Alternative business models for Europe

Julie Pitt, General Manager, RealArcade

Riccardo Zacconi, CEO MidasPlayer

Eric Bethke, CEO GoPets

Kai Bolik, CEO GameDuell

Mathieu Nouzareth, President Boonty

JP: Try-before-you-buy games really picked up after the crash. Real Networks had to convince GameHouse to build a downloadable game. In Asia this model doesn't work so well (perhaps thanks to lack of protection for IP). 2% of games downloaders make a purchase; so most folks aren't spending money for content.

MN: Advertisers are willing to spend lots of money online. They need good products to help them do this. CPM for banners are too low. Rich Media advertising might be an answer. In-game advertising might be an answer.

[ Yuck - are we as an industry really fixated on banner advertising - still? How do production costs for a rich media advert stack up - presumably they're much higher? In-game ads sound more interesting, and you can see a precedent for it with product placement in films - it's familiar, perhaps. ]

MN: A 20mb game with a 2% conversion rate means you're shifting 2GB of data for each 2 sales - that cuts into margins.

JP: Most advertising has been around online games. What about in-game advertising?

MN: Perhaps this is more acceptable in the US which is more accepting of advertising.

KB: When we founded in 2003, games were popular. We wanted to monetise free players and do so by letting them pay small amounts at a time: they place a bet etc. So they're not paying for game content at all.

RZ: We have a 2-step process: at the first step he plays for free, up to 10 times. After that he's asked to upgrade to a paid account: £10, $10, 10 zloty. Once he is paid up, to compete against others he has to take small amounts from his deposit.

[ So it's either advertising-supported or gambling games, thus far. ]

RZ: Our experience is that many factors are at play here: the maturity of the market (how old your players are), say. We offer more than 37 payment systems: different ones for different markets. e.g. in the US credit cards work well, in the UK they're alright, in Germany they don't work that well.

EB: We think that advertising is extremely important. We're cautious about it. Gopets have a tool to let you design clothing for your pets so product placement seems quite natural. This is more exciting for advertisers than banner ads say. Companies like Massive are acting as a bridge between developers and advertisers. There is no equivalent of Massive in the UK yet.

[ So... specialist media buyers for the games industry then. Seems sensible. ]

JP: Massive focus more on the hardcore traditional gaming. They've not really looked at casual gaming much.

[ But this seems to be a theme here: lots of folks from the traditional gaming industry see casual as a new market for them, rather than a new sort of activity. And given that the models, the content, and the audience are all rather different... does this hold? ]

EB: Massive came to us to sign a deal. But they don't have any salespeople selling to women. I could put together Gap Jeans for the pets, but it's difficult without such a salesforce.

JP: It's not necessarily about the play, it's about the things you can add to the play and monetise.

EB: In Korea they had only games with subscription models for some time. Everything else collapsed - retail etc. Then came price competition, and free MMOs. The intention was to build volume then start charging - but users kept switching between games to avoid paying up. Then the "death model" was tried out: paying for new lives, selling accessories, etc. This was quite popular because it kept the perception of "freeness" in the games, but still provided for revenue. Players ended up spending more than they played for the subscription model.

MN: Mixing casual and MMOs is a new idea. Until recently MMOs are for serious gamers and casual games for everyone else.

EB: Western perception is "oh yeah, Korea are just nuts".

RZ: We've launched a sophisticated community. 80% of our users set up an avatar, 25% have bought additional items for their avatar. From surveys, we know that users like this - it's about showing off, it's not just about money.

EB: There was a phase in Korea when everyone had avatars you dress up. That lasted about 9 months before players noticed it had no effect on gameplay. Temporary gameplay-affecting items are the ones which make the most money. Gopets make $30 pcm from their paying users.

RZ: Lipstick, winning modes and losing modes are the biggest sellers.

EB: We have our own virtual currency, which has different exchange rates in different territories depending on friction costs accrued by working with different payment mechanisms. Our top selling item is a virtual rock for our virtual zen garden.

EB: Games have to be designed from the ground up for a given business model. Taking a subscription game and moving it over doesn't work that well. In the West we don't like these models because they seem unfair: but it's just like real life!

[ Maybe this is because we look to games for escapism? ]

Q: You're selling perishable goods. The rock can be used only once and resold. Are you looking to enable a marketplace and let players create and sell their own items?

EB: The initial approach is to make items non-transferable and perishable. This works for a little bit if you're the first mover. CyWorld (?) in Korea had a model where you rented skins for your site, which worked at first but then started losing players. Permanent items should be permanent. If they paid for something from you, they've bought it, and should be able to sell it. Don't be arrogant and insist they buy only from you.

Q: Who are your customers?

EB: Women in their teens and 25-45. Most revenue comes from the latter but the user-base is split.

JP: Other than avatars, how can we monetise community?

MN: Subscriptions? With a low price-point, yep.

RZ: We're monetising what is basically an online community. We don't want users to go away; with our model, we make money from plays so we need to keep them in.

EB: You can make subscriptions work with the item model. We have a limited-edition item which is only available to premium subscribers. This item normally has more game value and tends to resell for $25-35 each time too - so the player sees values. But the item-selling model came first, not subscriptions.

KB: Subscriptions fit well with any long-term proposition; anything which players think they'll need for a long time. Subscriptions need to have unique or exclusive elements to be successful.

JP: Do you price games lower in Italy and Spain (where the market demands lower pricing)

MN: On a case-by-case basis, yes. 25-30% lower.

EB: We price v differently between different territories (China, Philippines, etc.). How do players react to this?

MN: They don't tend to know. Players don't tend to go into price comparison services.

[ All this despite the single currency across Europe! I wonder how long this blindness to price variations will continue. ]

JP: How likely is it that the model will change completely? e.g. ISPs pay for content and bundle with access, as in the RealNetworks/Comcast music product bundle.

MN: This is taking over very quickly in Europe now. If you buy large quantities of games in advance you can do so very cheaply - e.g. 10% of retail. ISPs are fighting hard to acquire and retain customers. We've worked with ISPs giving away free music, games and videos. Games are more effective than music or videos when given away for free.

EB: Some carriers will pay for exclusivity on mobile games.

JP: Where is this going to go in the future?

MN: We've not mentioned loyalty schemes (frequent flyer miles etc.).

JP: People could pay for game content via these existing schemes?

MN: We're doing this in Korea. Companies have such an inventory of this virtual currency that they need ways to get it spent!

KB: Skill gaming is a perfect example of this: a points-burner.

[ Is skill-gaming a euphemism for gambling these days? ]

EB: The item business model is the most efficient I know of: players get to spend what they want to spend. This will happen to every market. The idea that you pay a fixed price for your content will die: we don't do this almost anywhere else in our lives.

[ ? Aside from mobile tariffs, TV subscriptions, magazine subscriptions, etc. ]

Q: What about in-game advertising vs advergames?

MN: I've yet to see a good advergame.

EB: Advertisers want to advertise a product, not develop good games. If I had a product that women over 30 bought a lot of, I'd talk to PopCap.

Q: From the gamers POV, buying an item means more involvement. Isn't this the opposite of casual?

EB: In Korea they have a term "advanced casual games". They have play times of 5-20 minutes. e.g. "freestyle basketball".