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GAMESbrief Unplugged:

Volume 1

on copyright, politics and opinions

Nicholas Lovell

Copyright © 2011 by Nicholas Lovell

This work is licensed under the Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-sa/3.0/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA.

This ebook published in Great Britain by GAMESbrief

For more analysis, opinions and insight, visit www.gamesbrief.com

If you have any comments on this manuscript, please contact nicholas@gamesbrief.com

To buy a physical copy of any of the books in the GAMESbrief Unplugged series, visit www.gamesbrief.com/store

About the author

Nicholas Lovell is a former investment banker and web entrepreneur who helps games developers become publishers. He also provides strategic and online marketing advice and is a non-executive director at developer nDreams.

Clients have included Atari, Channel 4, Channelflip, Dynamo Games, Firefly, (who recently self-published MMO Stronghold Kingdoms), IPC Media, Rebellion and Square Enix. He is the author of How to Publish a Game and blogs about the business of games at www.gamesbrief.com.

Also by Nicholas Lovell

• Get the inside track to self-publishing

• Discover the four key roles of a publisher

• Learn what YOU need to do get your game to market

• BUY How to Publish a Game now!

For Andrew Downer

A good friend, who will be sorely missed

Acknowledgements

There are so many people to thank for their help on GAMESbrief over the past two years that it will be impossible to list them all.

I’ll have a go.

Huge thanks to Kyle Ackerman, Simon Bradbury, Nic Brisbourne, Charlie Burton, Rob Crossley, Stuart Dredge, Sean Dromgoole, Konstantin Ewald, Rob Fahey, Michael French, Kevin Heery, Wil Harris, Paul Gardner, Justin Gaynor, Dan Griliopoulos, Tom Jubert, Tadhg Kelly, Andy Lane, Alan Li, Scott Maclean, Patrick O’Luanaigh, Nick Parker, Gill Pritchard, Tony Mott, Ben Parfitt, Ben Rooney, Roy Schmidt, David Sena, Stephen Totilo, James Wallis, Alex Wiltshire.

If you helped me out in the past two years, whoever you are, I’m enormously grateful.

Thank you to all my clients who trust in me, and whose projects are endlessly varied and fascinating. There is nothing like working on live projects to focus your mind.

Thank you to all the conference organisers who let me speak. I use those occasions to hone my thoughts, and many of the biggest breakthroughs in my thinking can be traced to specific conferences.

GAMESbrief is part blog, part consultancy and part community. I hope to focus on the community part, making it a place where anyone interested in the business of games can gather, share and discuss the opportunities and challenges facing our industry today.

To make that happen, I need readers. So thank you to everyone who reads GAMESbrief and is reading this book. You make it all worthwhile.

Finally, I have to thank my family. To Catherine, Alasdair and Lucy for putting up with me working from home, working late and working when I should be playing.

Thank you.

Please share this book

GAMESbrief Unplugged will be available in many formats. It will be a free pdf, a version optimised for Kindle and other e-readers, a paperback, a hardback and a limited edition hardback.

Please share it widely. Tell your friends. And if you like it, please buy the physical or ereader copies (which is the only way I will make money from this).

I hope to see you for future volumes too.

Nicholas

Contents

Opinion

GAMESbrief is not a news site. I don’t try to tell people what is happening; I try to explain why it’s happening.

These posts are part of that analysis, with a hefty dollop of my own opinions. Comments are an important part of a blog, but are difficult to recreate in book form. I have included a link to every post so you can track down the comments if you so wish.

Why I was tempted to discriminate against women¹

November 27, 2009 | Nicholas Lovell

It may seem odd to be writing about women’s employment and maternity rights in a blog dedicated to the business of games, but I make no apology. It is a fundamental issue that has already sparked debate in the technology world² and will become more important in games as our industry matures (and as more developers become publishers).

Prospect magazine this month carried an article entitled “The mother of all paradoxes” which produces compelling evidence that generous maternity rights lead to systemic discrimination against women.³ As a former startup CEO, I fear Prospect is right.

The moral case for maternity rights seem clear to me, but if they achieve the opposite effect to that intended, is the conclusion clear cut?

And even I as I put forward the arguments, I find that I can’t make up my mind, and I need your help.

Family-friendly employment laws hurt the employment prospects of women

Catherine Hakim’s argument in Prospect can be summed up like this (although I urge you to read it for yourself. The arguments are much more sophisticated and are backed up by more research than I can précis here. Unfortunately, it’s behind a paywall – a sort-of summary can be found in this opinion column from the Telegraph⁴):

• The law penalises employers for not keeping a role open for a woman on maternity leave, while the mother can quit at any time with no penalty.

• Only about half of women return to their previous jobs, a figure largely unchanged since maternity protection was introduced in the 1970s.

• Sixty per cent of women signalled their intention to return to work, but research suggests that two-thirds of those that pledge to return had no intention of doing so (I struggle to reconcile this point with the previous one).

• The impact on businesses can be substantial as “women in senior professional and managerial roles cannot always be easily replaced.”

• Evidence from Sweden suggests that “family-friendly employment policies have been the cause of the glass ceiling for women, not the solution to it” (my emphasis). “Onerous maternity protection leads the private sector to systematically avoid hiring women, who then mostly work in the less well-paid public sector”.

• Research has suggested that maternity leave of around three to four months helps women’s employment but longer periods lead to what economists call ‘statistical discrimination’ against women in general.

In short, extending maternity rights can cause sufficient headaches for businesses to prompt blanket discrimination against women, except in the public sector.

