GameStop Rides The Next-Gen Wave

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GameStop has had a wild ride in the last few years, with its fortunes tied so closely to the console business. The company bumped downward as consoles and console games decline in the years since 2008, and many observers wondered if GameStop was going to be the new Blockbuster Video, a victim of the evolution of the game industry to digital distribution.

Well, the naysayers are apologizing today as GameStop turned in a quarterly performance that beat its own estimates. Total global sales for the second quarter of 2014 were $1.73 billion, a 25.1 percent increase compared to $1.38 billion in the prior year quarter. A key performance indicator for any retail store is how well stores that have been established for more than a year did compared to last year; GameStop saw that consolidated comparable store sales increased 21.9 percent.

When it comes to profits, GameStop saw them more than double. “GameStop’s net earnings for the second quarter were $24.6 million, a 134.3 percent increase compared to net earnings of$10.5 million in the prior year quarter. Diluted earnings per share were $0.22, a 144.4 percent  increase compared to diluted earnings per share of $0.09 in the prior year quarter,” the company said.

Investors drove GameStop shares higher on the news, with the share price up over 5 percent this morning. They may be feeling a little better about the company’s prospects, but navigating the turbulent waters expected over the next few years is still going to be difficult. Although GameStop had a great quarter, it did not lift its guidance for the full year. The company is being cautious, watching so many big software titles get pushed out to 2015 — and it’s still not clear just what the long-term sales level will be for this new generation of consoles.

Analyst Michael Pachter of Wedbush Securities is still positive on GameStop, looking for the shares to hit $60 (they are currently a little over $42). Colin Sebastian at Baird Equity Research is positive as well, looking for the shares to hit $52. Both analysts see GameStop riding the wave of next-gen well, and continuing to expand into technology businesses. “Q2 mobile sales were $112.1 million (up 85 percent from last year’s $60.6 million), with Technology Brands accounting for $70.1 million (roughly 63 percent) and $7.1 million of the company’s operating income (roughly 19 percent). The contribution highlights how important the new business will be to the company’s profitability in quieter periods for the video game industry,” Pacheter said in his note to investors.

GameStop’s terrific results were driven by mainly by next-gen hardware sales, which were up 125 percent. As well, new software sales rose 15.6 percent, which was roughly twice the growth of the overall industry. While that was great, GameStop also did well in other areas. “For the quarter, our digital receipts rose 18 percent, with console digital increasing 13 percent and PC digital increasing 24 percent,” said president Tony Bartel. “On a year to date basis, we have grown our digital receipts by 13 percent, which is essentially in line with the mid-teens digital growth rates of our top four publishers.”

Software sales for next-gen consoles are building as key titles make their way to market, albeit more slowly than anyone would wish. “The attach rate is still building, as publishers release more new titles. GameStop’s attach rate is now above four, which is 75 percent higher than the rest of the industry,” said Mike Hogan, EVP of strategic business and brand development. “In the nine months since launch, category-wide sales of next-generation hardware are 70 percent higher than the same period following the PS3 and Xbox 360 launch, and GameStop’s sales are plus 140 percent. During the same timeframe, category-wide next-gen software sales are plus 26 percent versus the prior generation launch and GameStop’s are plus 103 percent.”

Hogan also noted that GameStop is doing very well with its games division, both online and mobile. “In the second quarter, Kongregate, our mobile and casual games platform, hosted very strong results, growing plus 123 percent over the prior year,” Hogan said. “We currently have 12 games active on the IOS App Store and Google Play Store, with a total of 20 games expected to be launched by year end. We have multiple games running above a $10 million annual rate, and expect Kongregate to be a top-10 third-party mobile games publisher this year.”

All told, it looks like GameStop is growing its range of businesses very well while it rides the wave of next-gen consoles as far as it goes. The Technology Businesses (buying and reselling mobile devices, opening retail stores like Simply Mac) has been growing rapidly, and provides a hedge against a downturn in console sales. Perhaps most importantly, GameStop has been able to significantly capitalize on selling digital goods in-store, which many deemed a near-impossible task. It turns out, though, that knowledgeable advice at the retail point of sale is a great way to sell additional content for games.

While digital distribution is growing, GameStop is doing what it can to be a key place for gamers to get the info (and products!) they desire. Yes, we can now order a game through our console. But when we want advice on which one, or whether or not a map pack is worthwhile, maybe a trip to GameStop s indicated. And hey, if I need some money for a new game, I can sell some of my old ones that I’m really not playing any more. Besides, whenever I go into GameStop I always see something cool that I didn’t even know was out there, right

GameStop has many challenges ahead, but keeping a focus on the customers should help them through it. The GameStop Expo is in Anaheim in a few weeks, where GameStop will bring all of its managers together for a look at the hot upcoming titles and to get ready for the holiday season. Then GameStop throws open the doors to consumers, where tens of thousands of eager fans will get a chance to go hands-on with the big titles coming for the holidays. The [a]listdaily will be there, and talking with some GameStop executives to get their insights into the market ahead.

