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.

Thursday, January 10, 2008

O Casual Gamer

My newest article for Gamasutra went up yesterday, if you haven't read it you can find it here.

as games have become more mainstream, our understanding of who is buying thegames has become increasingly niche.

The point may have been overstated a bit, but I think the topic is very interesting. Essentially the idea behind the article is trying to take a deeper look at who casual gamers are and what motivates them to play.

I think one of the most difficult things to do is to look at the world through someone else's eyes. Whenever we consider anything we tend to relate it to our own view of the world. Unless you are really 'that' situation you can't really understand how it feels to be there. Trying to understand takes real effort and time to consider as many factors as possible.

As far as the casual gamer goes, they are feared and disparaged quite frequently. While that behavior is worthy of its own article, the question for the businessman is not how make gamers treat casual gamers better, but how to make more money off of casual gamers. Based on many of the casual games released on the consoles, I think we have a long ways to go in understanding what motivates casual gamers.

Some things that seem to have a positive impact
- Positive themes
- Female protagonists
- An easily and oft-obtained feeling of success
- Extreme accessibility

There are many values that are likely being fed by those things such as a sense of accomplishment, a feeling of progress and a sense of individual freedom. I'm not so sure the list of values for core gamers would be very different, but it appears that the road to the values is different.

Some things that seem to have a negative impact
- Coming under attack
- Not succeeding
- Complexity (in how you interface with the game or how it is played)
- Space themes
- Long range goals without any short range goals

Some things that don't seem to have any impact
- Darker themes (death, murder, frightening images)
- Frantic play
- Work themes
- Invulnerability/inability to lose

I'm sure the lists could be greatly expanded and debated. If you made your own, what would you put on them? What is leading casual gamers to play, and what personally held values are being positively stroked when a casual game is played?

Wednesday, January 2, 2008

Casual + Advertising = Nirvana?

Two of the hottest things in the gaming industry in 2007 were casual games and advertising. So adding them both together should equal bliss shouldn't it?

I was reading an article on ClickZ and it is timely as Reflexive considers advertising.

Casual game sites including RealNetworks and Microsoft began offering developers a share of ad revenues. Many publishers earned stronger revenues from advertising than sales.
It's nothing that hasn't been said before mind you. However, I've come to question the probable success of advertising and games. Certainly there are some places where it makes sense. However, the word 'some' should probably be replaced by 'few' to give a more accurate account of how advertising mixes with casual games.

Recently I did an article for Gamasutra that compared the different casual game portals. I draw attention to it as one of the things I looked at was whether or not there was apparent advertising at the portal, and if so where it was. I considered the website, webgames and in-game advertising. What I found was that though there is a lot of talk about advertising and games, there are few places using it, and of those few places using advertising, none of them were displaying it prominently. Taken together those points are the basis for my skepticism in advertising and casual games, but let's take a deeper look.

Why Advertising?
The theory behind advertising is to make more money off of your existing customers. It is OK to lose customers as long as you create enough revenue to make up for the customers lost AND your rate of growth is maintained.

In casual games, there is a misconception that 99% of the customer base is getting a free ride by playing demos. The thought is that if you can find a way to charge the 99% you'll make lots more money.
(btw, if you are wondering why the 99% is a misconception, the reason is in the denominator. 99% is figured by subtracting the 1% conversion rate from 100%. The problem is that conversion is a measure of sales/download, not sales/customer. Customers often try a ton of games in deciding what they are purchasing. Trying to monetize their trials isn't the same as trying to monetize people who aren't buying. Compare it to Baskin Robins. You can go in and taste multiple flavors before buying your cone. Baskin Robins doesn't try to charge you for tasting. Their goal is to monetize each customer, not each taste.)

Where advertising works
Places where advertising makes sense for me are places where customers are not impacted. I can think of only one: web games.

When a player playes a web game, they are expecting it to be a free experience. Most web-games are in fact advertising something else, often either a full-version of the game you are playing or another website. The type of customer who enjoys web-games does not seem to struggle with advertisements being plastered on every side of the game. I believe strongly that you can make money with web games and advertisements. Often, when statistics show that large amounts of money is being made in advertising in casual games, web game focused websites, such as Shockwave, are the focus of the articles. I think it is certainly significant to note who is and who isn't mentioned in articles about the bounties of advertising.

Where advertising might work
Websites and in-game advertising are both places where advertising might work, but each must be considered on its merits.

