Game Marketing Tips, Analysis, and News

Saturday, July 30, 2011

Nintendo's Real Problem

Nintendo has some serious troubles right now, and the future looks more than a little grim. Since their apocalyptic announcement yesterday, a few more facts have emerged.

Item: Nintendo stock dropped 12% yesterday after the news hit, to end at 12,290 yen (about $160 per share). This is the lowest level it's been since 2006, before the introduction of the Wii. Now today it dropped to 11,100 yen, for a total drop of about 20% for the week; shares have dropped 50% since the beginning of the year. Not surprising since Nintendo slashed their earnings forecast for the fiscal year by 82%, with profits expected at the lowest level in 27 years.

Item: Nintendo's market capitalization dropped to an astounding 1.7 trillion yen, or about $22 billion US at the current exchange rate. Which is about in the low end of the range where Zynga's IPO is expected to bring in.

Item: The exchange rate for the yen hit a 4-month low today at 77.45 yen to the dollar, which only makes it harder for Nintendo to make money on products it sells in the USA.

Item: Iwata-san cut his salary in half, and cut other executive salaries by 20-30%.

Item: The price cut on the 3DS may mean that Nintendo is selling each unit at a loss. Reports on this are mixed, so take this one with some salt added. It's certainly true, though, that Nintendo is making far less on each unit sold than it was before the price cut. That $80 price cut means that Nintendo will have to sell at least 3 or 4 of its own software titles to make up the profit differential, and more of third-party titles.

Item: 3D is falling out of favor in the game industry. Here's what EA said yesterday, in a Gamasutra article:

Electronic Arts has seen poor returns when allocating its resources to displaying its games in 3D, according to CEO John Riccitiello, who says that the company would prefer to use those resources focusing on social features.

Speaking to company shareholders in a meeting remotely attended by Gamasutra, Riccitiello said that EA's business responds to the needs of consumers, and from what it has seen, consumers are not asking for 3D.

What does this all add up to? A very uncertain holiday selling season for Nintendo. They've pretty much fired off all their big weapons for the rest of the year, at least as far as price cuts are concerned. They certainly can't afford to cut the price on the 3DS any more, not when they are losing money on each one (or near enough to that). They have to sell enough volume of the 3DS to get volume discounts on the components, and perhaps do some re-engineering, to get the price down further. That couldn't really happen until 2012 sometime, and only if sales pick up significantly will Nintendo get some volume pricing.

Nintendo has one more price cut left for the Wii, to $99, and they may well play that card for the holidays. Wii sales have not been juiced much by the price cut; news of its replacement may already be affecting the desire to pick up the Wii. More importantly, though, is the complete drop-off in third-party Wii development. Basically, for interesting new Wii software it's Nintendo or nobody.

Can Nintendo rush the Wii U out the door? Not if they want to have a successful launch. Even if the engineering was far enough along, there's the little matter of launch software. Surely Nintendo learned from the 3DS launch how important it is to have some gotta-have-it titles when you launch new hardware. That whizzy 3D-without-glasses feature you that was enough to move hardware at a premium price turns out to be a gimmick with low appeal to gamers. Perhaps that may change, if someone releases an awesome piece of software that really shines in 3D and shows why it is a useful feature in a game. I doubt that will happen, though.

I don't expect 3DS sales to reach the levels Nintendo is hoping for; I would be astonished if they managed to reach their goal of 16 million units sold by the end of March 2012. I expect they'll fall short by millions. The Wii U will launch next year sometime, but I hope for Nintendo's sake they do a sensational job on the launch software. Even if they do, success is still iffy. The markets have changed; certainly 3 years in a row of falling console software sales should be enough to tell us that. The market for retail packaged software will never recover to its previous heights. This may not hurt a company like EA that is busy transitioning to digital distribution, but a company like Nintendo has come out repeatedly and says it doesn't think online anything is worthy of a big investment. That's not a winning strategy for the future.

Friday, July 29, 2011

Good Advice On App Pricing

This reminds me of some other game... wait, don't tell me... 
There's nothing like some real-world data to inform your decisions. One app developer, Appy Entertainment, took to wondering how their app might do if they made it free, and relied on in-app purchases to bring in money. The story is told in an interview with Pocket Gamer, recounted in this article. Their app, Trucks and Skulls, normally sold for 99 cents. When they added a freemium store to the latest release,revenue jumped 150%. When they got a promotional opportunity from Free App A Day, they went for the free pricing... and downloads jumped 5,000 percent. The game was downloaded more than 100,000 times on July 3. They brought the price back to 99 cents to see what would happen, and basically revenue returned to the previous level.

The data have convinced them that straight pricing is the inferior business model. (Though they call 99 cents premium pricing, which sure doesn't sound premium to me.) They plan all their future titles for a freemium business model. They do understand, though, that the design of the game has to incorporate that idea from the start in order to be really successful. The game balance becomes critical between paid and unpaid players; you can't make it feel like the only way to succeed is to buy your way to success.

Thursday, July 28, 2011

Signs Of the Apocalypse For Nintendo

We gotta get out of here and look for customers!
I can't really say that I'm surprised that the Nintendo 3DS is continuing to not sell well. I thought, back before the launch, that it would have a good launch month and then sales would be mediocre at best. Here's what I said back in January:

The 3DS and PSP2 appear to good initial sales that quickly decline to disappointing levels. Partly because the price points will be so high initially. Once the fanboys have gotten their units, less fanatical customers will look at the prices and think about buying a smartphone instead. Many will. Developers in particular will be annoyed, because developing for these new handhelds will be significantly more expensive than the old handhelds, yet software sales will be worse. This will lead to a quick fall-off of third-party support.

