Adam Creighton, Computer and Video Gaming

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Wednesday, October 28, 2009

Muddying who gets what piece of the pie

So, my previous post, "Cost of games, slice of the pie, and business opportunities", has caused a bit of stir -- most of which, despite my urgings, haven't made it into the comments of that post.

To summarize that last post, I wrote brief thoughts about what percentage of a given game's sales go to which groups. For discussion purposes, I used numbers from Dave Thomas ("The Crispy Gamer") / Jesse Divnich (EEDAR), which suggest the following breakout from a title's sale:

$12 (20%) goes to "Retail"
$5 (8%) goes to "Marketing"
$10 (17%) goes to "Cost of Goods"
$33 (55%) goes to the "Publisher"

These numbers and that post are helpful as groundwork for some follow-on posts I want to do. These work as placeholder numbers (and maybe they're totally fine), but they don't feel like they address some very diverse business scenarios.

The "bit of a stir" I reference above is from the mix of comments I received, largely on the extreme ends:

"Spot on -- nice job!" (or, conversely "Too accurate, please do not share")
"Not even close to accurate"

I wonder how closely these numbers match what people actively experienced in the industry have seen throughout their career. I say "actively", because I think folks need to have a historical sense to dissect these figures, and they need to be in the industry now -- because it's changed in the last 2-3 years.

As I said before, I'm personally not crazy about the numbers as actionable, mainly because I'm concerned they're too averaged to be individually applicable, and/or are not representative enough -- and I'm looking to refine them.

Obviously, there are several levers /complicating factors that start significantly shifting percentages, and therefore opportunities.

For example:

How do these numbers compare across console versus PC titles?
Do the percentages stay intact between a $60 MSP 360 or PS3 title, compared to a $50 Wii title?
Where do the first-parties (Microsoft, Sony, Nintendo) get their piece of the pie -- from the "Publisher" slice? Is it spread throughout?
What happens to the percentages in a $30 "budget" title?
Where are the cost savings and additional expenses in a digital distribution only model (Publishers, for example, are (arguably) largely in the risk management / brokering business, so how do the financial risk model change when that entity isn't involved)?
What about royalty models?
Are first- or third-party marketing development / discretionary funds "on top of" the "Marketing" budget?
How do the numbers change (or do they) based on geography, or cross-geography development and publishing?

I'm very interested in identifying financial risk and revenue opportunity by further refining these numbers.

Feel free to respond directly to me, or as a comment to this or the initial blog post.

Labels: Business Development

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SOURCES: Gamespot.com, joystiq.com, kotaku.com, Xbox.com, IGN, GameInformer, Official XBox Magazine, CNN, gamesindustry.biz, and others.

Tuesday, October 13, 2009

Cost of games, slice of the pie, and business opportunities

This is more of a biz dev(ish) post, because I want to talk through the cost of games, and use this post as a possible launching point for some other biz dev topics.

Since I think some of the industry numbers I have may not shareable, I'm going to use some public numbers, like those from Dave Thomas ("The Crispy Gamer").

Dave digs into the $60 game -- a price point I've railed against repeatedly in this blog. It's kind of an arbitrary price point, I would argue it should go down to $50 (for consumer and economics reasons), and the PC gaming side seems to "get" this, with the same newly released games routinely being available on console costing $10-20 less on the PC side.

Anyway, for purposes of discussion, I'm going to use Dave's numbers for who gets what pieces of the retail pie. Assuming a sixty-dollar game, Dave (citing Jesse Divnich over at Electronic Entertainment Design and Research) argues $12 goes to "Retail", $5 goes to "Marketing", $10 to "Cost of Goods", and $33 goes to the "Publisher", looking something like this (using my own charts and graphs):

And it probably helps to understand three quick things:

Each of these areas would have a breakout underneath them (e.g., "Retailer" has facilities overhead, employee salary / benefits, etc.) that defines their monetary success criteria.
What these categories include.
How this percentage breakout varies on a case-by-case basis (which is partially why the numbers bother me).

Assuming the first item is pretty self-explanatory, here's a brief description of each of the categories, and representative costs associated with them (some from Thomas, and some from me):

Retailer: The (usually brick-and-mortar) establishment from which you buy your game -- so think of it as the money Best Buy gets when you by a $60 game.
Marketing: Discounts, game returns, and retail cross-marketing (Toys "R" Us gift cards and exclusive action figures, etc.).
Cost of Goods: Cost of getting the goods sold, which includes making the game disc, shipping the games to the store, translation, and anything else directly related to production, and distribution of the game package.
Publisher: According to Thomas, "It is generally accepted that most publishers receive $30 to $35 per game sold before they run into overhead, development and marketing costs."

Now, this varies widely, and the devil is in the details.

For example, in an interview with Wired Magazine, Epic Games' Mark Rein talked about Gears of War ostensibly being cheap to make:

"We spent less than $10 million to make Gears of War. Somewhere between nine and ten million dollars. People are always saying that making next-generation games is really expensive, and we’re saying, you should license our technology."

The interesting part of this is I would argue, in this context, Epic wasn't using licensed tech. Since they're the makers of the Unreal Engine, this was basically the equivalent of using internal tech, and reduced the cost to Gears significantly, because it they didn't have to bear the license fee that an external studio would have to bear. So maybe their cost of goods was down (or at least in line with) that 17%. (Now, the "unfunded" R&D expense that went into adding features to UE for Gears would be another interesting piece of the puzzle.)

But what about marketing? I think Mark is just talking cost of development --not Microsoft's hefty marketing part of the pie.

Remember those excellent "Mad World" and "Rendezvous" prime time NFL Football commercials? Those weren't cheap in licensed content, production, or placement, I'm sure easily blowing an 8% marketing budget, and/or eating heavily into publisher Microsoft's 55%. Add to that limited editions (expensive and small-run metal cases, art books, music CDs, etc.) and promotional deals like the radio controlled Centaur Tank that shipped with special editions of the game at Best Buy, or Fallout 3's lunch box / bobblehead / making of DVD / art book, and you can see costs for each of the categories eaten away at pretty quickly.

