Investing in games

http://www.bruceongames.com/2008/05/13/investing-in-games/

Investing in games

May 13th, 2008 | Opinion

The video game industry must be one of the most attractive areas to invest in right now. The business is booming, growing far faster than anyone predicted, as it makes the transition to being popular entertainment for the masses. And the industry is still at it’s very beginning, it will grow to be bigger than movies and TV combined as it leverages it’s key advantages of interactivity, connectivity and non linearity.
In recent years the industry has fragmented into many genres on many platforms, this trend will continue for some time. Also technology has changed the marketing, sales and distribution model, significantly reducing the entry cost into many areas of game publishing. And there is the constant spectre of piracy, with over half the video games in the world being stolen it is important to invest in areas where at least a majority of customers actually pay for playing the game.
The king of the market, the gold standard, is the subscription MMO. When these work they become massive cash cows generating tens of millions in monthly revenue. But they cost many tens of millions to make, need constant ongoing investment and have a very high probability of failure. The current leader is World of Warcraft which took the market over from Ultima Online and Everquest. One day it’s position will be challenged but it doesn’t look like happening any day soon.
Next comes the free to play MMO, often aimed at younger players. These are even bigger in player numbers than the subscription MMOs and seem to be less risky as businesses. Revenue comes from advertising, premium membership levels and micro payments for in game items. Some of the big players are RuneScape (6 million),Habbo (86 million avatars created, 8 million monthly unique users), Maple Story (nearly 60 million), Dofus (4 million), Ragnarok Online (25 million), Guild Wars (3 million), Club Penguin (4 million) and Webkinz (over 3 million).
Console gaming is easier to understand. Hit driven boxed retail products just like music CDs and film DVDs. The main opportunities are with the Microsoft Xbox 360 and the Sony Playstation PS3 which are both a fair way from peaking in their product cycles. Product quality has now become immensely critical as knowledge travels instantly via the internet. To Metacritic below 8 is increasingly uncommercial, which is a good thing for everyone. Get it right and you too can gross half a billion dollars in one week as GTA IV just has. The total cost of developing and globally marketing a cross platform AAA game can now be in the tens of millions of dollars area. You need big resources so your hits can finance your inevitable misses, one reason the industry is consolidating into a small number of big players.
The console acts as an anti piracy dongle and is the main reason for the success of these platforms. The downside is that the platform holders take a fee out of every game published. These two factors together mean that console games are ridiculously expensive. Something that could eventually come to damage the business model.
The Nintendo Wii is not worth developing for. It is nearer the end of it’s life cycle than the other two consoles and it is mainly first party games published by Nintendo themselves that sell. Third party titles from other publishers are mainly low quality shovelware that have now frightened the consumer off.
The two handheld consoles, the Nintendo DS and Sony PSP are also not worth developing for despite the immense numbers of these that have been sold. Quite simply piracy has ripped the market up. Vastly more people will steal your game than will pay for it.
Casual gaming is huge and probably growing faster than any other area of gaming. The ability to just drop in and spend a little time having fun then log out and get on with the rest of your life is very convenient. Far more appealing to many people than the commitment needed by hardcore games. There are 200+ million people who play online casual games every month. Both downloadable and browser games. Services such as Pogo.com, Sandlot Games, Big Fish Games, Boonty, PlayFirst, Reflexive, RealArcade, and Trymedia Systems. Games are cheap to develop using Flash but the average quality is still very low, something that will change as the market matures. Revenue can come from advertising, premier membership and micropayments.
Traditional boxed PC retail games that have been with us for decades are just about dead, with most publishers giving up, killed by rampant piracy. Instead there is a new breed of PC game centring on online play and sometimes episodic content. With unique user keys and services like Steam these can be made largely pirate proof. The PC game reinvented.
Mobile phone gaming has been declining in popularity. Largely because the market is doubly fragmented. Too many different platforms and too many different air time providers make it almost impossible as a business model. All this is changing immensely rapidly with gaming on the Apple iPhone and the reinvention of Nokia nGage as a software based gaming platform. These two will certainly overtake casual gaming to become the fastest growing sector of the business and have the potential to grow to become one of the major forms of gaming. This is the most exciting place to be just now.
There are still more valid business areas in gaming. All three platform holders now sell games online. These are smaller and so easier to make then their full price boxed equivalent and the revenue stream is steady over a long period rather than spectacular over a short life. This business can only grow and grow and is well worth investing in, just make sure that you put marketing effort behind your games on these services, you can’t expect good sales otherwise.
Finally there is gaming on the social networking sites such as Facebook and MySpace. This is still small but has massive potential and we have seen the first cult hit with Scrabulous.
So there you have a quick sketch plan of the market. It is a dynamic and exciting place and you can be sure that it won’t be the same twelve months from now.

 

Yeah, maybe they'll accept you out here Bruce.