Hmm, looks pretty much like what's been happening. I figured Nintendo would have to respond by cutting the price, but knowing how reluctant they are to do that I figured they would wait until just before the PS Vita release (say in November), then drop the 3DS to $199. But today the shoe has dropped, and it's a damn big shoe: Nintendo has dropped the price of the 3DS to $169, effective August 12.

Just so sales won't fall off a cliff between now and August 12th, Nintendo has also announced that current 3DS owners and those who purchase a 3DS between now and August 12th will get 20 free downloadable games between now and the end of the year. (Not that you get to choose which ones you get... Nintendo chooses them for you. They are old GBA and NES titles... good games, but I don't think it's enough to make anyone spend an extra $80 in the next couple of weeks to buy a 3DS.)

This is a stunning announcement from Nintendo that 3DS sales have not just been disappointing; they have been really, really bad. Nintendo usually resists price reductions with all their might; they refused to drop the price on the Wii despite months of falling sales, only caving when they went ahead and announced the Wii U. And they still only dropped it $50, to $149.

Here's the key info from IndustryGamers:

Nintendo has sold 4.32 million 3DS units since launch earlier this year, along with 13.96 million pieces of 3DS software. In the first quarter ended June 30, Nintendo sold 710,000 3DS units and 4.53 million Nintendo 3DS games.The new 3D handheld, however, has not met Nintendo's expectations. In fact, Nintendo largely blamed the 3DS for its poor first-quarter performance in which the company saw a net loss of ¥25.5 billion ($324 million) and sales drop over 50% to ¥93.9 billion ($1.19 billion) from ¥188.6 billion ($2.40 billion) a year earlier.

I guess losing $324 million in a quarter is enough to make even Nintendo sit up and take notice. Check out those sales figures; 710,000 units in three months, worldwide. That's not even 250,000 a month; and Nintendo still expects to sell a total of 16 million units this fiscal year, when so far they've only sold a little over 4 million? Let's see, that would mean sales would have to quintuple the current level immediately. OK, the price drop will certainly boost sales, but there's no way it'll be a 5x increase. I don't see Christmas sales making up the difference, either. Maybe Nintendo can sell a couple of million over Christmas, maybe even 4 or 5 million... but not 10 million.

Nintendo had been hoping that the arrival of the eShop and some software featuring key Nintendo franchises would boost sales. Clearly, those hopes have been thoroughly dashed. Worse news for Nintendo is that 3DS games are being cancelled (Mega Man Legends 3) or delayed (Metal Gear Solid: Snake Eater 3D). If the third-party publishers are already starting to vote with their development dollars, this platform could be in big trouble.

While Nintendo attempts to goose 3DS sales up into the 1 million a month category (which looks like a huge stretch goal), iPhones are selling at the rate of 7 million per month, and Android phones are selling at the rate of 15 million per month.

This does not bode well for the Wii U, either. Nintendo's got to make some more fundamental changes to their business model than just a price cut here and there, if they want to succeed in a fast-moving market.

Wednesday, July 27, 2011

Zynga's Facebook Deal Revealed: Exclusivity

Details on the marriage contract are interesting.
One thing about going public that private companies find annoying is the need to reveal more information about their business. Not just the sales figures and profit percentages, but important details about key agreements that can affect the business going forward. Companies generally prefer to keep all that information secret, lest some competitor somehow use it to their advantage. When you're going public and registering your stock with the Securities and Exchange Commission, they have some niggling little rules that force you to disclose all sorts of information. Anything that might materially affect performance needs to be disclosed, which is why we're now finding out some interesting things about Zynga's business as they prepare for their IPO.

One of the key moments in Zynga's history is the epic showdown with Facebook in May 2010 over the implementation of Facebook Credits. That was when, as Bing Gordon put it, they almost went nuclear. Facebook had decided to require all social games on Facebook to use Facebook Credits, and thereby give up 30% of their revenue to Facebook. Quite reasonable, if you're Facebook; not so reasonable from Zynga's point of view. Given that Facebook represented the vast majority of Zynga's business... and that Zynga represented a healthy percentage of Facebook's overall traffic... it was a tense moment. An agreement was signed, the dust settled, and Zynga was accepting Facebook Credits. But we never knew any of the terms of the deal... until now.

The key thing in the agreement is that Zynga has given Facebook a 5 year exclusivity on its current games, as well as new games it introduces that has Facebook integration or use Facebook data. The agreement specifies several other social networks that Zynga cannot release its games on, though the names of those networks have been redacted. Astute observers will note that this agreement predates the existence of Google+, which has already emerged in just a few weeks as the most viable competitor Facebook has seen in years.

There's more detail in this Gamasutra article, but the key thing is the exclusivity. It might have seemed like a no-brainer at the time, for who could challenge mighty Facebook? Now that Google has finally seemed to get some traction, there might actually be another social network worth creating games for, in only a year or two. Zynga will be locked out for a while, though, which gives some other social game companies a chance to grab some market share. Don't forget that Google is also planning something big around games, as various rumors have noted.

Meanwhile, Zynga has some other issues to deal with, like the Vostu lawsuit that seems to be heating up. I suspect it will all be settled out of court, but not before there's some discovery back and forth and a few more legal broadsides.

It doesn't seem to be distracting Zynga from making great inroads with Empires & Allies, its latest game that's zoomed up the charts to become bigger than Farmville. Maybe those farmers will have to beat some plowshares into swords in order to compete.

