Transition Years

If you read my blogs or listen to my talks you know that I held a talk 2001 where I described the 5 year cycle of the industry (PDF link, note: this cycle is longer)

Generally whenever the old console is aging and the new one isn't here yet several things happen:

1. Publishers close or fire people
2. Publishers take less risk and go conservative (sequels, less 3rd party development)
3. Developers close down as they can't sell their pitches to publishers
4. Magazines/Media closes as they are dependent on marketing spending

Some explanation here: most console games are sold to owners who own the console for the 1st year. In other words console sales influence the next 12 months game sales volume. On the other hand: less console sales mean less software sales for that reason. Check current console sales history.

So this causes a dire news coverage and you might take the impression away that we are in deep trouble. In fact we are not - we are in the best state we will be in the next 5 years.

The reason is simple: during that time called 'transitions years' the games industry is most creative and usually comes up with some new toys to play with. In the past transision years we had things like 3d hardware, CD rom, DvD, the internet & team based games and MMO's to drive new categories.

This transition we got smartphone/tablet gaming, or going digital generally which allows even small developers to publish worldwide: basically this fixes the problem #3 above for the next transition years, If the developers are adapting.

Transition years usually cause trouble for publishers or developers who do not adapt or do not want to adapt. It happens all the time as some of those companies start to be comfortable what they do and so they lose the lead.

But listen, we are the gaming industry. We live from innovation, from change, from new technology, from new gadgets and devices or software concepts. If you start to stand still and feel comfortable or want to be, then you are in the wrong industry.

Change is good. And 2013 will be the biggest change for our industry we ever experienced. Exactly that is the reason why I love this industry.

Online Marketing Lies

Online companies need proper b2b marketing. But they tend to confuse people who don't know a lot about the online games industry. Lets look at a recent example:

Innogames celebrates 100 million users and a revenue of 50 million this year (German link)

So investors are astonished. Wow. 100 million players. (Note: I like Innogames, I only use them as an example. Bigpoint does the same 'propaganda' thing)

No, no. Its registrations. LIFETIME registrations. And as Innogames has been founded in 2007 it means they collected 100 million registrations over the period of 5 years, resembling an average registration count of 2700 per day 54.000 per day (just one user noticed my calculation error? Shame on you!) Now that doesn't seem as much anymore is a lot. (calculation assumes linear reg numbers which of course is wrong, I simply use it to make a point).

This number only tells you one thing: their marketing is pretty good. That's all. It does NOT mean:

- they have 100 million players
- they have millions of players in one game anyways.

So lets look at the second number: 50 million revenue. That is very good. As they have 3 major games (Tribal Wars, Grepolis, Forge of Empires) you can basically assume most of the revenue is done by those games (neglecting their other games like The West etc.).

Grepolis is by far their largest, Tribal Wars WAS their largest and first success, Forge of Empires is their latest success. So we can roughly assume a revenue distribution of 3:2:1. Lets add 1 for the smaller games, i.e. 7 parts:

5 Million / 7 = 7.142 Million a share, or:

Grepolis: 21 million - or 1.75 million per month
Tribal Wars: 14 million - or 1.16 million per month
Forge of Empires: 7 Million - or 1 million per month (it was launched later)

Notes: Tribal Wars and FoE might be switched, depends how Tribal Wars suffered from the Grepolis launch. From my info it didn't suffer at all.

Now close to 2 million revenue a month per game is nothing special in the f2p space considering you operate world wide. Operating three good f2p games and making 4-5 Million per month is good. But its not perfect. There are iOS f2p games making 3x as much per month.

So I hope I put some of these numbers into perspective. Again, don't get me wrong. I like Innogames, I don't criticize them, I use them as an example. I just criticize the propaganda around f2p numbers.

Brain Lag

Sometimes you need a break. Even from Blogging. Wait and see.

Meanwhile google "transition years" or my "The cycle of the game industry" talk to understand whats going on these days.

Cheers.

MMO Account Security

Here is a great article by Guildwars makers about account securities:

https://www.guildwars2.com/en/news/mike-obrien-on-account-security/

I love his sentence where each word is a link to a security breach of a MMO company which I quote here:

But in recent years,a truly staggering number of game companies and web sites have had their account databasesbreached. These reports of security breaches — 77 million accounts, 25 million accounts, 24 million accounts, untold millions more — may seem abstract, too big to be real, but they’re obviously not

I agree that account security is a problem - but is it really necessary to put extra work on the player only because your security systems lack innovative concepts? Since Blizzard released the authenticator their account hacks were reduced by a large margin. Where is my Guildwars authenticator?

