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Four publishing challenges the game industry isn't ready for
Venture capitalist Mitch Lasky of Benchmark Capital says very few video game executives have a good grip on the revolution of our industry's publishing rules -- he outlines four new challenges.
March 19, 2014
6 Min Read
The game industry's approach to publishing has been completely upended in recent years, and some of the big players have lagged behind. Publishing games now has an entirely new set of challenges than it once did, and everyone bringing content to market in the games business needs to make sure they're ready to face the new choke points in the process. Venture capitalist Mitch Lasky of Benchmark Partners cites Jonathan Knee's 2011 Atlantic article "Why Content is not King" to note that the media industry's dirty secret is that content aggregators, not content creators, overwhelmingly drive financial value in business. Mitch Lasky's Benchmark Partners is a venture capital firm that invests in the video games space as well as some general tech, and he says some sectors of the industry have a lot to learn from the way publishing models changed over the last decade and a half.
The Old Way: Scale rules
In the 20th century publishing model, ideas vetted by experts led to a pool of presumed-viable IP that entered production; the manufacturing process that followed was something of a choke point where advantage was given to publishers that could leverage industrial scale and, through distribution and marketing, target the right buyers. "The principal value was scale," Lasky explains. "You were trying to create economies of scale through industrial processes, and you had creators who, by putting their IP into this mix, would come out the other end with very little of the money associated with that process, but at least they got access to this enormous mass scale." Authors once relied on enormous industrial chains to bring their work to their readers. By contrast, a 100-person game team needs aggregated capital to even begin to do their work; significant capital is required before revenue even becomes a possibility. The rise of television also faced problems with scarcity around channels in a similar way to shelf space in retail business -- "as a result, you had huge economies of scale created around the production and distribution of IP through these networks," Lasky says. On the distribution side, pick, pack and ship businesses are enormous in scale. In the movie business, 35mm prints for 3500 to 4000 theater openings costs seven or eight million dollars, and not just anyone could access the theater itself as "retailer". You had to be able to convince people you would make use of a scarce resource -- screen time -- to earn enough return. In the old days there was no way to directly access audience, so the capital and scale to mass-market were also necessary.
The New Way: Aggregators and curators win
Less gatekeeping creates different funding options for creators, he explains. "You can get content to market with smaller teams, those teams require far less capital -- King's Candy Crush probably cost only a couple thousand dollars to make, and now has billions in revenue and reaches hundreds of millions of people around the world." The production end is democratized by other funding choices like keeping teams smaller, using crowdfunding or getting investment as a small company. And as for distribution and marketing, publishing on places like Amazon or the App Store is comparatively simple, and allows creators to access consumers directly. Marketing is more efficient as well, thanks to marketing through community and the micro-targeting that's possible thanks to ad networks and channels like YouTube. All of this makes the environment more accessible, but also more challenging, and ultimately enormously different from the old publishing model. "There's four new choke points in the current market that have arisen as a result of this migration to the 21st century publishing scheme," Lasky says. Now, the obstacles are discovery, customer acquisition, engagement and monetization. Many people think retention is one, but that's sort of a "false god," Lasky suggests. "If your game is engaging... that is effectively what enables you to retain. I think the idea we should be obsessing over retention percentages is absurd," he says. "If you can create really passionate engagement around an IP, it has value way beyond its retention significance." The new retail shelf is a packed app store, with thousands of new games published every month on iOS every month, "an appalling amount of noise in our business." The old console business feels pastoral by comparison -- the days when companies could time their releases to make sure very little like them would be available are long gone.
The problem with those 'cost per install' user calculations
Begging to get featured on the App Store works, although it's not a sustainable solution. The scammy elements of the games business may center on "customer acquisition", but gaining new users is desirable. Focusing on CPI -- cost per install -- has led to a poisonous way of thinking about games. Trying to evaluate whether the short term cost of acquiring a user is going to be worth the time and money they spend with the project is troubling and ineffective, Lasky suggests. "There are companies out there, like Supercell, like King, who have that math going, and they can justify that kind of spending," he says. "Candy Crush Saga is not a viral phenomenon. They spent $400 million in marketing to get that game going. That's probably ten feature film launch budgets, from a marketng perspective," he says. "I think this is a poisonous aspect of our business, but it's perfectly understandable why that's happening." And that means you can't create sustainable engagement around a flywheel. You're competing for "share of day" with YouTube, Snapchat and other distration tools. "There's probably more micro-consumable information available to us than there has ever been. There is engagement, and ther's 15,000 people watched the League of Legends final in person," he says. "This is the definition of an engaged community." Free to play games selling virtual items now monetize at four times the rate of equivalent paid games, he says. "There's just no going back at this point: F2P is so interesting for a number of reasons, obviously because it's essentially a marketing strategy more than anything else. It's not really a business model, it's a marketing strategy: You're telling people 'try it, you'll like it.'" "The other great benefit is it has an elastic pricing curve," he says. Someone who is so into something that they'd spend a thousand dollars on it can be monetized to that extent, and people who are only slightly engaged can spend only a small amount. "It's hard to argue with the likes of a game like Candy Crush, that's going to do a billion-five in revenue by creating more complicated puzzles and frustrating you and making you pay to get past them." The world's largest video game company isn't Sony, Nintendo, or anything like that: It's Tencent, Lasky says, the umbrella under which companies like Riot, Epic, and many others now lie. "Oddly, in the West, no one's paying attention to this. Very few video game executives would be able to unpack what's going on with it, but this is the most interesting thing that's happening in our business, and also the scariest," Lasky says. "And I think that this points the way to the future of publishing."
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About the Author(s)
Leigh Alexander is Editor At Large for Gamasutra and the site's former News Director. Her work has appeared in the Los Angeles Times, Variety, Slate, Paste, Kill Screen, GamePro and numerous other publications. She also blogs regularly about gaming and internet culture at her Sexy Videogameland site. [NOTE: Edited 10/02/2014, this feature-linked bio was outdated.]
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