The Analyst Primer

“But industry analysts say…”

Four little words that can make your investors squeamish, put you right in the middle of the hot spot in the market, or send the retail buyers to the phones to either double or cancel their big order of your game. But who are these analysts? Who anointed them the masters of the future and trends? Are they real people?

For most of us, the analysts are kept safely behind a curtain by overly-protective PR agencies. This primer is designed to rip that curtain aside and give a peek at who these people really are, what they care about, how they can influence our lives, and hopefully with all that knowledge in our pockets, how we can successfully influence them.

Why are they so damn important, anyway?

Analysts have two jobs: Write reports that a few people/companies pay serious money for, and to get quoted as experts in their fields, primarily so they can sell more of the aforementioned reports.

In the phylum of Analyst, there are actually a number of different classes. Each has a different focus and influences a different part of the game business, from communicating the overall health of the industry, to predicting how successful a particular company or even title will do in the market. At their core, they make statements with great authority about things that are essentially objectively unknowable.

These statements are consumed by the press who are looking for unbiased and credible sounding sources to counterbalance statements made by the companies that are obviously chock full of spin and company-centric bias. The dirty little secret in journalism is that even if a reporter knows to the tips of his toes that something is going to happen, or that an industry trend is going in a certain direction, he can’t make that statement directly unless it is objective and provable fact. But they can have quotes say almost anything. They need to have somebody else who sounds credible make the statement. In other words, a reporter can look outside, feel the crackle in the air, have his arthritic knee ache like hell and just know it is likely to rain. But he still needs to go and find Bob the Weather Expert to say so before he can put it in his piece. Notice, the label used was reporter, and not journalist. Columnists and Editorialists are free to pull anything they want out of their butts; it is just the reporters that have this restriction.

The other thing a reporter can’t/won’t do is use a company shill in place of an “objective” source. Your company President might get quoted, but it will be side by side with Mr. McExpert either supporting him or, more likely, giving a more cynical counter view. This need is why the vast majority of company press releases include quotes from either happy credible customers (theoretically a nice objective source) or some other analyst or expert. Smart PR people will have a couple of analysts that they have pre-briefed who they know like their company’s products, and are ready and waiting to feed to the reporters. As long as they come from a credible source, the reporters are usually happy to use them, because it means they can get their story done without the hassle of calling a ton of analysts to find out which ones are familiar with a particular product. The ethics are on the edge, but there are lots of stories to write, and most product stories don’t have enough controversy in them to justify the extra time for the majority of reporters. (…sounds off page of this writer being dragged off and beaten with AP style guides by his fellow journalists…)

The analysts also influence the lives of people in the gaming community when they do their primary function, that of writing reports about aspects of the industry. They are the grease that helps move business decisions forward. The interesting thing about business decisions is they always need to be made without most of the facts. It is impossible to really “know” what the sales will be like for a particular platform or type of game, or how much money will be spent on entertainment in 2003, or if people will flock to the latest video card. A successful CEO/President will have strong instincts and a sense of what is going to happen, that’s why you want them at the helm. But even the best can’t go in front of their boards or investors and just say “’Cause I said so…that’s why.” They look like crazy for analysts’ reports that confirm why the business will be good. This is particularly true when trying to raise money from investors who are traditionally skittish, or VC’s who want something to point at to cover them if their instincts don’t work out and the investment tanks, or even big companies filled with executives that need to be able to justify their decisions to their bosses. Nothing says safety net like being able to point to an IDG report and say “Hey, the analyst were sure that THIS was going to be the year of audio-only games.”

The Phylum of the Wild Analyst

Despite their tendency to gather at the same quoting holes, Analysts in their native environment tend to gather into very distinctive groups, each of which have very different needs and habits. If we approach them quietly we can get an overview of how they work in their native environment and a better idea of how to approach them without either scaring them off or making them angry. In this first article, we will look at the classes of Analysts in general. In the subsequent writings, we will delve into each of them, looking at their specific habits and observing some of the alpha members of each tribe.

Financial Analysts: Taking stock of, well, stock.