 

I don't want to bash Bruce, but I am curious what the point was in copying and pasting 3 of your Blog posts into separate threads, with no surrounding context?

 

Informative stuff for people who are interested in the industry.

 

That doesn't really answer the question. I would like to know the Why rather than the What.

 

Why not?
There is a lot of information in these three articles.
People who come here are interested in the game industry so now there is a lot of stuff for them. Including all those development blogs.

 

Are you rating your own threads as well?

 

Because it reeks of desperation for more hits and doesn't add anything which wasn't present and easily locatable on the internet already.

This one is pretty much just a wall of back-links to your own blog. Don't get me wrong, you sometimes post some interesting stuff, but lately it seems that every time you pop up in a forum it's only to advertise one of your many sites or to cause a scene, not to genuinely engage in any interesting or enlightening discussion. And I believe you've been banned from a couple of places for it.

There was already a lot of stuff here.

But this is primarily a games industry discussion forum, not a dumping ground for 3 month old blog posts. I know you are (were?) in marketing, but there's a time and a place to pimp your blog, and it's not all the time and everywhere.

To be honest, it beggars belief that you haven't gotten the message yet.

 

Peter this part of the forum is accessible by everyone. People who come here are interested in the games industry. These three posts provide lots of information for them.

I know that you are sore because I removed you from the development blog list but you did ask for it. Now you stalk me, sniping away. You really do need to get a life.

 

ROFL

 

Well we are showing one thing to people interested in the industry and that is how small minded and bitchy some game
industry professionals can be. The comment people have made on this thread are a small minded disgrace.​

 

Please excuse me gentlemen, while I go cry into a pillow.

Bruce, I'm not at all sore because you removed a link to my blog from your blog spam, because as you say, I asked you to do so. The whole exercise (by your own admission) was an attempt to drive traffic between your blog and the blogs listed, and to be quite frank I'm happy not to be part of it.

If I'm at all sore, it's the symptom of a headache I've induced through repeatedly palming my face after each and every post you taint the internet with.

I can't honestly think of any incidents of stalking and sniping, so please indulge me if you could. I've certainly never argued with you outside of this forum. If I'm guilty of anything, it's not being able to stand bullshit, and certainly not being afraid to call people on it should it need done.

If the best defence you have against this is to click the little "Groan" button, perhaps you are beyond reason.

 

You did not ask me to remove your blog from the list. I did it because of your bad behaviour. You were pissed off when I did it. And you still haven't learned.

 

Ah yes that's right, apart from the "bad behaviour" remark, which is entirely inaccurate and even rather offensive. Let's see if I can correctly review the situation (and I'm currently looking at the post in question so I should get it right this time) :

I dared suggest that making links on the web isn't just about boosting traffic, it's about recommending content for the reader. I then explained the reasons why I did not reciprocate your link. (Namely that I generally wouldn't recommend your blog to readers of mine and that it was every blogger's right to not link back if they didn't feel it was appropriate.)

Then you apparently took the hump and deleted the link to my blog. Is that correct, or is this another instance of the purported bad behaviour?

 

Keep it up guys, this is hilarious.

 

I'm almost wishing I had a blog now...

 

I just got groaned for that That sounds like a YES to me

 

If you don't want to get 'BruceRolled' then just do the following:

1. Open \windows\system32\drivers\etc\hosts in your favourite text editor
2. Add the line:

Code:

127.0.0.1 www.bruceongames.com

3. Then to flush the hosts cache do this from command line:

Code:

ipconfig /release
ipconfig /renew

This will now mean any requests to 'accidentily' visit Bruce's blogs are met with a browser error...

At least that's what I do with all the other spam websites I come across - theres also a guy called 'Mike' who maintains a list of all the spam sites he and his contributors come across.

http://everythingisnt.com/hosts.html

 

Sorry I'm new here, I don't know the egos involved but that original post and article had NOTHING to do with the title "Investing in games"!

As both someone who both works in the games industry and is a keen private investor, I found it about as useful as a bicycle to a fish.

Where were:
The list of quoted games companies?
The comparisons of Price to Earnings ratios?
Historical data?
Analysis of current and previous companies (including those that folded / buyouts)?
Analysis of game development cost trends and ROCE (Return on Capital Employed)?

 

I'm likely to step on a few by saying this (apoligies in advance)... and it's quite apart from my views being different to those in the article. There's two things to remember here.

Firstly people often attribute self worth (if they realise it or not) to things they have done, and I think Bruce expects some praise for voicing his opinions... although he's gone about it in the wrong way in this case and doesn't seem to understand that it's not bad content, it's just in the wrong place. Anyway the agrument has steamrolled beyond reason so all anyone can do now is sell popcorn and ringside seats until it's over.

Secondly, I would never suggest an internet forum as a place for sound financial advice. There are people who are very knowledgable about the financial status of the games industry and can advise on investments... but I don't think there are too many of them here.