My hiring experiences

As a vice-president at Deutsche Bank, I was involved in interviewing candidates for graduate roles in the Media Corporate Finance division. I am convinced that I had no gender bias, and the media team had one of the higher proportions of female to male graduate recruits in the division.

The thought of maternity issues never crossed my mind. Even if they had, Deutsche Bank could easily have afforded to pay generous maternity rights, although Prospect says that “some private sector employers – especially in the City – take the view that it is cheaper in time and money to dismiss a pregnant woman and pay compensation, so that a permanent replacement can be appointed immediately.”

As CEO of GameShadow, the thought did cross my mind. We were a small, struggling start-up with limited revenues. I wondered how we could cope if an employee became pregnant. It was not only the financial costs but the whole process and distraction of finding and training a temporary replacement that worried me.

I can’t say how I reacted, because we didn’t get a single female applicant for any of the roles we advertised while I was there. (Why no women applied is a whole different subject for discussion, although since we were looking for technology staff in a hardcore PC gaming website, perhaps it’s not that surprising.)

The challenging paradox

I like to think I’m socially liberal. I believe maternity leave and working flexibility are something that should be available in a civilised society. (Full disclosure: I have a 12 month old baby; maternity rights have been important to me in the last year).

But the entrepreneur/start-up adviser in me is conflicted. Businesses benefit from a diverse workforce (ages, genders, ethnicities) and avoiding any one group eliminates a large pool of talent. But the risk of having a substantial portion of your workforce away on a legally-protected absence, preventing you from hiring and training a replacement or forcing you pay two salaries, is a huge burden to put on any business, let alone one built on such shaky foundations as a startup.

And if I worry about this, what will less scrupulous business people do? They’ll do what Catherine Hakim warns about and avoid “hiring or promoting younger women at all”.

Why this matters to game developers

The games industry is maturing. We are no longer an industry that attracts only games-obsessed men whose only interest is coding. Developers are becoming publishers, meaning they need marketers, finance teams, lawyers. In short, they need talent, and many of the best candidates are women.

Amongst my clients at the moment, there are women as head of studio and head of marketing. There are women in web design, in core coding, in finance and in art. Our industry is expanding and is no longer exclusively the preserve of men.

Companies who have previously only had a few women employees will move towards an equal split. But the issues I’ve highlighted above may put them off hiring the best candidates.

Why this matters now

(UPDATE: It was pointed out to me that the Equalities Bill doesn’t, in fact, include extending maternity rights. I blame Prospect, although it was ambiguous: “Her equalities bill follows Sweden’s lead, where maternity leave has been extended to three years and fathers are forced to take paternity leave.)

Harriet Harman is introducing an Equalities Bill that would extend maternity leave to three years.⁵ Catherine Hakim warns that this might be detrimental to the prospects of all women, although it may well be beneficial to mothers.

I’m already worried about the existing legislation. I don’t know what to think about this new bill. Will it help more than it will hurt? How do we reconcile family-friendly policies with the needs of business? How do we attract more women into games, technology and startups when the financial burden could (and I only mean could) be disastrous for an employer.

I don’t want to start a flame war but I want to open a discussion into an issue that has bothered me for three years now, on which I can’t make up my mind.

Over to you.

* * *

This post marked a turning point for GAMESbrief. The topic had been bothering me for a long time. I felt it was an important issue but was scared about admitting I had even thought about it. I sat for ten minutes deciding whether to hit the “publish” button.

I am so glad I did.

The post rocketed to the top of the most popular list. It was retweeted by nearly 50 people (including Mike Butcher of TechCrunch) and is still the fifth most popular post on GAMESbrief.

I now feel that if a post makes me scared to write it, it will resonate with my audience. I’ve started to looking for the ideas that make me scared and writing about them. I hope that means that I have raised issues that are bigger and more important over the past 18 months.

OnLive has only 2 potential customers: Microsoft and Sony⁶

April 7, 2009 | Nicholas Lovell

The analysis and commentary on the OnLive service announced at GDC last month is all missing the point. OnLive isn’t aimed at consumers. It’s aimed at the only two potential customers in the world: Microsoft and Sony.

The big news at GDC last month was OnLive, a streaming video game service that claims to offer top quality games with outstanding graphics instantly through a broadband connection.

While the company made a huge impact at the show, the service has met with a great deal of scepticism. Eurogamer ran a two page detailed analysis of the service, concluding that OnLive can’t possibly work.⁷ Many industry commentators argue that the cost of the server farms required to deliver these games will be impossibly huge and broadband speeds are not high enough to deliver this service.

Where’s the compelling content?

Whether or not the technology works (and I’m inclined to think that it works at some level), there is a broader question that has not been addressed: the source of compelling content.

OnLive boasts that it has the backing of publishers including EA, Ubisoft, Take2, Eidos, Atari, Codemasters and THQ. This seems perfectly likely, since the publishers are trying to investigate a range of digital download options like Steam and Metaboli. Why not also add OnLive to the mix? If the service doesn’t take off, no skin off their noses. It’s not like they have given an exclusive or anything.

And that’s the crux of the matter. OnLive has no exclusive content. An OnLive customer can get his games from OnLive. Or he can get them on the PC. Or the Xbox 360. Or the PlayStation 3.

To which OnLive would respond “But why would he, when he get them all, blisteringly fast, from us?”

And to which I would answer “Because he already does”.

OnLive is trying to push through a major change in gamer behaviour. Gone is the model of buying a console and then buying games for it when you have the money or the inclination. In comes a monthly subscription analogous to subscribing to cable TV.