The first class is that of the Financial Analyst. These are folks whose purpose in life is to look at the financial health of an industry or company with the eye to providing research reports to investors in the stock market, usually institutional investors. They usually work for big investment backs such as Deutsche Banc Alex Brown and Prudential, although individuals can set up shop too, such as the UK-based Games Investor. If the investment bank analyst title rings familiar, such as the folks who just got in trouble for hawking Enron stock, that is right. These folks haven’t had that conflict of interest hit them quite yet, mostly because the game industry stocks didn’t go nuts like the rest of the bubble over the last few years. But the analysts in this area that are affiliated with financial institutions are feeling greater pressure not to be seen as doing anybody any favors, so be careful in trying to make ‘em your buddies right about now.

The Financial Analysts’ focus is predicting the health of a particular market segment or the prospects of a particular company. They will never give a quote that your new title is going to rock the socks off the planet. They might say that the trend for sales of sports titles is increasing, or if you are a big enough company, comment on your overall title and promotions mix. If you are at the top of a genre, they may use you as an example in a report, but if you are successful enough for that, you won’t really need the little boost of PR you’ll get from that. The value you can get from them with an individual title is indirect. They do talk to the press and other influencers a lot, and if you have a cool title, you can get industry buzz out of them if you get to be part of the answer to the perpetual trade show question “What have you seen that’s hot?” They also help provide the basic health of the industry or future trend data the can calm an angry Board of Directors, or help you calm a skittish potential investor in the company.

Financial analysts are usually MBA types, with strong numerical and statistical backgrounds. That means they often believe that trends can be predicted by applying economic and statistical formulas to their crystal balls. Their big need in life is to be the expert in their field for the folks back in the office. They all share the financial analyst background, but they get sent out to the trade shows and on the phone to learn the industry as much as possible. To be valuable to them is to be a resource to help them understand the industry and trends better than anyone else. However, one very, very careful caveat in dealing with them is to never give them something that could be considered insider information. This puts them in a very difficult situation. Instead, invite them to briefings; give them all the press materials side by side with the press. To differentiate, spend more time with them showing them the games or explaining the information that has just been disseminated.

The Men Working on the Retail Chain Gang

The next classification of analysts is the Retail Analyst. They are the group that tracks the retail chains. These folks serve at the pleasure of one of the most important groups in our world, the buyers and merchandisers of the retail stores. These are the folks who will decide how big an order to place for your title and whether to highlight it in that Sunday circular. They do care about how cool your game is and if there is going to be a market for that type of game at all. They are also sniffing all around your butt to see if you smell like a winner. For them this has a lot of aspects, beyond the coolness of the game. They are looking to see how effective your packaging is so they know if it will jump off the sheves. They want to figure out how good your press coverage is likely to be and when it will hit relative to the sales cycle. And they want to know how much you are planning to spend on marketing and how effective that campaign is going to be. They’ve seen lots of great games in the $9.95 bin.

The retail analysts (Retail Analysts) are a combination of ex-marketers and journalists. They spend their lives living around sales types, so they have high level BS detectors. They also don’t get treated as well as a general rule by folks who aren’t in sales or retail channel and this bugs ‘em. Whoever talks to them should treat them with the respect that comes to someone who holds one of the keys to your sales order. And the pitch should be not just why is the game cool, but how you guys are making it so customers jump out of their Barcaloungers to go to Wal-Mart and get it. Probably a team of the product guy and channel/sales guy would work best. Just make sure they pretend to really love and respect each other for this meeting.

This particular group has been having a very hard time in recent years. There are a number of publications for the retail chain that have gone out of business. This isn’t because the retail chain doesn’t want information, but they are getting it in other ways. “There are much fewer publishers these days.” says Karen Conroe, a Group Brand Manager for Ubisoft. “So the retailer buyers get the information directly from the source.” According to Conroe, the junior buyers tend to watch the game industry websites, but the senior buyers often won’t even do that. “It’s brutal. The senior buyers go on their guts. They want to see your marketing program and don’t even want to look at the game unless you are pitching it as a technology innovator as it’s big sales edge.”

