Alternate business models for mobile
Thomas Richter, Director Content Services Jamba/Jamster
Paul Rehrig, responsible for digital product innovation (inc mobile), Warner Music Group
Adam Martin, CTO Mindcandy
XX: MD Overloaded
Tony Pearce: CEO PlayerX
Mindcandy did the worlds first "alternate reality" game. Cross-media stuff, people running around cities, live events, etc. Currently running a global treasure hunt for 50-100k players.
TR: What is the proven business model today?
XX: Operator portal sales is the most proven. Then aggregator portals. Then through own web sites.
PR: Agrees; also consider retail which will be big in the next 5 years. Bundling content with CDs, to give more of an "album experience" (i.e. persuade people not to download instead).
[ What about off-portal sales promoted via print magazines - isn't this what built the ringtones and logo industry? ]
TR: Got any statistics?
PR: In the US, 90%+ of mobile games are controlled by operators. 18 months ago that was 100%. You won't make money there without strong carrier relationships. In Europe it's 50/50 operators/major portals.
TR: Adam, how far did you go in including mobile in your games?
AM: It was a core part at first. They needed to launch quicker; mobile is about to become more an apparent part of it now.
[ I presume this means it's been under-represented to date... ]
AM: (talking about their game). We have player contact via retail, mobile and more. It's entirely cross-media; we don't have a mobile strategy as such. When you're doing something entirely new you can launch everything in one go.
TP: The music industry has a lot to say about comarketing and business models involving other content. What's your experience?
PR: Partnering with a media company is a good idea. We spend 4-8m dollars promoting a given record over an 18-month period.
TP: What budget do you have to share?
PR: With the Green Day album American Idiot, the CD includes a shortcode (in 33 countries) with the Green Day keyword. Users SMSing to this get back a menu of content which includes ringtones, video, wallpapers, games, etc. That's a lot of eyeballs and hits.
[ How many? ]
PR: We do a lot with street teams, radio, television, etc too. We've done this routinely.
TP: How about putting music into a game?
PR: We've developed an affordable per-use licensing model. We're interesting in working with publishers to talk about new models for downloadable soundtracks: charge a subscription for access to league tables, in-game soundtracks, etc. This is a reality technically today. Also interested in artist- and movie-themed soundtracks. e.g. 50 Cents Bulletproof game - the largest-selling in America? Maybe only 10 a year though.
TP: Tony, how far have you gone with these kinds of models?
TR: Publishers look at all channels to determine how much a game will make. Developers ask for forecasts for sales. Operators are still king when it comes to pushing big numbers. I'd love to go outside operators if that made sense - Jamba and Jamster have done very well, retail I struggle with. I started the DigitalBridges retail channel, did a retail box with CPW, PhonesForU. For the first year this was a great success, because operators weren't targeting the casual gamer very well. This was good for developers too: seeing your game being sold in the shops. Sales weren't fantastic: they were good Christmas presents or stocking-fillers, but retail proved expensive as a year-round investment. There are logistics, packaging, returns, etc: it's similar to the operator model, except there's no logistics for operators.
TP: So you'd team up with media companies for distribution?
TR: We did this a few years ago, putting ringtones with CDs. Some worked fantastically, some didn't. Getting a game onto Tier 1 operator decks, with a banner, gives a number of sales we can forecast.
TP: People don't buy mobile games in boxes.
TR: The other downside for retail is the price. You can't sell at £5 - not in a box. So it's 3/4 euros on a portal vs 11/12 euros on a box.
AM: We shipped just a piece of cardboard to shops, to minimise cost of goods. Then once we have them online we have a relationship.
TP: Any more thoughts from retail?
XX: We do retail as well, we were in CPW. We had all these challenges, we stopped after a year. Lots of first-time sales, but when they discover it's a scratchcard they never come back to buy another. Like a PC, the mobile is the distribution, payment and consumption device.
TR: So is retail dead?
TP: No, it's incremental. It's a hassle (retailers are hard work to deal with).
TR: Who's buying?
TP: Present-buyers. The argument that it comes with a manual doesn't really hold.
PR: Existing distribution mechanisms don't really work for mobile games. What good is a box when the product is a 60k file transmitted over the air? Eliminating retail as a priority would be wrong though: it needs to be done more creatively. You can see a 5% response to bundled shortcodes etc. when it's done right.
XX: We use retail as a marketing communication channel, giving away free first levels.
[ Questions follow ]
Q: What does the 5% response rate equate to?
PR: We have an artist called Pretty Ricky. A slip of paper with a shortcode on it, bundled into the record (which sold 1.2m copies), generated 100k responses for sign-ups: either to buy content or sign up to an SMS club. 3000 people wanted to pay to become a member of the club. We didn't do a mobile game here. Where there's a rabid fan-base, you find users who will pay for additional content. It varies by country and by artist.
TR: Jamba did a few tests with people of paper in console game DVDs and didn't get such good returns. People didn't want to pay 5 euros on top of a game purchase to get a version for their phone.
TP: We did a promotion where you were given a mobile game when an EA game got purchased.
PR: It's operators, then handset vendors, then media companies (in order of priority for who to partner with).