OnLive wants us to throw out our cash investment in an expensive console or premium gaming PC. To throw out our libraries of games and start over.

And the problem is not that it won’t make sense for some people. It surely will. The problem is whether it will make sense for enough people to cover the insane capital expenditure to build the network.

But surely that was the problem with satellite TV?

The analogy with pay-TV is a strong one. The capital intensity of paying for or licensing a transponder on a satellite in orbit or building out a cable network makes it a very risky investment. Until the service reaches critical mass, the service haemorrhages cash. This is exactly the problem that Rupert Murdoch had with his Sky satellite service.

Until he secured exclusive rights to the Premiership Football League.

Suddenly, 40% of the British population found that the only way they could watch key football matches on a Saturday afternoon was to subscribe to Sky. Sky never looked back and currently has over 9 million subscribers in the UK and Ireland.

So all OnLive needs to do is to secure some must-have content that is so compelling that millions of people will have to subscribe to its service, rather than getting their games the old-fashioned way on consoles or via download services like Steam, Metaboli and AWOMO.

The problem is that I struggle to think of any gaming content that is anywhere close to the value of Premiership football.

The nearest I can think is World of Warcraft. If OnLive could persuade Activision to make WoW an OnLive exclusive, that’s up to 11 million players who might be forced to convert. (Of course, many of these players are in China or other territories where they are unlikely to pay for an OnLive subscription). Warcraft generates over $1.1 billion in revenue every year. The mind boggles at the amount that OnLive would have to pay to secure a multi-year exclusivity deal. It would certainly be multiples of the costs of the server farms and infrastructure that so many analysts seem worried about.

So even assuming that the technology works, acquiring the compelling content to make the service attractive to consumers may be prohibitive.

Is OnLive just a mad idea?

So what is Steve Perlman up to? The CEO of OnLive is no stranger to grandiose technologies. In 1995, Perlman founded WebTV, a pioneering combination of a cheap set-top box and a subscription service that streamed Internet access to the television. Two years later, Perlman sold the service to Microsoft for $425 million as part of Microsoft’s “long-term effort to combine the best of the Internet and the best of digital television technology.”⁸ The service had approximately 50,000 subscribers, valuing each subscriber at over $8,000.

In essence, Perlman persuaded Microsoft that it need the WebTV technology to be at the forefront of digital technology, especially as that technology moved to the living room and threatened Microsoft’s dominance of the PC market.

Sound familiar?

It’s all about the exit

I don’t believe that OnLive is really a consumer proposition. Oh, it will launch, and it will get a few tens of thousands of subscribers. But that is not its purpose.

Both Sony and Microsoft (and to a lesser extent, Nintendo) know that the future of gaming is online. Retail boxes will disappear and the vast majority of gaming content will be streamed or downloaded over the Web.

Now just imagine if the OnLive technology lived up to its promises; if games could be downloaded and played instantly on a console; and if the breakthroughs are protected by patents.

And then ask yourself: which next console would you buy? The one that offered instantly-available high-quality content delivered to an inexpensive set-top box for one low monthly subscription. Or the expensive one that didn’t.

Microsoft and Sony, it’s time to get your cheque books out.

Let the bidding commence.

Does Gaikai herald another change to Internet infrastructure?⁹

July 10, 2009 | Nicholas Lovell

Gaikai claims to offer near-instantaneous gameplay of high-end games on low-end consumer hardware. Is this trend going to spell the end of the Content Delivery Networks?

In the early days of the Internet, bandwidth was limited. As web pages changed from being primarily text-based to carrying images and other media files, load times increased until the user experience became unbearably bad.

The solution for many was to provide local servers close to all the major population centres. Companies such as Akamai mirrored popular sites which reduced the delay in asking for lots of separate files (images, text, ads and so on.)

Recently, however, the trend has been for bandwidth-hungry websites to need to send one big file, not lots of little ones. If you are streaming a video or downloading a game, you only need one file, but you want it to come down the fattest pipe you can find.

Enter the Content Delivery Networks (CDNs).

CDNs, such as Limelight Networks, have a small number of data centres but these are wired up with some of the fattest pipes in the Internet today. It may take a long time (in Internet latency terms) for the request to stream Shrek 2 to reach their data centre, but once the file starts coming down, it’s blisteringly fast.

But Gaikai suggests that they need to reverse the trend towards centralisation and have more points of presence. Perry told Eurogamer:

“OnLive says it’ll have five datacenters… Our strategy is to go much, much more dense than that,” “We’re going to be constantly adding data centres.”¹⁰

So if Gaikai (and services like it) take off, the priority will not be to have vast data centres in the Nevada desert. It will be to have small server-farms located near population centres.

It’s like 2000 all over again.

There has never been a better time to be a developer

July 17, 2009 | Nicholas Lovell

Welcome to the second Golden Age of games development. And, wow, is it better than the first one.

The first Golden Age of video games started with the first home video game systems and ended in 1983 in a wave of over-expansion, hubris and the rumoured burial of millions of copies of E.T for the Atari 2600.

Why was it a Golden Age? It depends on whom you ask.

For game creators, it was an era of extraordinary opportunity. New devices allowed new types or artistic expression. A generation of designers were just making art; they were making up the rules of the form itself, because no-one had been there before them. It was a heady, febrile time for developers.

For people who think business innovation is as exciting as content innovation - and I’m one of them - the Golden Age was even more exciting. Disruptive technologies bring vast opportunities to create brand new companies, business and revenues. Most of the companies that we revere today have their roots in the Golden Age.