The one type of analysis that has proven of perpetual value is typified by The NPD Group (www.npd.com). Their main claim to fame is a gathering of the sales figures from a collection of sources and presenting them both in current and historical form. The theory is last years sales are as good an indication of the future as anything else. They also provide analysis based on these gathered figures. The big challenge, of course, is the largest retailer in the country, Walmart, does not share their sales figures as a matter of random principle. (Nobody can figure out why…we think they’re just being snooty.) One of the best measures for the accuracy of figures like NPD is comparing them against your own sales figures. “We found our figures could be off their estimates by as much as 30 percent,” according to Conroe. “But these numbers are very valuable to us. We are the experts, we just need the data.” she said.

The Trendy Analysts

The next class of analysts is that of people who make their entire living off of predicting the trends in the wonderful world of technology business. These folks are usually offshoots of editorial outlets and so tend to be ex-journalists. They tend to produce two types of reports: overall industry sales trends, and technology predictive reports. The primary consumers of these reports are industry executives who don’t necessarily know about a particular area and need to be educated, and managers who are preparing MRDs (Market Research Documents) to help justify building a particular title or technology product. The rational is that since there is no advertising with these reports, there is no pressure to be anything but brutally honest. All the funding for the reports come from their high price tags, or the yearly fees paid by large institutional subscribers.

The irony is they will give out these reports, or at least the top level of them to journalists like water. The more often they are quoted, the more the credibility of the reports are raised and the more subscribers they get. The big dogs in this group are IDC and IDG. (Actually, IDC is owned by IDG these days). IDC is IDG’s research arm. Their main game industry analyst is Schelley Olhava. Her official title is Sr. Analyst Consumer Devices, and she comes from research background at a big company, and spends as much of her time covering home networking and games. Like most of her peers, when you read her bio, a big portion of it is dedicated to showing how much she is quoted by impressive sounding press. This is the analyst’s equivalent to “publish or perish” in academics. The types of publications IDC puts out are Trend reports, news flashes and user surveys. The prices range from $4500-$1500, but since the latter price can be attached to things as small as a one page news flash, clearly the focus is on getting your company to subscribe. Companies such as IDC cover huge areas of the business community, so even finding game coverage specifically can be a challenge to navigate.

One of the most respected Analyst groups in the game space is DFC Intelligence (www.dfcint.com). This is a much smaller group, but they are dedicated to doing trend analysis of the game industry as their primary focus. Their president, David Cole, is actually an ex-lawyer who started the group in 1994 to focus on the game area. “I became convinced that it [the game industry] had some of the greatest growth potential of any of the "new digital age industries,” Cole says. “We currently have seven people and generally run anywhere from five to ten. We use a lot of freelance work. The type of backgrounds we look at varies greatly. We have had quite a few MBAs, ex-industry executives, as well as journalists. The hardest thing to find is someone that has a research background, analysis capability AND writing capability.”

They spend a great deal of time talking to folks at all levels of the game developer/publisher food chain. To be successful with them, they want people to be straight and understand their business. When they talk to developers/publishers “We like to get real insight about their business and where they think the industry in general is going” said Cole. “What we don't like is people contacting us, pitching a lot of hype and not seriously understanding what our coverage is about. We are pretty good at reading through hype and are more likely to be responsive to someone that is also willing to be honest about their business and products, warts and all.”

The Game Industry Analysts

The gaggle that describes the Game Industry Analysts is very interesting indeed. These are the folks, some gamers, some ex-journalists, and some misc. who have hung up shingles to create what they each hope is the gamer and game industry professionals first destination. Their goals in life are quite different from the previous groups of analysts. “The number one goal of game sites is to drive traffic; the number one goal of the rest is to protect their credibility” according to one industry executive we spoke to. The revenue is primarily generated by advertising, as opposed to direct selling of their reports and commentary for high price tags. This means they are quite susceptible to the standard pressure from advertising to editorial, particularly in these exceptionally difficult times.

