SharkJumping

Grand Theft Auto: LIberty City for the PSP - just buy it.  I don't do a lot of console reviews, but this is far and away the best game to come out on the PSP, at least if you're not a puzzle game guy into Lumines.   It has all of the unbridled feel of a standard PC/console GTA game, while still taking into account the control mechanisms and screen size of the PSP.  The story line appears to be deep enough to make the purchase worthwhile while the usual massive set of side-stories/tasks is also available, and this is even before trying out the multi=player options.  I have some issues with how Sony has fumbled the overall video and audio opportunities of the PSP so far (vs what the iPod is becoming), but this game starts to finally show off the amazing capabilities of the device as a pure game machine, and kudos to Take2 for creating an unexpectedly strong version of this franchise.

I can't decide if this is Halloween scary or April Fools funny, but a company known as Digital Music Group (I have linked it, but there is no active web site - presumably they will fix this before they go public, at least if they plan on communicating with shareholders) filed an S-1 this month in order to take advantage of the hype surrounding digital music and the "long tail".  DMG is the name of the shell company which acquired a small 20 month-old digital music aggregator called Digital Musicworks International, and then acquired the digital rights to a set of music recordings from another entity called Rio Bravo Entertainment LLC (www.psychobaby.com)

Digital music aggregators act almost like record distributors in the physical world.  Since there are thousands of independent music labels which want to offer their content through the digital (e.g. iTunes and Rhapsody) and mobile (e.g. Moderati and Infospace Mobile) services, aggregators fill in the gap, becoming the single point of contact representing tens or hundreds of smaller labels to the larger music services.  The "long tail" theory of it is that the unlimited shelf space of digital services will allow all of these small content owners to monetize their recordings, and any company which can facilitate that process is bound to do well.

However, it's a slice of a slice business, as many distribution businesses are, and they tend to need massive scale to overcome the very small margins.  My best guess is that DMG is probably 5th in size in this sector - the other bigger ones are The Orchard, IODA, Digital Rights Agency and Iris, and there are no signs that any of them are going public any time soon since the entire group probably does $20M in annual revenue.

So we're left with a 7 month old company with 10 employees (reduced from 15 three months ago), $224K in revenue for the 1st 6 months of 2005, a 9% gross margin (sounds like Loudeye as we discussed in an earlier post), and a brutally competitive sector with multiple larger players where all of the leverage is held by the music services such as iTunes, which currently accounts for 80% of DMG's revenue.  The idea that this company is going to go public is clearly ridiculous and dredges up bad memories of MusicMaker from the last bubble.

On the heels of Gizmondo's US launch this week (profiled here), comes news from industry site GamesIndustry.biz that the recent top level executive resignations were allegedly due to their ties to the Swedish Mafia.  First question is: "Who knew there was a Swedish Mafia?"  Second question is "Will Gizmondo release a new game called Gizmondo:  Grand Theft Company"?  Third question is "When the execs said they were leaving to pursue entrepreneurial ventures, did that mean loansharking (Gizmondo allegedly borrowed $21M from the execs) and extortion (imagine the possible repayment terms - see the Torpedo below)?

But it's really too easy, so I'll stop there, but you have to read the article - hiring the Swedish Mafia's Debt Collector (aka "Torpedo") to be one's head of security is certainly creative HR.  This situation is now moving past both the Infinium Labs and Acclaim sagas to claim the top reason to believe the video game business still hasn't fully matured.

However, the stock market today reacted by driving the price up 11% to a $450M valuation, thus giving pause to those who believe in the market  "papal infallibility" test - again, company moving to zero...

Tiger Telematics (TGTL.PK) launched its mobile/game console/GPS/camera/toaster on Monday in the US.  As I mentioned in an earlier post about the aptly named Phantom console, it's extremely difficult to successfully launch a console - in fact there are about 4 examples of it in the past 15 years, from Nintendo, Sega, Sony and Microsoft, while the ground is littered with failures- the key common denominator is that there are no start ups in that group.  At Sega we launched the new Dreamcast with a $100M ad campaign, a powerful box which lost money on every sale, and a very well recognized brand name, and still got our doors blown off by the other 3 players, primarily due to the enormous costs involved.

You noticed that I haven't reviewed the device because it doesn't matter what the device does, or what it costs (although it's too expensive).  Content-driven consoles don't sell themselves - that's why the Big 3 spend hundreds of millions of dollars on marketing, have massive distribution organizations, and still lose tons of money in the early days.  Gizmondo they would have distribution across all 50 states this week, but the corporate site today shows it being sold at retail in only 10 states, with the entire state of CA having only 4 retail locations, none of which are in the Bay Area - clearly not a nationwide roll out, primarily because it's incredibly expensive to do.  The games seem fine (although I haven't played them), but there don't seem to be any breakout titles, and even the addition of a couple of EA games won't solve that issue, as Nokia found out with N-Gage.  Given the competition from the Sony PSP, Nintendo DS, and ever increasing power of standard cell phones, Gizmondo is going the way of Tapwave.

