SharkJumping

There was a question on the IGDA casual game mailing list today about casual game pricing - essentially, is $20 the correct price point for a casual game?  As a reference point, XBox 360 games are $60, most current gen console, handheld and PC titles are $40-$50, Game Boy Advance games are $30, and mobile games are $5-$8.  RealArcade is generally given credit for commercially launching this Try Before You Buy $20 category, and pricing has remained pretty consistent at $20 (just checked the top games at top sites).  On the other hand, iWin has made the point that their Family Feud game has sold well at $29.95 (currently top download at iWin) while Microsoft has just introduced a set of casual games on XBox 360 Arcade with prices between $5 and $10 - so who's right?

Similar to the ongoing debate about music download pricing, this is a price elasticity debate - if we increase prices, will the resulting revenue be high enough to offset what we assume would be fewer purchases?  If we lower prices, will the resulting increase in purchases make up for the lower revenue per purchase?  And does it even make sense to focus on this model rather than on subscriptions (Real and Shockwave) or on advertising supported games?  And should pricing generally relate to the cost of the game production, or is it solely related to the perceived value?

I'm personally surprised that there has been so little experimentation in this arena - the pricing strategy for casual games has been effectively frozen for the past few years while the overall market has significantly expanded, and while most production budgets have doubled or tripled.  Distributors have run limited tests of lowered pricing, but then have moved back up to $20, primarily because the developers prefer it at that level and because none of the distributors seem to have the data or market clout to justify changing the prices.  I would have expected a more multi-tiered pricing strategy by this point, as you see in more mature markets such as retail (CDs, DVD's, etc.), with new release front-line titles giving way to mid-price titles 6 months later, followed by a move to budget line after that period.  But this is one of those sectors where popular games such as or Zuma continue to sell for months or even years, so there is less incentive to lower the prices to stimulate demand.

So the answer is that the larger players seem to keep pricing at $20, so you would assume it's the correct price in a rational market - merely lowering a few games to $10 or $15 may not be enough to create a sub-category that attracts enough attention, so no one does it, and few players feel strong enough to price higher than $20, unless they have a well known brand - the familiarity of a $20 price and a 10MB size seems to hold the market in place.  Where you see discounting is in the subscription plans which attract heavier users of multiple games, or you see the really large sites use ad-supported web games that are free to users.  Given all of these factors, I'd say we'll see $20 pricing remain the norm until we see the effects of XBox 360 Live Arcade pricing, or until we see a strong entrant hit the market with much lower prices - but if prices are going to go anywhere across the board, I believe we'll see them go down due to a slow-down in the marketplace growth and an potential over-supply of similar content.

Eric Zimmerman, the CEO of casual game developer Gamelab, recently published on Gamasutra what he referred to as the Game Developer Bill of Rights.  Gamelab is known primarily as the developer behind PlayFirst's recent smash hit , but Zimmerman has been in the game business for years and is well respected for his creativity and experience.  As a business person, I find the GDBoR to be mostly a blue sky wish list typical in most creative industries, but it's a thought-provoking document which summarizes common issues between developers and publishers/distributors, so it's worth a read for those interested in the casual game sector.

One way to measure the interest and money involved in a particular sector is to track the rise and fall of its trade show activity since it tends to follow the money.  At the peak of the bubble in 2001, it felt like there were more than five digital music conferences, while 2 years later, the sole remaining Jupiter Plug-In event had a grand total of 5 vendors showing their wares and the conference felt like a ghost town. 

In the casual game sector, the first ever conference was held a few months ago (which was quite successful and which pushed me to start blogging - see post), and now we already have two announced for 2006, cleverly located in the same city 1.5 months apart.  The organizer of this year's Casual Game Conference, Chris Sherman's Game Initiative, will do a repeat performance in Seattle July 13th and 14th.  And now we have a new entrant, supported by the non-profit Casual Games Association, which has split with Game Initative in order to organize a show in Seattle at the end of August.  I'm sure there is some sort of back story involved and I don't have a position on either one, but right now it's just creating confusion among the pretty tight-knit casual games community.