- Websites
Website advertising is easy to access and there are still places out there that will pay unreal CPMs to advertise. I continue to believe that very high CPMs disappear overtime and are quite unstable. A recession or economic down-turn quickly decreases advertising dollars. That said, why shouldn't you get money off of your website if you can do so?

When I did my article for Gamasutra I noticed that most of the big players (BFG, Real, Reflexive) did not have advertising on their websites (note: Real has it on the website, but not in their game client, which is where nearly all of their traffic occurs). If you think about a website that is selling a product, it makes sense not to have advertising on your sales page. You want to close the deal and avoid anything that may distract the customer. Ads are a big distraction. The only reason I can think you'd use advertising on a sales website is that you haven't optimized your sales process very well and so you're earning more by sending a portion of your customers away than you are by selling to them.

Of course many advertising aggregators will state that these companies just want 'face' time. They just want to be seen and don't care about anything else. If you hear that, just ask the aggregator if that is what they tell their clients who are advertising with them.

Website advertising makes sense for products that are "free," (news, web games, email, search results, etc.) but not so much for products that you are selling. When you are selling something your hole website should really be one great big advertisement...FOR YOU! From my observing the different portals, the amount of advertising on the portals has been decreasing over the last year, I think that is perhaps very telling.

- In-game Advertising
The parallel is often drawn between games and TV shows, suggesting that interruptions will not hamper the player or change the experience. Some portals (MSN, Real, iWin) have gone this route. (Wild Tangent uses a very similar tactic of having the advertiser pay for your pay session). I disagree with the parallel. I think games are closer to books or movies than to TV. You can't walk into a movie theater and choose the free version of this week's latest blockbuster that is speckled with commercials. That's left for TV. Books don't require you to turn pages trying to figure out what page the story continues on. That's left for Magazines. I see games as premium content that you are paying for. The free model paid for by advertising doesn't make sense for me, except in one case: old games.

Much like new movies commanding a premium, I think new games command a premium. You can't get a new movie on DVD the day it is released in the theater. You can't see it on TV until after the DVD sales have died down. The content is sold as premium until it is common and then monetized by ads when it is common. I can see games following the same model, and from what I see with in-game advertising, that is the model gaming is following.

Go to Real or Game House or iWin or MSN Games. Find the games that are free to play if you watch the advertising. Can you find them? Anywhere? I think the greatest point in all of this is proved by the experience in trying to find the games. If they aren't put in a place where they can be easily accessed, then clearly they aren't that important to revenue.

When you do finally find the games you'll see that the list of free games is old. There are a few newer games mixed in, but for the most part, everything on the list has had a sequel, and none of the sequels are free. I think the approach is the right one, and based on the 'hidden' placement of the free games on the 3 (Game House is owned by Real) companies that offer them
I don't believe that in-game advertising is anything more than a great way to monetize old content that otherwise isn't well monetized. That said, it may be a great way to do that, and a nice supplemental income.

The Danger
In the rush to monetize the "99%," it would not be surprising to see advertisements popping up in new games and even in game demos. I think that will hurt the premium standing of games. My marketing professor loved to tell us stories about companies who left the niche to access the masses. Companies like Pizza Hut with their 'Bigfoot' who tried to get the Little Ceasar's customers, thinking 'there are so many of them, we can make less per customer' or Pioneer who thought essentially the same thing, have gone from being the best in their class, selling a premium product at a premium price, to losing most of their market-share and becoming 'common.'

Creating a marketplace where new casual games are equally valued with free flash webgames I think would be very damaging.

Proceed with Caution
The other part of this tale is Reflexive's part in all of this. We've been staunchly anti-advertising for quite some time. However, we also run an affiliate program, and that program taken as a whole is much larger than Reflexive itself. So, we work to provide to our affiliates the things they are looking to do. Advertising revenue is something that everyone is talking about, and so many of our affiliates are interested in knowing if we will help provide a solution for them. Of course they can already to website advertising on their own, the real questions are about web games w/advertising and in-game advertising.

We're looking into it. We test everything we consider to see how it works for us, and the actual impact on our customers. We carefully measure everything to see how it goes, and who knows, maybe I'll be proven wrong on this whole advertising 'opportunity.'

Certainly advertising has remained an elusive opportunity for most in the industry, making solid sense for web games and being debatable in other areas. 2008 will be an interesting year for us to see just how much of an opportunity advertising is or isn't. No matter what the outcome, it's worthy of a lot of questioning and debating before adding advertising to casual games.