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Independent game studios have the tendency to revert from publishing partners on digital distribution channels. However, there are some significant benefits to partnering that I will try to shed light over here.

Joost Rietveld, Blogger

May 10, 2012

7 Min Read

“We do not write a marketing plan, marketing doesn’t work.” – Indie developer in recent email conversation

Independent game studios have the tendency to revert from publishing partners when it comes to commercializing their games on digital distribution channels. Doing it yourself is implicitly assumed by adopting the label ‘independent’ and has certain obvious advantages such as (creative) freedom and greater revenue per unit sold. Further, with the advent of Kickstarter funded development projects, the need to work with other companies within the value chain is shrinking every day. The routes to market small firms should take to commercialize their innovations is a hotly debated issue in strategic management research. Bypassing publishers and offering your game directly to the gamer seems like a no-brainer in this digital era. However, there are some significant benefits to partnering that I will try to shed light over here. While not trying to turn my back towards the indie community, in this article I will put forward some reasons why the publishers aren’t ‘dead’ yet.

Adding value through certification and complementarities

“We have 300+ email addresses from press contacts that we can contact. Obviously, only 2% of those people react on your message, so this is not valuable.” – Indie developer in recent email conversation

Great games are being released every day, whether it’s on iOS, Android, or Facebook. What makes games successful however is the effective deployment of certain complementarities such as marketing capabilities and a solid reputation that signal to gamers the quality of the game without having to play it. With over 4,000 games submitted to the App store every month commercial success unfortunately doesn’t rely solely on whose game is the best. Consumers are confronted with huge information asymmetries in selecting the right games to download. You as a developer perfectly know the quality of your game, yet your players-to-be, or relevant gatekeepers such as reviewing media and platform owners for that matter, do not. Partnering with a reputable and/or capable publisher can be a valid way to reduce this uncertainty with the people that eventually determine the success of your game.

Perceptions of quality with prospect consumers or gatekeepers are positively influenced by the reputation of the developer/publisher. When your reputation is low, i.e. you did not have any Top 3 games before, you do wise by teaming up with a reputable partner. The positive spill-overs from your partner’s reputation work two ways. Firstly, the aforementioned consumers and gatekeepers alike see the act of partnering as an endorsement from the partner and since his/her reputation is at stake, the game must be of high quality. When your game is picked up by Chillingo, the publisher behind Angry Birds, this is a relevant pre-selection in the eyes of gamers and reviewing media. Secondly, a successful game’s reputation is transferred back to the developer since people now associate that success with the companies behind it. Positive reputational spill-over effects from a successful game can be used for subsequently (independently) commercialized games. OMGPOP is now using their reputation from the massively popular Draw Something to attract attention to some of their other, less well-known games such as Boom Friends and Puppy World.

Routes to market based on reputation and complementarities

Fail 2

Reputation alone won’t do the trick though. Many independent developers seem to live by the perception that, now that barriers to publishing have been eroded, established publishers don’t add value anymore. Publishers add value through their exploitative capabilities. These complementarities are embedded in strategic direction, relationships with gatekeepers and knowing how to use them effectively, a large portfolio of content through which cross-selling of content can occur, and marketing communication skills for presenting games in the best possible light. Having 300+ press contacts is a good start, however knowing how to approach and maintain relationships with these persons is what gets you good coverage. Practically, publishers enhance the chances for higher review scores; in-depth coverage by media; features by platform owners; and, a better capitalization per unit sold. With the eye on the latter it is important to involve a potential partner well before your game is finished as strategic development issues regarding business models can have a critical impact on your income.

Capturing value from sharing revenue

“We don’t work with publishers because they cannot guarantee success at all. We can consider it, but then they have to come with a very good deal!” – Indie developer in recent email conversation

Unfortunately, publishers don’t work for free. In most cases they capitalize on their reputation and complementary capabilities by demanding a revenue share anywhere between 10 and 50% and possibly want to include a cost recoupment clause in the contract. Developers often operate independently because they neglect the added value of the publisher and merely focus on the revenue they have to give up instead. Rather than being envious of the seemingly disproportionately high revenue share, developers have to take into account the additional value created by partnering: a greater chance of selling more units in addition to higher monetization per unit sold. These are valuable additions in an environment where 85% of the games don’t manage to move more than 1,500 units. What is left is a simple, albeit difficult to accurately perform prior to commercialization, calculation where the added value from partnering is offset by the loss in value appropriation per unit sold.

Fail 1

Value creation and value appropriation from partnering

Consider the following hypothetical example. Developer X decides to independently commercialize her game. The game sells for £0.69 GBP throughout its lifecycle, grossing approximately £0.50 GBP per unit sold after platform fee deduction. The developer sells 20.000 copies, appropriating £10,000 GBP since 100% of the value created is captured by the developer. Now, in a hypothetical scenario, the developer reverses the wheel of time and decides to commercialize the game through a partnership with a publisher. The publisher is confident and promises to dedicate time and money to the project, and in returns asks for 30% of all value created. The developer now only receives £0.35 per unit sold after platform and publisher fee deductions. However, by pooling capabilities more value is created through effective publishing and reputational signalling (on top of that great game). As a result the game sells 40.000 copies grossing £20.000 GBP cumulatively. The developer appropriates £14,000 GBP, 40% more compared with the independent strategy despite a lower value captured per unit sold.

Final thoughts

These are top-level indications of how and when a publishing partner can add value to the commercialization of your game. Needless to say, there are complexities in finding the ‘right’ partner and dealing with the practical issues of revenue sharing. Notwithstanding these complexities, I believe there are solid reasons not to bypass the publishers independent developers are increasingly declaring ‘dead’, or more mildly, of little added value. We occasionally see and read about independent success stories on digital distribution channels such as Tiny Tower or Triple Town. These are fantastic games commercialized by independent development studios. However, let’s not forget that these games represent only a fraction of the total population of games available on the digital channels and that they have been marketed by teams that invested heavily in getting their commercialization complementarities on point.

 

May 31st I am speaking at the London Digital Shoreditch festival. My talk ‘The Publishers are Dead?! Lessons from Digital Game Distribution’ is part of the Play Summit and will extend on the thoughts displayed above.

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