The%20Game%20Industry

1
The Game Industry
Greg Costikyan CEO, Manifesto Games 10/21/08
2
Me

• 30 years in the game industry(ies)
• 30 commercially published titles
• Adventure Gaming Hall of Fame, 5 Origins Awards,
  Maverick Award
• Manifesto Games
• Play This Thing!

3
Huge Growth
4
But the Business Model is Broken
5
Moores Wall and the Decline of the 3rd Party
Developer

• Spiralling hardware capabilities
• competitive pressure to take advantage of them
• spiralling budgets
• What Raph Koster calls Moores Wall
• 15m now minimum buy-in for AAA title
• 15 years ago 200,000

6
Moores Wall (cont)

• Art assets the main cost driver
• A Doom level took one man-day to build a Doom
  III level takes 2 man weeks.
• You have no choice audience expectations,
  marketing demands
• Narrowness of retail channel lt200 SKUs, 2 week
  on-sale window

7
Basic Problem

• Sales increase linearly
• Development costs increase exponentially
• Console model is broken

8
Average game loses more and more money
9
Conventional Business Model
x15 3.75 to developer
8 retail cut
7 platform royalty
25 to publisher
40 retail price
10
Why Developers are Screwed

• 3.75/game dev needs 4m unit sales to recoup
  advance (very rare)
• Publisher breaks even at 800k unit sales
  (assuming another 5m on marketing)
• Once upon a time, a hit game made the dev lot of
  money.
• Vanishingly small chance today

11
Result The End of the Independent Developer

• Staying independent unprofitable treadmill
• Have to land next development deal or die
• No upside
• Selling out only logical path
• Assured access to dev funding
• Only way for founders to cash out

12
Market Implications

• Field more and more hit-driven
• Few hits have to carry 90 of games that lose
  money
• At any time, 80 of sales generated by top 10
  games

13
Implications for Publishers

• Consolidation
• All Games Should Be Like Sports Games
• Licensed crap franchise extentions
• Everything has to be AAA
• Gameplay innovation is too risky!

14
Innovation is Driven by Discovering New Genres

• c. 2000BC Track game with blocking (Royal Game
  of Ur gt Backgammon)
• c. 800AD Game of Replacement Capture (Shaturanga
  gt Chess, Shogi)
• c. 1200AD Game of Leaping Capture (Alquerque gt
  Checkers)
• 1756 Thematic track game (A Journey Through
  Europe gt Candyland)

15
New Game Styles (cont)

• c. 1850 Trivia Game (Grandmamas Game of Useful
  Knowledge gt Trivial Pursuit)
• 1856 Word Interpolation Game (Komikal
  Konversation Kards gt Mad Libs)
• c. 1890 Fishing Game (Fish Pond gt Operation)
• 1910 Military Miniatures (Little Wars gt
  Warhammer)
• 1953 Board Wargame (Tactics)

16
New Game Styles (70s)

• 1972 Adventure Game (Colossal Cave)
• 1973 RPG (Dungeons Dragons)
• 1974 Vehicle Sim (Atari Tank)
• 1977 LARP (Dragohir)
• 1978 MUD
• 1979 Flight Sim (Sub-Logic Flight Simulator)

17
New Game Styles (80s)

• 1981 Platformer (Donkey Kong)
• 1981 Computer RPG (Ultima 1)
• 1984 Graphic Adventure (Kings Quest)
• 1985 Dynamic Puzzle (Tetris)

18
New Game Styles (90s)

• 1991 First MMOG (AOL Neverwinter Nights)
• 1992 RTS (Dune II)
• 1993 FPS (Doom)
• 1994 TCG (Magic The Gathering)
• 1996 Rhythm Game (Parappa the Rapper)

19
New Game Styles (00s)

• 2001 Collectible Miniatures Game (Hero Clix)
• 2003 Big Urban Games (BUG gt ConQwest)
• 2004 Alternative Reality Game (The Beast)
• ....NONE OUT OF OUR INDUSTRY SINCE 1996

20
Scratchware Manifesto

• An industry that was once the most innovative
  and exciting artistic field on the planet has
  become a morass of drudgery and imitation.
• --Scratchware Manifesto, 2000

21
GDC Rant

• You can go work for the machine, work mandatory
  eighty hour weeks in a massive sweatshop
  publisher-owned studio with hundreds of other
  drones, laboring to build the new, compelling
  photorealistic driving game-- with the same basic
  gameplay as Pole Position -- Or you can defy the
  machine.
• -- Game Developers Rant, GDC, 2005

22
So Find Another Way

• The Internet Changes Everything
• Major impact on industries from music to
  telephony
• We sell bits. Why put them in a box when the net
  is designed to transmit bits?
• But so far the impact on the game industry is
  marginal.

