Why Developers Should Never Agree to an Earnout...

A few years ago, Disney bought Club Penguin for $700 million....oops, I guess it was $350 million.


http://www.gamasutra.com/view/news/28548/Disney_Skips_350M_Payment_As_Club_Penguin_Misses_Profit_Targets.php

Basically, 50% of the deal was earnout based on profit milestones that Club Penguin missed.  

The biggest problem with earnout is that once you've been acquired you have much more limited control over the future of your product so that hitting your earnout target is dependent on the acquiring company's support.  If the acquirer changes product strategy after the acquisition and re-prioritizes resources away from your product, then you're screwed.  Sure, you can negotiate assurances and control over budget, hiring + firing etc.  But that's a bitch of a negotiation and you're not going to think of everything.


I often tell people to negotiate an upfront that are happy with and think of the earnout like a getting a supermodel's phone number, awesome if actually works, but don't count it.

Hotel City. Playfish is Back! 3M DAU Projected in the First 8 Weeks

Per the headline, I'm projecting 3M DAU in the first 8 weeks. That would be unprecedented for a Playfish title, but makes good linkbait. :)

I had started to worry about Playfish. Poker Rivals and Gangster City are frankly not very good social games. It's understandable, both games were attempts to stretch into Zynga territory, but outside of what Playfish has mastered: cute decorating games with light social interaction.

Hotel City is an iteration of the hotel genre that was initially popularized in China. The genre hasn't seen much success here, mostly because the games were just moved over from Chinese networks without good localization and left to rot.

Hotel City is a hit. It will be large and it will be copied. Should hit 3M DAU within the first 8 weeks if Playfish markets as aggressively as Playdom did for Social City.

High points:
Nearly infinite customization from a very basic building block (the boxy hotel room). Decoration games work best when they start from a very simple palette as they allow the users to run wild. Hotel City accomplishes this in spades.

New viral feature. Playfish has never been strong on viral, so I'm very please to see that in order to hire friends as employees, you need to post a employment notice in your FB stream. Expect to see that adopted by others rapidly. Feels like something Zynga would have come up with for Cafe World. Haven't played Cafe World in awhile so please no flaming comments if they innovated this technique.

Prediction: Hotel City feels much like a dollhouse, which is the logical variation for a cloner who wants to differentiate and target the female market. Sorry kids, Dollville.com and Dollworld.com already taken.

Hugh, feel free to use this writeup in the competitive report. :)

UPDATE: Hotel City reached 3M DAU in five weeks rather than 8 weeks.  For exactly one day, then it fell victim to the changes in Facebook's viral channels and fell.  I won three dinners - Max (with that new Playdom money you can treat me nice.)

Gravity Bear Gets It All Wrong: 5 Common Mistakes of Traditional Game Developers Entering the Social Space

I must be in a critical mood, I apologize in advance to Gravity Bear who did make a well-polished game and doesn't deserve to be my whipping boy. This post is more directed at the wave of traditional game devs who have been entering the social space for a while and having their boats smashed against the rocky shores of Facebook. Gravity Bear simply makes the same mistakes, which are numbered below.

I just played Battle Punks (http://apps.facebook.com/battlepunks/) for the first time, I had been watching Gravity Bear since they announced their formation.

1. Early Press release. I always consider it a sign of impending fail if a studio announces their social game via the press months in advance. It's traditional game industry thinking and has zero impact on adoption of their game. Though it is useful to raise money.

2. Using a Plugin. Everybody wants to make their game to look pretty, I get that. But not at the expense of massive user drop-off. Plugins hurt your funnel badly. Instant Action was actually pretty painless, but I am using the latest version of Firefox on a computer where I'm logged in as an admin. Neither is a likely use case for most of the FB audience.

3. Long download times. I had to wait through multiple content downloading message to get to the core game. Typical user would have gotten bored and left. Also indicative of a big, unoptimized flash file which will likely crash older browsers (which is what most people use).