The dawn of the Publisher Age

The Golden Age eventually came to an end. It was destroyed not by the publisher but by a fundamental truth of twentieth century media: it was expensive to distribute content.

It’s not expensive to create content. Really, it isn’t. How much does it cost to create a best-selling album? A novel? Even a great game (World of Goo cost $120,000; Braid cost $180,000)? Across all media industries, the content creators are not the key cost. Distribution is.

At an average newspaper, the editorial cost is less than 15% of total costs. An author will generally get a royalty of less than 10% of the cover price of her novel. The most successful game of 2009, Modern Warfare 2, cost $50 million to develop but $200 million to manufacture, market and distribute. And that’s not including Activision’s corporate overhead.

Publishing in a physical world is a very challenging activity. The moment that you press the button on the release of a AAA game (or a book, or a movie), you are totally committed. That entire development budget is spent. It’s sunk. You now have to spend a huge sum on manufacturing and distribution to get that game into stores across the planet.

Having invested all of that money into a game, it would be terrible if consumers didn’t buy it simply because they didn’t know about it. So sensible publishers double down by investing a multiple of the development budget into marketing. And as budgets go up for both development and marketing, few companies can afford even to participate in this game.

The Publisher Age saw the end of the small independent game creator overseeing everything from the idea to the box in a consumer’s hand. The economics didn’t stack up. And so, as the twenty-first century dawned, it looked as if the Publisher Age would be upon us forever.

Luckily, the world changed.

Blood-sucking leeches

Publisher-bashing is an easy option. It’s also deeply unfair. In the era of physical distribution, publishers deserved to make most of the money.

It is hard to arrange for all of yesterday’s news to be written, subbed, laid-out, printed and distributed to every newsagent in an island of over 60 million people by six in the morning. It’s so hard, in fact, that only a limited number of companies could make any profits at all trying to do it.

It’s not so hard to deliver that news online. Instantly.

It’s hard to manage a transmission network of broadcast towers and repeaters to deliver television coverage to an entire nation.

It’s not so difficult to upload content to YouTube.

It used to be hard to get a game into a consumer’s hand. You had to manufacture it. You had to distribute it. You had to persuade GAME and their equivalents in every country in the world to stock it and promote it.

Distribution used to be very hard and very expensive. It was so difficult, and so risky, that publishers could, and did, take 80% of the revenue - and more of the profits - on the games they financed, marketed and distributed.

And you know what, I’m not sure that was unfair. They did something that was difficult. Something that no developer could do for themselves. They added value.

Those days are changing. Publishers were not blood-sucking leeches when they did something special.

It’s just that with the arrival of the Internet, what used to be very difficult is now much, much easier.

Reaching a global footprint

The Internet has made reaching a global audience possible for anyone. A developer can have a global footprint overnight via XBLA, PSN, Steam, iPhone, Facebook, its own website and a bunch of other routes.

But just because you can reach an audience, doesn’t mean that it’s easy to do so. Or even that you should try. There are still many occasions when a publisher not only adds value, they are the only sensible way for a developer to bring their game to market, especially if it’s a AAA title.

But the arrival, or perhaps more accurately, the increasing maturity, of the internet has permanently changed the relationship between publishers and developers

Outsourcing to publishers

I would like all of you - every person reading this - to take a deep breath and prepare to flip your perspective. Imagine you are looking at an MC Escher painting and where before you only saw black demons, surrounded by empty white space, you are about to see white angels surrounded by black space. Now change your perspective:

“Publishers don’t outsource development to developers; developers outsource publishing to publishers.”

By flipping the publisher/developer relationship on its head, I hope to help you - the global development community - realise that you have a choice. You can choose who should fulfil the key roles of the publisher: sales, marketing, distribution, and finance.

They can be done by you or by the publisher. They can be outsourced to agencies, contractors or freelancers. They can be performed by a platform holder like Sony, Microsoft or Apple. But they have to be done.

All developers need to understand these core commercial functions in order to run a successful business - even one that doesn’t self-publish.

If you are going to self-publish, it’s absolutely critical that you understand them. After all, you wouldn’t outsource your asset creation or motion capture without a pretty good understanding not only of what was involved, but what you wanted to get back.

How to Publish a Game

Over the next couple of issues, and more frequently on developmag.com, I will be giving you a crash course into the four key elements of publishing a game successfully. My focus will be on digital distribution, building a long-term community and increasing your profits.

In short, I’m going to help you to take back control.

There has never been a better time to be a game developer. Now go, make games, and come back next month to find out more.

* * *

This article originally appeared in Develop magazine, and is part of a series of articles on the new world of self-publishing. You can read the full set in GAMESbrief unplugged Volume 3: On social, mobile and self-publishing.

Cognitive surplus – reclaiming the energy locked in the sitcom.

24 July 2009 | Nicholas Lovell

I’ve been reading Clay Shirky¹¹, a futurologist who spends his time thinking about what fundamental changes the Internet is going to make to our society.

And he has come up with the idea of Cognitive Surplus. His argument goes thus: Whenever there is a major shift in society (the Industrial Revolution where millions of agricultural workers migrated to city slums; the post-war affluence that saw millions of people with 9-5 jobs having masses of free-time to fill), there is a dislocation. No one knows how to respond to this massive shift in lifestyle.

So they turn to something to fill that void. In the eighteenth century, it was gin, as Hogarth so memorably portrayed in his 1751 print Gin Alley.