SuperData July 2014: U.S. Digital Sales Rise

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Analysis from SuperData CEO, Joost van Dreunen, follows:

Overall digital games sales reach $851 million in July, up six percent compared to the same month last year. As the market ramps up for the holiday season, we anticipate a further drop in August after which spending will climb to an estimated $1.2 billion in December.

Despite a pickup in the social and mobile categories, good for a combined $442 million in spending (July 2014), the strain among major publishers to maintain earlier growth levels is starting to show. Because of a lack of new title releases, Grand Theft Auto V managed to wiggle its way back into the number three slot of top downloaded digital titles, following FIFA 14 and with Minecraft at the top of the charts.

Major publishers’ transition to digital in full swing
Several of the major Western publishers released their quarterly figures, showing an increased reliance on digital channels. Electronic Arts benefited from the worldwide attention for soccer as FIFA Ultimate Team drove the success of its digital category. It also provided an answer to the question of whether digital distribution improves margins by posting a record-breaking 70 percent gross margin for the quarter. In addition, the company reported a growth in full game downloads, as EA’s digital revenue for the quarter reached $482 million.

Competitors Activision and Take-Two Interactive also posted higher than expected digital revenues, indicating that the major publishing houses in the West are well on their way toward a predominantly digital publishing model. Digital laggard Ubisoft posted $112 million in digital revenues, largely because of the success of Watch Dogs. Nonetheless, the publisher has still some work to do if it’s going to catch up on its peers.

Have a go at the buffet while you wait for 2015, says EA
Perhaps in an attempt to placate gamer sentiment, Electronic Arts announced its plans to offer several of its staple titles via its EA Access subscription plan on Xbox One. Despite the euphoria of reporting higher than expected revenue in its most recent quarterly earnings statement, the company postponed several key titles. Arguing that it wanted to further polish its games and incorporate feedback it had received during E3, Dragon Age: Inquisition was moved to November this year and Battlefield Hardline to March, 2015. Moreover, several of its key franchises suffered from a poor launch (NBA Live 14, Battlefield 4) and the absence of NCAA Football 15 depressed overall sales in the US.

EA Access is likely to attract a subset of core players, but is unlikely to get traction with a larger audience as gamers are increasingly hesitant to commit to monthly payments. Finally, given Sony’s reservation with regards the value of the EA Access proposition, it raises the question of whether EA can successfully offset a delay in title releases with incremental subscription revenue.

Player 3 enters the game: Can Smite become the third most popular MOBA eSports title
With a prize pool of $600,000 for its upcoming world championship, the mythology-inspired Smite is quickly becoming one of the more popular MOBA titles for competitive gaming. Its traction with gamer audiences raises the question as to what the future of MOBA eSports will look like: will competitive gaming settle around a single game like League of Legends, or will it allow for several titles within the same category, each with slightly different game mechanics and rulesets For now, it appears there is enough appetite out there to sustain a fragmented market around a myriad of games.

The MOBA category is still growing, with category leader League of Legends growing to 78 million monthly actives last month. Smite currently hovers around one million monthly actives since its launch in March earlier this year, and still has some ways to go. But it took DOTA 2 only about a year and a half to get from 1.5 monthly actives to 9 million (July 2014). In the long term, the interests of advertisers may force eSports to consolidate and reduce the friction of a fragmented audience. But with a few exceptions, advertisers have been slow to capitalize on competitive gaming.

Social and mobile gaming increasingly resemble traditional publishing
Zynga announced several delays in order “to improve product quality and customer experience.” Such a statement is common in the console market, but for a social game publisher to push back a release date is odd: social games are continuously updated and optimized post-launch. The decision suggests that social gaming is starting to resemble traditional publishing. As the social games market reaches saturation, companies increasingly rely on the effectiveness of their initial marketing push to establish market share and a sustainable user base. In addition, marketing expenses continue to grow: the CPI for social games in the US reached $2.25 (June 2014), the highest it’s been in over a year.

King’s situation proved no better. Following a successful start for Farm Hero Saga, which reached a peak of 30 million monthly actives on social (May 2014), the game’s player base has started to erode at a rate of approximately 4 percent in the last two months, dropping to 28.1 million actives in July. In tandem, Candy Crush Saga on Facebook dipped under $20 million in monthly earnings.

Some thoughts from SuperData’s CEO on the July report:

[a]listdaily: How is World of Warcraft holding the #1 slot against League of Legends and DOTA 2 How big a boost is Warlords of Draenor going to give World of Warcraft, and how long will it last?

Joost van Dreunen: World of Warcraft lives in a different category, both from a game mechanical and monetization perspective. Its strength lies in its loyal user base, which by now consists mostly of veteran players who like to hang out together. There’s no comparable socializing on League of Legends or DOTA 2, as these games cater to a different gamer type. New content releases always do wonders for World of Warcraft, but at this point in its lifecycle we’re expecting it to be lower and shorter than the previous ones.

[a]listdaily: There’s been speculation about possible subscription plans for regular content drops, perhaps for titles like Destiny. Do you think that will be tried, or is a monthly subscription just going to disappear all around?

Joost van Dreunen: I have no doubt that publishers will try different subscription-based offerings: from a financial standpoint it makes sense, and it helps qualify dedicated gamers. However, we are still a long way from game publishers adopting a similar model as premium TV networks, even though I do think that’s a feasible strategy.