The good news is that the sector now commands enough attention and revenue (will see a lot more investors this year) that it's worthy of this type of competition - but they should probably either merge the shows or separate them out more by time and location to provide enough value to the attendees, not all of whom in this business have large travel budgets.  However, it looks at this point like the game of chicken will continue.

Articles are starting to turn up on the revamped casual game service XBox 360 Live Arcade as the new console prepares to launch.  Although I don't personally believe that the first few million purchasers of this $400+ (for most bundles) next generation console will have any interest in playing traditional casual games such as Bejeweled (see prior post), it looks like the team under Greg Canessa has made some strong moves to make the service more appealing.   The service will supposedly be available out of the box for all XBox 360 users, will require no monthly or annual fee, will cost only $5-10 per downloadable game, and will have a 50%+ revenue share to developers  - and it will have a broader set of games than just "match 3" clones.

This potentially changes the game a lot from the current PC casual game market.  It's a 50-75% decrease in average retail game price (to $5-10 from $20) while also increasing the market share to the developer (to 50%+ from 35%+) and eliminating any need to download software beyond the game itself.  Assuming Xbox 360 is successful, and especially if PS3 follows with a similar model, I'm not sure how the current PC casual game market sustains itself over time - as I have discussed before, prices are going to inevitably decline in this category, and XBox 360 may be a catalyst for it.

today announced its acquisition of Addicting Games, a popular directory of casual games.  It's another signal of the coming consolidation in the casual game sector as the larger players start to separate themselves from the smaller ones through acquisitions, more sophisticated marketing techniques, product portfolio expansions and larger game investments.  Until this most recent deal, the distribution portals such as Yahoo Games, Real Arcade and AOL Games had been recently silent, primarily due to internal issues unique to each company.  That has left room for the mid-size players such as PopCap, BigFish, and PlayFirst to drive forward, raising venture capital rounds, purchasing smaller companies and improving their sites.  I think the larger players will overcome their problems and begin expanding again by Spring, as ASW has just done.

What is partially driving this consolidation is that the growth rate of the "traditional" $20 pay per download games is slowing in the sector (although no one will publicly admit it), but fast growth is continuing in the ad-supported, subscription and virtual item businesses, such as what we're seeing at Puzzle Pirates.  In addition, larger US and non-US game companies are entering the casual game market, and venture firms are starting to fund additional players (e.g. Big Top Games).  In order to continue to grow, the smaller firms must invest in more sophisticated customer acquisition techniques so that they can control some of their own destiny/revenue, and they must be able to hold onto their IP rights so that they can exploit their successes across multiple platforms, such as mobile.  This increased competition is beginning to hit the smaller companies who will have to expand or change their business models in order to survive, as I posted months ago - or realistically, many of them should sell now while they still have good businesses.

The good news is that we will come out of this upcoming period with a small group of diverse, well capitalized, professionally managed casual game companies, a couple of which will hopefully be able to go public by the end of 2006 if they're not sold to a traditional media company.  The bad news is that there will be a lot of pain involved for those who don't make it, unless they're happy with a lifestyle business.

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.

Crave Games jumped the gun a bit yesterday in announcing our licensing deal for Tringo GBA, but it's all good news in general.  For those folks who haven't played this wildly addictive game, you can play a beta online version of it on our site here, but it can also be seen in full multiplayer glory in the virtual world SecondLife where Tringo's creator Nathan Keir originally built it.  The GBA product is slated to ship in November, and next steps are to focus on finding a developer/publisher for the mobile version of it since it's a natural fit for a handset.

Wireless measurement firm recently that 30% of mobile games provided 80% of the industry revenue in their latest study.  It's not a huge surprise due to the problems in marketing a large set of games on a mobile deck, so people naturally gravitate to games they know or which can be described in one sentence.  Nor was it a suprise that recently acquired Tetris was the top game - otherwise, $137M would have been a lot to pay for it.

However, the first surprise is that 9 of the top 10 games were of the general casual variety, either Puzzle, Card or Trivia - so no sports or shooters, and only one fantasy game.  The second and bigger surprise is that the #4 and #5 games were both mobile versions of PC casual games, in this case PopCap's Bejeweled and PopCap's Zuma.  So in spite of all of the talk about how big brands matter most in mobile, and how there are supposedly no brands in casual games, 2 of the top 5 games in all mobile gaming are from the PC casual game world - looks like there are multiple ways to build brands, and that there are multiple distribution channels for successful casual games.