Meanwhile, Zynga is making inroads into China with a partnership with Tencent, bringing a localized Chinese version of Cityville to the land where millions play online. Hmm, maybe they don't need Facebook after all... since Facebook isn't in China. Zynga stands to do very well in the Chinese market, and Facebook won't be sharing in that revenue.

Tuesday, July 26, 2011

Average Mobile In-Game Purchase: $14

Some interesting data on in-app purchases.
You probably know that only a few percent of players of free games actually go ahead and pay for something within the game. But here's the part you may not know: According to Flurry, the average in-game purchaser racks up $14 in charges on a game. It seems that if you like a game enough to spend some money on it, you really like it.

Their take-away lesson for game developers: You're whale hunting. Whales, that is, in the casino phrasing, which are players who spend big money.

Find a way to attract whales, and you're going to make some money.

Monday, July 25, 2011

Steam Kicks Xbox Live Butt

He may save the world, but not with his Xbox 360.
Developers have to pick their targets for development. Sometimes their target choice is dictated by what they know or love, but ultimately it's a business decision: Which platform will make us the best return on our investment of time and money?

Here's an interesting data point: Independent developer Zeboyd Games had put out a couple of titles on Xbox Live's Indie Games services, Cthulhu Saves The World and Breath of Death VII. After some 18 months on XBLA, Zeboyd Games ported those games to PC and put them up on Steam. The result? In less than a week on Steam Zeboyd had more revenue from those games than after 18 months on XBLA.

Gee, I wonder where their next game will appear first.

If Microsoft has visions of catching up to Steam with their Windows Live service, they might have to rethink their plans. Apparently Microsoft is planning to integrate Xbox Live with Windows Phone 7 and the upcoming Windows 8, to make one big happy gaming community across platforms. Seems to me it won't matter much if they can't figure out how to sell games. Of course, indie games on XBLA don't get any achievements or promotion, and most Xbox Live customers probably aren't even aware they exist.

Sometimes, though, those little developers become big publishers. And they remember how they were treated. And they often tell other developers, too.

Friday, July 22, 2011

Electronic Book Signing

A signed e-book.
While e-books are busy conquering the print world (and Borders vanishes, accelerating the trend towards e-books, there are certain advantages that print books still maintain. One of the less obvious ones is the signed copy. It's really kind of cool to go and see an author at a bookstore, hear them talk about their book and answer questions, and then get your very own copy signed.

With e-books, you can still go and hear an author speak, but there's been no way for her to sign your e-book. Some have been in development... and now there's Kindlegraph. It's a way to sign Kindle e-books, and it seems to have some basic issues solved. Basically, you can get an author to write an inscription to you, and the PDF gets sent to you and stuck onto your Kindle book file.

This does mean the author doesn't have to be in physical proximity to you... this can all be done remotely, though of course that's a less compelling attraction than the actual press-the-flesh style book-signing. A more basic problem is that unlike a signed physical book, you have not added any value to your Kindle book... since you can't resell it.

That is one of the key disadvantages of the e-book... it's not lendable or resellable. There are efforts to make books lendable, and I hope someone will figure out the resale part someday. Though that wish is probably not shared by most authors.

Thursday, July 21, 2011

Gaming For Roku

That's a gaming controller...
It looks like the family room is being invaded sooner than I thought by inexpensive gaming. The camel's nose is under the tent, and in this case the camel is named Roku. Their inexpensive little boxes for streaming Netflix and other video have been a hit for people who don't happen to have a console (Xbox/PS3/Wii) or an Internet-connected TV or a Tivo that includes streaming. Now, Roku is introducing three new versions, starting at $59 and going up to $99, and they've built in a copy of Angry Birds. Naturally, you get a six-axis controller that looks an awful lot like a Wiimote to control your game.

Roku notes that other Angry Birds games, like Angry Birds Rio, will be coming soon. They don't mention whether or not any other games might be made available for the Roku. I don't think these devices include any kind of storage, though, so I don't see where you'd put games. Unless, of course, they were streaming games from OnLive... which is certainly a possibility in the future.

The interesting thing here is just how easy it is to add a good-looking game to a very inexpensive box. When you think about how powerful an Apple TV with an A5 in it could be... and think about something like Infinity Blade on your TV... and you'll see why console makers should be nervous. Heck, we need not wait for Apple to pull the trigger on its new Apple TV with App Store (though I think they would have a real winner introducing that for the holidays this year). Perhaps Amazon will step in... we have heard rumors about Amazon Android tablets in the works, and they are working on a social game of their own. Why couldn't Amazon create an Amazon TV box for $99, that streams Amazon programming and has their Android market built in? Hey, if Apple can't get its act together, maybe Amazon can step in and grab the market share.

If you think the traditional console market has been in turmoil the last few years, just wait until this hits... it'll be  a nuclear blast. Oh, that probably means zombies...

Wednesday, July 20, 2011

Could The App Store Collapse?

App Invaders... hey, I've got an idea for a game...
That's the subject of this opinion piece by Chris Buffa on Modojo. He notes that back in 1983, the game industry pretty much collapsed as Atari flooded the retail stores with mountains of crapware. Eventually Nintendo and computer games brought things back to life, but it looked ominous for a while there.

Of course, there's plenty of crap in the App Store. There's plenty of just OK games with nothing special to make them stand out. There's also thousands of good games, and some amazing ones. Could sheer volume in all of these categories really cause the App Store to go away?