In the twentieth century, it was the sitcom. The biggest sink, the most humongous absorber of human time that was ever created.

The purpose was to stop society from overheating. Millions of people suddenly having to manage their own free time, who knows what they would get up to in that time, and television emerged to fill that void.

And boy, did it succeed. Shirky estimates that in the US, American consumers watch 200 billion hours of TV every year. 200,000,000,000 hours. And before you get too smug about American couch potatoes, NOP reckons that while the average American watches 19 hours of television a week, the average Briton watched 18 hours. So we’re almost as bad.

Shirky then starts to think about the way in which the Internet is changing how consumers interact with their entertainment and information sources. He alights on Wikipedia as an example, a wholly user-created resource which has emerged from nowhere in only a few years to be the primary repository of knowledge for many people. He estimates that Wikipedia has taken 100 million person hours to make.

Which sounds like a lot.

But looked at another way, Americans alone could build 2,000 Wikipedias a year if they stopped watching TV.

They could build the whole of Wikipedia in a single weekend.

In the ad breaks.

I don’t think that anyone is arguing that consumers are going to give up a TV entirely, but even a shift of 1% in usage patterns is a massive resource.

This is the Cognitive Surplus. A great, unharnessed, untapped resource.

And the games industry is already harnessing it. World of Warcraft, for example, is simply a world in which the players make the stories. They are shifting from consumers to creators, and Blizzard’s real role is to give them a sandbox and a range of “nudges” in the direction of compelling, entertaining gameplay.

Much of what the cognitive surplus creates will, inevitably, be rubbish. A gazillion low-quality YouTube videos, pointless captions on LOLcats, yet another Vampire game on Facebook.

But in the games industry, where we have a thirty-year history of giving people the tools to tell stories in their own head, this cognitive surplus could be a very big deal.

I’m not for a moment suggesting that professional game developers are an endangered breed who are at risk from a grassroots revolution of couch potatoes turned games gurus. Quite the reverse: high quality content, environments and stories will still be absolutely critical.

But I am suggesting that companies who offer ways to get people involved, whether as participants in an evolving massively-multiplayer story, as voters for the top games on Kongregate or by sharing, rating and deriding performances on My Singstar Online, will have access to a free, vast, enthusiastic, (did I mention free?) resource.

And they will clean up.

* * *

This opinion piece originally appeared in MCV in 2008.

Two reasons Facebook is about to become bigger than Google¹²

October 5, 2009 | Nicholas Lovell

Facebook is on the cusp of becoming the dominant company on the Internet. The company has realised that the web is about so much more than just searchable information, and it is on track to beat Google to be the web company.

When Microsoft invested in Facebook at a valuation of $15 billion in October 2007¹³, many people scoffed. (I confess I was one of them).

But we were wrong.

Facebook is just about to crack two elements that will give it unrivalled power across the Internet.

Facebook Connect

The first is Facebook Connect. If you want to comment on this blog, you can sign in via Facebook Connect. Facebook Connect takes your connections with all of your friends away from the closed environment of www.facebook.com and out into the worldwide web. You can play games on your iPhone against Facebook friends. Before long, you’ll be able to log-in to the majority of websites through Facebook Connect, rather than having to register individually for each one.

What’s in it for the websites?

Websites will soon start falling over themselves to implement FB Connect. It reduces the friction that stops visitors from registering. It makes a user’s interaction with that website appear in the user’s Facebook stream, which is both a vote of approval and a viral marketing tool. And, pretty soon, users will just expect it.

What’s in it for users?

A single login, that you can take with you across the web. Add a comment to a news story and your real friends will see it, and perhaps start a conversation with you, instead of the anonymous trolls who currently inhabit forums. It will be the first step towards the socialization of the Internet and it will be a huge improvement.

Facebook payments

But the real weapon for Facebook is payments. It is an open secret that Facebook is building a payments system, and they are clearly working on making sure that they get it right.

I can’t overstate how important I think payments will be. The first thing it will do is make a lot of money for Facebook. Companies like Zynga and Playfish are making tens, maybe hundreds, of millions of dollars from selling virtual goods on Facebook, and Facebook is getting no direct revenue from that. Yet Zynga and Playfish have to work with many different partners to generate their revenue. When Facebook offers a simple, easy-to-use, standardised payment system, it will make billing much easier and drive usage.

But that’s only the first part of the story. Let me walk you through a scenario:

You buy me a beer. I don’t buy you one back so I want to give you a fiver (I live in London. Beer’s expensive). Under your profile picture will be an option: “Send money”. I can transfer £5 to you in seconds, with no need for sort codes and account numbers, and I’m sure it’s you, because we’re friends on Facebook.

Now let’s imagine that you’ve never used this modern “Facebook payments” system. You don’t really like it. But now, you’ve got £5 in it. You could spend that money on virtual goods. Before long, I’ll bet you could spend it at Amazon or any number of other online retailers.

Or you could give Facebook your bank account details and ask them to deposit the £5. And at the same time, they’ll ask if it would be OK to take money out of your account in the future if you want to buy something using your Facebook credentials.

And Facebook becomes a payment system more global than Western Union, more ubiquitous than PayPal and as trusted as MasterCard and Visa.

Your social graph and your bank account, following you across the web

With these two elements, Facebook has blown Google out of the water. Google helps you find stuff on the web. But with Facebook, wherever you go on the web, your friends and your wallet will come with you. Microtransactions on every site becomes realistic. (Maybe, just maybe, this will allow Rupert Murdoch’s idea of charging a penny to read a single article on his sites come true).