TR: [understandably] thinks aggregators can rival operators.
AM: If you can get a retailer to care, you can get a lot from that.
PR: BREW is important in the US and Brazil. You need BREW in these territories. It a distribution and development environment. You can't work outside the BREW ecosystem with a BREW carrier: it's been promised for ages but never happened. 33% of the US market is BREW-only, making big problems if you want to work outside the carriers.
Q: It seems the biggest problem is that it's difficult for users to get games on their phones. Has anyone talked to hardware manufacturers for alternate methods of getting games onto handsets?
PR: The problem is fragmentation of handsets, not the lack of availability of willingness. There needs to be consensus at the handset level and we're a long way from any alternative to deck-driven distribution.
XX: 300 device SKUs per game. We have games bundled with Nokia and Samsung handsets. For us there's a challenge: how do we get paid? Nokia don't pay, they see it as promotion. We gave away the game for free in the end.
PR: Most J2ME implementations support some sort of trial-then-subscribe model. If you want to preload onto a handset, go to the operator not the handset vendor.
TP: All our games are standalone download games.
TR: Is the subscription model interesting?
TP: Yes if you've got the right sort of content. Connected games where you buy inside the game? Potentially huge but there are complications today. We've come a long way in the last 2.5 years but there are lots of downsides (we had one game with >1200 SKUs, lots of different handsets, languages).
TR: Can anyone share figures? Someone earlier was saying there was no business in mobile gaming.
TP: It's a handful of games that make all the money. You should expect (with a good-quality game on all operators): 10k downloads/month/operator should make you very happy. There are games which stick in the top 10 - e.g. Tetris. The hardcore gamer games go into the charts and fall out: e.g. Splinter Cell. It's casual games that sell.
PR: Mobile games are a $1b business today. Mobile is a better distributed platform for games than any other: there are 1.5b mobile game-enabled handsets today. Typical subscriber for games lasts for 4 months. Find games that deliver long-term value.
Q: Do you think carriers work as they do because they have had no time to do it better? Or is the control they exert a deliberate choice?
PR: Their mentality is "it's our network". They have the costs of building and maintaining it, subsidising handsets, customer care. The cost of taking a customer call is $8 - so if an operator takes a single call from a customer over a game, they're out of pocket. It's important to understand their mentality.
TR: Operators are getting more relaxed. Everything that drives traffic and brings customers is good.
Q: You talk about 90% of deals going through operators. Is the other 10% big enough to make money in Europe and Asia?
XX: It depends on your development costs.
Q: How hard is it for new players to get in? Can we make money now?
XX: It's difficult to enter the market. The supply is bigger than demand right now. Supply is scaling back - some Chinese/Russian companies were pushing out 20 games a month, but are slowing now.
TR: Where do you see the mobile gaming industry, as an independent industry, in 5 years?
XX: The large studios will own most of the market. But the operators need some smaller studios, to pump out some very creative games. Connected gaming, social gaming, MMORPG, are all opportunities.
TP: I wouldn't like to be entering the operator/carrier space as a developer now. If you have a brand and a license they'll talk to you, but 99% of the time you get referred back to publishers. But... operator distribution space is limited, so it'd be good to have other channels catch up. You need continuous products, not just 1 game every couple of months.
PR: Even if you get into one carrier and they take your game, you need to be on others too. Find a good publisher: there are 5-7 good ones. Also consider bundles: e.g. in Japan a ringtone sells for 100 yen. Ringtone + song = 300 yen, all in the same transaction. Video + game + ringtone + song = 500 yen, for KDDI customers. It's not expensive for a publisher to add content they already have into these bundles. Finally, convergence: devices coming out now are not far away from being games machines. There'll be phones which are game-optimised. There's an opportunity here to target these devices with a subset of ports for serious gamers... or address the mass market with more casual games.
TR: Adam, how do you fit with your games content?
AM: We haven't talked to operators yet. Retail is an untapped opportunity for lots of people. Operators have a strangehold and it's less and less viable for us to break in that way.
Q: Re conversion ratio for scratchcards and promotional games. New devices like the Ngage aren't doing that well. What do you think?
PR: Lots of issues with Ngage, but high-end phones sell well. They have good support for 3D, real audio, multiplayer, in-game chat. I don't have comprehensive data on scratchcards etc.
TR: Our experience is that they don't do very well. Phones are getting like sneakers - expensive ones are cool.
PR: You'd think that carriers want to talk to music companies. They won't talk to me - they just can't talk to everyone. If you want worldwide distribution, work with a shortlist of 10 companies who have distribution worldwide and sacrifice margin for lower costs, better distribution and 20-30% of post-carrier revenue. Revenue shares can go from 15-50%.
Q: Downstairs earlier we saw unbranded casual games. Mobile games tend to be very brand-led. What's the crossover between downloadable PC and mobile games?
PR: It's about brand recognition. Top brands get to the top of decks.
TR: That's true for a deck. But we sell most of our games from a web portal with search, etc. Our best game last month was Bubble Ducky: no brand, etc. Yes, I'm a strong believer in this crossover. Most casual gaming is via PC - you can cross-market any platform with any other.