If you ask why spending money on account security then let me tell you that 60% of trojans on your PC are written to steal MMO accuonts - not your credit card or bank details. As MMO accounts are more worth these days than your limit on your credit card :)

Without words

Fly safe man!

iPhone 5

So the iPhone 5 was anounced. As usual Apple anounced price, preorder date and shipment date just under 2 weeks from the anouncement. I wish other companies could do this.

Am I happy with the 5? Well yes - no - sort of. Its a nice upgrade and I will love the taller screen as I read a lot on the phone (Facebook and Twitter). Is it a revolution? Of course not. I don't get why people on one hand criticize why Apple doesn't revolutionize the mobile market every year and on the other hand buy Samsung clones which suck.

I don't get people sometimes.

Does it matter? Well sort of. As people who buy Android phones might miss why iOS is special. Its usability is better in my opinion. The only area where other companies are left to compete is 'more' technology and lower price (which leads to less business).
With 'more' I mean larger screen, more memory, more CPU. But don't they understand that this is just the base of the experience. They forget that the operating system need to shine as well and thats where Android lacks - as Google doesn't seem to care. It is a search engine company after all. And as a Smartphone company you have lost control over that important piece of software.

In the long run it won't matter as it didn't with mp3 either: mp3 players are dead, its called iPod now. We call programs "apps" now. We call places to buy apps Appstores. So in 10 years it won't matter anymore. Believe me.

It is like that all hundreds of tablets iPad wannabes merely account for 9% of the internet traffic compared to 91% from the iPad. Its like that 70% of smartphone revenue share is owned by Apple.

But don't get me wrong. Samsung is important for Apple to push them further in the race envelope. How bad non competition can be you see on their standstil on iPods which they just re-engineer every couple of years.

My worst gripe with yesterdays event?

1) no new iMac
2) no new Retina 13" Notebook
3) No Mini iPad

Online Games are made of people

Sometimes life reminds you that the people you play with in online worlds - like Eve Online - are real people. Sometimes someone like this never comes online again.

Yesterday was such a day in Eve Online when one of the most important diplomats of my alliance went offline forever - having been killed in yesterdays attack on Americans in Libya.

Cheers mate, fly safe wherever you are:

http://themittani.com/news/rip-vile-rat

Angry Birds Friends

Now thats a cool feature of a Facebook Game by Rovio: playable embedded code (click on it)

Full Steam Ahead

Steam is market leader on downloadable PC games. Without steam you only do a fraction on digital sales on PC. The problem was that you had to ask Valve for permission and their review process is a mystery. When they say no - it meant no. No chance of reversal.

So Valve changed the way products enter steam and put the power into the hands of the community. YOU can now decide which game comes on steam. Well, most of the time.

Steam rejected an erotica game from Greenlight and then put a $100 fee on games which want to get published to hinder crap entering the system.

That still reminds me how console development works. You need some sort of control over content, otherwise your platform turns into a dirtpile.

That sex is not ok on steam but ultra violence is - that is an entirely American tragedy comedy.

WoW dies! Really! Help!

Ok. I lied. WoW is not dead. Recent reports from Activision financial states subs are down to 9 million, that was the number WoW reached in 2007.

Read again.

2007.

That was 5 years ago.

So why should WoW suddenly die. They got more subs than any other subscription competitors combined. They lost more subscribers than most competitors ever had lifetimes. And its normal. Pre expansion WoW always declines a bit. Wait until Pandas invade WoW and you see them all back "checking out the Kung Fu Pandas".

WoW is now old but still rocking. I don't see WoW vanishing for the next 5 years minimum. Reason is simple: most successful MMO's are still around. Even Ultima Online is still there and rocking on its scale. So don#t worry, WoW is a stable environment where you can invest your time.

Even if Guildwars2 had to stop digital sales as their servers became too full. Threatening WoW takes much more than a good game these days.

Gamebriefers

So some industry experts will answer oen questions every couple of weeks to be posted on gamesbrief.com.

Read the first one here:

http://www.gamesbrief.com/2012/08/should-pitfall-have-launched-for-free-the-gamesbriefers/

Cheers Teut

Console Market Installed base

Posting this for my reference (dynamic data)

Busy playing Guildwars 2

I am busy playing this wonderful Guildwars 2. Its great, it is one of the most beautiful worlds I have the honor to explore. For experienced online MMO players I recomend reading this:

http://www.destructoid.com/your-guide-to-guild-wars-2-232724.phtml

as it explains the differences between your usual copy&paste WoW clone and GW2. I might post more screens soon, but I usually spam my facebook friends with them.

So be patient with me until I update my blog - when I have time between Guildwars and Work.