Both 2 and 3 are classic traditional mistakes, not taking into consideration technology lag and technology adverse users when creating games. Pretty rich graphics have a high cost which most developers don't see because the games run fine on their high-end machines. This technology lag is going to be the biggest impediment to adoption in the forecasted "better graphics = better games" race that everyone is buying into. Believe me, optimizing flash is a hard problem for richer experiences and there are only a handful of guys in the world who have any real (real= years+) experience at this.

4. Focusing on graphics versus gameplay. Most of Battle Punks is watching a repetitive, animated battle that you can't control and can't skip. That's the core of the game. Not fun. There's a reason Mafia Wars doesn't have animations. There's also a reason why Gangster City is a FAIL: because the animations are not the reward, the experience points are. People seem to be confused about that. Civ: Revolution on the iPhone does animated battles well: quick and skippable. They are practically over before I can hit skip.

5. Overly-complicated Game Systems adapted from MMOs. Don't make people have to active manage their inventory. It's not fun. It's a barrier to the core fun of the game. Only hard-core players can appreciate the nuances. Please stop taking game design lessons from MMOs. It's a different audience (casual) with different requirements. If anything MMOs should take lessons from social games if they want to widen their audiences. Do not pull the World of Warcraft card to try and justify using MMO game design. WoW is unique, the other 100 MMO failures should have taught us something.

I'm stopping at five because I'm starting to rant. My hope for Gravity Bear is that they find their niche audience and monetize well and have a profitable business. There is a popular thesis that niche games with high ARPU is the next social games wave. I hope it is, but I have some opinions on that which I will share another time.

Thank You, Jameson Hsu: Mochi Media Acquired for $80 million

For the first time in about a year have I been inspired to write a post. It's not for lack of ideas or analysis, those nuggets have been going to my employer, Zynga. However, this is the first story in a long time that I really felt was important. On both a personal level and an industry level.

You'll have to discern the importance to the industry here: http://www.techcrunch.com/2010/01/11/mochi-media-acquired-by-shanda-games/

Here's the personal and this speaks to the reason why I'm so happy for Jameson Hsu (CEO of Mochi Media):

Jameson is the reason I'm still in Silicon Valley.

And he probably doesn't even know it. When I first moved out to Silicon Valley about 3 years ago, I only knew one person: my co-founder. Fortunately, he'd met a few people in his eight years out here and one of them was Jim Young, an angel investor in Mochi Media.

My co-founder spent the first few months working on some ideas destined for failure and we had gotten to a point where things looked pretty bleak.

I had been assiduously following the tech and games blogs and had realized that Flash was the future (probably courtesy of Daniel James of Three Rings). We decided to built a flash MMO with embedded multiplayer flash games (which ultimately is what Three Rings built: www.whirled.com). However, we intended to build ours on Facebook and ours was going to be a ripoff of the Nintendo game, Animal Crossing (which Playfish did successfully copy, err...homage, about a year and a half later wisely without embedded flash games). But frankly, we were pretty burnt out and I was having serious thoughts about abandoning the whole thing and going back to the east coast where I had misplaced the woman I intended on marrying (but didn't - a much longer story).

Jim Young intro'd us to Jameson. Jameson was the first person we pitched the concept of a multiplayer flash gaming platform on Facebook. Before VCs, before angels, before employees, he was first.

Not only did he think it was a great idea...he offered to help. Advice, connect us to developers, the whole nine. And he didn't ask for anything in return.

I remember leaving the Mochi offices and noticing that the sun was shining. And both John and I felt hopeful for the first time in weeks.

Though ultimately we failed and never took Jameson up on his offer of help, that meeting keep us going for another few months. Long enough for me to realize that even though my partnership with my co-founder was doomed that Silicon Valley where I wanted to be. I can honestly say if not for that meeting with Jameson I would back on the East Coast reading Techcrunch and telling sour grapes stories.

So thank you, Jameson. And congratulations on your exit, it's well-deserved.

Scrabulous (oops Lexulous) offers a mobile version

Mobile is hot. And the movement of social to mobile is even hotter. But I did not expect Lexulous to offer a mobile version. And I did not expect that mobile version to be incompatible with iPhone and Blackberry.