Have been busy on other things for a week, so I have been unable to post, but the fact that continues to strike me is how few really informed people know what the casual game portal Miniclip is, and more importantly, how amazingly large it actually is.  I have never personally met the team, but you're looking at a very small group of folks in the UK who have built what Alexa (poor man's measurement system) portrays as a top 200 global site, all built around around casual games.

Unlike much larger players such as RealArcade, this site offers a wide variety of games from around the world, including standard downloadable games, online java ones, MMOG's from our friends at  Puzzle Pirates and Runescape, and fun games/movies such as the infamous Bush and Britney dance sequence, all without any type of download required for the core enjoyment experience, and very little of which appears to be originated by Miniclip itself.

This is all another example of how an under-the-radar site like Miniclip can can prosper without a lot of PR since it's focused on casual games vs the larger audience of console games.  With the ongoing advertising shift in budgets to interactive media from traditional media, you will see sites such as Miniclip and pick up large amounts of ad dollars since they are delivering what advertisers lack - younger consumers.  It's not necessarily about the downloadable business, it's about the number of eyeballs you can deliver in this new world, and casual games such as Miniclip are a great vehicle.

I flew to NY last week on Song, Delta's "cool" sub-brand - I normally fly United, but Song was significantly cheaper and I had wanted to try out their concept, including the entertainment options.  Outside of each leg being late, the flight was just fine, but the best part of it for me was the casual game set up.  In addition to Dish TV, some on-demand movies and a pretty strong music on demand solution, there were 11 casual games available for a $5 purchase per game.  It wasn't obvious, but it looks to me like the games (and a specific multiplayer trivia game) were provided through a partnership with eFlyte, which has an almost non-functioning web site so I can't comment on it myself.  The 2 bigger brand name games were Bejeweled and Insaniquarium, but there were a host of other less known ones available to customers.

What I love about the casual game business is the idea that almost any device today can provide the game experience - could be the Sony PSP, a TV set-top box, a mobile phone, or in this case, an on-board entertainment system.  I walked up and down the aisle seeing who had purchased the casual games - I'd say it was in the low single digit percentage, but some of that was due to the lack of free play option ( a key part of the success of casual games when there are fewer brands) and some of that was probably just the nature of the business - it appeals to a certain type of user and there were a lot of other entertainment options.  In the end, it's all gravy since the core business is on the PC, but this is another great example of ways to extend success in the core business to another distribution channel - there are a lot of ways to play this game.

UK-based PC and console game company Codemasters announced this week that they will launch a casual game portal in September called Funsta.com using technology & content from RealArcade, TryMedia and Metaboli. 

It's a little surprising since the company is primarily known for its racing and sports games, has no history of being involved with casual content and would seem to bring very little built-in consumer traffic to the new brand.  On the other hand, one could see it as an example of the new management strategy since they announced that Benchmark Europe had acquired a 40% stake in the company, and that it's a sign of the expanding casual game category that console companies are now actively investing in the sector.   

Assuming they put a lot of marketing muscle behind the portal, it will be good news for developer/publishers since it will provide an additional distribution channel beyond the usual suspects.  In addition, it could be a significant partnership win for RealArcade, which has been facing a little bit of resistance to its client-based approach vs other web-based competitors.

If anyone is looking for innovation in the game business, some of the smallest developers have some of the coolest games, even on very limited budgets.  Smallball is an under-the-radar sports simulation operated by Ed Annuziata, a well known console developer (Ecco the Dolphin, Tiny Tanks, etc.) who used to work at Sega while I was there.  In this game, you have a tiny team (thus the term Small) of baseball players which you create and actually train in order to improve them.  Then you throw them into a game against a rival, but it's a simulation, vs an arcade game where you actually control the action.   The seasons are about 2 weeks long and it has a small, but dedicated following around the world.   The user interface is still too complex, and it doesn't have the polish of larger budget games, but it is a huge amount of fun for baseball fans.  The basic game play is free, with the revenue model being a virtual item one where you can buy upgrades for the team, such as converting  your right hander to a left hander, or hiring a trainer to help get your team in shape.   There is also a soccer version known as SmallBall Football, primarily for the European market, and there are rumors of other Smallball sports coming soon.  Check it out and tell me what you think.