(Quick caveat is that I own the special / limited editions of a bunch of games, including those listed above, because I'm a passionate gamer, I like to vote for good games with my consumer dollars, and as an industry guy, the "making of" DVDs alone are worth the price of admission.)

As another example, MMOs don't fit into the breakout above nicely at all (I get very frustrated with people trying to shoehorn older industry models onto newer business that frankly isn't that new).

Look at a game like Warhammer Online: Age of Reckoning. Where does the ongoing server cost, or the forum / community infrastructure and personnel overhead that is part of these games get wrapped into the above model? (Often times, "Community Management" comes out of marketing dollars, and are not well accounted for between developers and publishers.)

Exceptions aside, the numbers above give us an interesting launching point to explore return on investment (ROI) for game titles.

So, assuming the base numbers are OK (!?), and a game with a $10M overall budget, you would hit a break-even point for the publisher at an MSP of $60 ($33 publisher portion) after selling 303,030 units (303,030.3, to be exact):

But "break-even" isn't enough -- because there's no profit. If your publisher's profit target is, say, $5M, you're $5M "in the hole" when you "break even" -- and you need to move an additional ~150,ooo units (~454.5K total) to hit that profit target (and, probably, to realize developer royalties):

So, looking at a game like the recent Halo 3: ODST (and totally making up numbers), let's pretend the budget was a "mid-range" $25M -- Microsoft would need to move 757.5K units -- just to break even at the same $5M profit target. Of course, ODST moved 2.5M units in the first two weeks, so even without know their profit targets, it feels like "they did OK":

Now, I acknowledge these numbers are a little problematic, in that they're theoretical, and there's a bit of an apples-to-hand-grenades comparison of the $60 MSP price point of a title, and the $33 publisher portion of the pie placeholder I'm using.

But that's intentional, as I'm setting this up for some follow-on posts.

More later. Comment below.

Labels: Business Development

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SOURCES: Gamespot.com, joystiq.com, kotaku.com, Xbox.com, IGN, GameInformer, Official XBox Magazine, CNN, gamesindustry.biz, and others.

Wednesday, September 16, 2009

AGDC: Emerging Trends in Gameplay: The Blurring Lines Between Casual And Hardcore

After a needed break from sessions for work meetings on the Exhibition floor, I ducked in to "AGDC: Emerging Trends in Gameplay: The Blurring Lines Between Casual And Hardcore":

"The line between what has traditionally been thought of as 'casual gamer' and 'hardcore gamer' has blurred considerably over the past few years, forcing developers to re-examine various gamer groups and their approach to marketing. Jon Radoff presents new behavioral gameplay data across multiple platforms and gamer groups, challenging the tired dichotomy of 'casual versus hardcore' and illustrating that gamers are more diverse than ever before. Providing analysis of current behavioral data, Jon will also help to answer the question of how to more effectively deliver and market a product to these various gamer groups."

While the info that the classification of games ("casual" versus "hardcore", etc.) isn't new news, Radoff had some great data, a la gamerDNA.com.

While not a hardcore user, I've been on gamerDNA since I think the beginning, and I have been continuously impressed with their broad scope of intelligent data collection and data mining, and what they do with it (have you seen their Twitter heatmap?).

Radoff separated gamers into different segments for discussion, like social gamers. Play time for guild members in an MMO, for example, is far far higher than non-guild members. In addition, social gaming shows up in unexpected places (like Rock Band, as opposed to, say, Guitar Hero 3).

This resonates with me, because I'm a very social gamer. If I'm not playing a single-player title, I'm playing a multiplayer title because I want to touch-base with people -- to reconnect.

He also suggested breaking games into thematic segments, rather than gameplay types. His example was Bioshock, which should essentially have been a core game, but had play trends more akin to Rock Band interest.

His follow-on was each game has its own segmentation (social versus non-social, thematic tastes, brand-loyal and genre-loyal, competitive).

Radoff showed some great data for Halo 3 that is gold for biz dev, community management, and marketing folks. For example, DLC caused measurable spikes in player interest, but not as much among genre or franchise fans.

Interesting side tidbit: of the top 10 games also played by World of Warcraft players were Fallout 3 and Warhammer Online. Interestingly, Left4Dead consistently charted as a highly also-played among MMO players

Since 5/31/2009, Twitter has had a 7.6% weekly compound growth in tweets about games. That is phenomenal data. Just think about the analogy of a mutual fund.

Labels: AGDC, AGDC09, Business Development, events

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AGDC: The Blurst of Times: How to Make a (Shader-Heavy, Physics-Based, 3D) Game in 8-Weeks

Heading back to the indie summit, I attended the very polished (and perhaps most important) session so far, "The Blurst of Times: How to Make a (Shader-Heavy, Physics-Based, 3D) Game in 8-Weeks":

"Matthew Wegner and Steve Swink of Blurst.com (Flashbang Studios) discuss how it is possible to create games like MINOTAUR CHINA SHOP and OFF-ROAD VELOCIRAPTOR SAFARI in an 8-week production cycle. You'll be surprised to learn that each Blurst game includes a two-week prototyping phase, multiple publicly playable beta versions, rigorous user testing, and detailed stat tracking and analysis. Perhaps more surprising is the fact that each game is produced with the team working 10am-3pm, Monday through Thursday. It's AAA game development in microcosm; each game is an experiment, both in production and design. Come reap the intellectual benefits of the results of Blurst.com's rapid fire approach."

The company is 6 people, and they, for example, spent 4 months on one of their bigger games, Jetpack Brontosaurus.

But this 8-week production cycle as the norm (goal?) is impressive, and is broken into 2-week prototyping, 5-week production, 1-week launch segments. That's a wicked little amount of time, and the company has to be laser-focused to make it.