[a]listdaily: Candy Crush Saga is losing some steam — will it start to drop in the rankings Is Clash of Clans holding steady or improving, or is it, too beginning to decline Do you see turnover in the mobile Top Ten increasing, diminishing, or staying the same over the next six months

Joost van Dreunen: Titles like Candy Crush Saga and Clash of Clans will decline at a slow pace. Unlike the short-lived success of mobile titles like Flappy Bird, these blockbuster hits will continue to claim both time and wallet share, giving King and Supercell time to come up with the next title. Over the next six months we’re expecting to see turnover in bottom half of the top ten, especially toward the holiday season.

www.superdataresearch.com

Tiltify CEO: Use eSports For Charity Fundraising

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Tiltify CEO Michael Wasserman has been involved in charitable fundraising for the past decade. Four years ago at a Stiks Celebrity Video Game Challenge charity event in Hollywood that featured a THQ UFC Undisputed video game tournament with the likes of Zac Efron, Rampage Jackson, Cobi Jones, Snoop Dogg and Michael Strahan, Wasserman saw the power of video games raise $50,000 and draw over 800 guests. The growth of livestreaming the last few years has allowed Stiks Gaming to transition into Tiltify, a new platform that connects celebrities, athletes, eSports stars and YouTubers with gamers to raise money for charities.

Michael Wasserman

The first gaming campaign, “Race Against Cancer,” hopes to raise $50,000 for Teen Cancer America. As an incentive for gamers to donate money to the cause, they can win the chance to play Microsoft’s Forza 5 against Indy Car drivers Josef Newgarden and Justin Wilson on August 28 with the event livestreamed on Twitch.

[a]list daily: How powerful are video games when it comes to fundraising for a good cause?

Michael Wasserman: The event we did in 2011 was not meant to be nearly as big an event as it was. We had 800 people come by. But what was interesting is that a lot of the celebrities were the last to leave. As someone who has thrown a lot of galas and traditional charity events, that doesn’t normally happen. Celebrities appreciated doing something fun and unique and they play games in their own time anyway.

[a]list daily: When did you launch Tiltify.com?

Michael Wasserman: We did a soft launch on August 2 for our Beta version. We’re looking for feedback from the gaming community. It’s a new site, so we want help from the community on what features to continue to build out.

[a]list daily:What opportunities does Tiltify open up for the burgeoning eSports community?

Michael Wasserman: This has a huge opportunity for eSports. One of our focuses has been speaking to a lot of the eSports tournament organizers and asking them to get involved in the charitable side. You can create a campaign and fundraise, but Tiltify also creates a widget that can be put on your Twitch or YouTube page so you can campaign for whatever charity you love. If you’re having a big League of Legends or Pokemon World Championship, there’s an opportunity to add additional user interaction and put the charity button on the livestream page. Twitch has a lot of space below the stream to add simple buttons and we’re talking to them about increasing the functionality of those buttons for charity.

[a]list daily: What does the fact that many eSports stars already livestream practices regularly open up for charities?

Michael Wasserman: When you look at the number of people pro gamers reach, they could generate millions of extra dollars for charities. And it doesn’t impact what they’re doing. If anything, it could enhance their fan base because it brings new people to the stream as people watch because they want to support their charity. Over 80 million people in U.S. watch eSports. Having a button where you could touch the screen and donate — and potentially have cool rewards as a gamer like the Forza 5 digital game and DLC giveaways for the “Race for Cancer” — we have that game changer.

[a]list daily: What have leaders in eSports like Riot Games said about this new platform?

Michael Wasserman: We’ve spoken with Riot and have received great support from them since February when we first started talking about what our platform could do. They offered to connect us with tournament directors and they love to help out with charity. We’re talking to them about things like integration for the viewing parties you can organize through Riot site and potentially linking to our site through that. We’re talking to everyone from Riot to Blizzard to MLG to see if we can help everyone enhance their streaming experience.

[a]list daily:What opportunities do you see for Tiltify beyond the core eSports games?

Michael Wasserman: The Forza 5 campaign is a great example. We’d been speaking with Teen Cancer America for awhile. They saw the value of what we were doing. They had two Indy Car drivers who support their cause and we reached out to Xbox and they were very supportive. Once we had Josef and Justin wanting to battle each other Microsoft came in and gave us downloadable versions of the game and the Forza 5 car pass and also got Indy Car involved. That’s not your typical eSports community like League of Legends or DOTA 2. It’s a great opportunity for fans to interact with their favorite athletes or musicians or Youtube stars or gamers. Livestreaming has opened up the ability for fans to connect with their favorite celebrities in a way TV can’t do. Indy Car fans probably have no idea what League of Legends or Twitch is, but they can go and watch these cool experiences and help a good cause. Ultimately, it could bring more people into the eSports fold.

[a]list daily: How have charities come on board?

Michael Wasserman: We have over 10 as of this interview and I expect to have about 50 by the end of the month. It only takes 15 minutes to sign up. Charities have responded to this platform because in the past gamers had to contact a charity and figure out who to talk to, which could be difficult. Our platform makes it easy with a one-click contact. Also, before Tiltify charities were wondering how their branding and logo was being used. Now when they sign up on our platform, a charity like the Able Gamers Foundation know that the logo they’ve approved gets transported into their campaign.