And Facebook’s valuation of $15 billion begins to look like it might have been a bargain.

Ten reasons microtransactions are better than subscriptions¹⁴

October 8, 2009 | Nicholas Lovell

As a developer, making money from games has never been more important. You’re considering (or have already started) making games that you publish yourself. But you’re torn between whether you can make more money from subscriptions or from microtransactions (principally the sale of virtual goods). Here are ten reasons to tell you it’s a no-brainer.

1. Microtransactions are user-led, not developer-led

With microtransactions, the user decides how much they want to pay, and when. You don’t have to fret over whether your game is worth £3.95 or £14.95 per month. The user will pay what suits them.

2. There is no “gate”

With subscriptions, you let the user play your game for, perhaps, 30 days. And then you say, abruptly, “pay up or git orff my land.” Not friendly and not smart. The biggest challenge for a game company is acquiring a customer; you had one but you just kicked them out. That customer ain’t never coming back.

3. Players can spend when they want to

When does a consumer want to pay? When he’s just been paid? When she’s just had a hard day at work? On a Monday (because money at the end of the week is reserved for partying)?

More importantly, why should you determine the day that they have to spend? With microtransactions, a user can spend the day after they’ve got paid, or when they know they haven’t got a hot (and expensive) date for a week or two, or whatever. Let the user be in control.

4. Players can spend as much as they want to

Bigpoint has some players who spend over $1,000 per month on virtual items. Others, I’m sure, spend only a dollar or so. But the key point is that for those players who have lots of money have the opportunity to spend it. With subscriptions, users have a binary choice: zero or, say, $4.99. There’s nothing in between and, more importantly, nothing higher. Imagine how much money you are leaving on the table from your biggest fans.

5. Microtransactions make it easy to keep the game fresh

With micro-transactions, it’s easy to think of how to refresh the game: add new items. It provides an easy path for development.

6. Microtransactions are trackable

The curse of development is not knowing what users like: it’s why Lionhead spent so much money on a pointlessly overspecced movie maker within The Movies instead of focusing on the strong and entertaining sim game it came bundled with. With microtransactions, that goes away. You can see what users like because they spend money on it. And then you can adapt the game to make your players happy.

7. Microtransactions are flexible

Some players like wearable items. Some like power-ups. With microtransactions, you can offer different items for different customers, and endlessly test what works.¹⁵

8. Microtransactions offer A/B testing opportunities

Does a pink coat sell better than a blue coat? Do players want bigger swords or better armour? Do players want swords that look good, or do they want swords that are more effective?

With A/B testing (nothing more complex than randomly offering half your users one item and half another and tracking conversion rates), you can fine-tune your sales to give better monetization.

9. Consumers have a limit to the number of subscriptions they are comfortable paying.

Your average human has a short term memory for seven items. Sony has said that most consumers are happy paying for about seven subscriptions. There is a link.

A list of more than seven items (actually between five and nine depending on the person) seems endless. That’s because as one item drops out of your short-term memory, another one drops in. (That’s why to-do lists can make you feel more in control – you’re removing the tyranny of your short-term memory and can see everything that you need to do).

Utilities like water and electricity don’t seem to count, but a subscription to Sky does. As does the gym, magazine subs and your subscription to Warcraft. (Mobile phone contracts used to count, but increasingly it’s seen as a utility for many people).

It’s easy to see why people won’t sign up to a new subscription if they are already feeling oversubscribed. In essence, you need to encourage them to drop another sub to let yours in. Are you really so confident in the power of your marketing that you believe that someone will give up their gym membership in order to play your game?

10. Microtransactions make more money

Given the existence of World of Warcraft, this is obviously contentious, since Blizzard is making over a billion dollars a year from WoW. Perhaps it is better to say that for a number of successful games companies, microtransactions have convincingly shown an ability to monetize well. By reducing the barriers to entry, they’ve also enabled companies to make higher revenues with lower marketing costs than for subscriptions. And, in many ways, it’s lower risk, since you have a powerful marketing channel (your free game) with a route to monetization (your microtransactions.)

11. Bonus reason: consumers are coming to expect it

This hasn’t happened yet, but as more and more games go free to play, consumers will expect that. By going down the “30-day trial then subscribe or you’re out” route, you’re alienating customers who have many other choices to satisfy their game playing habits.

Why it’s time to stop wondering “where should we go from here?”¹⁶

April 14, 2010 | Nicholas Lovell

Why are startup strategy sessions so myopic?

I spend a lot of time with companies thinking about the long-term strategy. And in every case, they start with the wrong question.

They ask “Where should we go from here?” I always answer: “I don’t know.”

Why?

Because I don’t know where you want to go.

It’s like you’ve invited me into your car and we’ve driven to the end of the road and you turn to me and say “Which way?”

You don’t get to Manchester from London by picking the most promising direction at every junction. You have a plan.

So don’t ask “Where should we go from here?”

Ask “Where do we want to be in three years’ time?”

I think you’ll find planning becomes much easier when you have a destination.

Game over, Britain¹⁷

April 20, 2010 | Nicholas Lovell

The news last week that Indian company Reliance had purchased a 50% stake in Codemasters got me thinking.¹⁸

My conclusion: Britain no longer matters for games publishing.

And then there were none

Once upon a time, Britain was a global leader. Ultimate Play the Game, Ocean, Psygnosis, Gremlin, Virgin Interactive, Eidos, Codemasters – these were global publishers releasing global franchises with British shareholders and generating British profits.