As a long time fan of the Nintendo GBA series Advance Wars, I have happily been playing a similar web game called for the past couple of weeks.  I won't venture a legal opinion on how similar it is to the Nintendo IP, but it's a great example of a fun web-based game that is not a puzzle game.   It's flash-based, with either single player or multi-player options.  The computer AI is not very smart and one could always improve parts of the interface, but it's very easy to get into the game, and playing against other humans provides a real challenge.   The revenue model is free for the base gameplay, with a $5 monthly subscription package offering additional game units, special terrain and additional game maps, along with some badges and other features.  It doesn't look like it's getting a lot of gameplay, and like many small game efforts, I'm not sure how it will do as a stand alone entity, but the concept is another example of the expanding appeal of web based games, and of the multitude of revenue models possible in this field.

One of the most savvy online brands, Major League Baseball Advanced Media's MLB.com, has launched a casual game offering called , which appears to be powered by Trymedia.  What's interesting about this?   You would assume that the majority of their audience is NOT in the typical casual game demographics of 35+ yr old women, yet they see a market opportunity to offer a wide range of casual games to their massive online audience.  And even though most sports video games are twitch or console-oriented, MLB.com is also a publishing a new casual baseball game called which is a match 3 game with a baseball theme - it may not break new boundaries with its game play, but it's good to see additional themed content coming to the casual game category.  Read the release .

Wild Tangent recently launched a intriguing casual downloadable single player role playing game called Fate - if you have not tried it, check it out - Gamespot review is here.  Some gamers have referred to it as "Diablo Lite", usually with some type of insult following, but I think they're missing the point.   This is an easy game to get into, it's in a popular genre, and it provides a lot of value in the first 3 levels, encouraging you to buy the whole game.  The dial-up download is hefty at 27MB, but I think that almost everyone is going to go for the richer full media download at 125MB - this violates the so-called 10MB rule of casual games, but that's the point - it's time to reconsider the accepted rules of casual games and begin to expand into alternative game play and alternative demographics - not everything can be a puzzle game.  Fate may not be perfect, but it's a good start.

Macrovision announced that they would spend $30M+ to acquire Trymedia, a key technology/DRM provider for the casual game sector and that it would form a video game division within the company.   This shows the growing importance of the downloadable game business since Macrovision is a key security and technology to provider to much larger categories such as DVD's and Music.  The important question to me is what happens to the game distribution business of Trymedia, which is typically not a part of Macrovision's business model since it arguably competes with its technology customers.

The Contracts and Royalties panel at the Casual Games conference was easily the most interactive and informative discussion of the show. The moderator had asked the participants – (Greg Mills - , Rich Roberts – , David Nixon - Oberon Media, CJ Wolf – iWin, and Margaret Wallace - Skunk Studios) to put together business diagrams explaining how they each believed the margin split should work among the various players in the casual games value chain – developers, publishers, DRM providers and distributors. As one might expect, the content creators thought that distributors should receive about 30% of the revenue, while Greg Mills put the distributor number at 50% or more, much to the displeasure of many in the crowd. The panel then became a little bit of a critique of the distributors, with RealArcade taking the brunt of the abuse as the original creator of this system.

What was not brought up was that this perceived margin share imbalance is simply due to business leverage - there is no law of physics that says distributors should receive only 30%, even if that is common in many physical media businesses. This may not be a popular statement, but the developers/publishers currently need the distributors more than the distributors need them. A similar case exists in the cable world where a distributor like Comcast receives 60%+ of the margin since the content providers absolutely must have carriage on the platform – and this is for a much more mature business than casual games. No one says that content creators must distribute their content through companies such as Shockwave and – if they’re unhappy with the margins, then publishers should withhold their content. When I brought that up with various developers, they quickly stated that they wouldn’t be able to make enough money without strong distribution, which leads to the obvious margin split we now have which favors the distributors.