[a]list daily: What opportunities does this platform open up for Hollywood celebrities

Michael Wasserman: Tiltify offers an opportunity for celebrities to get involved in a low time commitment threshold. Instead of flying to a golf tournament or going to a gala, they can play from home or anywhere they’re at and raise money any time they want. Seth Rogan has his Hilarity for Charity foundation and if he wanted to raise money he could do that and play games from home, which is better than asking him to commit to being at a gala and potentially having to do something more time-consuming. We’ve had great response, especially on the athlete side. There are a number of cool campaigns coming out within the next 30 to 60 days where we’re working with athletes and musicians and celebrities that are starting to put some campaigns together.

[a]list daily: EA Sports hosts the Madden Bowl every year during the Super Bowl. How easy would it be to add a charity element to a video game tournament like that

Michael Wasserman: You can take something like the Madden Bowl and athletes can take their favorite charities and we can build out a campaign in minutes. If EA is going to stream that event, they can turn it into an instant fundraiser and get the athletes more excited about the competition. Because they’re playing for their favorite charity, it means more to them.

PAX Prime Preview

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The Penny Arcade Expo (PAX) gaming festival has become a fixture among gamers, with tickets selling out seemingly moments after they become available (this year tickets sold out in about an hour). PAX was created in 2004 by Jerry Holkins and Mike Krahulik, creators of the Penny Arcade webcomic, and has grown tremendously since then. PAX festivals now take place in Boston (PAX East), Melbourne (PAX Australia), and San Antonio (PAX South). The PAX Prime festival attracts over 70,000 gamers, along with scores of game publishers and developers eager to reach this motivated audience.

The festival itself covers a wide spectrum of games, from tabletop to console to PC to mobile, and celebrates gaming with speeches and panels from industry insiders, game-culture-inspired concerts, exhibitor booths, tournaments, and open gaming areas. The show is a deep dive into all things gaming for the moat dedicated gamers, and as such it’s a rich vein of concentrated marketing ore that many are eager to mine.

Golem Arcana

Companies relish PAX as a way to find the most motivated gamers who are likely to be key influencers, and so the show has become a place to debut new game demos, have customers playtest games, and announce new games and licenses. Marketers can also get a good read on what’s generating buzz for gamers — and what’s not.

This year’s PAX is shaping up to be another success, and the [a]list daily takes a look at what’s coming up at the show. The keynote speaker is Gearbox’s chief creative champion, Mikey Neumann. One of the most fun events every year is the Omegathon, where 20 randomly selected attendees compete in a three day marathon of games that span the spectrum of the gaming universe. After each round, some participants are eliminated. Each year, the final game is held secret until moments before the final two Omeganauts enter battle. This year, participants will be playing Johann Sebastian Joust and Mario Kart: Double Dash, among other games.

One of the interesting things about PAX is how it mixes classic tabletop games in with electronic games, and sometimes the games themselves are crossing over. Among the interesting crossover games being shown off at PAX you’ll find Golem Arcana, the latest game from developers Harebrained Schemes (who brought you the ShadowRun game). Golem Arcana is a Bluetooth-enabled tactical miniatures game that combines miniatures boardgaming with “digital enhancements” that work with your smartphone or tablet, along with a special stylus that connects the gameplay to your device by tapping the miniatures.

Another interesting crossover hitting PAX is Pathfinder Online from Goblinworks, a fantasy sandbox MMO based on the bestselling Pathfinder RPG. This promises to be a deeply engaging game, similar to EVE Online, where players build out the universe and much of the game emerges from their interaction.

Continuing the crossovers is Warhammer 40K: Eternal Crusade, a third-person massive combat RPG based on the hugely popular miniatures game by Games Workshop. “Players select one of the factions of the 41st millennium and fight other players for control of an open, persistent world. As they hack their way through content, players claim territory in massive battles and earn the right to customize and improve their characters in a deep progression system drawn from Warhammer 40,000 lore,” said developer Behaviour Interactive. A playable demo will be at PAX.

Hardware will certainly be among the things showcased at PAX Prime, and attendees will probably be seeing the latest Steam Machine prototypes being shown off. Valve may have delayed the arrival of this console competitor to work on the controller, but companies like Alienware will probably be showing off hardware anyway. Valve may use the opportunity to show the latest version of its Steam Controller, and perhaps get some feedback from attendees.

Oculus will be showing off the Oculus Rift at PAX, and it will be interesting to see the reactions from these hardcore gamers as they get to experience the latest in consumer VR techno0logy for themselves. Oculus will probably have some of the latest demos using the latest hardware, so the experience should be impressive.

Blizzard is planning a strong presence at PAX, with a brand-new demo for Heroes of the Storm at their booth where players can try three exciting new heroes. Gamers can also get hands-on with the live beta of World of Warcraft: Warlords of Draenor, featuring updated models and the intro experience for the upcoming expansion. Of course, Hearthstone will also be getting plenty of attention, and Blizzard will be showing more about what’s in store for the popular card game.