One by one, they were gone:

• Ultimate turned into Rare and was bought by Microsoft in 2002 for $377 million

• Ocean bought by Infogrames for £100 million in 1998

• Psygnosis bought by Sony in 1993

• Gremlin bought by Infogrames in 1999 for £21 million

• Virgin Interactive split up: EA bought Westwood Studios in 1998; Titus Interactive bought the rest in 1999.

• Eidos bought by Square Enix in 2009 for £84.3 million

• Codemasters now owned by Balderton and Reliance

But what about new publishers?

We live in the era of self-publishing. Aren’t the big new companies, active in online and Facebook games, going to be our salvation?

Well, the big one was Playfish. And that was bought by Electronic Arts last year for between $300 and $400 million.¹⁹

Jagex? Runescape is a great game, but the company has yet to prove that it can launch more than one game successfully, especially after the MechScape debacle.²⁰

Mind Candy? As above. Moshi Monsters is a great product, but the company is not a publisher, bringing multiple games to market (and ideally – for the purposes of this definition – other people’s games.)

Does the death of British publishing matter?

From one perspective, it doesn’t. It’s old thinking. We are all publishers now. I publish this blog (and an ebook on “How to Publish a Game”)²¹. You publish games you’ve developed, or are thinking about it. There is no place for giant, monolithic publishers.

And yet….

Publishers give coherence to a creative business. They give new entrants hope. They provide a strong voice in government, in academia, in driving the future of our industry.

I don’t bemoan the death of old publishers. They are monolithic dinosaurs, proponents of the Digital Economy Act and supporters of anything – no matter how futile – to prop up their dying business model.

But I do worry about the absence of global British success stories. I had high hopes for Playfish, but EA snapped them up before they really got going.

So my clarion call is this: Buck up, Britain. We need more, stronger, global games publishers. We need companies that are worth billions, not snapped up for tens or hundreds of millions.

Above all, we need the ambition to build global champions.

So, who’s with me?

Stop giving your worst performers 80% of your time²²

July 5, 2010 | Nicholas Lovell

Why does the games industry spend so much time at conferences talking about the technology and not about the people?

We spend so much time saying that we are a talent-led industry, but so little time talking about how to get the best out of that talent.

Darren Jobling of Eutechnyx just changed that. At the GameHorizon Conference, he told developers to change the way they relate to their talent.

1. Get your best people to do recruiting

You know the rule in dating – a 3/10 guy will chase a 3/10 girl (unless he has lots of money to improve his apparent rating). The same is true in recruitment. If you get your weak team members to do the recruiting, they’ll recruit people like themselves. As Darren says “to a 4/10 person, a 9/10 person is pretty scary.”

So get your 9/10 people to recruit. You might think you can’t afford them to spend their time on recruitment, but can you really afford to have any more 4/10 team members

2. Give 80% of your time to your best people, not your worst

Your worst people take up most of your time. You spend time on disciplinary action or pep-talks or management. You leave the best people to get on with it, because you can.

But what if you spent more time with them? What if you decided to schedule time with your best people and delegate the time with your worst.

Spending time with your best people is energising and invigorating for all involved. Make sure you do it often.

3. Hire people who are untrainable

There are some things that can’t be learned. Look for these in interview. These are probably more important than skills that can be trained:

• Talent

• Energy – If you want something done, ask a busy person

• Drive – set a goal and achieve it

• Attitude – Negative people are disastrous in teams. You can spot them by asking them about their previous employer

• Integrity

The key to Darren’s talk is that your staff is your greatest asset. Talk to them (especially about new games platforms – you may find they know more than you do) and, a bove all, make sure that you are getting the best out of your best.

My take on Blizzard’s RealID campaign: World of Warcraft gamers, please just grow up²³

July 9, 2010 | Nicholas Lovell

The announcement that Blizzard was about to force its gamers not to be anonymous kicked up a (can I say shitstorm? Yes? Yes.) well, a shitstorm.

The BBC calls it a “row”.²⁴ CNET calls it a “controversy”.²⁵ TechCrunch ran a post entitled “When privacy meets hypocrisy: Blizzard Real ID edition”.²⁶

Isn’t it time we all grew up?

This move is long overdue. The days when it made sense for the Internet to be anonymous are over.

A lot of mileage has been made of the battle (and I’m hugely disappointed about that Blizzard has now backed down from implementing RealID).²⁷

Here’s what went wrong. Blizzard announced the policy and a whole bunch of childish, Internet trolls hid behind anonymity and pretended it was terrible. A forum moderator who rejoices in the unusual (and highly Googleable) name of Micah Whipple said he was happy to use his real name, and within minutes people had Googled his name and discovered all sorts of personal details on the web.

And who were these people who released personal details on the web: cowards hiding behind anonymous names.

Don’t they get it? This is what Blizzard was trying to stop. The only reason these overgrown ć could behave petulantly is because Micah Whipple outed himself before everyone else was outed. So they could bully him with privacy issues while hiding behind anonymity. Take away the anonymity and the stalker can be stalked, the bully bullied, the troll… – well actually, if you have sense, the troll will just be ignored.

But to do this, you have to take away *everyone’s* anonymity, not just some people’s. And that’s where this got out of hand.

To be fair, I don’t blame Blizzard for backing down given the shitstorm. It’s important to listen to your customers, and lots of customers hated RealID.

But for me the Micah Whipple example doesn’t say “anonymity is good”. It says quite the reverse. Anonymity is bad, and partial anonymity is the worst of all.