Here's the scoop as stated on the Lexulous app:


And I'd never expect them to incentivize invites. The Agarwalla Bros have always been scrupulous about obeying the letter and even more the intent of FB's platform policies. I am correct in thinking that offering a mobile version for inviting 30 friends is an incentive, right?

iPhone Current Demographics - Gender

There's a pretty strong data (albeitly indirect) that most current iPhone owners are men 25-35.

However, if you take a look at the current traffic to buyiphone.apple.com (Apple's info portal for buying an iPhone), you'll see that 48% of the visitors are women (according to Quantcast).

Tracking back 6 months, I found that Hitwise did a similar analysis and found the traffic was nearly 50/50.

I haven't been able to find any good current demographic data regarding gender on the iPhone, if anyone has a good link, let me know.

I'm not sure if I find this data conclusive, but I suspect that with the price of the iPhone dropping we will see the percentage of female owning growing (men are much less price sensitive when it comes to gadget purchases).

I'd say if I was building an app for the iPhone for a release in the next 3-6 months, I'd stay focused on the male demographics.

Here's some more demographic data, mostly income. (http://theappleblog.com/2008/11/24/profile-of-an-iphone-user-interesting-statistics-about-yourself/)

And I'd charge money. :)

I'm Back, and so is Scrabulous!

Hey all.

Then blogging break extended further, but I'm emerging from the darkness to note that Scrabulous is back as Lexulous. It's currently at 38,000 DAU.

As many of you know, Hasbro dropped their lawsuit against Scrabulous a couple of weeks ago.

Will Scrabulous/Lexulous get back its 600,000+ DAU? Doubtful. It's much harder to stand out from the noise on the Facebook platform nowadays.

I'm guessing that it'll hit 100,000 DAU by March 15. That's a total gut call. It's still the best Scrabble game on Facebook, it'll get much of its audience back.

However, the gameplay has been altered slightly. The scoring squares are in different locations. You get eight tiles instead of 7. Those are the two I noticed at a quick glance. There's likely to be more differences

Whatever, I'm happy for Rajat and Jayant. They built an awesome game and people can enjoy it again.

Blogging Break!

First, I want to thank all the people who congratulated my on the new gig at Zynga. I really appreciate the support.

Second, Happy Holidays. I'm taking a blog vacation until next year, when I will resume with regular updates. I have quite a few ideas brewing, I promise it'll be worth the wait.

Bret

Zynga Hires Biz Dev Gold, Pt. 2

So earlier this year, I wrote a post about former Pogo employee, Hugh De Loayza being hired by Zynga as VP of Biz Dev. I entitled it: Zynga hires Biz Dev Gold. I mentioned how he was a great person, a shining example of humanity.

Boy, was I wrong. :)

Six months later, the jerk hires me to be Zynga's new director of biz dev thus shattering the last vestiges of hope that I could make a living at blogging.

Thursday, at the Casual Games Association's Minna Mingle, I came out publicly. Revealed to the world that I'm now employed by Zynga.

So will I continue blogging?

Yes. But only 2-3 times a week. You'll notice that my blogging frequency has already slowed considerably. Sorry about that, Zynga's been keeping me busy for the last two weeks.

One of the things I cherish about my blog is that I have the complete freedom to talk about anything I want. Amazingly, Zynga is cool with me running my mouth off about whatever happens to come into my head at 3 in the morning. They're brave.

Having said that, I decided to not talk about Zynga in the blog. Once you're part of a company it's very hard to be objective about it.

However, since you may be interested, here are the main reasons I decided to join Zynga (over some other options):

1. Hugh. The guy's a rockstar and I want to learn whatever I can from him. (wow, do I feel like a suckup, I'm going to get so much crap about this post at the office.)

2. The job. In many ways, I'm getting paid to do what I had been doing already for the last year. Tracking the industry, identifying trends, and conversing with guys making cool games (so please keep emailing me, I'm still happy to offer free advice).

3. Zynga's vision. After a long chat with Mark Pincus, Zynga's CEO, I decided that I liked him (the most important factor for me) and that he had a smart long-term vision for Zynga (also pretty important). Fact is, it took a lot for me to link myself to someone else's vision rather than my own. A lot. So believe me when I say this: Zynga is going to kill it.

