line is that Telltale should have been aware of its problems and trying to fix them years earlier. There were plenty of warning signs.

First of all, I'll point out the widespread stories that Telltale apparently operated in continuous crunch mode, demanding employees work 50, 60, 70 hours a week or more to complete episodes on time. That essentially says you don't have enough people on the project. And when you do that for every project, all the time, you're not properly allocating resources. Your budget for the project says $X on paper, but your really spending much more than $X... so the product is going to be that much less profitable.

According to some of the press reports, only Game of Thrones and Minecraft were profitable for Telltale, among their recent games. The conclusion is clear -- either they needed to create larger audiences for their games, or reduce the cost to create them, or find more ways to generate revenue from those games.

Part of the problem is inherent in the design of the games. Basically, they are stories with some branching. There's no opportunity there for multiple players or character customization (since your character is part of the story and can't be changed), which means there's no reason for virtual goods. Why customize your character's look if no one else sees it -- and it really isn't your unique character, anyway? Taking away virtual item sales means foregoing a major source of revenue in this day and age.

Another problem for Telltale was licensing. Their whole portfolio of games is built on licensed properties -- they have no company-owned IP. Now, licenses, properly used, can be great. A well-chosen license can get you a vast audience at a low acquisition cost, though of course you now have licensing costs on top of your usual costs. The trick is to find ways to profit from that new audience. Usually, the obvious thing is to create a game using in-house IP that can sell well to the audience you gathered for the licensed game. (Note that many publishers use this strategy, like Jam City, Electronic Arts, Activision, and others.)

For instance, if you've sold millions of a Game of Thrones game, why not create your own fantasy setting and build interactive stories for that? Sure, the audience would be smaller than for Game of Thrones... but you wouldn't have the licensing costs. But Telltale never used this obvious strategy.

I suppose that makes sense when your games weren't profitable anyway. This points to what they should have been doing -- finding a way to either sell their games to a bigger audience (through better marketing), or change the game design to be less expensive to produce and have more opportunities for profit (a design that made virtual items a reasonable thing to create).

All that said, I think interactive stories are fun, and Telltale had plenty of great ones (their numerous awards can testify to that). Telltale just hadn't figured out how to make them profitably. That's an important lesson for any game company. Yes, you have to create a fun experience for players -- but you have to make sure you have a way to make a profit, too.

Update: A lawsuit has just been filed against Telltale for breaking laws in its abrupt layoffs.

Further Information: More than just the problems I outlined above, Telltale had basic problems with its engine that it never solved, as detailed in this article.

Crowd Marketing

ArenaNet, the studio that develops Guild Wars, just fired two employees because of a furor that erupted in social media. The Verge covered it well; essentially, an ArenaNet narrative designer was tweeting about how she writes narratives in Guild Wars, and a streamer politely offered some commentary about how he’d like to see things done – and then the whole thing exploded as the narrative designer got angry at this, heated messages were exchanged, the issue became popular on Reddit, and then the designer was brought in to talk to the CEO of ArenaNet who fired her. He also fired another long-time developer who had come to her defense. Now the issue has become politically charged, and while outrage is spread around and amplified some important lessons from this incident may get lost.

The issue is much more complex than that simple summary above, of course. If you’re interested check out the articles on the incident, and especially read through the tweets that precipitated everything, and form your own opinions. I’m not sure if there’s clearcut right and wrong here, but there are important things marketers and game developers should learn, and that’s what I’m going to focus on.

Stepping back a bit, it’s certainly true that many companies expect or encourage or even require developers to interact with the community. Sometimes those interactions don’t go so well, which shouldn’t be a surprising outcome for people whose expertise does not lie in public speaking or community management. Community management is extremely important – it helps keep the audience engaged with your game, it’s a way to learn from the audience, and it’s a good way to try and deal with problems that occur. Like all tools, though, community management can be harmful in direct proportion to its power and utility.

How do you prevent a situation like this one from developing? By hiring good community managers and making them responsible for interactions with the audience, and by preventing anyone in the company from posting to social media or forums on behalf of the company. Employees (and contractors) need to put a disclaimer on their social media profiles and on the email signatures – Opinions expressed by me are not those of the company (there’s better language out there, but this is the gist of it). This is true even of small developers – if you only have a couple of people, figure out who’s better at talking to the public and have that person do it.

It’s great if you want to have other members of the team interact with the community, but the community manager should help with such interactions and oversee them. The community manager can then step in if things get out of hand on either side of the interaction. Here, it looks like the narrative designer got angry out of proportion to the commenter, and then matters escalated from there. (At least, that’s what it looks like from a distance – I’m sure there’s more to the story.) If a good community manager had been overseeing this, the escalation could likely have been defused before really bad things happened (like people getting fired, and large numbers of people getting upset with ArenaNet).

Was the CEO’s response appropriate? Perhaps, but I’d want to know the full story (including the company’s policies, if any, and what had been said before to the employee) before rendering a judgment on the CEO’s actions. Certainly the heated response to a polite inquiry seemed far out of proportion – and the continuing explosion of the developer was unnecessary and reflected badly on the company.