Rob Fahey argues the opposite: that anonymity helps those who need to explore their identities in a safe environment (or just not get hit on all the time) by being anonymous.²⁸ I sort of get that, but think that the downsides outweigh the benefits.

So I was hugely excited by Blizzard’s huge steps to end the anonymity of the Internet, and am deeply disappointed by their retraction.

But what do you think? Is anonymity a good thing for the Internet, or do you believe, as I do, that the faster our real identities are the same online and in the real world, the better the Web will be?

If video games cause violence, there should be a correlation between game sales and violent crime, right?²⁹

August 6, 2010 | Nicholas Lovell

Critics around the world equate video games with crime and the causes of crime. They routinely blame games for being “murder simulators”³⁰ or for desensitizing our children to violence.^{31 32}

If that was true, it would be a very bad thing. Especially as since 1990s, games have seen explosive growth. Research from the Entertainment Software Association in the US shows that 67% of all American households have games, and 40% of all gamers are women.³³ The UK trade body ELSPA (now rebranded as UKIE) says 32% of the entire British population classify themselves as gamers.³⁴

Are we building up an army of killers?

I don’t think so

Let’s look at the numbers.

Screen Digest has very kindly provided me with North American software sales since 1990. It shows amazing growth from $2.3 billion in 1990 to $12.9 billion in 2008. That’s 461% growth, or a compound annual growth rate (CAGR) of 10%. If video games cause violence, you’d at least expect *some* growth in violent crime wouldn’t you?

Figure 1: Correlation between video game sales and violent crime

Well that’ not what the chart above shows. I’ve plotted the Screen Digest numbers in blue on the right hand axis. On the left are the FBI’s official violent crime statistics for the US from 1990 to 2008.³⁵ Violent crime in the US has fallen by a quarter during this period, a CAGR of -2%.

I know (unlike many journalists) that correlation does not equal causation. But if games were corrupting our youth (and adults) into violence, and we have just witnessed a massive explosion in games, you would perhaps expect violent crime to rise when games sales have risen nearly six-fold, not fall by a quarter.

I’m not saying that there are not some cases where games (like films, books and music) can inspire bad behaviour in impressionable people.

But politicians and scaremongers: just look at that chart and tell if you can really believe that games are making our society go to hell in a hand basket.

Because that’s not what it says to me.

How $4.25m was not enough to save Eternal Earth developer Sparkplay³⁶

August 9, 2010 | Nicholas Lovell

In an emotional company blog post yesterday, CEO Matt Mihaly announced that Sparkplay has laid off all but two staff and looks likely to go bust.³⁷

Sparkplay operates Eternal Earth, a free-to-play MMO funded by virtual goods. In February 2008, Sparkplay raised $4.25 million in Series A funding from Redpoint Ventures and Prism Ventureworks.³⁸

The announcement is obviously terrible news for the company and my heart goes out to founders and staff. I’ve been there before, and it’s not pleasant.

But regular readers will know that I am a huge proponent of free-to-play, and seeing a free-to-play games company going bust is something that I would like to look at very carefully, to get the best possible learnings from it.

Unfortunately, I don’t know anything about the specifics of Sparkplay. (I’ll repeat that: everything that follows is WILD SPECULATION). I’d love to get some validation from Matt one day.

But in the meantime, here are some thoughts that occurred to me.

1. Costs were higher than revenues

This seems like a pretty likely assumption, given that the company was running out of money. There are many ways that could have happened but here are the two biggies:

• CPA > LTV: I teach masterclasses on making money from social games, and this is one of the very few equations I use.³⁹ In essence, if it costs you more to acquire a customer than the lifetime value of a customer, you will never be profitable.

• Development / maintenance costs were too high: CPA is a marginal cost. But if the underlying costs of operating a game are too high, then you need a *lot* of users to pay for them. And in an environment where customer acquisition is getting ever more expensive, it can be tough to breakeven.

I think all developers need to focus on these three elements – CPA, LTV and ongoing development cost – closely to ensure they are on a route to profitability.

2. Kill games that are underperforming

The success of companies like Zynga is that they launch games cheaply, see if they resonate at scale and then throw money at them. (Note: all things are relative: Zynga probably spends several million dollars on development and marketing at launch these days).

But they are also prepared to kill games that don’t cut the mustard. Just last week, they shut down Street Racing, which had over 400,000 Monthly Active Users (MAUs). I argued over at Develop that Zynga’s decision to shut down Street Racing was entirely rational for a company with much bigger fish to fry.⁴⁰

Sparkplay only had one title. If it began to falter, they didn’t have other titles to fall back on. This could be a problem in the long run for any company that has only one major title (like Jagex, Mind Candy, Ankama etc). It makes “adapt or die” much harder when there is only one title that you can adapt.

3. Beware fixed costs

Eternal Earth saw falling traffic (at least according to Alexa, which I acknowledge is a deeply flawed tool).

Figure 2: Alexa ranking for Earth Eternal

One obvious interpretation is that Sparkplay scaled down its customer acquisition activity when it became clear that it was running low of money. That could explain the sustained dip in May.

More importantly, a games service has a relatively high proportion of fixed costs (with the exception of customer acquisition costs, which are variable). Once the number of users falls below a breakeven threshold for paying for coders, artists, sysadmins and so on, a games company starts becoming loss-making pretty quickly.

That Alexa chart, showing that the company lost 50-75% of its users through the last six months could also explain the financial difficulties. Of course, without more insight into the exact situation of the company, I can’t determine the exact causes of this decline.

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