Certainly things will not remain the same. New apps are added all the time... but it's also true that a lot of apps are effectively dead, with sales numbers so low that they might as well be gone. Their pretty little shells remain, but they are mostly lifeless. Still, they clog up the searches and make it hard to find other games.

Certainly there's some problems with in-app purchasing, and it can get annoying if overdone. I'll note that this business model is still very young, so there's plenty of refinements to expect in the next few years.

Other problems Buffa notes: People are getting tired of Angry Birds; well, yeah, but Angry Birds is just one title. Technology of consoles keeps advancing... well, smartphones are advancing at about 5 times the rate of consoles. Finally, he thinks that console makers could have their own App Stores on their devices. True, it's theoretically possible, but the tightly controlled marketplaces on consoles are a far cry from the (nearly) anything-goes mentality of the Android Market or the App Store. Console makers are loath to give up control, or to allow low-priced products that might compete with their high-priced products, or that might compete with retail stores... I just don't see it happening.

Will there be changes in the App Store? Absolutely, but no one knows exactly what shape that will take. I'd guess there will be better search tools, and more marketing tools for developers, but beyond that... who knows? It will be shaped by technology, to be sure, but also by clever ideas that take hold. A big advantage of the smartphone market is that development times are typically measured in weeks, not months or years. So adapting to changes can be rapid. Developers need to stay flexible and ride the waves of change that will continue to come.

There's really only one sure-fire strategy for success I can think of in the app market: Be one of the first titles to take advantage of new hardware and really show off what it can do. Now, that may be tough if you're not one of the favorite developers who's got an inside track on new stuff. But even without that access, it's not hard to figure out what to code for: the next hardware iteration will have a faster processor and a better GPU.  You can pretty much bet that the iPhone 5 (whatever it may be called) will have an A5 processor in it (the same thing that's in the iPad 2). Build a title that stretches that processor to the max with some eye-popping graphic effects, and you'll certainly be able to get a lot of press.

With that strategy, there's always new hardware just around the corner; smartphones get new mojo on a 12-month cycle, or maybe even sooner. Keep abreast of that and you won't have to worry about the app market collapsing. You'll be too busy counting your profits.

Tuesday, July 19, 2011

Used Video Games: Online For $10

It's like this, only the dollar bills are flying out of your wallet.
It started with Electronic Arts, and now the trend has added THQ, Warner Bros, and the latest companies to join are Ubisoft and Sony. What's this trend? Making online access a separate fee for purchasers of the game, if you aren't the original buyer. When you buy an EA Sports game, for instance, it will come with an online code that you enter to allow you to compete online. No extra charge, so it's not really a big deal. But when you sell that game to GameStop, the person who buys the game from GameStop can play it all they like on their console... but when they want to play online, they'll have to pay $10 for a new online code.

Of course, you can expect this to result in a lower price being paid for your used games by GameStop, but the publishers really don't worry about that. This is a way they can get something from a used game sale, which is more than the big fat nothing they currently make on used games. It makes sense to me that someone has to pay for the servers, and it really should be the game players, whether it's the original buyer or not.

It's one more move along the line to software as a service. The publishers have tried different monetization schemes, such as subscription plans. This is one more way to help keep those servers humming. Of course, if more games begin offering free-to-play models with monetization from virtual goods, this may not succeed competitively. For sports games, though, it seems to make sense until they start charging you for each fantasy league player you want to own. Which may happen someday... looks like everything is being tried.

I think the only thing you can be certain of is that you can't really be certain of anything in the game industry.

Monday, July 18, 2011

Piracy Revisited

FingerKicks, an app kidnapped by pirates.
Once again we can read a sad tale about piracy, this time about a soccer app for iOS called FingerKicks. The story is worth reading, about how a dedicated developer create a soccer game for iOS and sat back to await fame and fortune. Sadly, they were only selling a couple of hundred copies. But then they saw on Apple's GameCenter that 5.000 people were playing their game! Joyous celebration... until they realize that only 160 of those were paid copies.

The rest were due to their app being featured on a pirate web site. What really honks them off is that Apple's Game Center made no distinction between legitimate copes and pirated copies. Not surprisingly, these developers are annoyed that Apple doesn't make that distinction. I agree; Apple should restrict Game Center to legitimate owners of legitimate copies.

But on the whole piracy issue, I'm afraid I don't fall neatly into a category, either the yo-ho-ho crowd or the he-man pirate-hatin' publishers. I think piracy shouldn't be promoted, and people should be buying copies if they want to play a game. But I also don't think that the enormous claims of lost revenue that you see from publishers and publisher associations are legitimate. I think if there were some way to keep games from being pirated that was 100% foolproof, you wouldn't see a game's sales increase by 100% of the number currently being pirated. The true number would be somewhere between 0% and 100%, and I think it would be much closer to 0% than 100% of the pirated copies.

Lots of pirates grab copies of things because they can. Others because they can't pay for a legitimate copy; they're too poor. Neither of those would pay for a copy if that was the only way to get it.

Reality is that efforts to stop piracy never seem to work. Many of these efforts make it more difficult or annoying to be a legitimate owner, while not stopping the determined pirate. There's a constant arms race going on between Digital Rights Management (DRM) and piracy, and the pirates always seem to be a step or two ahead.

I think it's a waste of time trying to stay ahead of the pirates. Sure, stop the commercial copiers if you can; the factories churning out DVDs and the like. But the casual copying is nearly impossible to stop.

I think your time is better spent figuring out how to use piracy to your advantage. It's a viral marketing tool, if you can figure out how to monetize it. Additional digital content sales are a good way to do this. If you're running a server that players compete on, you should be able to restrict that to legitimate owners.