23
1993

• All told, 15m shareware copies of Doom were
  downloaded across the world... Doom was a
  watershed event... Because it changed the way
  videogames circulate and reproduce.
• -- JC Herz, Joystick Nation

24
Doom was an Aberration

• It didnt change the way games are distributed,
  because
• CD-ROMs came along, apps bloated by an order of
  magnitude
• Internet users were stuck with dialup
• Hours-long downloads for apps of any size.
• The shareware model ruled for about 6 minutes.

25
Web 1.0 (circa 2000)

• Free Internet play bolted on to RTS and FPS games
• MMOs adopt hybrid model (retail distribution of
  apps, but play solely online, with subscription)
• Ad-supported play of classic card board games
  attract tens of millions of monthly uniques
  (unprofitably)

26
Web 2.0 (today)

• Were back in 1993, in terms of app
  size/bandwidth ratio
• A success like ids is again feasible
• The market is about to be disrupted
• Cui bono?
• Consumers greater choice, lower costs
• (Some) creators instant fame, but hard to make a
  buck

27
Casual Game Market

• 0 to 700m (US domestic only) between 2000 and
  2007
• 60 min demo, 20 purchase price
• Portal distribution
• 250-500k budgets
• Middle-aged women

28
Match 3 Games
29
Hidden Object Games
Mystery Case Files
30
Time Management Games
Diner Dash
31
Casual Game Economics 2003
2008
80
4
60 to portal 12
16
8 to developer
20 retail price
250k budget 32k unit sales for breakeven
500k
125k
32
Not a Panacea

• But a sign post showing the potential.
• Its possible to create whole new game markets on
  the Net.
• But as usual, the game industry has learned the
  wrong lessons

33
Casual Games Lesson 1
Everyone, even a demographic like middle-aged
women who historically are NOT major purchasers
of games

• Middle-aged women will buy games on the Internet
  if theyre designed to appeal to them.

cater to their interests
34
Casual Games Lesson 2
at the right level of difficulty

• Online, games need to be dirt simple to appeal to
  the casual game market

intended audience
35
Casual Games Lesson 3

• A 20 price point with a 60 minute limited demo
  is a great way to monetize online gameplay

lousy
...only 1.2 of downloaders convert to
purchase...
36
Casual Games Lesson 5
are one way

• You need deals with portals to achieve a large
  enough audience to generate enough sales for
  profitability

transactions
37
Casual Games Lesson 6

• The success of Xbox Live Arcade shows that casual
  games work on consoles too!

hardcore
What, you call Geometry Wars a Casual game? Crap.
Its a shmup, A genre for geeks if ever there was
one.
38
Free MMOs

• The logic of the conventional MMO market
• 8-figure budgets
• Monthly subscriptions
• Multi-year development times
• Enormous technical complexity

39
Free MMOs

• The logic of light-weight MMOs
• 6 or 7 figure budgets (initially)
• Free to play, upsell with status items (clothing,
  leaderboards, furniture, etc.)
• Far shorter development times
• Modest technical complexity
• 10-20 of your audience will pay

40
Runescape
41
Runescape

• Browser-playable, traditional fantasy MMO
• 9m active players
• Of which 1m pay 5/month for premium services
• Plus advertising revenue
• Player acquisition largely by word of mouth

42
Club Penguin
43
Club Penguin

• Flash minigames aimed at kids held together with
  a virtual world metaphor
• Free to play
• 6/month premium membership for status items

44
Club Penguin (cont)

• Key distribution arrangement with Miniclips
• 1 free game site on the Internet, gt40m monthly
  uniques
• Receives 50 of lifetime revenue from users who
  join CP via Miniclips
• Sold to Disney for 350m
• Screw console gaming

45
Webkinz
46
Webkinz

• Plush toys with codes that allow you to adopt
  the critter as a Tamagotchi-like pet in an online
  virtual world
• Clearly inspired by Neopets
• Free to play online
• 45m in retail sales (06)

47
Social Networking Games

• Games built on APIs provided by social networks
• Facebook, MySpace today
• OpenSocial tomorrow
• The average Facebook game has gt2.5m installed
  users
• Multiplayer ones see 11 of them active each day

48
Mobsters
49
Social Networking Games

• Social networks designed for virality
• Minimal marketing/distribution costs
• Turn-based, web pages
• Straightforward (and cheap) web development
• Free, Micropayments Cost per action
  advertising
• Zynga rumored to make 1m per day (36m in
  venture capital)

50
Social Networking Games

• Many seeing tens of millions of daily page views
• Already seeing VC interest
• Conduit Labs (5.5m Series A)
• Zynga (36m in two rounds, latest against a
  100m valuation)

51
Micropayments

• Common in free MMOs, of course
• A way to monetize gameplay short of the 20
  purchase
• High proportion of casual gameplayers run up
  against the 60 minute limit

