Round 2

1
Contracts Royalties

• Round 2

2
Background

• Contracts Royalties at Seattle Casual Game
  Conference
• Panel discussion on contractual issues
• Debate among developer, publisher, aggregator,
  portal
• Received positive feedback for frank discussion
  of difficult subject

3
Industry Overview

• Industry growing / changing quickly
• Partners throughout value chain jockeying for
  position
• Todays partner tomorrows competitor
• Issues affecting creation of value especially
  contentious
• Prisoners Dilemma can we find solutions that
  increase value for all parties?

4
Vision for Round 2

• Create forum to promote frank discussion
• Try to actually find some solutions!
• Present variety of difficult topics
• Split into groups each group picks a topic
• Groups debate / discuss overnight
• Groups present results tomorrow

5
Discussion Topics

• How can community games go to market on major
  portals?
• How should advertising revenue be shared across
  partners?
• How should software bundling revenue be shared?
• How valuable are brands in the casual space?
• Is exclusivity worth fighting for?
• Do we need industry standards? And if so, where?
• Is the market ready for a broader range of price
  points?
• Value of market development funds?
• How should royalty shares shift over the next
  12-24 months?
• Do subscription programs generate more value than
  try-and-buy?
• Why havent we seen more specialization in the
  value chain?
• Is developing promoting clones good for our
  market?

6
Community / Multiplayer Games

• Games with multiplayer or community features
  could be very popular
• But depend on having a large community to be
  successful
• Portals are best way to promote casual games
• But reluctant to risk losing customers to
  developer-hosted communities
• Are communities valuable enough for us to solve
  this?
• How can we solve it?
• Pay bounties to portals from subscription
  revenue?
• Limit all interactions to within the game?

7
Advertising Revenue Shares

• Free web games monetize poorly
• 10 of players download trial versions
• 1.5 of trial players purchase game
• 0.03 per player
• Majority are lifetime free players - never
  download trials
• Advertising is ideal way to monetize free plays
• 10 plays 2 ads 20 ads / player
• 10 CPM 0.20 per player 6.6x greater
• Should sites refocus around ads instead of sales?
• Should ad revenue shares be standard part of
  deals?

8
Software Bundling Revenue

• Free trials monetize poorly as well
• 0.30 0.60 per player
• Google will pay 1.80 per toolbar install
• Other companies will pay even more
• Toolbar is bundled along with game download
• How should this revenue be shared?

9
Value of Brands in Casual Games?

• Lots of types of brands
• Movie / TV brands (e.g., Law Order, Family
  Feud)
• Classic game brands (e.g., Scrabble, Monopoly)
• Successful game brands (e.g., Bejeweled, Diner
  Dash)
• Developer brands (e.g., iWin, GameHouse)
• Which brands are important for casual games?
• Better to license a successful brand or clone it?
• Should developer brands be promoted?
• Or invitation to lose customers to developers
  web site?

10
Exclusivity

• How important is exclusivity?
• Sites often want it
• Does it help or hurt sales?
• Do customers shop around?

11
Industry Standards

• Where would standards help our industry?
• DRM interface standards
• Sales data reporting standards
• Electronic data formats
• Standards for what information is shared
• Web-game advertising standards
• Community interface standards
• Revenue sharing guidelines
• Standard boiler-plate contracts
• Etc

12
Broader Price Points

• 19.95 often seems fixed in stone
• Should we reconsider?
• Is price elastic or inelastic?
• Different games worth different prices?
• See Xbox Live Arcade
• Different trial lengths?

13
Market Development Funds

• Promotion is key tool to drive traffic
• Free promotion top 10 lists
• Paid promotion house ads
• MDF provide some transparency to promotions
• Publishers pay for promotion by tying MDF to of
  revenue
• Promotion is thus tied to success / popularity of
  game
• Requires increased transparency in sales
  reporting
• Revenue shares based on gross not net
• Allows apples-to-apples site comparisons

14
Specialization

• Most companies ultimately specialize
• We are all still trying to be all things
• Developers as retailers, retailers as publishers,
  etc
• Source of most contractual friction
• Portals worry about developers cannibalizing
  sales
• Developers worry about resellers developing
  clones
• Would we generate more value by specializing?
• Would non-competitive developers earn higher
  royalties?
• Would non-developer portals get closer
  cooperation?

15
Clones

• Many great games inspired by other games
• We stand on shoulders of giants
• Clones do not attempt to innovate
• Same game-play, different art/theme/music
• Sometimes its a fine line
• Are clones good for the market?
• Giving customers more of what they want?
• Or will a flood of look-alike games turn off
  customers?
• Dilute the incentive to create original games?