Russia is one of Valve Software's highest-grossing countries, says co-founder Gabe Newell. Indeed, outside of Germany, adds Newell, it is Valve's largest continental European market.
Russia? Is it really worth jumping some hurdles to penetrate that marketplace? Apparently, yes, according to those in the know. They enthusiastically recommend to developers -- especially those in the PC space -- that they consider putting in the extra effort to sell there.
"Russia is just like Germany -- a very PC-oriented game market that is today behaving a bit like an emerging market, like Brazil," says Peter Warman, co-founder and CEO of NewZoo, a Netherlands-based market research and consulting firm focused on the games industry.
"People there love PC games, especially free-to-play (F2P) games. So if you're in that sector, there's practically a guarantee of success. If you're in a different market, Russia may not be as interesting for you."
Warman estimates that there are almost 40 million gamers in Russia -- compared to a total population of about 140 million -- with about 25 million actually spending money on their gaming.
According to his research, 47 percent spend on boxed PC or Mac games, 36 percent on console games, 35 percent on MMOs, 29 percent on downloaded PC or Mac games, 26 percent on social network games, 24 percent on casual games, and 23 percent spend on mobile games. (The average Russian plays in 4.7 of these segments.)
And while only 50 to 60 million Russians have internet access, that is expected to increase to 80 million in the near future, creating a high potential for game market growth from the current size of the marketplace, which is about $1.5 billion (including an estimated $210 million spent on game downloads).
"High-quality PC games appeal to Russian gamers, regardless whether they are boxed games, downloadable, or played in a browser," says Warman.
But because many of those gamers don't have the budget -- or don't want to spend their money upfront -- free-to-play MMOs have a particular appeal because the gamers can start for free, and then either spend a little more on microtransactions or, according to Warman, "shell out ridiculously high amounts."
"Just as Russia is divided into really poor people and those who drive around in Ferraris -- with few people in the middle -- there is a big divide in gaming between those who spend nothing and a small group -- perhaps 10 percent -- who go over the top and can spend $5,000 a month within a F2P game," he explains. "It's obviously important to discover that very specific niche that caters to that latter group. You can see that reflected in, for example, the success of Wargaming.net's World of Tanks. That's why that game is making such a huge amount of money."
World of Tanks
What developers ought to avoid in Russia, says Warman, is the console space, which is extremely small and which attracts the most piracy, a problem for which Russia is well-known.
Indeed, according to Warman, 72 percent of Russian gamers admit to ever having used online file sharing to acquire PC and Mac games for free, which is the highest percentage in the world, compared to 64 percent in Brazil, 37 percent in France, 35 percent in the U.S., 30 percent in the U.K., and 22 percent in Germany.
"That is one reason why the local developers and publishers have embraced the F2P business model where piracy, of course, isn't a big issue," he says.
Warman also recommends releasing games in Russia and elsewhere simultaneously. Otherwise, he says, Russian gamers get wind of a game they don't have in their country and they seek it out and download it from a file sharing site.
"Russia's hardcore gamers are fanatics about having the newest, coolest stuff first," he explains, "and if it's not readily available to them, they'll find it someplace."
This is just what Newell said. "The people who are telling you that Russians pirate everything are the people who wait six months to localize their product into Russian. The easiest way to stop piracy is not by putting anti-piracy technology to work. It's by giving those people a service that's better than what they're receiving from the pirates."
For developers who want to take the leap into Russia, high atop their priority list should be signing on a Russian partner who is familiar with the territory and who can provide all the services that a U.S. developer would be hard-pressed to provide themselves -- especially localization and monetization. And, says Warman, the partner ought to have a brand that is well-respected among Russian gamers.
One such company that is a publisher, developer, distributor, and localizer is Moscow-based 1C Company, which is said to license and publish more than half of the popular Western video games, according to Wikipedia. The online encyclopedia describes the company as having over 700 employees, 10,000 business partners, 4,500 authorized retailers, 1,200 training centers, 200 authorized certification locations, and over 280 stores in 100 cities.
Without such a business partner, opening a local office in Russia "is a super-complicated and expensive venture. Only Electronic Arts has dared to do this and succeeded," says Nikolay Baryshnikov, 1C Company's VP of interactive entertainment.
"They are the only ones who can afford the sort of venture that is required -- an office with 50-plus people, an investment of millions of dollars, and a sales army capable of servicing over 10,000 retail outlets."
But with a trusted partner, a top PC game can sell several hundred thousand units, says Baryshnikov, who has seen some games sell well over 500,000. On the other hand, the console market still needs to grow and, he reveals, Sony and Microsoft "have some serious plans with local production, a move that should dramatically increase console game sales in 2012 and beyond."