Indie games, as you might expect, will also be featured at PAX Prime. The Indie Megabooth has dozens of indie games, plus 400 square feet dedicated to some of the most interesting tabletop games, like Cards Against Humanity. There will also be an educational space for indie games that can teach you something. This is an important way for indie game developers to connect with the most dedicated part of the audience, and hopefully gain some attention for their titles.

We’ll have more during and after PAX Prime, so be sure to head back to the [a]listdaily for the latest news on what’s happening at PAX.

How Consoles Could Evolve, And Xbox One Could Beat PS4

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So far, the PlayStation 4 and Xbox One have been selling well, which is keeping hope alive that this latest console generation will be as successful as the last one. Many like to point to previous console cycles as evidence that this cycle will look the same for hardware and software sales. Microsoft and Sony have publicly stated that they are looking for these consoles to sell strongly for as much as seven years or even more. Is that realistic

The counter argument is that this new console generation faces an unprecedented challenge. Mobile hardware, while only now reaching the performance level of the last generation of consoles, has been at least doubling in graphics power ever year. With the next-gen consoles being roughly 6-8x as powerful as the last generation of consoles, that means mobile devices could be reaching equivalent power levels in three or four years. If next-gen consoles remain static in graphics power, this could be a serious threat — especially as we’re already seeing mobile hardware, with its low cost and high performance, being built into set-top boxes explicitly being designed as consoles. Does this mean next-gen consoles are doomed to a short product lifetime

Not necessarily. Yes, it’s true mobile hardware will continue to advance rapidly, and the massive volumes and bitter competition of the mobile business (an order of magnitude larger than consoles) will keep advances coming regularly at low cost. Meanwhile, PC graphics continue to improve every year, and next-gen consoles are already only comparable to a mid-range gaming PC. Still, there are things that console makers can do to improve the situation — and that shows a possible way for Microsoft to recapture the lead in console sales from Sony.

First of all, let’s acknowledge that games are already improving on next-gen consoles as developers get more familiar with the platforms. And that system software changes can lead to improvements, as Microsoft’s DX12 is supposed to do (boosting graphics performance by a noticeable amount). Even hardware improvements are already happening; one of the new Xbox One bundles features a 1 TB hard drive instead of 500 GB. Microsoft has also released the approximately 10 percent of system resources dedicated to Kinect, so developers now have that extra horsepower available. We may also see improvements to games through cloud-powered processing, where (for instance) sophisticated AI might be offload to the cloud for processing in a seamless fashion.

There’s plenty of room for improvement beyond tweaks to system software, though. One major difference with the next-gen consoles is that they are based on standard PC architecture from AMD. Thus, creating a faster CPU or GPU would be less of an effort than it would be for the previous custom architecture of consoles. Typically, process efficiencies alone (moving to smaller die sizes) usually saves console makers money over the course of the console’s lifetime; instead of saving that money, a more efficient part could be used. Imagine, if you will, an Xbox One or PS4 with a CPU and GPU that is twice as fast (or more) for the same price.

The difficulty with creating an improved console is the installed base. Those 10 million PS4 owners already out there (and the next ten million that would buy it) would be annoyed if one fine day Sony started shipping PS4’s that had much greater performance. Moreover, software that had already shipped might not be compatible with the new PS4, or able to take advantage of the added horsepower. The same is true for Microsoft and the Xbox One, even though the installed base is less than 10 million.

In the console market of the past, dealing with that installed base was an insurmountable problem. You couldn’t possibly push out updates to everything, not given how difficult and expensive it was to get updates approved and sent. Now, though, developers should be able to easily update games for any reason, and getting a performance boost would certainly be a good reason. So older games could work better for buyers of a new improved console, with some minor help from the publishers.

The more difficult question is what to do about current console owners who want the extra horsepower now available. Here’s a modest proposal — why not turn to a retailer with extensive experience in taking in old hardware and providing new hardware GameStop would be happy to serve in that role with the proper structure. Perhaps Xbox One owners could turn in their old Xbox One and for $100 get a new one with the added power. If Microsoft really wanted to sweeten the deal and improve the percentage of people upgrading, offer $100 of games for free with that upgrade.

In fact, this method could be used to completely turn around Microsoft’s current fortunes in the console market. Microsoft let Sony take the lead for two primary reasons: The Xbox One was $100 more expensive than the PS4 (gamers did not particularly see the Kinect as worth $100), and the Xbox One was seen as less powerful than the PS4 (those endless stories about lower frame rate and resolution for Xbox One games had an effect). Microsoft’s solved the price problem, but the power issue still remains (even though the gap has narrowed, the perception remains). Offering an Xbox One with a clear horsepower advantage over the PS4 at the same price point, along with an upgrade path for current Xbox One owners, would completely change the situation in the market.

Yes, this would cost Microsoft some money — tens of millions of dollars perhaps a hundred million or more. But money is the big advantage Microsoft has over Sony, with over $60 billion in the bank versus a company that continues to struggle with getting out of the losses caused by the TV business. This would be a move Sony would find it hard to match.