2013 - enjoy 2012 as long as it lasts

You might have noticed that the frequency of layoffs in the game industry is increasing. Popcap, EA, THQ, Funcom, Sony and many more are firing people on all fronts.

Why? As noted in the last post the current sales of the consoles are declining. There are several reasons for it:

The technology becomes old
Remember the 360 has only 512MB memory while your PC already has 4GB upwards. Most current graphic cards have more memory than the current console generation. Hell, your iPhone has more memory and CPU power than the current console generation.

The market becomes saturated
That's harder to prove but older generations showed that new market segments can be penetrated by lowering the price. Now here is a problem: while older generations could be lowered as low as $99 the current one is too expensive to build due to the hard drive inside. Mechanical devices do not scale down in price as digital chips do. Of course they could put Flash memory inside - time will tell.

The $99 segment doesn't buy software
That's a fact which was learned by the PS2. As some of you know the PS2 lived longer than any other console system. It was still on sale while the PS3 already reached its peak. EA was still releasing new software on PS2 last year! The problem of course is the user base: if you save money to buy an old $99 system the reason usually is spendable income. So spending half of the console price on games is out of question. So that user base usually trades games, buy used or rent them.
No fun for software sales :(

PS1 sales by price reductions

Initial Development
So when the old generation behaves like this there is a new one, right? Well yes, but what it takes to develop software on them is rich: you need to redo your tool chain, rewrite a lot of code, optimize your engines to a new hardware setup.
Worse: as the hardware of the development kits isn't final the console is constantly changing underneath your game engines forcing you to rewrite a lot of code on constant basis.
Speaking of dev kits: these are very expensive at start, we speak of $10.000 upwards for one. If you need a team of 100 for a big game franchise you just spend 1-2 million  US$ without even having coded a single line yet.
So here we are, having spend millions on dev kits and have roughly a burn rate of 500.000 US$ per month for the ramped up team. But the consoles launch really late, maybe even get pushed late, costing us even more money.

These are all reasons why investing in new consoles is risky. But why do pubs do it then? Because the rewards are high. At start there are only a few games so you are all alone on the shelf in your genre if you are lucky. And your game will sell for 5 years - generating profit long time after the usual lifetime. And the start of a console generation is a perfect place to start new IP's which you can reiterate every year. One of these huge IP's can carry one publisher for years.

Whats why the publisher invest in the risky start of a next generation console. That is why they play safe on all the rest, reducing risky projects, firing people to save burn rate and betting safe by releasing sequels only.

But don't worry. Thats normal. And healthy. This pattern repeats everytime the console generation changes. I survived through 5 of these cycles so can you.

"The game industry is changing!"

I can't stand it anymore. I see people (who should know it better) hanging their faces into the press saying how our industry is changing this year and that everything will be different from now on.

First: this has been true since I am in the industry, thats 25 years (I joined 1987). Welcome to the ride. Thats most likely why we think the games industry is coolest (it never gets boring).

Second: we are in transition years. This means that the old console sales are declining and the new one isn't here yet. This causes a double negative effect on publishers: their revenue is lower and their investment into the next generation is very high. Of course they play conservative and fire people where they can to safe costs.

If you're interested into some of this industry cycle attributes read my very old (but most downloaded & copied) talk "The five year cycle of the games industry"

Does online change the industry? Of course, but online is here since 1997, so don't act surprised please.

Does iOS change the industry? Sure, new device, awesome reach, new revenue paths. But did iOS hurt the consoles? No, but yes for handhelds. iOS expands our market, it doesn't cannibalize much.

Sequelitis - bad or worse

Strange that Assassins Creed got criticized by having too many sequels. I have to agree 100% with Alex when he says that yearly sequels are ok, hell, I would even buy Assassins Creeds if they come every 6 months.

But what does make a sequel good for publishers? First it is a return of investment. If you got a blockbuster its easier and cheaper to develop the sequel as usually the tools and technology only needs upgrades - not a rewrite.

Also the risk is less as the sequel should sell nearly as well as the original right? Well from blockbuster data I have seen sequels actually outperform the originals - that happened to Call of Duty - Modern Warfare.

Speaking of CoD: they are milking the franchise even more by having alternativing teams on the IP. Not too bad either if they can deliver the experience and quality. I bought Black Ops and it was worse than the earlier ones. Did it hurt sales? Nope. So it seems that one title in a series with slightly less quality doesn't hurt your sequel plans - delivering multiple bad sequels does.

My question is wether a brand can be over saturated and destroyed. On this Gamescom Ubisoft anounced three Might & Magic titles at once. Customers might get confused but on the other hand each title adresses a different audience. While Might & Magic Heroes Online adresses the fans from the original the Champions card game is more casual (good for iPads?) and the dungeon runner adresses a slightly younger action RPG crowd. I am curious how those titles work out.