I think the best way to deal with piracy is a free-to-play game where you make money on the digital goods and just give the game away. Then piracy is just a marketing tool for you; look at the League of Legends guys. They're making a lot of money with a game they give away for free. I'm sure they don't spend any time worrying about piracy.

Yes, encourage people to pay for your software as much as you can. But don't waste time in rage or ineffective measures to keep people from grabbing copies of your game, if those would never really be legitimate sales anyway. Look for ways to reward the people who give you money, and then the freeloaders will become unpaid marketing assistance for you. Which is really the best revenge of all.

Friday, July 15, 2011

Reality Check: One App's Marketing Story

Touched by a marketer?
An app developer posted on Gamasutra about just how well his marketing did for his latest app... or rather, just how tough it is to get noticed. His app, Banzai Bugs, was posted a few weeks ago, and here's some of what he found when he tried to get some attention for it:

  • Banzai Bugs got listed on the gamespress website (thanks guys) and stayed on their front page for... less than 12 hours.
  • Posting a release in the correct forum within touchArcade gets you top post for around 30 minutes to an hour at best. Within a day you are out of the first page of posts.
  • Emailing journalists at various games websites got zero response.
He did get interest from one web site due to the listing on gamespress, and got a review out of it. But when he made the app free for a day to celebrate and try to get some attention, the press ignored it. Worse, Apple screwed up with his app's listing on What's New, so he never made on the list.

His takeaway? Work to get noticed before you launch. If you aren't noticed, you won't get noticed... it's pretty tough out there.

Really, the marketing should be thought of before you even spend time building your product. You have an idea for a game, but before you run off and code it (spending months in the process) you should consider the marketing. Who's it aimed it? What's special about it? What will get this game noticed out of the hundreds of thousands of other games? Have you done your research and looked to see what other games are like it, and how yours would be different or better? Perhaps after going through this exercise you may decide not to do that game... or find a way to make it more marketable. Either way, you're better off.

June 2011 Retail Sales Sink

Yeah, it's about like that.
The packaged software business is following the path it's been on for the last three years... fading away. The NPD numbers for June are in, and they show an overall 10% drop compared to last year, from $1.15 billion last year to $1.03 billion this year. If you just look software, the numbers are even worse: It's a 12% drop, down to $469 million from the $513 million last year.

According to analyst Michael Pachter, some 75% of the drop can be attributed to the Wii software doing a fast fade at retail. Nothing like announcing a new console, especially one that's backwards compatible, to help boost software sales... or not.

Of course, the usual disclaimers abound that this does not count digital revenue of any kind; it's just discs at retail. Sure, but where does this leave companies who are getting the majority of their revenue from discs sold in retail stores? Trying to figure out how they can get out of that business.

This is the real problem awaiting new consoles. Even if gamers are willing to shell out $300 or $400 for new hardware, are they really willing to spend $60 on a boxed game that they have to drive to a retail store to get? Already you can find a lot of software for less to be downloaded on your console, though not the biggest titles.

What happens to the business when you can get an Google TV or Apple TV that has access to thousands of downloadable games at low prices? Sure, there's a lot of crap... but there are also games like Infinity Blade, and there will be many more of those, you can bet. We'll be seeing new TVs with the capability to access games built right into the TV. It's going to make the choice to drop $300 on a new console more difficult.

The real nail in the coffin comes when someone chooses to do a first-rate shooter on one of these platforms like Apple TV or Google TV, and there's a controller available that can do a good job with it. The pieces aren't all there yet, but you can see it coming.

Thursday, July 14, 2011

EA Pops A Cap In The Competition

The games may be casual, but the price for the company isn't.
Electronic Arts has finally announced their acquisition of casual games publisher PopCap (Bejeweled, Plants Vs. Zombies) for a cool $650 million in cash and $100 million in EA stock, along with some performance bonuses for the next year or two that could bring the value of the deal up to $1.3 billion. Not bad for casual games.

EA released a presentation for their shareholders showing some interesting marketing data concerning PopCap and EA and some of the competition (*cough*Zynga*cough*), which is posted here.  Among other things, it notes that the Daily Average Users of EA and PopCap combined are more than 10 million... which is rather a distant number two to Zynga's 53 million DAU. You have to start somewhere, I guess.

EA clearly sees this deal as an important step in expanding their horizons. They're hoping to take their brands and spread them across every platform, with every sort of revenue model, and connect gamers across platforms. It's an ambitious strategy, but it makes sense if you're looking to get the best growth possibilities out of your vast IP holdings. They've bitten off a big bite, and now they have to show they can chew, swallow, and excrete some golden profits in the next few years. (OK, maybe I did push that metaphor one metabolic step too far.)

Analysts are applauding the move, and at least one says it shows how myopic Activision looks for staying well away from any sort of mobile or social gaming because they think it might go away soon. Have they bothered to look at console software sales figures for the industry over the past three years? I guess they're content to have a bigger share of a shrinking pond, but they really out to check out the river nearby.

EA's clearly hoping PopCap can create more successful casual games, and help bring EA's brands to casual gamers (and vice versa). EA makes no secret of their ambitions to rule the gaming world. They see themselves as playing a much bigger game than Zynga, and they see Zynga's reliance on Facebook as a weakness that will limit Zynga's growth in the future. Or, at least, provide EA with a competitive edge. That presumes, of course, that Zynga has no plans to do anything about that, which would seem to be underestimating them.