If Microsoft really wanted to make life difficult for Sony, and keep a competitive edge against Steam Machines and mobile devices, this process could be repeated every two years as CPU and GPU performance improves. Make consoles a device that gets a regular upgrade, much like smartphones. Part of what makes the smartphone business work is the carrier subsidies in the US, which lower the price for the hardware and drive upgrades, along with the relatively high resale value for smartphones. The combination means that when a new iPhone rolls out, old iPhone owners can get the new hardware for very little out of pocket by signing a new two year agreement and selling their old phone.

What practical difference would this make for games They could be prettier, with more advanced rendering and anti-aliasing, particle effects, and other things that may not add much to the game play but they sure get the juices flowing for hard-core gamers. Most games could take advantage of the extra horsepower to improve rendering without huge changes to the software. Since many games are now being developed for PC right alongside the next-gen console versions, the game engines are usually ready to take advantage of greater CPU and GPU power to improve appearance.

Would Microsoft make such a bold move Certainly the Xbox division has been surprising long-time observers with its ability to make changes (like removing the Kinect, or changing the digital game policies before the launch) swiftly. It’s a bold move, and it wouldn’t be easy to pull off. Microsoft may find itself evaluating this and other difficult options if the market share numbers don’t meet the company’s objectives. Of course, Sony could also implement this sort of plan…

From Oprah to PewDiePie: Creating Win-Win Campaigns

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Jim Louderback begins the panel by asking whether or not PewDiePie, the current most subscribed and viewed YouTuber is really an influencer. The range of answers from panelists is really telling.

Everyone has different and sometimes conflicting ideas of how best to work with influencers and identifying the right ones. Sometimes there are things that we can all agree on like “knowing who your audience is.”

The Oprah to PewDiePie panel was a good mix of those who work brand-side and those who have more than a toe in creation, too.  All in all, there’s a lot to meditate on here for marketers.

 

NPD July 2014: Software Heads South For The Summer

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We’re back to the new normal for video game hardware and software at retail in the U.S. for July. That is, a huge increase in hardware revenue, up 100 percent from $99.4 million to $198.8 million, (due, of course, to new console sales) and a drop in software revenue, (down 15 percent from $210.1 million to $178.2 million) with a minor increase in accessory sales (up 3 percent to $137.3 million). It’s a situation that’s not exactly what publishers might like, but it’s still promising in many ways. As usual, though, you need to look deeper into the numbers to see what’s really going on.

NPD’s Liam Callahan does the usual cheery framing: “Similar to the pattern seen in seven out of the last nine months, strong growth in hardware sales offset declines in software sales in July 2014 while accessory sales had modest growth, leading to an increase of 16 percent in overall new physical video game sales compared to July 2013,” Callahan said. Of course, the first thing you want to know is some details on those hardware sales, as Sony, Microsoft and Nintendo continue to try and put the best spin on things.

Sony had no new announcement since the NPD numbers came out, but the company did announce it’s sold 10 million PlayStation 4 consoles so far earlier this week at Gamescom. “We just announced that the PlayStation 4 has sold through more than 10 million units worldwide — and more than 30 million PS4 games have been sold — since its launch less than nine months ago. It’s a remarkable milestone that reinforces PS4’s record-breaking pace and the movement it has created among players globally in defining next generation gaming,” Shawn Layden posted on the PlayStation blog.

Microsoft and Nintendo promptly responded, with… crickets. Really, it’s all about the games, right Actually, Microsoft has been active this week talking about its new system update and plenty of new games coming up, while Nintendo has been pretty quiet throughout Gamescom, the company has a booth. Nintendo did post a sizzle reel of upcoming games for the Wii U and 3DS:

 

Hunting Whales And Golden Swans

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Creating a game company for the long term is a difficult task, and you have to have a sustainable long-term strategic vision that you can execute properly. The games industry is considered to be a hit-driven business, which is a justifiable view — but that’s a very difficult strategy to execute for long. Too many new game companies, especially mobile game companies, seem to be relying on extremely rare events as a sustainable business strategy, and that’s very risky. They are hunting for whales and golden swans, relying on very rare events to succeed. Wiser companies are diversifying their offerings, depending on proven brands, and experimenting while remaining ready to take advantage of a rare event.

What are these creatures that companies wrongly pursue Whales are those customers who spend thousands or even tens of thousands of dollars in a game (the term is borrowed from the casino business). As in the casino business, these customers aren’t usually the majority of the revenue from a game (sometimes up to 10 percent or more, though) but they are highly profitable. These whales, though, can easily get bored or run out of money and suddenly stop playing your game at any moment.

The other rare creature being pursued by many companies is what I call a “golden swan.” What’s a golden swan That’s a rare, fortunate event that has major consequences, the positive version of a “black swan” event (the etymology is fascinating), a metaphor that “describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight,” according to Wikipedia. That describes many of the megahit games very well indeed — companies tend to think very highly of themselves after creating such a megahit, but history shows that caution (and conservative spending) is indicated.

Whales and golden swans share some important characteristics. They are incredibly rare, and incredibly valuable — and utterly unreliable when you’re planning a long-term strategy. Looking at how some companies have dealt with unusually successful games shows you the dangers of depending on rare events. Send whales a bottle of champagne, if you will, celebrate your golden swan when it arrives, but don’t construct your business strategy around them.

