SharkJumping

Just came back from the First ever Casual Game Conference in Bellevue.   The event was well attended, with over 400 people, and the mood was generally quite optimistic, with seemingly every company in hiring mode.  The market is currently in a rare early stage where all parts of the value chain are making money - the developers, the publishers and the distributors.   Depending on who you believe, the casual game market will be about $300M this year, which is around the same size as the mobile game market in the US.

People know that I believe very heavily in the growth potential for this game sector, but it's also clear that the market is about to shift, causing a lot of pain in the existing players.   What are the primary trends?

1. Increasing Development Costs - games used to cost $50-100K - now higher end games are crossing the $200K threshold.  There is no sign that the trend will slow down since certain higher end players will push it to differentiate their products.
2. Content Over-Supply - due to the low barriers to entry and current wide spread profitability, there are increasing numbers of market entrants in the developer/publisher sector, and the existing players such as PopCap and Gamehouse, all appear to be increasing their production.
3. Lack of Innovation - most developers admitted that they would continue to develop the same types of games that had worked in the past - there are only a few themes, and it seemed as if every possible variant on them (how many DinerDash clones can there be?) was in development.
4. Inevitable Reduction in # of Content Suppliers to the Big Distributors - the big 4 (RealArcade, Shockwave, Yahoo, and AOL) are going to begin to limit how many people they deal with, especially as the game supply increases from the large suppliers.  Greg Mills from AOL was willing to admit it - they want 4-5 large suppliers with large sets of quality content - the days will soon come to an end where small developers can do deals with the major players, just like what occurs in every market, including my former business, digital music, where smaller labels are now pushed into aggregator relationships such as with .  No one wants to have 200+ contracts to manage.
5. Prices will Generally Decrease - this is the more controversial opinion, but most players will privately admit that games are now mostly in the $15 range vs $20 retail.  There may be exceptions for higher quality or branded content, as the CEO from iWin discussed with their Family Feud product.  However, the fact remains that a large supply of relatively undifferentiated content tends to lead to price decreases, especially as the off-shore development options kick in - one attendee thought he could produce competitive games for $10,000 in Eastern Europe and he's willing to accept much lower prices to break into the market place since he has a lower cost structure.

So with all of these trends, why do I believe so strongly in this sector?  Stay tuned for the next entry