Granted, you can arguably do quite a bit with a 6-person company, but there are principles that apply regardless of company size. (Think "The Four-Hour Work Week" or "The Cluetrain Manifesto".)

Flashbang Studios really seen to have a holistic attitude toward the company and employee quality of life (cross-fit memberships, etc.), a ridiculous amount of fun and respect, and (outside-in) seems to be the kind of company to which all companies should aspire. That may just be due to Wegner and Swink, but as a company's leadership goes, so goes the company.

Blurst puts a lot of emphasis on higher-level working efficiency, high-intensity work blocks.

They implemented 10:05-3:30, Monday-Thursday work days for 8-weeks, which created intense focus and productivity (Fridays are Google-style personal development days).

Along with this they recommend 48-minute time-boxing (not unique to them, but their discipline with them might be), Growl as a communication tool, real-time source control commits and notifications, company-wide stand-up meetings (with goals captured individually via custom Google widget and shared publicly, including how you do against them), pivotaltracker (which is rigidly Agile-based, but worked for them), an open office layout where everyone could talk to each other and collaborate instantly, etc. (they don't use bug reporting software, which is unique).

I had to leave the session early, which bums me out, so I hope to catch up with the guys at the show later.

(Blergh. This post doesn't capture the awesome of the session. Need to think how to do that.)

Labels: AGDC, AGDC09, Business Development, events, indie development, innovation

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Sunday, May 31, 2009

Pre-E3 2009

E3 is coming, and hopes to nod more toward its glory days from before the past few years -- and it may just do that.

I'm looking forward to several things, and while there are lot of predictions out there, I'm keeping mine fairly small and fairly me-centric.

And while I'm going to comment on some of the rumors out there, I'm not going to chat up anything I may have knowledge about thanks to my day job -- that would be bad form, and this industry has enough problems with loose lips.

First up and close to home, I'm excited about four titles powered by Gamebryo tech from Emergent Game Technologies that will likely be making a big splash next week. Two will definitely be on the show floor, two are likely, and I'm not going to announce any of them until they make their debut. And we have some long-time and new licensees that will be doing some exciting pitch work at the show, but I won't talk about that, either.

See, I'm starting out as a tease.

Here's the big presser line-up:

Microsoft conference – 6/1, 10:30 a.m. Pacific
Electronic Arts conference - 6/1, 2 p.m. Pacific
Nintendo conference – 6/2, 9 a.m. Pacific
Sony conference – 6/2, 11 a.m. Pacific

On the big announcements front, I hope Microsoft or Sony do an announcement similar to Microsoft's disruptive Netflix announcement from last year. I hope Sony doesn't just announce they have Netflix, too -- because that would feel me-too(ish), and not as fun. It would take away from Microsoft's differentiation, though, so that would be a smart business move.

There are all sorts of rumors for peripherals or some other announcement from the Big M, which as a consumer I've been expecting for a while. Have you been paying attention to what feels like really liquid pricing on the current 360 camera, including dirt-cheap pick-ups for in-game bundles of it? Noticed the wireless headsets selling for nearly half of its MSP? Etc.

Maybe Microsoft will do something with convergence -- what can they do to leverage the PC, Console, Zune, and windows mobile platform across each other? We've gotten a bit of this with the announcement of Zune HD and the Zune Store being made available to 360 owners. That's good convergence, and the Zune is seriously under-rated. Maybe there's a Windows Mobile 6.5 or Windows Mobile Microsoft - says - it - doesn't - exist - but - get - real version 7 crossover opportunity? Microsoft's exciting challenge there is to not cannibalize any of those platforms (for example, intro'ing an iPhone competitor would hurt both Zune and Windows Mobile)

But really, I'd like to know: Where the #### is Live Anywhere?

Sony needs to do something. I can't get my head around Microsoft doing so well on the media catalogue / media convergence thing against Sony -- They have a freaking extra-dimensional monster closet vault of music and video, so why aren't they doing something with it? Is there some mistaken notion that it will undercut the value-add of the PS3 as a Blu-ray player?

I'd like to hear some big announcements on Sony convergence, and maybe that'll be PS3 / PSP (or rumored PSP Go) or PS3 / Sony Ericsson phone or -- dare I dream -- an announcement for a massive, unified Sony device synergy that is real and awesome. I don't think the "PS3 Slim" will be there, and I don't think it would be wise -- I think it would hurt PS3 sales, and unless they've done power and heat dissipation magicks, I don't think it would be a full-featured PS3, which could cause consumer confusion (and raise gamer ire).

Nintendo is going to be Nintendo, which you can take as you will. They will be innovative, their handhelds and Wii own the commercial consumer non-core space, and the company is still printing money, if a little slower than they were. I hope they surprise everyone with yet another new peripheral. And by surprise, I mean something that makes people say, "Wii remotes and nunchucks and Balance Boards and MotionPlus and Wii Speak, and everything else -- those are cool, but this, this I must have!"

I do expect some game coolness for Nintendo, but think it may come uncharacteristically from 3rd parties (I'm hoping the High Voltage Software Wii FPS The Conduit does as well as that developer and SEGA hope it does).

Despite a ridiculous amount of pre-E3 leakage, Microsoft is uncharacteristically under wraps, so I'm hoping for bigness, because they're talking a big game.

And I honestly am hoping for a bit of competitive rodeo, because Microsoft's presser goes first this year, and if you're Sony or Nintendo, how do you head off the under-wraps Microsoft?

Traditionally (besides having big stuff of your own) you take away the differentiators -- take away Netflix, or something. Maybe do more with Miis on the Wii than Xbox Avatars are doing -- but watch out, because I don't expect Microsoft to keep those still). Better, leapfrog the differentiators by announcing Netflix, and something like an XM exclusivity.

And someone needs to add a social networking component. (In a way that matters.)

Yeah, but it's all about the games, right?