What does this mean for other developers? Many of the larger ones may become acquisition targets, if they aren't already. Of course, that presumes that a developer is willing to be bought, and can set a reasonable price. This is clearly not the case with Rovio, developers of Angry Birds. Oh, they sound like they're open to an acquisition, but they think they're worth more than $1 billion.

I think they should try to avoid those powerful hallucinogens... Maybe they should have more than one game before they start asking for a billion dollars. Maybe even more than one successful game. Needless to say, I don't think anyone's rushing to write them a check.

Wednesday, July 13, 2011

The Brutal Battle To Get Your App Noticed

Tapjoy, one of the leaders in the incentivized app install market that's now been ruled out-of-bounds by Apple, recently raised $30 million to help fund further growth. They've switched to banner ads or a cost-per-action campaign.

Their real growth, though, is coming from the Android market. They're seeing growth in that area double from month to month, and they recently started a $5 million fund to encourage developers to bring titles to Android. They've also started working on Windows Phone 7; not much now, but it may grow into something.

Android, for now, doesn't ban incentivized app installs, so Tapjoy can still exploit that loophole on Android phones. They're pushing hard on the Android platform, which sure needs it. Even though the Android market share is bigger than Apple's, when it comes to selling apps Apple is the clear winner.

Recent info from Piper Jaffray analyst Gene Munster shows Apple app downloads up 61% over last year, with users downloading an average of 83 apps (as opposed to 51 last year). Over 31 million apps are being downloaded every day. Average app prices for Apple are up 14%, which is a cheery sign for app developers. Munster expects the App Store to generate $4.2 billion this year, with developers getting $3 billion. (It's interesting to note the average iPad app price was $6.32, up 36 percent from last year, which no doubt helps these numbers.) Munster thinks App Store revenue could hit $7.7 billion next year, with users downloading an average of 94 apps.

Which is all why developers are sticking with Apple first; it's where the money is right now, despite Android's best efforts so far.

Tuesday, July 12, 2011

Korean Juggernaut Nexon Readies IPO

If you thought Zynga's IPO was big news, what would you say about an even bigger social gaming company going public? South Korea's Nexon is going to file somewhere in Asia, not on Nasdaq or NYSE, but it's still huge. The company is 17 years old, and pioneered the free-to-play business model that's been revolutionizing the gaming industry. (What have they done? Maplestory is one of their biggest hits...) They have over 1 billion registered customers, and in 2010 their revenue was $643 million, or just a bit more than Zynga's. Their revenue has been growing 30% a year for the past five years, so in 2011 they are expected to take in over a billion dollars. Their margins are actually better than Zynga's since they don't have to hand 30% to Facebook; reports are that they have 50% margins, which is amazing.

Nexon hasn't made much of an inroad into the US, mostly because our broadband is so pathetic compared to South Korea. Now the US is finally developing enough households that can handle the graphics that Nexon wants to toss their way. Along with Tencent and Perfect World, we're finally seeing some of the Asian companies making serious inroads into the US market. It's going to be a marketing battle with old-line publishers like EA struggling to be a player in these new areas, and Zynga (which will be flush with cash from the IPO) working to maintain and grow its position.

We're going to see more and more sophisticated games being offered for free or very low prices, which is going to really wallop the traditional business (which, by the way, looks like it's going have another month of sales declines; numbers get released Thursday). Yet the gaming business overall continues to grow... the changes are happening fast.

Monday, July 11, 2011

App Discovery Evolving

With literally hundreds of thousands of apps vying for attention, and app stores falling down on the job of helping them get attention, it's little wonder that people have taken to gaming the system to get noticed. In Apple's App Store, that took the form of incentivized app installs, where you'd pay a company in the range of $25,000 to get your app downloaded enough times to make it into the Top 100 list, where presumably its sudden visibility would then result in enough sales for your expenditure to make sense.

Apple took a dim view of this practice and outlawed it, resulting in a short-term problem for the companies that offered such deals. As you might expect, though, they are coming up with new ways to get an app noticed while avoiding problems with Apple. And still managing to make a nice piece of change from the business, too.

W3i has come up with what they call the Mobile App Ad Network, which allows a developer to offer an app for a free download in a banner ad that appears in other apps. The idea is that since it doesn't work like incentivized app installs (where you'd get virtual currency in exchange for downloading an app), it shouldn't run afoul of Apple's rules. At least until Apple changes the rules again, of course.

Another company, TapJoy, which also had been running incentivized app installs, has now begun offering cost-per-action ads, where you can get virtual currency by watching ad videos.

The problem still remains unsolved, though, as evidenced by the fact that most app developers only manage to sell a few hundred copies of their apps, which is far less than some of these apps deserve. It's also true there are far too many me-too type games out there that don't deserve to sell very many copies.

Bottom line: Be very careful about spending money on app advertising campaigns.

Saturday, July 9, 2011

Game Design By Analysis

I think it's a transporter grid from Star Trek.
This is an interesting article on Gamasutra about Kontagent, which makes analytics software for measuring social applications... giving you people information. In other words, marketing data... you get demographic info about the users. CEO Jeff Tseng talks about how Zynga uses analytics (not Kontagent's; Zynga rolls their own) to optimize their games. He reckons they spend more on analytics than a lot of companies spend on their game development.

I see this as computer-aided game design. You start with something that "feels" right to a designer. With a traditional game, while you do some playtesting, once it's launched that's pretty much how the design is gonna be unless you someday do another edition. Social games are different, though; they are constantly changing based on what users are doing. So you get to use analytics o refine the game design, add and subtract and modify elements to increase user satisfaction. Which means you can find ways to generate more money without also generating resentment.