Less Than 2% of Adult Gamers have Visited a Virtual World, and Other Tidbits from the Pew Charitable Trust

That's right, folks, only 2% of American gamers have visited a virtual world. However, if you're just looking at teenagers, around 10% have visited a virtual world.

Meanwhile 43% of all adult gamers (or 23% of all adults) play online games. For teens: 76% of ALL teens play online games.

Here's what the newly released Pew Internet and American Life Report: Adults and Videogames says about online gamers:

Just under a quarter (23%) of all adults play games online. Put another way, some 43% of adult gamers play online games. Adults are much less likely to play games online than teens, as about 76% of all teens play games online and 79% of teen gamers play games online.

As with all games, younger adults are more likely to report playing games online than their older counterparts. Fully 43% of adults ages 18-29 play games online, compared with 26% of people ages 30-49, 13% of people ages 50-64, and 5% of those 65 and older.

Respondents who report playing games online tend to play more often than gamers who do not play games online. The majority (59%) of online gamers play at least a few times a week, significantly more than the 41% of strictly offline gamers who play that often. Those who play massive multiplayer online games (MMOGs),5 such as World of Warcraft, are even more likely to play frequently, as 89% play at least a few times a week.6 Nearly half (49%) of MMOG players play everyday or almost everyday, while just one in four online gamers (26%) and 17% of offline gamers play as often.

Here's the demographic breakdown of adult videogame players in the US:

How a Normal User Finds Games on Facebook

I was in a cafe in San Francisco Sunday and I saw a girl playing a Facebook game on a computer. By girl, I mean a college-aged woman, the core demographic of social networks.

The game she was playing was Twirl, an SGN game. I asked her how she discovered the game. On a friend's profile.

I asked if she played any other games. Only one other. Texas Holdem Poker by Zynga. She found about this game via an invite from a friend. A friend that she happened to be with who found out about it via an invite from another friend. Neither played any other games, but only as they explained because they hadn't seen any others.

Both girls had been on Facebook for about two months.

I asked one of the girls how she'd go about finding a game. "I guess I type games in the search box". She did. Only three games came up.

The top one: Mindjolt Games - the app from my friend Richard Fields (yeah baby!).

The Point

Game discovery on Facebook and Myspace sucks. Horribly. If either social network improved the app discovery experience, I think we'd see a lot more players in our games.

The sad thing is right now if you want users to discover your games, you can't rely on quality alone, you have to leverage virality (i.e. send a crapload of invites), or no one will even see your game. As of today there's just over 4000 games on Facebook. More than a few of them are great games and would get more exposure on your average flash game portal then they do in the Facebook app directory.

Chinese Games Market Evolves to a Mixed Revenue Model

The Asian markets are often considered a guidepost for how online games will evolve in the West. In particular, observers of the Asian market point to the success of the free to play business model. In the free to play model, users get free access to games and usually have to pay for virtual items or game enhancements via microtransactions. Traditional Western MMOs such as World of Warcraft use a subscription-based revenue model.

In a recent paper, researchers from Bournemouth University, Professor Philip Hardwick and Jessie Ren noted that online game companies are re-adopting a time-based revenue model (i.e. subscription or pay-by-minute, I'm assuming).

In correspondence, Mr. Ren said that the readoption of a time-based model indicates a quick reaction to the changing preferences of the market. Evidently, some people are getting tired of microtransactions. Before you all get too worried, Ren also said that he believed the item-based model would continue to be the dominant business model. Collective sigh of relief.