Right! (I'm lying, but the games are cool.)

What am I stoked about?

Besides the Gamebryo titles I hint at above (and genuinely, as I'm off the clock and out of shill mode), here are some of the titles or rumors I'm looking forward to.

Modern Warfare 2. Infinity War is top-notch. The previous game was fantastic, and this one continues on. And despite the reveal in Game Informer Magazine, they claim "big surprises" are still in store for this title. I hope we learn those at E3.

Crackdown 2. I don't think this is on anyone's radar for E3, but a sequel to one of the better games on the 360, after a premium theme randomly popped up for purchase? C'Mon, show me some super-cop love.

Dead Rising 2. Sure, the games not going to be shown, but the US arm of Capcom will likely be in attendance, so maybe it will. I so dug the first game, despite hating the save and escort mechanics. I really thought it was an indicator of what next-gen gaming could be, and it sounds like the sequel -- as long as gameplay is pushed as hard as raw polys -- could build on and explode that legacy. Plus we should all be practicing for the inevitable.

BioShock 2. If you don't know why, you haven't played the former. Go do that then come back and apologize.

Assassin's Creed 2. Sure, it was a bit of a super-polished more intricate period-piece Crackdown, but it was a rocking super-polished more intricate period-piece Crackdown.

New Splinter Cell. Ironically, wetworks dude Sam Fisher has gone dark in the real world, too. Ubi says he's back, so show him to us, and make us uncomfortable. Very.

God of War III. We need next-gen sacrilege on the PS3. It will move consoles.

Halo ODST will be there (it's not E3 without Halo), but I hope there's more excitement about it then announcing an attractive female actress as part of the voice cast. Maybe also give us an update on the Peter Jackson Halo effort (or tell us it's dead, so the mourning can begin).

Capcom could surprise and delight me with a new Marvel vs. Capcom (it's my fantasy, dammit), I wish Epic would update us on what People Can Fly are doing, they may announce Cliff's horror game (though the rumored PS3-exclusivity seems like an ungrateful thumbing at Microsoft for the the Gears and Gears 2 successes).

I still hold out hope that the 3D Realms is doing a masterful Duke Nukem feint, thought that's feeling less and less likely.

Shooters Singularity and Brink have me intrigued, given Raven's and Bethesda's / Splash Damage's pedigree (respectively).

I'm losing interest in Borderlands, and I want them to change my mind. Lost Planet 2 doesn't have to do much pwn me, because while I can't articulate it, the first game pwned me too.

Aliens vs Predator will be there. And it will rock. I listen to my gut on this one (just before it's used as a footstool for a chestburster).

And while the cinematics and roster aren't as big as the previous title, Marvel: Ultimate Alliance 2 will be in my library, so I'm excited for more info that shows me this is doing comic books right again.

Mini Ninjas from Eidos looks cute and fun.

From EA, I don't think Brütal Legend can fail, so I hope it doesn't. Dante's Inferno is interesting, and I want my spiritual successor Dead Space Extraction to do well. Because I'm that kind of dad. Dragon Age: Origins needs to show me gameplay, I'm fanboy nervous about G.I.Joe, and I'm curious about Spore Hero. I go back and forth on The Saboteur.

I'm hoping Painkiller: Resurrection fits my previous guilty pleasure, but it'll probably make me upgrade my PC to do it.

I want A Boy and His Blob and Flip's Twisted World to be good for Majesco and for platformers.

Maybe the last 4 years have been good to Huxley?

Marvel Super Hero Squad may make me buy a personal Wii this fall. Wish they'd hire me for voice work.

I want Valve to wow me. I've got an itch in the back of my brain about a team that is using their tech that had some promising stuff, and it escapes me now. The itch tells me I'm mildly iterested if it's them.

On the more dark-horse(ish) front, BlActivision's been teasing an "all-new" game -- what if it was exclusive to one console? Square-Enix has teed up new games -- exclusives?

What about a 360 MMO?

And I want Heavy Rain to cross the uncanny valley. And build a bridge so others can follow.

And now I'm rambly.

It's going to be noisy, and I am concerned publishers will try to take advantage of the eyeballs to push everything -- not just their top-tier offerings. Think movie tie-ins, other licensed fare, and non-AAA sequels. That may take away from the good stuff, and the sleepers (who can ill-afford it).

I think E3 still suffers from an identity crisis (is it a consumer or industry show?) but maybe this year will help it suss out what it wants to be when it grows up.

Labels: announcements, Business Development, companies, console updates, E3 2009, Emergent Game Technologies, events, Gamebryo, Gamebryo LightSpeed, Microsoft, Nintendo, PC, PlayStation3, Sony, Wii, Xbox 360

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Monday, April 13, 2009

Who should buy Midway

Midway is on the chopping block. It's been a weird, relatively recent spiral for the game industry mainstay, but sadly, it looks like Midway may go the way of Atari or Acclaim (if it's lucky), reborn in another skin for a venerable brand.

So who should buy Midway? The brand's got cachet, IP, and ... loads of debt (likely the biggest stumbling block for purchase).

Allegedly, at least three companies are vying for Midway: Warner Brothers, Ubisoft and "a private Chicago investor" (not that that went well previously).

The first two are interesting options, I'm not going to speculate on the third, but what about a dark-horse fourth?

What about Epic Games?

Now, I'm being totally speculative, have no apriori knowledge, and this probably won't fly, but it struck me this morning that this could be a good match.

Think about it, Epic's into buying good dev teams in their bid for world domination (a la Chair Entertainment and People can Fly), Midway has a whole lot of experience using the Unreal Engine (basically making it their company-wide tech), but have grumbled about it (with some possible legal fallout that could be absorbed in an acquisition), the Unreal Tournament license has gone from Atari to Midway, and given Midway's current state, I doubt they can hold onto it.

I'm just saying.