The big players are IGN.com and Gamespot.com. Both focus on the industry from the point of view of the advanced user, which also happens to work for industry executives. The products advertised on their sites are game titles to the consumers, but the industry execs tend to got to the sites on a regular basis to check and see what’s going on, and the editors of these publications are often quoted as experts in the mainstream press. Gamedaily.com is more focused directly at game industry folks, with primarily a news and update focus. You can tell by their advertising, which can range from a Nintendo Gamecube ad to the latest version of Maya. They don’t do a great deal of analysis, acting primarily as a pass through for press releases and updates.

Everybody else into the pool...

There are a few other classifications of Analysts that are too small to put them into their own class. The first are the Culture Analysts. These are the folks who usually give the games industry a terrible name in the mainstream press. They include people like TV analyst Robert Thompson, director of the Center for the Study of Popular Television at Syracuse University, and Faith Popcorn, author of the Popcorn Report, who bills herself as America’s Foremost Trend Resource. (I have to admit, sometimes when you run across things like this, it seems like each specific Analyst title belongs to whoever claims it first and can defend it, like some sort of opinion-based game of king of the hill.) These analysts often create news by releasing some shocking statement to the press as one of the conclusions from their most recent study. The academics tend to spend lots of time working on a particular issue, and get their moment in the sun either when they publish or when their area of expertise is the hot topic of the day. The Culture Analysts are looking everywhere for ideas of what is hot, and are in some ways, insatiable consumers of new notions. Therefore, they are worth finding and making friends with. They probably won’t care about your particular title, but if you can feed them good ideas for a while that aren’t directly related to something in your interest, they are much more likely to be willing to listen when you try and pitch them on why what you are doing is representative of the next big trend.

Another group that is anointed experts and quoted as analysts is that of the Book Author Analysts. An example is Steven Kent, author of the Ultimate History of Video Games or Johnny Wilson who co-authored a competitive book, High Score. Write a book on a particular subject, and you are golden as a quote source on that area. Authors like Kent and Wilson can get quoted on any area in video games because their books were so broad. If the story is about Microsoft or Nintendo, the authors of books on those companies will get hit first. Book authors are just folks, usually journalists or industry types that went for it. They don’t get pitched on new things nearly as much in that context, but are still part of the group the journalists are likely to ask what is hot at a show. Even if they don’t have a particular story or direct way they can help you, they are still worth spending time to get excited about your stuff.

And finally, there are the Industry Luminaries. People like Trip Hawkins or Alex St. John. They’ve been in the industry successfully doing what they do for long enough that their opinion is now consider analysis. They give their opinion with great confidence, do the speaking circuit with a number of the journalists, and give great quote. It is worth trying to get them on your side, but it is very difficult. These guys have both seen and pitched it all. They will smell it coming from miles away and hand you your butt on a platter if you blow it.

Almost time to get off the couch…

All these classes of individuals share a common thread: they inhabit the speakers lounge at conferences and get asked “What’s hot?” by all the really interesting press. The best way to know how to deal with them is to remember where they come from. Financial Analysts are statistics and numbers people who need to go back to the office and show how much they understand the games business. Don’t give them tips, it gives them nightmares. Just help them “get it.” The Retail Analysts care a lot more what you are going to do to make the product sell than how cool it is. The Trend Analysts are reporters at their core, with a few statistics people thrown in. Don’t worry about the stats people, you can’t influence them anyway. The rest are basically reporters that get to state their opinion about how things are going to unfold. They want as much scoop as you can give them, but they have good BS detectors.

The Game Industry Analysts are the ones who you can not only swear in front of, but will think you’re being a suit if you don’t. They are gameheads, or they wouldn’t be doing this and do care about how cool your game seems. They also get pitched constantly, and have good BS detectors. They also are dependant on you and companies like yours for the advertising that keeps them alive. Don’t rub their face in that, since they are struggling with the age old separation of editorial content and advertising, but it does mean that they want to see you do well and make a successful game. The more of those out there, the more ad dollars in the pot.

The most important thing to remember about analysts is that their influence almost never comes as a direct result of a single conversation with them. They need to be nutured and tended so when the moment comes and they are asked what they think, it will be something good for you. And that’s what’s important in the final analysis.