We got e-mail
I’ve received e-mails requesting me to explain the dynamics of the online games industry. I am dedicating this week’s column for the benefit of those who would want to understand more about the online games sector.
My answers are based on my own personal experience in the games industry. So while my statements are therefore subjective to my own views and opinions, I am hoping this will provide my readers with a basic understanding which can serve as the basis for more in-depth research.
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How does the online games industry operate?
The industry consists of developers, licensors, publishers/distributors, and gamers. Product travels downstream, and the money flows upstream.
The developers are normally the originators at the start of the food chain. Think of them as your farm lots in Farmville. They are the farmers or producers.
Developers are at the riskiest part of the industry. Developing a game takes millions of dollars in capital, and normally takes at least two to three years of development. There is also no guarantee of having a sure success. However, blockbuster games can make their money back more than 100-fold (just look at how much money Blizzard is making from World of Warcraft). Like the movie business, developers or producers are continuously churning out new titles in the hope of making it into the big leagues.
Licensors normally invest early on in the process with the developers. This investment can be title specific. In exchange for the investment, the licensor obtains the rights to the game for a number of territories (say Europe). Alternatively, licensors can pay large licensing fees to secure licensing rights over a territory.
Publishers or distributors work with licensors to publish the game in a specific territory — like the Philippines, for example. Publishers or distributors must pay licensors large upfront fees and running royalties on the revenues generated by the product in the specific market. Hence the word “royal-ty”: it’s your ticket to blue-blooded riches if you’re fortunate enough to be the licensor of a sought-after title.
Publishers then offer the game to gamers or consumers who pay the publisher either subscription fees or micro-transactions. Publishers collect the sales, remit royalties to the licensors, licensors share some of this with the developers. This then allows the developers to reinvest in developing a new game. The cycle of birth continues.
What makes a good game?
This is perhaps the easiest and hardest question to answer.
Good games normally have good graphics, engaging story lines, innovative and intuitive game play, user-friendly features, and enough content to keep gamers playing for a few years. Gamers today expect lots of avatar customization, great PVP modes (player vs. player), strong community functions (chat, rankings), and a fully immersive experience.
The interesting thing about the online games industry is there are no hard and fast rules about what makes a good or successful game. The standard is always changing or being broken. There are also exceptions to the rules, or games that have, for example, seemingly bad graphics but have become very successful.
Ultimately games succeed because they cater to the ever-evolving tastes of consumers. People’s tastes reflect a confluence of factors. These represent a certain trend, opinion or mindset which dictates the prevailing taste over a given time period.
What makes companies like Apple or people like Steve Jobs great? They dictate or set people’s tastes. They can predict what people want before it even happens. They design for the future. Inevitably a good or great game must also live up to this principle.
How do you select games for the Philippines?
Without divulging trade secrets, I evaluate both the product (game) and the partner (developer).
Most companies make the mistake of focusing on just the product and not on the partner. Commercial success is equally dependent on partner support. So we spend a lot of time evaluating the partner in terms of track record, financial viability, and work ethic.
How do you make money from games?
Three ways: subscription fees, micro-transactions, and advertising.
Surprisingly, many FMCGs today are recognizing the marketing power of online games. Games can deliver ads direct to the user, because it is non-intrusive, permission-based, and highly measurable.
Where do you see the industry going? Any fearless predictions?
I believe the following three things will happen in the next few years:
• All games will be connected digitally. The line will blur between video games and online games. All will be connected online, and many will have some form of mobile integration.
• As the industry matures we will see a shift from global franchises such as Madden or NBA games, to local franchises or games built around local themes such as local leagues, local IP.
• We will see a growth cycle led by casual games (FPS, sports games), which will then re-shift back into MMORPG titles as casual gamers mature and begin looking for a more immersive hardcore experience.
How does gaming relate to education and skill development?
Online games are one of the major drivers behind PC penetration and broadband adoption.
Many people begin using the Internet because they are playing online games. I see this firsthand when I go to the provinces and interview first-time Internet users.
Thus, games make people future-compatible. They learn much-needed computer and Internet skills. These are necessary skills in an increasingly digital-centric world. On the most basic level, imagine your life if you didn’t know how to use the computer, e-mail and Internet.
Learning to use a computer and being comfortable in a digital world have become basic skill sets for surviving in today’s high-tech world.
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What kind of player are you? E-mail me your questions or feedback at egtheplayer@gmail.com.