This is really a new era in game design. In a way it's the love child of marketing and game design, where the two finally get together to do something better than either alone can achieve. There's nothing like being able to look at vast amounts of data to see what's working and what isn't. It sure beats arguing over whose opinion is better. This is part of why social games are here to stay; they've got software helping them optimize the design. Mobile software's got analytics, too, which is similarly helpful. Will consoles ever have tools like these to help developers create better games? Yeah, I don't think so either. At least, not soon enough.

Friday, July 8, 2011

Games Are The Most Downloaded App

Games are even more popular than the weather.
I don't think this will surprise anyone, but it's nice to have the data: Games were the most downloaded app in Q2, according to Nielsen. Better still, 93% of game downloaders are willing to pay for games they like. Interestingly, iOS owners spent twice as much time playing games as the average mobile gamer.

Apple's App Store has reached 15 billion downloads, a rather impressive number when you consider it's only been around since 2007. This has resulted in Apple paying out about $2.5 billion to developers... of course, most developers only see a few hundred or a few thousand dollars, while some rake in millions. About thwo-thirds of the revenue from the top 100 titles comes from Free-To-Play (F2P) titles. For those titles, anywhere from about 0.5% to 6% of the users actually spend money on the title, which means over 90% of your players play for free. Still, when you can see over a million daily average users, you can make a nice chunk of change. The trick, of course, is getting to that number of customers...

Thursday, July 7, 2011

Calm Returns To EVE Online

Not all disputes end in battle, and CCP has managed to avert open warfare after a sit-down with the Council of Stellar Management, the group that represents EVE Online players. Apparently it was all a big misunderstanding, and CCP has no intention of selling game-altering items, only vanity items. So you'll be able to buy new skins for your ships, but not new ships.

Crisis averted. If only real-world crises were so easy to handle...

Apple Now #2 In Smartphones; RIM Sinks to #3

Apple's #2 and climbing.
To no one's great surprise (except perhaps RIM management), Apple has now surpassed the Blackberry as the #2 smartphone in the US. Of course, Android is #1. Want to bet that Apple's numbers will continue to improve when they release a new iPhone? Yeah, I thought you wouldn't.

I think Blackberry is toast; RIM missed their chance to be competitive years ago, and now they would have to do something amazing, and do it swiftly, to regain their lost eminence. It's not going to happen. The only question is whether or not the Microsoft/Nokia combo will succeed in gaining any sort of market share, or is that doomed to irrelevance as well?

Wednesday, July 6, 2011

Amazon Developing Games

There's more than one way to attract an audience.
Amazon sells books, and now it publishes books... Amazon sells games, and now it's developing games. Amazon had posted a job listing for a senior game designer back in May, and they've now filled the slot with Jonathan Tweet, who I worked with back at Wizards of the Coast. Jonathan has designed a number of things, including working on the 3rd Edition of D&D; you can see a list of his credits here.

Apparently Jonathan is heading up a social game design unit, so it appears Amazon is intent on making some money selling its own games for Android and other platforms. They've certainly got enough money to throw at the problem, and they've hired a good designer. The question is really how big are Amazon's ambitions here? How seriously are they going to invest, or is this just dabbling? Should Zynga be looking over their shoulder?

I don't know how serious Amazon is, but for now it doesn't sound like a huge effort. But it's amazing how fast social games can scale up... just ask Zynga. The impact of social games on tablets and smartphones as not yet been massive, but if you can cross those streams and get some synergy, the upside potential looks pretty high. And one thing's for sure: Amazon has the resources to make a major push into pretty much any area they feel warrants the effort. I suspect Amazon is watching closely to see how well their initial effort does, and to see if they should make a full-court press.

So no pressure, Jonathan, no pressure. Have some fun and build a good game, and let me know when the beta opens up, OK?

Tuesday, July 5, 2011

Capcom Debuts New Game "Feature", Gets Flamed

Mercenaries about to assault Capcom's PR folks.
Capcom has been having some interesting moments in the press over the last few months, like the flap over young kids racking up hundreds or thousands of dollars in smurfberry charges on the parental credit cards. Now they've chosen a new direction for experimentation, one that's already gained them no small amount of bad press.

Capcom has released a game for the Nintendo 3DS called, adroitly enough, Resident Evil: The Mercenaries 3D. Essentially it's a collection of minigames from previous Resident Evil games, crammed into a 3DS cartridge and hoping that users would pay $40 for something that doesn't really resemble the Resident Evil brand. Ah, but it's not entirely a retread, since Capcom added a significant new feature: It's impossible to reset the save game data. In other words, once you use the game it maintains your save files forever and you can't change that.

What good is this feature? Well, Capcom says it's because they are trying to keep all the content unlocked and available once you unlock it. (Which I really don't understand, and I'm not alone in this.) Conspiracy theorists, who seem to be in the majority on Capcom's message boards, believe that Capcom is attempting to destroy the resale value of the game to prevent used game sales from eating into their profits. In support of this theory is the fact that Gamestop halted used game sales of this title... but they've since started that up again.

The whole thing seems odd to me. Why leave out the ability to reset the save games, which is a standard feature in most games? The only reason that makes any sense to me is an attempt to stop game resale. Really, it's just annoying. Especially when the game is no great work of art to begin with. But Capcom says no matter, they won't do it again. Doesn't this undercut the argument that the feature lack had a good reason?

Yo can read the official version here, along with some of the responses.