I don't know what Epic's cap table looks like, if an acquisition is even feasible, what other discussions Epic is having with the likes of Microsoft in relation to the Gears franchise, or with Electronic Arts, who is the named publisher for the People Can Fly title, etc.

So, it's wildly speculative. But sometimes the more interesting Biz Dev thoughts are.

Labels: Business Development, Electronic Arts, Epic Games, Microsoft, ramblings

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Sunday, February 15, 2009

Namco Bandai acquiring D3 Publishing

Interesting. Namco Bandai has already reached agreement to get 70%, stake in D3 Publishing, and have made their intentions clear they want the other 30%.

Like Square-Enix, Namco Bandai is looking to expand Westward content, and they get that out of the box (in a compelling way) with a bunch of the D3 commercial and casual franchises (Puzzle Quest, anyone?).

Backing up a bit -- why the acquisition in the first place?

Besides being a good move for Namco Bandai for the stated reason of Westward expansion with development and publishing resources and IP (games catalogue), Namco Bandai is more than just about games, and D3 is more than just about games (though that’s their lion’s share).

Namco Bandai is games, animation, and toys (sister spinoff company Nacmo Ltd. (“Namco 2”) is about arcades, theme parks, and R&D; and there are several other Group Companies; etc.).

D3 is about Games, and Music, and Publications, so it’s a good match as far as diversification goes, but it’s not “too odd”. And since the Music and Publications side aren’t primary for D3, they’re easier to divest or terminate after poaching any resourcing that does contribute positively to the acquisition (making cuts to support core business and/or placate shareholders without negatively impacting core business, etc.).

From the acquisition, Namco Bandai also has a goal of “more innovation and providing more efficiency through shared use of technology such as game engines.”

D3 also owns middleware provider Vicious Cycle Software (Ben 10, the Vicious Engine built in service of the Matt Hazard franchise, , etc.).

For obvious reasons, I'm particularly curious as to what they do with this acquisition offering.

A few scenarios (and they could be either / or, combinational, etc.):

Existing titles continue forward – I don’t think Namco Bandai will want to change tech in games in production unless they want to significantly redo their timelines, which -- particularly due to the current economic conditions -- I would think they won't do. They'll either stay on task with potential revenue makers or cancel titles. Like everyone else, they need to desperately accelerate revenue for promising titles (for themselves and for shareholders) and (in this case) shore up acquisition bleed.
Vicious Cycle becomes internal tech – Obviously, this acquisition means the Vicious Engine becomes internal tech, which could cause problems with licensing externally in the future, effectively removing them from the middleware playing field (possibly). Witness Electronic Arts's purchase of Criterion's RenderWare (though there's more to that). Or look at Intel's acquisition of the Offset engine (I'm still fascinated to see what comes out of that).
Hard times for Vicious? – Keep in mind the acquisition is for D3, the parent company for D3 Publishing, the parent company to D3 Publishing US, the parent company of Vicious Cycle, which has the Vicious Cycle Studio, Monkey Bar Games, Vicious Cycle Engine middleware and licensing division, etc. And the Vicious Engine is already used for only a fraction of the overall parent companies' and subsidiaries' titles.

Far be it from me to wish ill will on any people, but there is a scenario that says Namco Bandai could spin out different parts of the acquisition that aren't core to Namco Bandai. This could create opportunities or challenges for Vicious, but it would mean they would no longer have the benefits of a parent company for shoring up revenue, a given distribution pipeline, etc. I expect this scenario (if it’s even realized), to be a longer tailing affair.

And not necessarily related just to Vicious, but if Namco Bandai is not able to get the other 30% stake in the acquisition, I would see them being even more aggressive about the prioritization of their portion of D3’s business affairs.

And if I were running Namco Bandai?

I’d probably split up development resources across other Namco Bandai development projects, seat more Namco Bandai leadership into D3 Namco Bandai Publishing (North America) side of the house, and distribute the Vicious Cycle Engine team (functionally and / or geographically) in support of development projects, and possibly to Namco 2 for R&D.

Oh, and I’d probably try to buy Funimation and Funcom (for both film/commercial animation and game development/publishing). But that's me thinking with my Big Boy World Domination Acquisition pants on.

Out.

Labels: announcements, Business Development, companies

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Saturday, January 31, 2009

Thoughts on Nintendo's fiscal report

Nintendo gave their Q3 financial report to investors yesterday for their current fiscal year, which runs from last April through this March. The presentation was made by Nintendo president Satoru Iwata.

It's not a bad read, with some interesting data from one of the big playas in the industry.

Several points (or omissions) were of particular interest to me:

Teh Global Ekonomies Sux
What We's Done is not What We's Gonna
DS Will Make PS2 Its Be-otch
Reading This? They're After You
Philosophy as Applied to World Domination
Wii Hotness at E3
Wait -- It Ain't All About Us?
Japan -- Not the Center of the Universe
Hey, Number Two!

Teh Global Ekonomies Sux
The global economic downturn is affecting everyone -- Nintendo included. They have been arguably significantly less hit to date, but they set expectations in the report that the boom could lower further, and they have some interesting year-to-year and quarter-to-quarter comparisons where they factor in recent and historical appreciation impacts to the euro and yen.

What We's Done is not What We's Gonna
Interestingly, due to their increased market install base, Mr. Iwata said Nintendo will be changing the rapid business model nature for their hardware cycles, for which they've previously been known.

This is at least true for the DS family, but the implication is that it is across the board (including the Wii).

"Since technology continues to evolve, I do not think any hardware can enjoy eternal life. Someday, we will need a new platform for sure, and of course, Nintendo is always preparing for that. However, now that our customer base has expanded this drastically, we do not think it appropriate to conclude that past platform lifecycle theory can and should be applied to the current generation."

I re-state this as, "Investors, don't plan on new products from us as often as you're used to."

DS Will Make PS2 Its Be-otch
Nintendo is continuing its positioning of the DS -- not the Wii -- against the PS2 for household penetration (and while not stated as such, this is their beachhead strategy).

