What is the most popular set of games played across all demographics & platforms, and form the fastest growing segment in gaming?
If you thought it was Grand Theft Auto or World of Warcraft or WWE SmackDown, think again.
No guts, no gore, no blood and no testosterone-fueled titles. No Mountain Dew chugging teens and twentysomething dudes on next-gen consoles or bloody war & super-macho sports games. It is checkers, chess, puzzle, backgammon, bridge & other retro-arcade inspired games often collectively referred to as “casual games”.
These games have neither guns, explicit clips, “hot coffee”, fast action nor booth-babe potential. They are subterranean yet the fastest growing segment in gaming.
With 86.3 million players in the casual gaming sector, Tetris, Bejeweled and their ilk have more than 25 times the following of the hardcore titles like Halo 2 or EverQuest that get all the media attention.
Consequently, the market is seeing new games inspired by arcade games, card and board games, puzzle games, and the like. These new breeds of games are often collectively referred to as “casual games” because it is possible for the casual consumer (of any age or gender) to pick them up and learn to play quickly. However, the term “casual” doesn’t accurately portray the potential these games represent or that that these games can prove quite addictive and can deliver the same 52+ hours of entertainment provided by console games. There is nothing “casual” about this level of loyalty, commitment and enjoyment, just as there is nothing “casual” about the market opportunity and market demand for these games. The ruling class of online casual gamers isn’t pimply young teens or the hyper geeks – rather their mom’s and grandmas. Rated G for grandma, such games represent a gray market that earns companies about $480 million annually, largely through advertising (currently less than 3% of the players actually pay to subscribe).
According to IGDA, when the Online Games Special Interest Group (SIG) was formed in 2000 and 2001, few people seemed to understand or really care about the casual games market. Coverage of the casual online games industry at the Game Developers Conference was minimal. Since then, the size of the industry and the number of web sites offering Web and Downloadable games has exploded. Internet and broadband penetration has been growing rapidly in the US and worldwide enabling a larger audience to access and play casual games that are richer in graphics and game features.
In 2000, advertising and sponsorships were the primary source of revenues for these business models driven by offering free online games targeting casual games audience. Fast forward to today and the casual games market is matured with a number of business models: fee-based downloadable games, premium online subscription services, skill-based gaming, “adver gaming” and free game play supported by video advertising and sponsorships.
Today, revenue from selling casual downloadable games is arguably the largest driver of revenue in the industry. Web games are either standalone games or they are used as quick access online demo games to encourage users to download, play and buy the offline version.
So, who is the casual games player? The answer is everyone. Even though market research shows the majority of the audience today is women 30-45 years old, one can see all ages and genders playing online games and buying downloadable games from young males playing casual sports and arcade games to seniors playing online bridge. Casual game players play these types of games as they seek diversion, socialization and competition.
Betsy G Rainger is a 62-year-old retired teacher in Wexford, Pennsylvania. She spends four to five hours a day playing bridge, chess and hearts online with her daughter in Georgia, instead of watching the regular television fare. According to Shanda Interactive Entertainm ent, the leading entertainment media company in China, “We believe that interaction between people is a key component of entertainment in the modern world. Taking advantage of technology evolution, human interaction can be achieved virtually, anytime, anywhere.”
Online games also help Frank Clarke, 64, feel connected and less alone. Confined to a wheelchair, Clarke spends a lot of time inside his Ohio home. “I yearn for human contact & the casual online games afford me options to socialize without actually going there.”
The China-India (Chindia) factor
While India and China are experiencing explosive growth in internet and broadband adoption, it is estimated that approximately 145 million new casual gamers will emerge over the next 6 years. Hardcore & console gaming require expensive game consoles, hardware and game software – something that gamers in India cannot afford. Combine this with the massive proliferation of mobile phones & services in India and China – you have compelling business models that defy the normal value chain.
If there is one thing that the explosion of the Internet has accomplished, it is that companies doing business on the web can monetize their products or services in an overwhelming variety of methods. The viral & hyper-distribution via the web & mobile phones will change forever, the way games are distributed. The small footprints of casual games (typically less than 500 KB) make them perfect candidates for viral & direct distribution, combined with latest DRM license solutions & rules. It is important for Indian game companies to explore all the options as well as look for ways to monetize their game beyond creating just a free web and/or downloadable version.
A few viable business & financial models are:
Contract development
Lower value chain job, that is akin to work-for-hire content development. The developer charges the publisher costs plus margins on time and materials.
End game -All content and IP owned by the publisher. Low risk since the contract developer gets paid regardless of the outcome of the project. Good for easing cash flow issues and a good way to explore this business
IP Licensing or Reselling
License & localize popular games and titles to be resold under new brand or banner. IP exclusively licensed for a set period of time by original publisher/developer.
End game –Strong brand/IP, when sold or exclusively licensed, can generate a great deal of revenue, but developers need to weigh the trade-offs for paying upfront money for licenses.
Publishing
The most involved & capital-intensive of all models, this is the process of licensing out an IP for sale to the consumers directly (online) or through a B2B model
(via Mobile Carrier), while retaining ownership rights over the IP. Multiple tiers exist (w hich can be a separate paper in itself) – 1st, 2nd and 3rd party.
End game –Good publishing business depends upon a strong established distribution network to drive revenue for all parties involved. Most developers in the downloadable and web games businesses are already in the 1st party publishing business – such shops are “self-publishing” developers. High risk, capital intensive & not for the faint hearts.
Segmented Rights Licensing
This model is also referred to as “Non-Exclusive IP Licensing”, and it includes any
model in which the various and sundry rights associated with a product or IP are segmented and “sold separately” to different parties who intend to use those limited rights to capitalize on a specific opportunity, for e.g. Licensing a Spider-Man game to be used specifically with an ice-cream promotion.
End game – This model takes enormous amounts of time & energy to segment rights, negotiate & maintain deals with multiple licensors. Resources intensive, how ever can be very lucrative if executed well.
Service Solutions
This model is a good fit for content & IP owners or licensees who have a library of content that can be assembled in such a way as to provide a “package” value that is potentially greater than the sum of the parts. For example, an online game portal
with a suite of web & downloadable games. Packaged together as an integrated slick service for the target customer, a service solution can generate an ongoing revenue stream that is in total significantly more than the individual pieces themselves would garner.
End game — Can be very compelling and provide “stickiness” to the end consumer, monetizing the eyeballs in many ways than one (think Google!).
Other
Several other business models are — downloadable games, direct distro, technology licensing etc. that are outside the scope of this paper.
Financial Models
Most common financial models that are not mutually exclusive are – Revenue Share, Royalty Advance, License Fee, IP Sale, Advertising and Derivative. A detailed analysis paper on this will be published shortly.
India is undergoing significant changes in the way it receives and consumes its entertainment. Broadband access is quickly deepening its penetration into homes and mobile phones, and Indian consumers are rapidly adopting technology as a part of their everyday lives. Combine this with the hundreds of thousands of computer engineers, software professionals, emerging new creative class made possible by the animation companies, Bollywood content and a strong middle-class economy – The demand for interactive entertainment will continue to grow strongly, presenting Indian Game companies with tremendous opportunities.
Companies that can meet the mass consumers’ insatiable demand for customized suite of entertainment services, anytime, anywhere, have the potential to be the next generation leader in this multi-billion dollar industry. Such a service-oriented approach to avatar-based casual games and MMO RPGs, combined with the possibilities ecommerce (from selling games to virtual game-based accessories, game props & characters), communication (think Wireless and Skype-injected games) and collaborative interaction, will forever change the way people work, live and play!
Let the games begin!