Based on all historical data, there is little chance that Gizmondo is going to succeed - the stock price is finally dropping towards reality, with a 75% drop in the past year, but the company is still worth a laughable $350M+ - To add to the fun, two Gizmondo executives, including its Chairman, last week to pursue "other entrepreneurial ventures".  Finally, the company lost an incredible $163M in Q1 2005, leaving it with less than $1M in the bank and $63M in short term payables.  Short it if you can borrow it and remember not to invest in start-up console companies.

3 Rings, the team behind the popular casual massively multiplayer game Puzzle Pirates, is raising a venture capital round to expand the company's product line and to increase its marketing efforts.  I invested in the company's angel financing round and joined its board a year ago.  The reason was that I believe that 3 Rings represents the best bet for the next generation of casual games beyond the $20 downloadable category - these are multiplayer games driven by virtual item commerce, similar to what we've already seen in the vibrant Korean market.  Much of Puzzle Pirates growth in 2005 has been driven by the introduction of virtual items and they are going to build on that knowledge in the next generation of products.

Given that CEO Daniel James and his team have spent 4 years learning the unique ins and outs of this new sector, I'm confident that they have an opportunity in front of them to produce an entertainment company with greater growth prospects and higher margins than those in the traditional casual game category.  In addition, the team had been very capital efficient, moving the company to break-even status before going out for this round, which is an accomplishment.  Now it's up to us to convince venture investors of the same thing.

Time Warner's business unit Turner Broadcasting launched an ambitious subscription game effort today called   It currently offers 300 games, ranging from fairly recent PC games back through early  console and arcade games, for a monthly price of $14.95, and backed by a large $50M ad campaign.

The good news:  The GameTap client is about 30MB and takes up a reasonable amount of the processor cycles when it's open.  It's graphically attractive, the games are organized in logical categories and it's fairly easy to search them.  The team has done a nice job on the overall interface, providing standard keyboard alternatives to what were usually joystick-enabled games, with clear instructions and parental controls, as well as some fun features like high store registration and bonus material.  Although it's unclear from the site, one can test the system for a period of time before being asked for a credit card.  Otherwise, it's a 2 week trial followed by the monthly fee.

The bad news:  If this was the beginning of a 3 month soft launch before going "gold", I'd say GameTap is in a decent position as they continue to build the content library and test price elasticity.  But this IS the gold launch with the accompanying ad campaign, and I don't believe the service offers the type of value that will attract enough subscribers.   

The content is all over the map, with an almost needle in a haystack mentality, but missing many of the core Nintendo and Sony PS games which define great experiences of the last 10 years.   It looks like certain publishers such as Atari and Ubisoft have licensed a lot of their games while others really have only a few of them.  And where are the casual PC games?  These would be the most logical ones for this service vs offering up 10-20 year old arcade games which were reasonable in their prime, but have been far surpassed in recent years.

The download/activation times for the smaller earlier games are in the sub-one minute range, but any recent game takes essentially forever to download - so far, my two choices have both failed in their downloads after 1 hour each - they have to figure out a better way to do it since leaving this somewhat large client open solely to download games is a little bit painful.   In addition, I can't yet figure out how to save progress in games - maybe it's only in certain ones, but if I can't save, then it makes little sense to play anything except much smaller games.

Overall, I'd say that the current offering is not worth $15/month - if the company can fill out the catalog and work through some of the bugs, then I think they may have a reasonable service, but as a pretty big gamer, I wouldn't pay $15 a month for this offering vs all of the alternatives in the marketplace.

Due to my previous job at Listen.com, we listen to music exclusively through Rhapsody rather than on CDs, but it's piped through a variety of Digital Media Adapters (Linksys, SMC and Omnifi) into the stereo and home theater systems.  The issue I have run into over the past two years is that there is so much interference over Wifi that the music will pause or totally drop every hour or two - sometimes the DMA restarts itself and other times you have to go do it yourself.  This is a big issue for digital entertainment (and for VOIP) since minor packet dropping does not matter so much for email, but for any type of synchronous application such as media, it just kills the experience. 

I played with the antenna, tried different digital media adapters and wireless routers, and switched our wireless phones out of the 2.4Ghz range to reduce interference, but the problem became such a problem that I finally drilled new holes in the rooms to bring Ethernet to those areas, which solved the problem.  Interestingly, the biggest problem is when the microwave is being used - in a house filled with small children, we use the microwave a lot to heat up things, and that was what finally made the decision for me since it kills the WiFi signal within about a 15 ft range - it was either don't listen to music during dinnertime or switch to a wired alternative.  My question is why someone can't build a simple shielded microwave to eliminate this problem, which appears to be a big one based on what I'm seeing on the bulletin boards.