The following chart (excerpted from the paper) shows the evolution of the revenue model in the Chinese market:

	Revenue model changes	Revenue Model Change Procedures
Stage 1: (2004-early 2008) Revolutionary revenue model innovation	Time-based revenue model (TBRM) ↓ Item-based revenue model (IBRM)	Period 1: IBRM was Adopted by 3 less dominant companies without much notice. oGamania (Game:Jushang), Sept 01, 2004; oHappydigi (Game:Tantra), Dec 15, 2004; oCDC (Game:Yulgang) , May 13, 2005;
		Period 2: Top 1 company Shanda adopted IBRM for its 3 games in Nov 2005, and followed by most less dominant game companies (2006-2007)
		Period 3: The last 2 dominant companies who adopted IBRM oThe9, May 2007; oNetEase, Early 2008
Stage 2 (early 2008- Present) Evolutionary revenue model innovation	Mixed revenue models (MRM) ( Item-based + Time-based + possible other models)	Top 10 dominant companies who adopted MRM oPerfect World (April, 2008); oKingSoft (May 2008); oShanda (July 2008); oGiant (July 2008); Less dominant company who adopted DRM oIyoyo.com (July 2007)

Good News for the Games Industry Week: Black Friday Edition

Below is a list of the top 10 most searched-for consumer electronics in the UK courtesy of Hitwise.

Eight of 10 are gaming platforms, one is a gaming peripheral (Wii Fit), and one is the iPod Nano. Yes, the iPod plays games and so does the Nokia N96.

Happy Thanksgiving!

Just wanted to give thanks that I'm in an awesome industry with fantastic people. And in particular the great friends I've made since I started in this biz.

Note: image found on a random Myspace page. I think it's hilarious. Must be an L-Tryptophan overdose.

Good News for the Games Industry Week: Celebrity Edition

In this weekend's New York Times Magazine, Jennifer Aniston was asked about Facebook.

Here's her response:

It's not for me. I'd be opening myself up too much. I don't want to sound like a computer innocent - I've looked at things, of course....And I like to play Scrabble. And poker. I discovered Wii this weekend. I'm a late bloomer.

Think about it this way. Female, early 40s. Plays online social games (poker, Scrabble), though not on Facebook. Considers herself behind the curve because she just discovered the Wii.

Sounds to me like games are the new mainstream. (Thanks, Wii!) I mean think about it, Rachel from Friends plays videogames. Twenty bucks says Sarah Jessica Parker has played a set of Wii Tennis.

Good News for the Games Industry Week: UK Edition

According to UK market research firm Verdict, videogames sales will outpace music and video sales in the UK this year. Sales of videogames is expected to grow 42%, to $7.5 billion, while sales of music and video combined will total $7.06 billion. (Thanks Digital Media Wire!)

Big trend: videogames sales have doubled over the past five years.

Hmm...so videogames are bigger than music and video combined.

There are some nuances here to extract.

1. Those projections include consoles sales. However, according the Entertainment Retailers Association, even taking that into account, videogames will still surpass video sales.

2. These projections only account for retail sales, so revenue from online games subscriptions and microtransactions are not counted.

Videogames are big people, aren't you glad you chose the right industry to be in during a recession. :)

Good News for the Games Industry Week: Retail Edition

A couple weeks ago I highlighted some bad financial reports from EA and THQ. Since then I've seen a few stories that cast a positive light. This week I'll highlight some of the positive trends. Today's post features insights in the traditional retail games sector courtesy of Acitivision most recent earnings call.

1. Activision projecting 2.2 billion in revenue for 4th quarter. Largely on the back of three franchises, World of Warcraft, Guitar Hero, and Call of Duty.

Here's a quote from their earnings call where Activision discusses their view of the holiday season in light of the current economic conditions (interesting bits bolded by me):

First, retailers are continuing to increase shelf-space allocated to the videogame sector, as games begin to take a larger share of consumer spending versus other forms of entertainment, and are viewed as a growth driver. Over the past year, global retailers have allocated up to 40% more in-store space to the videogame category at the expense of other categories.

Most of this increase has been dedicated to the music genre and Activision Blizzard of course is the largest beneficiary of the increase, given our strong market share in this category.

Second, we’ve all heard that foot traffic at retail is down but actually, the increased share of store in videogames appears to be mitigating this risk. Our survey samples at key retailers suggest that in September and October, while other categories were challenged, videogame software and hardware showed sell-through growth in the high-single-digits, helping to validate our market expectations.