Success in Russia requires a great game, solid marketing, "and a bit of luck, which is not unlike other marketplaces," says Baryshnikov. It also demands full localization into Russian; non-localized games sell one-tenth as well. Games that are badly translated and are obviously a product of some other country will not receive an enthusiastic welcome.
It also helps to know what sort of games Russians like: "Don't expect a fishing game to sell more than a few units," says Baryshnikov. "The same goes for golf and baseball games." War games and first-person shooters top the list of favorites.
He agrees with Newell and Warman that, in Russia, timing is everything due to rampant piracy: "If your game is released here one week later than in the rest of the world, expect to lose 20-30 percent of your sales. If it's two to four weeks late, expect to lose 50 percent of sales. Local gamers won't wait for a game; they would rather download a pirated version. So a simultaneous launch with the worldwide release date is absolutely crucial."
Similarly, local partners can provide monetization services that eschew credit cards in favor of cash payments made in over 450,000 local kiosks where rubles buy pre-paid cards to be used in online micro-transactions.
A typical monetization deal is the one Valve made recently with Xsolla, the Woodland Hills, CA-based payment solutions company.
"We have a team of 25 people in Russia who help connect those local kiosks throughout the country," Albert Donahue, Xsolla's VP and co-founder, explained recently. "This is a challenge, because they aren't owned by a few large companies, but by approximately 150 small ones. Often, a simple phone call just won't solve issues. Our team members are the actual boots on the ground in Russia for Valve, flying to different cities across the region to ensure proper implementation of Steam buttons on every kiosk."
One F2P MMO publisher that recognized the potential of selling into the Russian market is Irvine, CA-based GamersFirst, whose APB: Reloaded went into open beta earlier this year.
According to Rahul Sandil, GamersFirst' senior VP of marketing and business development, the decision to expand into that country came shortly after he noticed that nearly 20 percent of the traffic for the MMO was from Russia.
"We were quite surprised," he recalls. "We've been in publishing for nearly 10 years now and, while Russia has always been an important market, it never sent us that kind of traffic before. Then, when we went into open beta, we continued to see the same 20 percent traffic."
Sandil believes the game's popularity has something to do with the fact that it is an open world, third-person shooter, not unlike Grand Theft Auto -- which has been a very popular franchise in Russia.
The decision to expand into Russia was a simple one for GamersFirst, but coming up with a strategy for selling there wasn't.
"Although we're experts in monetizing and distributing games online in North America and most of Western Europe, we had very little knowledge about the Russian market," said Sandil, "and we knew very well how huge that investment and that process would be for us. We also knew how important community would be -- and how difficult it would be for us to manage a Russian community."
How then would the publisher find the right partner who could bring the game to the Russian market?
GamersFirst put the word out at the E3 show that it was looking for a suitable partner, and it wasn't long before the top five Russian publishers made it known they were interested the game.
"They were all very impressive, all had a good market presence, and all had very strong community support teams," recalls Sandil. "We eventually narrowed the list down to just two or three -- and finally, in October, we announced we had signed Innova Systems."
As a result, Innova will license and operate the game, localize it into Russian, and customize its monetization elements, making them more conducive to the local marketplace.
But the biggest challenge of all, says Sandil, is how well Innova's teams approach the community and deals with customer issues. How will they plan out things like content releases and how well will they communicate those plans to the community?
"It will be their job to face the customer, get their feedback, and pass that information back to us," adds Sandil. "If the gamers don't like a new gun we've added, for example, Innova needs to tell us so we can tweak the game. Unlike retail box games, a successful online MMO can have a lifecycle of six to eight years. That's how long we're going to need their ongoing customer feedback."
The plan is to have continuous sharing of information through weekly meetings via video conferencing and then face-to-face meetings at least once a quarter.
"We believe Innova understands that process very well," says Sandil. "They've had very successful relationships with other third-part developers and have done some phenomenal work with launching games like Point Blank in the Russian marketplace."
But, having signed Innova just two months ago, the two companies are still in transition mode, with the two engineering teams working together to transfer knowledge and data from publisher to localizer.
"They will soon start on the process of localization," says Sandil, "and we are expecting a closed beta launch in Russia in the latter part of the first quarter of next year."
How does he expect his non-Russian game will do in the Russian marketplace?
"It's hard to say. All I know is that I don't think we could have done this without a local partner," says Sandil. "Other F2P MMOs have done very well in Russia -- World of Tanks, for instance," he says. "But it was easier for them because the publisher -- Wargaming.net -- is based out of Belarus, a CIS country."
"I don't know any other F2P developer who is not Russian who has self-published in Russia, so there's no way to know how we would have done without Innova," he adds. "There's nobody who's tried to do it themselves and found that it doesn't work. I could be wrong, but I can't think of any examples."