Going forward, homes will commonly receive both audio and video entertainment over IP.  We need to come up with alternatives to Ethernet (Home Plug, better Wifi) or it will limit the growth of this market segment since most adults want to consume entertainment content on their TV or through their stereo system, and they don't always have a wired Ethernet jack near by.  And a better microwave might help too...

The NYT ran an article this week laying out some of the details behind Microsoft's upcoming marketing campaign for XBox 360 - this is probably the best quote - The point, said Bill Nielsen, who oversees marketing for the Xbox 360, is to help a game player convince the women in the family that "this is for you, too, not just for me to play Madden,' " (my underlining)

This approach is certainly a bold one since it goes against the entire history of successful game console launches, and has certainly amused the industry veterans I have spoken with about it.  This broad technology (MP3 player, digital photos, makes toast, etc.) and broad demographic (men, women, teens, left-handed Eskimos, etc) push feels very much like the initial launch of the Philips CD-i system in the early 90's, which promised everything to everyone, but was then crushed by game-focused competitors - it's such a seminal lesson that there are even multiple marketing case studies which reference it.

This approach makes little sense for the initial launch since there won't be enough units to go around anyway, at least for the first 12 months, even if Microsoft hits its production goals - all of the production will be purchased by early adopter core gamers who have no need to ask their mother if they can buy the machine.  The danger of this approach is that PS3 will appear 9-12 months later with a presumably much more focused game approach, a more powerful piece of hardware in every way (including Blu-Ray DVD), and what will probably be a better suite of killer games than XBox 360 since the developers will have had more time to create them, in spite of a more difficult PS3 architecture.  On the other hand, if MS is privately admitting that it won't have enough dominant games around launch, then this may be a focus out of necessity rather than desire, or if they believe that they have no chance of winning the core market, then they should start out with a broader brand approach - either one is not a great sign.

The online components of XBox will probably be significantly more advanced than those on the PS3 based on the relative strengths of the two companies.  Rather than focus on how many casual games your grandmother can play on the Xbox 360, MS should nail down the brand as the key place to play core online games, and then expand the demographic later as competition appears.   They have the market to themselves for a year, and pitching Xbox 360 as a Swiss Army Knife for the whole family would seem to be a strange way to cement their brand.  On the other hand, I and most of my friends have already shelled out hundreds of dollars to get one upon launch, so it may not matter in the end.

So RealNetworks and Microsoft finally announced today their long awaited settlement of Real's anti-trust litigation, with Real receiving $461M in cash, and $300M of promotional credits, as well as pretty broad integration of Rhapsody and RealArcade into MS properties such as Messenger, Music and Search - the RNWK stock promptly shot up 35%. 

I have to give Real's CEO, Rob Glaser, full credit for this deal.  We may not always have agreed on operating or management philosophies, but he almost single handedly drove this litigation against a lot of naysayers, and it turned out be a huge win for Real's shareholders, including myself :)  He could have settled just for cash, but hung in there to negotiate as broad a business relationship as possible.  The integration of Rhapsody into MSN's properties will certainly drive overall usage, and the web-Rhapsody version they showed looked pretty cool, although we'll have to see it in full release before passing judgment.

What this means for MSN Music is unclear, but can't be good for that unit since they have a negligible impact on the music market so far.  And Napster?  I assume we'll see some type of announcement around their earnings call which repositions them as a music destination site since it's time for their semi-annual business plan revamp.  And Apple?  My guess is they ship a subscription service in the Spring, but it's too early to tell.

Just came out of our fundraising period, so there is finally a small amount of time to blog again.  I did not attend the Web 2.0 conference this week, but I spent tonight at a great VC dinner and later at the big Web 2.0 unofficial corporate party asking attendees about their impressions from what appears to be a very successful event.  The common theme at the party was debating whether the vibe of this event was more similar to 1998 or 1999 from the infamous Internet bubble era, but the good news was that confidence was high and there was a feeling that many of these companies were going to change the world.

What was interesting was how many cool companies had presented or announced themselves this week (Pluck, Flock, Ning, Platial, Shadows, etc.), but also how many conference attendees could barely remember any specific features from any of those companies - each answer was some type of "blogging meets tagging meets social networking meets video meets new user interface", which I guess is what defines Web 2.0, but it's unclear to me at this point as to what these companies usually mean for consumers. 

This doesn't mean that these companies won't succeed at some level just because almost no one can remember what they all do, but it means that I'm probably not smart enough to figure out how they succeed at some mainstream level beyond the "wife test" of many high tech executives, including myself.  Simply put, how does this service or application make my life easier or faster? - if companies can't clearly establish that within some reasonable timeframe, then it's back to the geek pool, but it doesn't seem to have affected anyone's valuation in recent fundraising rounds and it's certainly not making the hiring environment in SF any better since everyone is hiring.