And third, the cost per hour of entertainment of videogames provides a great return on investment for the consumer as they seek value. To illustrate this, last month NPD conducted a holiday shopping survey that found for most shopping categories, consumers’ intent to purchase were flat or slightly lower than in 2007. The most notable exception again was videogaming systems and games, where consumers’ intent to purchase rose seven points over the prior year, putting videogames in the top five holiday purchases for the first time ever.

With respect to retailer purchasing behavior, what we have heard is that retailers are ordering less up-front and are focusing on chasing the winners, and they are being more cautious with their open-to-buy dollars on second-tier titles. We do see some of this but much less so with top-performing titles where expectations remain high.

What this means is that publishers with top-selling titles will likely benefit disproportionately this holiday quarter. For the last three holiday seasons, on average 90% of the top 10 titles were based on proven properties and we couldn’t be better positioned with our strong lineup of proven properties like Call of Duty, Guitar Hero, James Bond, and Madagascar.

So to summarize, proven franchises win (shocker). Music games are growing the market (awesome). People are going to be buying videogames systems this year despite the bad economy (yay!).

How does this affect social games? Not at all directly. Social games aren't exposed to the retail sector. However, the fact that retailers are devoting more shelf space to digital games is a pretty strong indicator that games are becoming more mass-market. Excellent news for social games which offer the lowest friction vector of adoption by non-gamers (free, invited by friends, low tech requirement).

EA Shuts Down Social Games Division, EA Blueprint

According to Edge Online, as part of its recent cuts, EA has shut down EA Blueprint.

From what I've read, EA Blueprint was set up to publish games on top of social networks, or as we like to call them, social games.

In its time, EA Blueprint released a Facebook version of Smarty Pants, developed by Context Optional, the apps-for hire company. It currently has a respectable 40,000 monthly users. For perspective, the cut-off for a hit game on Facebook is 1 million monthly users.

I'm guessing that EA will opt to focus on the other new games platform, the iPhone. It's already seeing success there, unsuprising since the iPhone is much closer to the traditional retail game environment to which larger players are accustomed.

Here's the big picture.

I learned recently from a brilliant guy that when companies fail to build something internally they usually opt to acquire a company with whom they have an existing relationship.

Social games are going to be huge. Eventually, EA is going to need to acquire a large social games company. They're going to want to either acquire the #1 or #2 player in the space, because that what big acquirers tend to do. Right now, that's Zynga and Playfish. I don't see anyone else challenging either company's dominance at the moment, but anything could happen. If nothing changes in the next 18-24 months, when EA is ready to acquire, I think they'll be TRYING to buy Zynga. Why? Cuz Bing Gordon, former Chief Creative Officer of EA is on Zynga's board and a key adviser. Relationships matter.

Note: while SGN is still a player, they've opted to turn their focus on iPhone games , a space in which EA is already competitive. An acquisition of SGN would be primarily to expand EA's mobile games portfolio - feels unlikely at the moment.

Let me know if I'm crazy or overlooking something in the comments.

UPDATE: Awesome Comments Aplenty. Lots of insight. Read them.

Virtual Goods Summit 2008 Video Now Available.

I'm sure many of my out of town readers missed the Virtual Goods Summit 2008 in San Francisco a month or so ago. I was there and missed most of the sessions due to intensely interesting lobby convos. So I suggest we both watch them. Believe me, no matter what it'll be more entertaining then this season of Heroes.

Check out the Virtual Goods Summit videos here.

And my notes from the summit (previously published) here.

BTW, just found out my parents finally discovered that I have a blog (I blame Google).

Hi Mom! Hi Dad!

Play Conference: Coverage of the Games Panel

A special treat today, I actually liveblogged (kinda) the Level Up: What's Next for Gaming? session at the >Play conference on Saturday. It's not word for word, because frankly some discussion points weren't interesting enough for me to write down. You'll notice that Mitch Lasky is quoted a lot. It's basically because I developed a mancrush on him as the session went on. You'll see why. What follows is a best-of. Enjoy.