Monday, July 4, 2011

EA Embraces Free-To-Play

Better than Cars 2, at any rate.
Electronic Arts has certainly figured out that free-to-play can be worthwhile... Frank Gibeau, head of EA Games, says that F2P games can be just as profitable as a major retail release. EA Games has 17 million F2P users, and they are bringing in a lot of money. Interestingly, one of the big attractions for EA is that F2P games don't seem to be cannibalizing their usual retail game audience.

Another major plus for the F2P games is that they enable EA to make money from markets where there is no retail game market, and there's not likely to be one. Such as Russia, Brazil, and the Ukraine, where Need For Speed World is tops. It's another example of how developing countries leapfrog older technologies and go straight to the latest technology. For example, much of Eastern Europe never did have much of a phone network, nor does sub-Saharan Africa. And they're never going to bother building out a land-line network, because it's much cheaper and faster and more efficient to build out a cellular network.

Similarly, no one is going to bother going to the effort of creating retail store chains for software in countries where roads are chancy and gas is expensive. Why bother when digital distribution makes so much more sense? Which is also why, when you think about it, that console games with a reliance on physical media are never going to make much headway into developing countries. Not unless they embrace digital distribution for all their titles, which at least in the case of Nintendo will happen at about half past never.

The gaming platform of the rest of the world will be smartphones and tablets, not consoles and computers. Yet another reason to diversify, if you needed one.

Saturday, July 2, 2011

Zynga Launches IPOVille

Click on this infographic to see a larger size.
Zynga has finally pulled the trigger, filing its S-1 with the SEC to begin the IPO process, looking to raise $1 billion dollars by offering its stock to the public. Why now, you ask? Without being on the inside, it's hard to say, but nothing stops people from speculating. I favor the theory that Zynga wants to beat Facebook to an IPO, because the logic seems sound: If Zynga is already public when Facebook does its IPO, then Zynga stock gets a  nice bounce (assuming Facebook stock zooms upward, which is a fairly good bet).

The S-1 is interesting, because it reveals more than we've known about Zynga's financials and operations. For one thing, we did know that Zynga and Facebook are pretty much joined at the hip. After nearly reaching a public meltdown, the two companies forged a deal so Zynga would use Facebook Credits and thereby give Facebook 30% of its revenue. While the S-1 confirms the 70%/30% revenue split (which is the standard revenue split for Facebook game devs), it doesn't clarify what other terms there are to the deal. For instance, does Facebook have an exclusive on Zynga games? Or could Zynga bring some of its games to some other social platform (like, say, Google+)?

It certainly does give you pause that Zynga is hugely dependent on Facebook, though the extent of the dependence is not revealed in the S-1. But clearly Zynga is still getting the vast majority of its revenue through Facebook, and Facebook could wake up one day and decide to change some terms in their favor. Of course, it would lead right back to Armageddon, as Zynga is responsible for a huge amount of Facebook's traffic and revenue (some estimates have been up to 40% of visits to Facebook were due to Zynga).

Zynga's financials look pretty impressive, as it's booked about a $90 million profit on about $600 million in sales. Pretty good when you're rapidly expanding, with all the costs associated with expansion. They project their profits to fall as they invest even more heavily in expansion, but that's to be expected. I think a logical course is for Zynga to invest in ways to reduce their dependence on Facebook for revenue, and to broaden their revenue base in general. I'd expect more releases that target different demographics, as Empires & Allies seems to have done (Zynga's released no data on who the audience is, but it seems obvious to me it's not the same as Farmville).

I know some people think social gaming is a bubble, and if you just look at how many social gaming startups are being funded I can't exactly say you're wrong. Still, I don't think the concept is a bubble, there's just too many startups chasing the space right now for everyone to make it. Zynga, however, is in the leadership position and doesn't look inclined to let go of that. It will be interesting to see if they can sustain their growth as Facebook levels off in acquiring new people, and just how Zynga responds if Google+ looks like it's getting anywhere.

One thing to watch for: If Apple TV/Google TV do make inroads into the family room, as I expect, this will be a big help to Zynga, as free-to-play games eat up console market share.

Friday, July 1, 2011

WoW Goes Free-To-Play... Sort Of

Blizzard has changed the way it offers World of Warcraft to noobs... Instead of a 14-day free trial, you can now play free up to 20th Level. Now, while I happen to like the significance of the 20th Level mark (no, they didn't pick that because of me, I'm pretty sure), there are some problems with the way Blizzard has implemented this. Trade skills are capped at 100, you're limited to 10 gold, you can't do any trading in the Auction House or elsewhere, and you can't join Guilds, use voice chat, invite players to a party, or join a party with characters over Level 20.

Besides which, if you're playing much at all you can hit 20th Level within the former 14-day trial period. So I see this as a step backwards... Yes, it's free to play, but the game experience is seriously nerfed (as my son would no doubt say). Is this really going to persuade new players to stick around? Perhaps this is a response to the loss of 600K players, but I don't think it's going to work they way they hope. I think they need to offer free-to-play with fewer restrictions. I can see the level cap, and keeping people from trading items, but not allowing them to get into a party or join a guild seems to leave out some of the key aspects of WoW.

Blizzard will need to see if this brings in new players as well as the 14-day free trial offer did; I have no doubt that if this doesn't work as well they will make some changes. Eventually, I think they will end up as free-to-play as their basic business model, but they will have to make many changes to get there. Keeping their player base happy while undergoing fundamental game design changes is going to be a tricky balancing act. If they don't attempt it, though, they may have to reconcile themselves to a player base that's not growing, but at best holding steady. Which is no doubt why they are looking at introducing a new MMORPG...