What’s important for other companies is to learn from this and try to set things up so it never happens to them. Marketers (and developers) need to realize that marketing isn’t entirely under their control now – and that’s a good thing. When you’ve got a strong message, an audience can help spread that if they’re treated right. But don’t delegate that responsibility to people that aren’t ready for it. Establish policies for employees about communicating with the public or the press. Have someone skilled at community relations and public relations available to step in and help as needed (even a small developer should know some PR-savvy person they can call in to help when the situation gets nasty).

Keeping your audience engaged with your content and your company is important, but leave it to people who are skilled at dealing with an audience – and who can keep their cool when provoked. Sure, sometimes you will get complete trolls attacking, but that’s when you really need to know how to deal with people like that. Pouring gasoline on them and setting it afire may be emotionally satisfying in the short term, but it’s probably not the best way to win the hearts and minds of the largest audience for your games.

VR, AR, and the Market That's Still Virtual

Last week saw the Augmented World Expo in Santa Clara, bringing together a number of companies and people interested in XR (the catchall term that covers Virtual Reality (VR), Augmented Reality (AR), and Mixed Reality (MR)). While there were big companies like Microsoft exhibiting, there was a distinct lack of companies aiming at the consumer space -- like Oculus, Vive, or Magic Leap. The two companies with the current largest market of AR-capable devices -- Apple and Google -- were nowhere to be found. This show was not focused on consumers.

Overall, the AWE show continues to draw a good crowd and some interesting speakers; the XR market for hardware and software, though, doesn’t seem to be growing much. The AWE show, judging from the exhibitors and the various sessions, is mostly about the various verticals that constitute the enterprise market. That actually seems like a smart decision to me, because the consumer market for XR is pretty much going nowhere fast. VR headset sales have consistently underperformed, and the installed base of even the largest is still just a few million. AR is in the hands of hundreds of millions of people, between ARKit and ARCore, yet almost nobody is using it – even in one of the poster children for AR, Pokemon GO. (That app is a good touchstone for how smart someone is about AR – ask them how important Pokemon GO is. Sure, it’s done very well for Niantic, and helped generate press for AR, but the use of AR in the game is completely cosmetic and can be toggled off easily; it adds nothing to the experience or the gameplay.)

At least on the hardware side, there’s good progress. The hardware continues to get better – faster processing, better displays, lighter, and cheaper – but it’s still hard to see what software is going to drive hardware sales. It’s the classic market development problem for hardware and software – the hardware doesn’t sell without the software, and no one writes the software unless there’s a good hardware base.We are getting to the point (still a couple of years away) where a good pair of AR glasses will be like slipping on sunglasses – at which point the market could explode, if the price was right and there was software people really saw a critical need for.

Digi-Capital's Tim Merel said he thought Google’s AR assistance for Google Maps walking directions was the first really critical use for AR he’d seen for consumers. I’d also nominate furniture placement, like Ikea’s app – I spoke with one of the guys doing that app, and they have plans to make it even more useful. So we are making progress towards useful consumer software for XR, but it’s slow.

Major companies exhibiting at the show included Microsoft, Qualcomm, and Sony. Interestingly Sony was not showing PSVR, but instead some enterprise stuff so unmemorable I can’t even recall what it was. Microsoft was focused on HoloLens and commercial uses. Yeah, who’s going to drop $3,000 for a cool way to play Minecraft? A handful of people, maybe, but not more than that.

One of the potential big players in XR is Magic Leap... but at AWE, it was Magic Leap who? They had no presence at the show, and no mind share in the conversations I was in. Regardless of what miracles can be pulled off with their hardware, they need to have compelling software… at least one thing that people will pay a lot to use regularly. That’s needed to grow VR, AR, MR, whatever kind of reality you’re planning. And I’ve yet to see it. I think it will happen, but the time frame is indeterminate. Magic Leap did show a little bit of what their hardware looks like, but we still don't know the price or the release data -- nor have we seen what you can actually do with it. Apparently their demos have been impressive enough to get over a billion dollars in financing, so you can't count them out. But don't count them in until you know the price, and get details on how the hardware works -- and see some reviews from users.

As for games, which many people seem to suppose are the killer VR app, and a huge potential market on AR or MR, I think that most people are barking up the wrong tree. Sure, games could be cool, but people aren’t looking at the right kinds of features or genres so far in XR games. Worse, no one seems to be building a game for XR that has billion-dollar potential. I think for a game to make $1 billion or more, it has to have a couple of things: A large enough installed base of hardware that can run it (A hundred million at least) and some aspect of play that keeps people coming back for hundreds of hours of game play. Now, that can be in 5 or 10 minute chunks like Candy Crush, or 5 hour chunks like Minecraft or World of Warcraft – but the game has have that sort of innate attraction (and ideally ways to build revenue over time). Nobody seems to be making games with that sort of potential yet for XR.

I do think that with Apple's ARKit and Google's ARCore making AR easier on hundreds of millions of smartphones, that will provide an easy on-ramp for developers to try out ideas. That will make future AR wearables more likely to get adopted faster. Those developers who are learning how to build AR and VR apps now will be in a good position when that market finally arrives. The only trick is to have your development business survive until the larger market arrives...