Reading This? They're After You
Nintendo is growing their "installed base in accordance with the total population, [where] the ultimate business potential should be decided by how many people populate the market". This is tempered by the fact that "they are theoretical potentials and not the actual demands of today" (smart folks ;-) .

This factors into Nintendo's strategy change from a "one DS per household" to their "one DS per person". They have to do this in Japan (see below), and makes sense as a strategy across the board to grow addressable market worldwide.

Philosophy as Applied to World Domination
"... what matters most in our business is not necessarily the effects of the changing economic conditions, but whether or not we are able to provide customers with new proposals and services that are hard to resist one after another before they bore of the old ones. The former president of Nintendo, Mr. Hiroshi Yamauchi, often told us, 'In the entertainment business, there are only heaven and hell, and nothing in between,' and 'as soon as our customers bore of our products, we will crash.'"

Wii Hotness at E3
Innovation is going to be needed to continue growth of the Wii, and Iwata said E3 will see some innovative software for the Wii (bring back the glory days of E3!).

Wait -- It Ain't All About Us?
Nintendo is finally thawing on the importance of third-party development, citing the significant increase in those titles selling million units plus (for both Wii and DS), and forecasting the trend to increase. Good thing there's middleware for those folks. ;-)

Japan -- Not the Center of the Universe
Japan has nominally been the nucleus of the gaming industry for years. Has been.

Lately, that part of the world has had a tough time holding onto that particular gaming crown, with big-gun Japanese creative directors and producers saying there is more innovation in the West, Microsoft being the first major platform vendor to basically eschew the Japanese gaming market (even as a beachhead), and Sony focusing tremendously more effort on the U.S. and EU markets (and even third-country developer markets with their legacy PS2 tech).

Add to that Nintendo's "Nintendo Japan First" perception, and you have a global business situation the company needs to address quickly and, thankfully, looks like it is (or it at least it acknowledges it).

I don't have any particular insight, but my sense is Nintendo's various regional headquarters cooperate as well as at least pre-public payments company Visa (made up of its various Visa territories) did.

That is, they don't.

I would be surprised if NOA, Nintendo EU, etc. had as much pull as Japanese-headquartered NOJ. I would be shocked if Nintendo employees of a senior title in the EU had has much influence or information as a person of the same title working for the corporate headquarters. I would be overjoyed if worldwide companies like Nintendo (because this isn't endemic to just to the House that Mario Built) acted like one company, and empowered their peer regions to break open their respective markets with third-party developers, publishers, and retail channels?

Don't think it's a problem? Take the one retail example of slowdown in Wii sales for Japan due to significant overstock, with a stalling of Wii sales in the U.S. and EU due to massive understock (compounded by not being able to just swap localized stock)?

But, like I said, Nintendo at least seems aware of the problem, acknowledging quicker saturation of the addressable market there, and recognizing the downside of quicker brand / retail dissemination being quicker commodity fatigue. they also point out the business significance of things like the DS "showing a rather unique development in each territory". (The biz dev weenie in me likes these numbers and charts.)

Also as a biz dev guy, at the very least, I'd like to see Nintendo not repeat mistakes made in the last console iteration (mistakes arguably being repeated by Sony this generation). But at most, I'd like to see them (and all of the platform makers) knock it out of the park.

Hey, Number Two!
I laugh at "Positioning 101" stuff like this.

Making another comparison to Visa, keep in mind their "but they don't take American Express" campaign wasn't aimed at #2 competitor MasterCard, but #3 American Express. They didn't acknowledge #2, implicitly training their addressable market that you shouldn't either. (Sure, there are other factors for their targeted campaign, like Visa wanted more of that lucrative travel and corporate market, and MasterCard's "Priceless" campaign is tough to do a competitive response campaign.)

Who's not mentioned in Nintendo's fiscal report? They've got freaking graphs showing them compared to Sony's PS2 and PS3, but they don't acknowledge Microsoft -- intentionally, I'm sure.

Microsoft wasn't even supposed to be a contender in the last generation, when they launched their first console offering. And independent of their arguable Perot-affect on Nintendo during that round, they nonetheless established themselves as a contender in and of themselves. This round, they were first out of the gate, have a robust install base and first- and third-party catalogue, have weathered their self-induced hardware failure challenges, and have the premiere online service to beat -- especially when put up against the comparatively non-existent services offered by their competitors.

I don't think it's incidental that they're omitted from Nintendo's presentation.

Summary
I'm wicked impressed with Nintendo, both in terms of the creative legacy they've given me and the industry, and in their smart, non-standard business practices (rapid cycling of handheld hardware, Wii as a blue ocean offering not directly competing with Microsoft and Sony, etc.).

I also like how they seem to be adjusting to changes in the global economy, geographic industry power shifts, and challenges brought about their own install base and related scalability successes. I just hope their agile in their response.

And things are going to get more competitive, at the same time that they get more nebulous. Everybody's scrapping to hold onto their place, and/or be #1, at the same time that we enter this "bubble" in preparation for the next iteration of consoles, which many believe to be 2011 or 2012.

It's interesting now. But the ride's about to get a lot more fun ...

Labels: Business Development, companies, NDS, Nintendo, Wii

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Monday, January 12, 2009

Video game middleware pricing, licensing, and positioning

For some time, I've been drafting a post with various directed thoughts around middleware pricing, licensing and product positioning for the vidoe game market -- both in general and relation to Gamebryo from Emergent Game Technologies.

After reading a post Saturday morning from Brett Seyler, Biz Dev manager for GarageGames's Torque SDK, I'm pulling out a subset of that content, and piggy backing off of Brett's post.