So: if you love a game series how much sequels would you manage to buy each year? One? Two? Or even more?

*Disclaimer: The above is Teut's personal opinion - none of this is official Ubisoft policy or statement

Pledge this

Sometimes I might post news about Kickstarter projects I find cool. this time its:

http://www.kickstarter.com/projects/659943965/planetary-annihilation-a-next-generation-rts



Its a cool RTS made by some folks who did TA. If you don't know what TA is or was, pledge anyway.

Thanx!

OnLive is "gone"

So its official: OnLive is brankrupt, or whatever it is called in California (Chapter 11? ABC?) but it is claimed that all rights, patents and assets have been sold to one individual - but all staff layed off.

So why did OnLive not work? Well first most developers I know never believed in it, even after they saw it. The business model sucked bad. OnLive did not solve a problem for our key markets as most of us have pretty decent machines and the core market buys digital. The markets which needs OnLive do not have strong machines and have a weak internet, thus OnLive doesn't work.

The markets with weak machines actually are mostly f2p online MMO markets - not careing about the games OnLive offered and the company weren't online in those markets anyways.

The lag issue was always discussed away but it really existed. Games which needed fast response were unplayable on it. Games which don't need it were playable fine. So why should someone pay monthly fees to rent games on that service?

Essentially OnLive was a digitzer service to convert 3d games to flash video.

Some reasons why OnLive didn't work:

1) infrastructure too expensive, dependend on high internet backbones only available in industry states
2) low income from users
3) scaling up the userbase is expensive as their hardware was complex

Note that online games solve #1 as they work in most internet quality networks (they are build for them) and also solve #3 as developing cheap server backends is part of the challenge. Therefore online games can afford #2.

Wait, did I just say online games have a low income. Yes I did. Considering most players play 4-6 hours per day for 30 days per month (=120-180h per month or full 5 days) for merely $10-$20 then yes, its damned cheap. Most people spend more money on their internet line than on the game itself. Hell most people spend more on beer than on WoW.

Anyway, my personal opinion: OnLive was already dead when they startet and I said that often enough. I am happy its gone as I no longer need to listen to the bullshit that streaming is the future. It's not.

So why did GaiKai sell for $380 million to Sony? Because Dave Perry is a brilliant man and Sony won't have any use for it. Believe me, if the PS4 will have streaming its either for backwards compatibility or will cost premium.

GC day two

I actually didn't go to GC on day two simply because the public area can be walked in two hours (which I did wednesday see previous post).

The business center  is as usual the most interesting part for industry progessionals but I preferred working on my mails and reports instead.

But I attended the wargaming.net party - which was a blast. I was home at 3:30am :)

Highlight: life performance by LMFAO. That act must have cost a fortune but the party was IMBA. As usual the best party in town, thanx Tom for the invitation!

The Anno and HMMO anouncements rippled through the internet and fueled a lot of discussions. Fans think that only because UBI does an Anno f2p game they stop developing retail versions. The fans might be wong right there.

Silly along those lines are statements from Electronic Arts where they claim that they will never give up retail and on the other hand claiming they will be 100% digital sometime soon.
This clearly shows that while some territories are moving to a digital markt fast (while others are already there like Asia), some territories want to stick to retail as long as possible.On the other hand maybe they release those statements only to calm down panicking retail chains.

My opinion: a flood can't be stopped by hoping the tide will change. 100% digital is strong (see iPhone app store) and has advantages for publishers and customers. Retail will be small in a few years.

GC Day one

GDC last day wednesday is problematic as Gamescom opens its doors as well. So some talks do not attract enough developers but the organizers made sure some highlights were scheduled on that day to fill the rooms.

So I walked GC as this was the only day I had time and I was shocked. A lot of room was left empty, some halls had wide highways free - so large was the distance between the booths. So what happened? Besides Nintendo & Microsoft not attending or having booths I guess the transition years shows its toll. The publishers have less revenue from the old console generation and the new one isn't here yet.
GC mirrors this. The show was clearly either online games or games with heavy community relations like League of Legends, World of Warcraft or Diablo.

On wednesday Ubisoft also had its press conference and finally anounced the projects I had the honor to work on with some of the best teams in Ubisoft Blue Byte in the free to play business. So here they are:

Anno Online - register for closed beta
Heroes of Might & Magic Online - register here for closed beta

So with these:
Silent Hunter Online
The Settlers Online

we will have 4 f2p browser games online
4 projects in 2 years. Growth  from 50 to 200 people. What can I say? Online games change the world.