Moderator: Dean Takahashi - Lead Writer on Digital Media, Venturebeat

Panelists:

Rajat Paharia - Bunchball - Founder, CEO Frederic Deschamp - Trion - Marketing Guy Mitch Lasky - Benchmark Capital - General Partner Manuel Bronstein - Microsoft Interactive Entertainment Business - Director, Xbox LIVE Primetime Kevin Bruner - Telltale Games - CTO, Co-founder

Q: Where is innovation happening in games?

Bronstein - integration between media, i.e. game show on TV but contestants can play along via Xbox.

Lasky. Distribution. Retail model decline. Service likes Steam from Valve.

Paharia. Gameification - applying game mechanics to other types of online experiences.

Note: Paharia did not use the term gameification. It's a term I coined to describe what he was speaking about.

Deschamp. Dynamic content. Rather than static content like in World of Warcraft. Imagine an online world that changed while the player was present.

Bruner. Distribution. Internet makes it possible for small teams to thrive.

Q. Why is there so much investment in game right now?

Lasky. Because the internet has changed distribution. Games can now scale like a web service.

Bruner. Internet allows experiments impossible in retail.

Lasky. Also, because VCs are lemmings. World of Warcraft proved you can make a billion dollar business. VCs making me-too investments to be next Warcraft. Further example: $200 million was invested in mobile games between 1999-2004. In the six months after JAMDAT (Lasky's mobile content company) filed to go public, $250 million was invested in the space.

Lasky. Casual games is an overfunded space.

Q. Should VCs invest in content businesses?

Bronstein. Better tools will make content cheaper to make and less risky. At some point, 50,000 units sold will be a viable business. (My note: but not one VC's would be interested in investing in.)

Q. UGC games. Will they be big or not?

Lasky. Making a game is hard. Making a video is easy. Anyone will a camcorder can make a video or their dog rolling over. Games will not be democratized like video. Games are a fascist business. You need millions of Paul Preece (creator of Desktop Tower Defense - best Flash game ever) to have a Youtube of games.

(Note: I couldn't agree more. Companies focused on UGC tools are barking up the wrong tree.)

Bronstein. UGC doesn't have to be full games. Can be avatars, levels, recordings of gameplay, i.e. Halo videos.

Takahashi. It's interesting to me that XNA toolkit (to create games for xbox live arcade) has been downloaded over a million times.

Takahashi. 22,000 questions answered voluntarily by one user on dell's support site so he could earn a badge. (BT: the power of gameification, baby!)

Q.Why does innovation come from startups rather than big companies?

Lasky: When the budget for a game hit around $10-15 million, publishers require that developers either use existing game engines (same gameplay) or existing franchise (with new gameplay).

Bronstein. Big companies do innovate. Some bets too expensive for small comapnies. Example: only Nintendo could have created a system based around the Wii mote.

Lasky. Historically, most money lost in the games industry on failed peripherals. Exceptions: steering wheels, yokes (for flight simulators). Only succeed when tied to specific content.

Lasky: 16% of console games sales from Rockband or Guitar Hero.

Bruner: Establishment can't react to paradign shifts. Example. Broadcast TV lost to cable.

Lasky: EA and Activision will become little more than hedge funds.

Lasky: EA and Activision do not innovate. I worked at EA as an executive. EA does not innovate.

Bruner: NPD sales report only show one side of the games industry.

Q. Games: Silicon Valley vs. the World?

Lasky. Gaming is a monoculture. Terminator poster and heavy metal in game dev studio whether in Palo Alto or Vietnam. (BT: perhaps that's why traditional game are so focused on teenage boys. It's made by men in prolonged adolescence.)

Predictions

Takahashi. Good November for games sale will lead to more investment.

Lasky. Xmas will be terrible. Talked to retailers. Cutting games orders by 30-40%.

Deschamp. Free 2 play biz model will be good fro Europe and Asia.

Audience Question: Mobile games. How do you get through the noise to the consumer?

Lasky. Needs to be free.

Takahashi. Don't rating solve the problem of finding good content?

Bronstein. Quality matters. Most expensive XBLA games often sell most units. Lack of price sensitivity.

THE END