Brøderbund was one of the largest game companies in the late 1980’s and early 1990’s, based on the enormous success of titles like The Print Shop, Carmen Sandiego, and Myst. When the company went public in 1991, The Print Shop was 33 percent of its revenues and the Carmen Sandiego series was 26 percent. However, these titles were never the result of a planned strategy, but just things the company stumbled across. Brøderbund went from hit to hit, being lucky enough to find a new one each time the old one was fading…until one day there wasn’t a hit, and the company was sold (Ubisoft now owns most of the key brands).

Rovio had a great hit, Angry Birds, after 52 failures. Flush with success, the executives talked about becoming a company bigger than Disney, and a major creative powerhouse. Aside from extending the Angry Birds brand, Rovio has yet to create another major IP. That’s quite all right, though. It has a nice business, but it’s not keeping Disney executives up at night worrying. But it shows how a single golden swan may be very valuable, but it’s not going to build you an empire.

King Digital’s an interesting example. The company’s latest earnings report showed that Candy Crush Saga is slowing faster than expected, so the company missed its earnings projection — and the share price has dropped 25 percent as investors realize other games aren’t filling in the gap. King has been around for ten years, growing a reliable business based on creating lots of games and then promoting the best ones after extensive customer testing. When Candy Crush Saga became an enormous hit, King used its momentum to go public and bank a large amount of capital. Now, as the game begins to fade, King is using that money to diversify into different genres — while continuing to crank out new games at relatively low cost and risk.

Zynga is making the transformation from a hit-dependent company to one that’s a diversified, stable publisher. The company’s meteoric rise was entirely based on Facebook and its rapid success (and the early massive viral marketing Facebook enabled). But Zynga’s games didn’t exhibit much variation or innovation (basically, you had Zynga Poker and the “build and display” type games like FarmVille), and 95 percent of the company’s revenue came from Facebook. As Facebook started taking a revenue share, and cut back sharply on viral marketing, social gaming in general shrank — and Zynga suffered. The company had gone public at the height of the boom, though, and put over $1 billion in the bank. That nest egg is what Zynga is using to completely reinvent itself as a full-line publisher that’s diversified on platforms and genres. The latest quarterly earnings showed Zynga now makes the majority of its revenue from mobile games, and it’s grabbed some high-profile licenses while working on a variety of games. Zynga Poker and FarmVille are still more than half the company’s revenue, but that will likely change.

Among old-line publishers, Activision and Electronic Arts have been making the transition from being hit-focused and platform-focused to being brand-focused. FIFA is a brand that transcends platforms. As long as they continue to turn out new versions and find new ways to engage customers, FIFA will continue. EA is also busy pushing its Origin game distribution service, and inventing new ways to get people to play its games.

Activision has found that World of Warcraft is more than just a PC game; it’s a source of great brand equity that’s powering Hearthstone and Heroes of the Storm, and propelling the company’s growth on tablets. Activision took a chance by experimenting on Skylanders, and it’s paid off handsomely — and Activision is busy putting more effort into that brand and extending it onto tablets.

TakeTwo, on the other hand, still seems dependent on Grand Theft Auto to deliver a massive injection of cash… but that’s every five years. GTA Online may help them move beyond that. On the other hand, the 2K Sports brand seems to be cranking out a dependable stream of titles that sell well. The company is still heavily dependent on GTA revenue, but it’s placing major new bets like Evolve that could be very successful.

There are companies like Supercell or Machine Zone that are doing extremely well on one or two games (Supercell has three that are all doing well). Mojang has a great business with Minecraft, but hasn’t had any success in introducing other games yet. Riot Games has only one game, League of Legends, which is a tremendous success. Those are perfectly fine businesses, terrific in fact — but if any of them aspire to become a major publishing operation, they need to diversify and experiment. And if your business is depending entirely on one title or platform, what happens when that title or platform suddenly starts doing less well? The technology industry in general is littered with the corpses of companies that depended on one product that was supremely powerful, and yet one day failed. Look no further than Blackberry to see how fast fortunes can change.

Industry consultant Eric Goldberg wisely observed that taking no risks is the riskiest strategy of all. Hunting for whales and golden swans, and depending on them for your entire future, is a risky business indeed. Save the whales and preserve the golden swans, and look for a broader array of games to power your company into the future.

Creator Visionaries With Olga Kay, Zack King And Connor Franta

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[a]list summit: Influencer Marketing gathered some top influencer talent to discuss their craft and showcase some work they’ve already done with brands. Our ‘Creator Visionaries’ panel with Olga Kay, Zach King and Connor Franta was a wildly popular one.

What are the challenges and joys of working with brands Listen to what the influencers have to say:

 

Gamescom: The Next Wave Of Next-Gen Games

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Just a couple of months past the Electronic Entertainment Expo (E3), Gamescom in Cologne, Germany is another chance for major game companies to garner some media attention and get the gamers fired up for the next wave of game releases. Gamescom is significantly different from E3, because while it does offer a trade-only day, the show is primarily focused on consumers – and last, 340,000 eager gamers stormed through the show, an astonishing number. This is the first chance for many of these upcoming games to actually encounter gamers in the wold, and get their unfiltered hands-on impressions of the games.