First, let me say the GG post has some very good, very candid information. I'm impressed with what GarageGames has done in the market, I personally share several of the same philosophical goals detailed in Brett's post, and he and I share at least some slant common background in that both he and I have had to make "a very weird kind of transition ... from that button up [financial services] world to the laid back, but hyper-competitive world of a startup software company". I probably could not agree more with him that "business is just business, and finding ways to succeed and get more done is universal across those kind of boundaries." (Frankly, the game industry as a whole would do better if they would get over their hubris, acknowledge this, and utilize applicable genuine big gun folks from other industries.)

And I empathize with Brett, because developing pricing and licensing models is wicked hard work -- "throw something at the wall and see what sticks" is a legacy (and potentially company-costing) way to figure out business models.

But ... ;-)

All that said, there's more going on in the GG post than just the listed "Pricing and Licensing" topic. It's a also a product positioning post, and there is intentional or misinformed placement of Gamebryo within the context of the post (which, to be fair, may be due to the candor and scope of the post, so it's almost guaranteed some things will fall out).

First (and easiest) to correct is Brett's mischaracterization of Gamebryo as an "upstart". Gamebryo is, in fact, one of the longest-standing and oft-used game engines in the market, reaching back to it's storied roots with Numerical Design Limited (NDL) and the NetImmerse engine. A lot of the same engine developers have consistently updated, redesigned, and re-architected the engine over the years to meeting the needs of interactive developers, and keep up with that changing landscape of hardware platforms. Gamebryo easily predates Torque (even in it's pre-GarageGames incarnation as the Tribes 2 FPS game engine developed by Dynamix in 2001).

Second, it's easy to see the "competitive positioning 101" marginalizing going on here.

(Hopefully, what follows will be articulate, and still respectful of GarageGames's positioning.)

In positioning your company and / or product, you obviously want to showcase why you're the only right solution for the problem, and why anyone else in the same space is either (a) not really a competitor, and / or (b) is missing the boat for actually solving the problem.

Brett posits the following in his post:

"Gamebryo has some good tech and a good marketing / sales team, but no dedicated studio to consistently test the tech and then demonstrate where they stack up next to Unreal or other AAA competitors, so I think they're doomed to fail in AAA."

Intentional or not, this is a masterful positioning statement. Acknowledging that it does tip its hat to Gamebryo's proven technology, it still attempts to do the following:

Minimize the tech as flash over substance (just "a good marketing / sales team")
Question our credibility (inferring "no dedicated studio" is a negative in Emergent's product / service offering)
Ignore published titles to imply there is no way to measure how we "stack up next to Unreal or other AAA competitors"
Marginalize us as being "only" a triple-A offering
Sow the seed of doubt as to our viability (um, "I think they're doomed to fail")

These are easy enough to answer, and that one sentence gives me not only a springboard to refute the allegations, but a nice framework with which to do so.

Gamebryo: Proven Tech that isn't Flash ~~(Minimize the tech as flash over substance)~~

Building on the freshly reiterated fact we've been around for a good while, keep in mind Gamebryo's been used in more than 250 titles, with more than a hundred more currently in development. This doesn't include academic, research, some government, and related licensees of ours, which makes this number go waaay up.

All of this is across multiple platforms -- more than any of our major competitors, and also more than Torque (and it may be more than any of our major competitors combined, but I need to fact-check that).

I also find this allegation from GarageGames interesting, since one of the things they try to head off is the perception of Torque (particularly Torque 2D) as being a Flash also-ran. (See, I made a funny with the title of this section, combined with middleware humor. Erm, I also totally dig Flash.)

Emergent's strength is making technology for your game ~~(inferring "no dedicated studio" is a negative in Emergent's product / service offering)~~

There are pros and cons to developing / publishing games as part of a middleware business model. Same goes for not developing a game.

On one extreme is Epic, who makes their game engine to power Unreal Tournament III and impressive Gears of War 2, and licensing those game feature enhancements as engine enhancements for an ancilliary revenue model.

On the other extreme are hobbyist game engines that do nothing but make the engine (or subsets like math libraries or software rendering), with no vehicles exercising or demonstrating their tech.

Part of Emergent's business model currently is to not make games. We revisit it on a regular basis (like I said, there are pros and cons), but I think it's pretty important that I'm responsible for a product that makes technology so you can make your game. In my smaller moments, I like to say, "Your title won't be unrealized because we're making ours."

This lets us put more people working on the game engine tech and tools (and more people than GarageGames says they're putting on Torque 3D and its "parallel project").

And, we do make sure we dogfood our own technology by creating samples, demos, mini applications, and playable "games" that test, exercise, and showcase the features. We ship these with the product, with full source code and assets for our evaluators and licensees. Some of these we even make publicly available in playable binary form (like last year's GDC zombie shooter). And speaking of GDC, this year's attendees are in for a treat with our show floor demo (full disclosure: I'm the producer).

Like I said, we constantly evaluate our business models, but this is where we are right now. Gamebryo's power is in large part due to its flexibility, and the fact that you can make your game with the tech, rather than just cracking open someone else's game and -- after a boatload o' work -- running the risk of your title looking like you just re-skinned the engine provider's in-house game.

Our licensees showcase their technology -- and ours ~~(Ignore published titles to imply there is no way to measure how we "stack up next to Unreal or other AAA competitors"~~

This one is odd, because for me the way to at least superficially measure tech is to look at the titles using it -- and like I said above, there are a lot of titles using Gamebryo.

If you look at just a sampling of titles built with Gamebryo, and current triple-A titles in the market, you'll see us included in big guns like PC MMO Warhammer Online: Age of Reckoning, multiplatform strategy title Sid Meier's Civilization: Revolution, and the upcoming console reincarnation of Splatterhouse. And it's not Crytek's or Epic's logo you'll find on the back of titles like the - current - way - I - spend - my - days - and - nights, Fallout 3.

Sooo ... I think I know how we stack up.

Emergent is AAA -- and then some ~~(Marginalize us as being "only" a triple-A offering)~~

Gamebryo is proven in the triple-A market, but to marginalize it as being "just" triple-A is a clever way to try to convince licensees (and investors) that GG is going after a different market -- one served just by them.

