Wednesday, January 16, 2008

AppleTV, Movie Rentals and Casual Games

I read about how AppleTV will enable Movie Rentals with great interest. The Movie industry is of course quite mature and they have learned a thing or two about how to maximize the money from their movies.

Consider the following revenue sources:
- Theaters
- Pay Per View
- Cable Movie Channels
- Network TV

Now consider those sources in terms of time. They don't happen all at once. The movie industry uses their value chain to make the most money they possibly can. When they started looking at making movie rentals available through AppleTV, the industry had to figure out how to make more money out of the value chain, and so movie rentals through AppleTV were timed to occur 30 days after the DVD release.

I think it is very fascinating especially in consideration of casual games. I've mentioned it to some degree before, but it bears further consideration. How does the casual games industry monetize itself?

- Premium online sale
- Reduced price online sale
- Monthly subscription
- Free with ads

That's true for the majority of games though for hits you can usually add in retail and very likely extend the list with mobile and other platforms. That's not a problem. The problem I think the casual games industry is running into is the growing pains of figuring out the timing of each item on the value chain. The movie industry sees that they can maximize revenue over time by making the offering available in different ways over time. From day one casual games are available at full price and at a discount as well as in most subscription services. Free with ads is delayed in most cases, but that may change.

The danger I think is in the focus on trying to maximize all the customers right away instead of creating value over time at distinct points. My guess is that the industry could increase their revenue by:
- First releasing the game at a premium price, making it unavailable for the discounts that are immediately available nearly everywhere in the industry
- Second making the game available through the discount programs
- Third making it available through subscription programs
- Fourth making it available as free through ads

I think the time frame involved is likely to be 6 months from step one to step four and the value of the content and the revenue from it is likely to rise. The current system amplifies short sales windows for each game and decreases lifetime revenue under the guise of trying to maximize profit in the 4 week period after a game's release. It's especially difficult for the smaller developers who are for the most part just along for the ride.


Poo Bear said...

Isn't the big difference that the movie industry paid to make those films and holds exclusive license over them. Isn't it more common in the casual industry for a portal to pay nothing for a game's development and then that game to appear on competing portals. Therefore, it is in every portals interest to sell it as fast as possible and match the price at competitors. As any company under this kind of competition, each portal is under extreme pressure to find some competitive advantage over the others and it's this that keeps pushing offers, subscriptions and price down.

Surely this will force bigger portals to buy up casual developers as well as putting their own dev teams together and seeking to get exclusive license on as many games as possible. If a portal holds an exclusive then it suddenly becomes very sensible to operate as you suggest (like a film company).

If I'm right then the question is - how does a developer make the most return? Let every portal under the sun have it or go exclusive with one of the big guys? I suppose it would depend on what the portal was willing to do in a contract. I wonder if they'd even be willing to contractually agree to pricing plans, marketing efforts, etc. I doubt it, so once again the naive developer is left with a big gamble to make :)

Russell Carroll said...

Yeah it's a good point, and perhaps we are starting to see the beginning of it with BigFishGames and their MCF series. The latest MCF game has not yet been sent to portal partners 2 months after its release and despite it being stated that it would go out in January. My guess is that this is a smart thing...and something that developers can emulate.

I often use the example of Alice Greenfingers, which was released last year. The developer looked at all the portals and lined them up from who discounted the least to who discounted the most and then released the game in that same order, slowly (over 6 weeks) releasing the game to the portals that did more discounting after initially only releasing it to the portals that didn't do any discounting. I thought it was brilliant, especially because that meant that Reflexive received the game first and had a 2 week exclusive. It ended up being one of our top 5 selling games for 2007 :). (of course without a good game you are sort of sunk, but the principle of making the product premium and making the most off it possible I think makes good business sense and developers can control when they contact the portals with the new game :)