So instead of sitting their complaining about it, what should content creators do about this perceived problem?

1. Make Great Games – this seems clichéd, but providing a hot game or preferably, set of hot games, will increase your leverage. Merely making clones of Zuma or Feeding Frenzy may have worked last year, but it is going to be increasingly less effective in a more competitive environment.
2. Aggregate a Critical Mass of Games – distributors want to work with fewer content providers – Greg Mills made it clear they wanted to limit it to 4-5 providers at AOL. A distributor can’t continue to do contracts with tens of providers – it just doesn’t scale in a larger market. At Listen.com/RealNetworks, we signed over 200 label agreements before we finally made the call to funnel all new labels into a distributor such as or – it’s going to happen in this market.
3. Strike Exclusive Deals with Distributors – it may make sense to strike a limited time exclusive (or even longer) with a certain Distributor in return for a better margin      splits and additional promotion. It has the risk for alienating the other ones, but I think we’ll see more of it as Distributors look to differentiate their offerings from the      competition
4. Market and Brand your Games/Company – as was pointed out on the panel, most content providers do a great deal of their own marketing – e.g. MTV doesn’t wait for      Cablevision to promote their channel – they drive demand themselves. Almost no developers/publishers currently do a lot of marketing to drive demand and create awareness – that may not have been necessary in less competitive times, but it’s      becoming necessary now
5. Work with Smaller Distributors, including non-US ones – it’s likely that a content creator can get better terms from smaller distributors, especially if they work with them closely as opposed to shipping them the identical product. This takes more work, especially outside the US, but content creators need to get more creative in  how  the look at the  marketplace

I’m sure there are many additional ways to address this issue. But they all come down the inexorable fact that the casual game business is going to get harder and more complicated for all players, but that those content creators who can deal with the new landscape will actually come out ahead as the business expands, just as always happens in maturing media markets.  It will not be business as usual by 2006.

As massively multiplyer games grow in importance, both core and casual, there is a lot of discussion about what the actual subscriber numbers are for certain games, and what is the potential overall market for these games.  Anyone looking for the best data on the topic should check out MMOGchart.  It's an independent site run by an individual named Burce Sterling Woodcock which focuses on collecting the subscriber numbers of the top games through a variety of sources, and providing a basic analysis of the MMOG trends - it's a great tool for understanding the category, and anyone interested in creating MMOG games or investing in the category would be well served to speak with him.

With all of the focus on very high budget massively multiplayer games such as World of Warcraft, Everquest, etc, a lot of people have missed an under the radar success known as Runescape.  This is a simpler, java-based, massive multiplayer game in the fantasy genre which you can play for free as long as you want, but  which offers a more robust set of features if you become a paying member at $5/month.   This is a similar model to a lot of casual downloadable games which give you some type of gameplay for free, but then ask you later to pay to own the game or to access the higher end features.  It's easy to get into and runs on a wide range of machines, although the graphics and overall polish are certainly not in the range of a WoW. 

Why is it interesting?  Because they report more than 300,000 paying subscribers, most of them in Europe where the company is based, and they're rumored to be quite profitable.  Take a look - with all of the hype around big budget titles, I think Runescape (and of course, Puzzle Pirates) show a more interesting way for smaller creative companies to address the massively multiplayer sector with far less risk, and I think it's a better area for investors as well.

Coming on the heels of the Casual Game conference, iWin announced a 3rd party publishing deal with gameLab, (http://biz.yahoo.com/prnews/050722/sff016.html?.v=18) extending iWin beyond the self-developed game category. 

You'll see more of this as the mid-upper tier players in casual games begin to expand since they want to be one of the few major players that the distributors will cut deals with in the future.  The smaller developers will either be acquired, go away, become niche life-style businesses, or will need to creatively think about how to deal with a more competitive sector.

I'll continue to hammer home this point - Casual Games are the game category to focus on from an investment perspective - not mobile, not PC, not massively multiplayer and not console.  Anyone looking for a good overview of the industry should check out the recent free IGDA White Paper