52
Double Trump
53
Micropayments

• DoubleTrump
• 60 minutes free, pay 1 cent/minute thereafter
• After 2000 minutes, you own the game outright
• Playonarcade.com as tech demo

54
Wild Tangent
55
Micropayments

• Wild Tangent
• Token model 1 token allows unlimited play
  until you quit from the application
• 25 cents/token
• Or watch ads to get tokens
• Advertisers can sponsor play of games
• Credit toward purchase

56
Micropayments

• These are models built for casual games
• But expect to see free web games start to use
  micropayments
• E.g., first 12 levels free, another 12 for 3
• Some of this already on Kongregate Miniclips

57
Ad-Supported Web Games

• Contract development for sites like Nickelodeon,
  Adult Swim
• Not just crap any more some of the Adult Swim
  stuff is actually good
• Rev share with portals like Miniclips,
  Addictinggames.com, Kongregate.com
• Kongregate VC-funded startup to encourage this

58
Kongregate
59
Ad-supported Web Games

• Problem is that per-user revenues are small
• Hit games can get millions of plays
• But figure a few cents per play
• Possible to support a small team, but not a path
  to riches
• Does micropayment upsell change the picture?

60
Second-Tier Genres...

• Conventional retail channel not friendly to games
  that have no chance of selling 1m units
• Yet there are genres that have passionate fans
  but not enough
• Computer wargames
• Graphic adventures
• 4X
• Etc.

61
...Migrate Online

• Now sold primarily as online downloads
• Often with a retail SKU but the bulk of sales
  online
• Matrix Games
• Computer wargames
• Stardock
• 4X (Galactic Civilizations), RTS (Sins of a Solar
  Empire, currently 4 on the NPD PC Games
  best-sellers list)

62
Gary Grigsbys World at War
63
Galactic Civilizations II
64
Secondary Genres (cont)

• Can sell in excess of 100,000 units
• Galactic Civilizations
• Gary Grigsbys World at War
• Retailer disintermediation
• Real (if modest) profitability
• Opportunity for aggregation
• Slitherines Play History

65
Serious Games

• Yes, there can be serious money here
• Forterra
• Spin-off from There.com
• Virtual worlds as training environments for
  military, medical, transportation customers
• Second Life may get the press, but this is where
  to look for actual success

66
Serious Games

• Peacemaker
• Began as a student project at Carnegie Mellon
• Modest VC investment, grants from non-profits
• Major press attention
• 100,000 copies distributed in Israel Palestine
  by the Peres Center for Peace

67
Peacemaker
68
Re-Mission

• Funded by Hope Lab, a medical non-profit
• Rather high budget FPS (shoot the cancer)
• Clinically shown that players are better about
  taking their meds

69
Re-Mission
70
Serious Games

• Increasing amounts of money available from
  government, non-profits
• Most developers in the space have no clue
• Clear opportunity for those who focus on it
• Mostly contract work little to no upside...
• But psychic rewards, surely

71
Indie Games

• Ill-defined, but usually means casual game-like
  business model, but not casual games
• Some indie developers have supported themselves
  for years at a modest level (ApeZone, Spiderweb,
  Chronic Logic)

72
Increasing Attention

• Both print and online media increasingly willing
  to cover indie games
• High-volume sites like Fileplanet feature indie
  game demos
• Playfirst deal for Dave Gilbert graphic
  adventures.

73
Emerging Distribution Channels

• Steam first really successful distribution
  channels (can generate sales of tens of
  thousands)
• Gleemax/WOTC
• Penny Arcade/Greenhouse

74
Indie Games (cont)

• Still a small market by comparison to, say,
  casual games
• But why should middle-aged women have all the
  fun?
• Critical factor establishing the indie is good
  meme in the minds of gamers
• Relentless PR critical
• The lesson of Uplink

75
Indie Games (cont)

• IGF
• Possibility of upsell to XBLA, Nintendo Virtual
  Console, etc.
• Blue ocean dont try to compete with big
  budget titles
• Bandwidth problem
• Some casual channels open (e.g., Oberon)
• But sucky margins

76
Braid
77
Defcon
78
The Shivah
79
Immortal Defense
80
Audiosurf
81
Ten Years from Now...

• The retail channel will be minor
• Console titles will be sold via download
• The hardware manufacturers will be the key
  gatekeepers
• PC gaming, broadly defined, will see an enormous
  resurgence, all online
• There will be vast diversity in successful game
  styles

82
Ten Years from Now...

• There will still be multi-million unit hits...
• But a huge midlist of games that sell far fewer
  numbers, profitably, will exist
• Application sale will be only one of many
  successful business models
• Conventional wisdom will have reversed major
  publishers are dinosaurs

83
The Independent Developer Shall Rise Again

• The futures so bright you gotta wear shades

84
Link