One of my personal philosophies driving my participation in the game industry is to make the best tech available to people so they can make the best games. That's largely independent of budget or genre. This is a big chunk of why I made the jump from my previous more lucrative financial services gig (that and me just being personally passionate about games; and alliteration).

Sure, Gamebryo is in the headline-grabbing games above. But we're also a great fit for projects of various team sizes, budgets, and project durations -- well below the tens - of - millions - of - dollar, multi-year development cycle titles. And we provide the same great tech and tools to those teams.

As I've written before,

"... Gamebryo actually does hit the sweet spot for developing 3D interactive experiences -- of any size or type -- which for me means making sure we make the best tools and tech available to people making all sorts of games with all sorts of time and budget restrictions. Casual games? Check. Serious Games? Check. Triple A? Check. Commercial titles? Check. MMOs? Check. More? Check."

Not to belabor the point (and acknowledging I don't believe we can be all things to all people), we're also very well-suited for that class of game (with which I join Brett in championing) that is the less than big-box priced, but still innovative, unexpected, and just plain fun title.

As an example, yes, we're in the excellent Sid Meier's Civilization: Revolution. We're also underneath Hidden Path Entertainment's Defense Grid: The Awakening, available from Steam for ~$20.

It's important to say I would in no way characterize Defense Grid as a "budget" title. I would characterize it as that new breed of title that is high production value, great bang-for-the-buck, and innovating under new challenging models of budget and timeline constraints. You should play this game.

Last year, Gamebryo launched our "Casual" program, and while this particular section of the game development market needs a new moniker to showcase the diversity in titles, budgets, timelines, and innovation we're seeing in the space, what hasn't been ambiguous is our success with the initiative. Full Gamebryo, but tailored for your project constraints? Huzzah!

Going back to Brett's contention of shrinking high-end game budgets, I do question his reduction of the AAA addressable market (I'm not sure what he's using to quantify it); though he may just be doing this as an artifact of arguing that's not an addressable market of interest to GG.

While I agree Epic is the well-hyped name in the high-end space (and Brett has some good barbs on that front), budgets for high-end games (and therefore addressable market dollars) have significantly expanded this console generation. While big-budget titles may have had budgets of $10-15M in the Xbox, PS2, and GameCube days, today's titles of the equivalent caliber can run budgets of $25M or more. Since the number of title starts hasn't lessened, linear math says this is ostensibly doubling the addressable market dollars a middleware company could conceivably go after -- but that's independent of the additional growth the industry is/was seeing, at least prior to the economic downturn. If you look at the dollar value of the AAA market as compared to the non-AAA, you could argue triple-A title starts could be anywhere between an eighth to a twenty-fifth of the rest of the market before those addressable dollars started getting smaller than the addressable dollars of those other projects.

Besides, I'm a big fan of scrappy, aspirational companies upsetting the status quo -- regardless of vertical market.

(As an aside, independent of its representational accuracy, for whatever reason I'm tickled by this graphic of Brett's, and Mark Rein's encrumbed face. Dunno what that says. Maybe it's because pecan pie is my favorite?)

Brett Seyler AAA middleware pie diagram

(As an aside aside, I think I've used more parentheticals in this post then I have ever used in a post; if not in a given month.)

We're diversified, and we're here for our licensees ~~(Sow the seed of doubt as to our viability)~~

Just like middleware is not "our game in a box" (above), it's thankfully also not "your game in a box" (if it was, everybody could make your game, out-of-the-box).

I feel that Gamebryo is a great fit for triple-A projects; but we're not "just" for triple-A titles.

I also believe Gamebryo works well for casual projects; but we're not "just" casual projects (or whatever we name this broad swatch of opportunity that exists between hobbyist and Big Studio).

And while Brett doesn't really talk academics as licensees (which is odd, since I thought roughly half of GG's revenue comes from that constituency), but we've got those folks (including students) covered, too.

I get that Gamebryo isn't for everyone. Being a bit snarky, maybe those folks not needing to save money and time by licensing proven tech that also includes a boatload of additional middleware integrations shouldn't license us.

Being less snarky (and totally honest), I do know Gamebryo isn't for everyone. There are some titles that plan on being so specialized, they don't know if customizing licensed tech will save over building their own from the ground up. There are other projects that might require our tech to be so generalized it would be no good many of our licensees (platform-specific or otherwise).

There are others that don't have the budget or need or for a commercial game engine offering. for some, Flash is a better option (depending on their needs).

And so on.

The good news is we have past licensees who had a later project that wasn't a match for our tech, and come back to us when they have one that does. We have had prospects for whom we genuinely weren't a match, and because we had the conversations and they knew what we were about, they followed up with us when they had projects that were a match -- and they've been tremendously successful.

Multiplatform support, flexibility and extensibility for developers, enabling the power of multiple hardware threads -- these are core product differentiators for us, and they benefit our licensees.

Steady, hardened releases, ongoing new features and functionality, new licensing programs to address customer needs, responsiveness to market and developer requests, tighter platform partnerships benefiting teams at the technology level -- these are all hallmarks of Gamebryo releases.

Those things -- which enable time and cost savings for licensees for all types and constraints -- are what make us successful in the middleware space.

Make no mistake, it's challenging out there right now. There are a bunch of new middleware competitors cropping up. Studios are changing their business models as they react to immediate events, acquisition changes, the "professionalizing" of the industry, a wicked tough global economy, and knee-jerk Wall Street reactions. These all make for the challenging problems we're trying to solve in product positioning, licensing, and pricing models.

Again, I really respect what Brett laid out in his post, and I'm grateful for the springboard it gave me (if you've read this far, maybe you're not ;-).

Comments? Hit me up through my Web page (please include a working Email). Or you can always reach me through LinkedIn, Plaxo, etc.

Labels: Business Development, Emergent Game Technologies, Epic Games, Gamebryo, Product Management

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