Those hands-on impressions, if properly conveyed by marketing back to the product development teams, will no doubt cause some long meetings and plenty of new punch lists for adjustments that need to be made to games. No game design survives contact with the gamers, as Clausewitz would have said if he designed games instead of ordering armies about.

Both Sony and Microsoft had similar events, staging them more for the video audiences at home than for the fairly small crowds in actual attendance. Nintendo chose to pass on the chance to address the media directly, much as they did at E3. That’s probably for several reasons, with the most obvious being that Nintendo has no big news to announce — so why spend the money and effort to impress the media when you don’t have much to impress them with

Activision chose not to hold its own media event, much as it did at E3, again spreading its efforts between Microsoft and Sony. Microsoft got Call of Duty: Advanced Warfare to promote, and Sony got Destiny. Both companies will have system bundles customized for an Activision game, with a Call of Duty Xbox One that will have a 1 TB hard drive and a custom controller that will sell for $499, while Sony has already announced its white PS4 Destiny bundle for $449.

Microsoft actually talked about three different Xbox One bundles for the fall, with the Call of Duty bundle, a Sunset Overdrive bundle with a white Xbox One for $399 (essentially giving Sunset Overdrive away for free), and a Europe only FIFA 15 Xbox One bundle for €399. No doubt Sony will also get into some bundling action as the holiday approaches.

The biggest news at either press event was Sony’s announcement that 10 million PS4’s have been sold so far. “The installed base of PS4 has now exceeded 10 million units globally,” said Sony Computer Entertainment of Europe head Jim Ryan. “Just to be clear, that means 10 million sold through to consumers.” Microsoft, for its part, declined to mention any number of Xbox Ones sold so far, but it’s certainly lagging well behind Sony at this point. Still, now that the price difference has been erased, it’s going to come down to two factors: exclusive games and marketing.

As far as exclusive games go, both Sony and Microsoft had an impressive lineup of both completely exclusive titles, and of titles that have limited exclusive windows of an unspecified duration. Many of the indie titles that both companies pushed were listed as “appearing first on consoles for” either Xbox One or PS4.

The biggest exclusive surprise was Microsoft’s announcement that the next title in the Tomb Raider franchise, Rise of the Tomb Raider, will be exclusive to Xbox. That’s probably only for a certain period of time, but no details were forthcoming. Stillm this game isn’t coming out until holiday 2015, so it’s not going to have an impact on sales before then.

The most excitement from the crowds in attendance at the media events was for the Halo Master Chief Collection, which looks like it’s going to be the most important exclusive for either platform this holiday – at least in terms of selling systems. Microsoft has cleverly thrown in the Halo 5 Guardians beta as part of the package, so any Halo fan who hasn’t already grabbed an Xbox One is definitely going to get one before this packaged comes out. Every Halo game ever made, playable at 60 fps in 1080p resolution on the Xbox One, with all the maps ever created – over 100 mpas in all, with several of them redone in high-resolution graphics. You can play through the entire Halo series on an Xbox One, an irresistible draw for millions of Halo fans. Plus, Microsoft announced the Halo Channel, a place where all Halo content and interaction can live. Halo fans can practicaly eat, sleep and breathe franchise if they want to.

Perhaps as interesting as the wonderful games displayed and played at both presentations was what the companies didn’t talk about. The strange thing missing from the Microsoft presentation was the Kinect, which apparently has gone missing in action. Similarly, Sony ignored the PS Vita (though a couple of presenters mentioned it in passing, as in “a PS Vita version” will be available as well for a couple of games. In terms of new technology, Sony mentioned Project Morpheus, PlayStation Now, and PS TV as evidence of continuing innovation, though the only new detail forthcoming was that PS TV will be launching across Europe at €99. Otherwise, these all remain interesting ideas that you can’t buy yet.

Microsoft showed exclusives like Sunset Overdrive, Forza Horizon 2, Quantum Break, Fable Legends, Ori and the Blind Forest, and the newly announced ScreamRide. Microsoft’s Chris Charla showed off ID@Xbox efforts like Space Engineers, Smite, and Below. Sony’s array of games looked impressive as well, with The Tomorrow Children from Q-Games, Hollowpoint from Ruffian Games, Hellblade from Ninja Theory, and more looks at The Order: 1886, Little Big Planet 3, Bloodborne, Tearaway Unfolded for PS4, Housemarque’s Alienation, and Wild, the first title from Michel Ancel’s new side project, Wild Sheep Studio.

The visuals from all of these games were striking, but as Ryze showed us all too well, pretty pictures don’t necessarily mean a great game. Minecraft demonstrates the opposite case well: Not all visually unimpressive games are bad games — they might even be great ones. Don’t be surprised if some of these games that looked great in the trailers turn out to be much less exciting when you play them. In the end, that’s going to be the biggest challenge facing both Sony and Microsoft — keeping players from being disappointed at spending $60 on a game that isn’t very good. All the marketing in the world can’t change that.