Activision Blizzard has bought King Digital Entertainment for $5.9 billion, marking not only one of the largest acquisitions in videogame history but one of the largest deals ever made in the entertainment business. Comparing this to previous entertainment deals highlights just how extraordinary the figures involved are; the purchase price values King at significantly more than Marvel Entertainment (acquired by Disney for $4.2 billion), Star Wars owner Lucasfilm (Disney again, for $4.1 billion) and movie studio Metro-Goldwyn-Mayer (acquired by Sony for almost $5 billion). The price dwarfs the $1.5 billion paid by Japanese network SoftBank and mobile publisher GungHo for Supercell back in 2013 – though it’s not quite on the same scale as the $7.4 billion price tag Disney paid for Pixar, or in the same ballpark as the $18 billion-odd involved in the merger that originally created Activision Blizzard itself.
How is $5.9 billion justified? Well, it’s a fairly reasonable premium of 20% over the company’s share price – though if you’ve been holding on to King shares since its IPO in 2014, you’ll still be disappointed, as it’s far short of the $22.50 IPO price, or even the $20.50 that the shares traded at on their first day on the open market. The company’s share price has been more or less stable this year, but Activision’s offer still doesn’t make up for the various tumbles shares took through 2014.
A better justification, perhaps, lies in the scale of King’s mobile game business. The company is a little off its peak at the moment. Candy Crush Saga, its biggest title, is on a slow decline from an extraordinary peak of success, and other titles aren’t growing fast enough to make up for that decline, but it still recorded over half a billion monthly active users (MAUs) in its recently reported second quarter figures. In terms of paying users, the company had 7.6 million paying users each month – more than Blizzard’s cash cow, World of Warcraft, and moreover, the average revenue from each of those users was $23.26, far more than a World of Warcraft subscriber pays. King took in $529 million in bookings during the quarter, 81 per cent of it from mobile devices – a seriously appealing set of figures for a company like Activision, which struggles to get even 10 per cent of its revenues from mobile despite its constant lip-service to the platform.
In buying King, Activision instantly makes itself into one of the biggest players in the mobile space, albeit simply by absorbing the company that is presently at the top of the heap. It diversifies its bottom line in a way that investors and analysts have been crying out for it to do, reducing its reliance on console (still damn near half of its revenues) and on the remarkable-but-fading World of Warcraft, and bulking up its anaemic mobile revenues to the point of respectability. On paper, this deal turns Activision into a much more broad-based company that’s far more in line with the present trajectory of the market at large, and should assuage the fears of those who think Activision’s over-reliance on a small number of core franchises leaves it far more vulnerable than rivals like Electronic Arts.
That’s on paper. In practice, though, what has Activision just bought for $5.9 billion? That’s a slightly trickier question. The company is, unquestionably, now the proud owner of one of the most talented and accomplished creators and operators of mobile games in the world. King’s experience of developing, marketing and, crucially, running mobile games at enormous scale, and the team that accomplished all of that, is undoubtedly valuable in its own right. Those are talents that Activision didn’t have yesterday, but will have tomorrow. Are those talents worth $5.9 billion, though? Without wishing for a moment to cast doubt on the skills of those who work at King, no, they’re not. $5.9 billion isn’t “acquihire” money, and when that’s the kind of cash involved we simply can’t think of this as an “acquihire” deal. Activision didn’t pay that kind of money in order to get access to the talent and experience assembled at King. It paid for King itself, for its ongoing businesses and its IP.
Open the shopping bag, and you might struggle to understand how the contents reach $5.9 billion at the till. King has one remarkable, breakthrough, enormously successful IP – Candy Crush Saga, which still accounts (not including heavily marketed spin-off title Candy Crush Soda Saga) for 39 per cent of the company’s gross bookings. No doubt deeply aware of the danger of being over-reliant on revenues from this single title, King has worked incredibly hard to find success for other games in its portfolio. But even its great efforts in this regard have failed to compensate for falling revenues from Candy Crush, and it’s notable that a fair amount of the “non-Candy Crush Saga” revenue that the company boasts actually comes from Candy Crush Soda Saga. Other titles like Farm Heroes Saga and Pet Rescue Saga are no doubt profitable and successful in their own right, and King would be a sustainable business even without Candy Crush. But it would be a much, much smaller business, and certainly not a $5.9 billion business.
Despite being generally bullish about King’s prospects, then, it’s hard to avoid the feeling that the company has done incredibly well out of this acquisition. The undoubted talent and experience of its teams aside, this is, realistically, a company with one IP worth paying for, and unlike Star Wars or the Avengers, Candy Crush is a very new IP whose longevity is entirely untested and whose potential for merchandising or cross-media ventures is dubious at best. King has done better than most of its rivals in the mobile space at applying some of the lessons of its biggest hit to subsequent games and making them successful, but it shares with every other mobile developer the same fundamental problem: none of them has ever worked out how to bottle the lightning that creates a mega-hit and repeat the success down the line. Absent of another Candy Crush game, the odds are that King’s business would slowly deflate as the air escaped from the Candy Crush bubble, until the company’s sustainable (and undoubtedly profitable) core was what was left. Selling up to Activision at a healthy premium while the company is still “inflated” by the likely unrepeatable success of Candy Crush is a fantastic move for the company’s management and investors, but rather less so for Activision.
Perhaps, though, the whole might be more than the sum of its parts? Couldn’t Activision, holders of some of the world’s favourite console and PC game IP, work with King to leverage that IP and the firm’s reach in traditional games, creating new business at the interaction of their respective specialisations? That’s a big part of what made Pixar so valuable to Disney, for example; the match between their businesses was of vital importance to that deal, and the same can broadly be said for Disney’s other huge acquisitions, Lucasfilm and Marvel. (SoftBank’s purchase of Supercell, by comparison, was rather more of a straightforward market-share land grab.) What could this new hybrid, Activision Blizzard King, hope to achieve in terms of overlap that enhances the value of its various component parts?
Certainly, Activision has some properties that could work on mobile (I’m thinking specifically of Skylanders here, though others may also fit); some Blizzard properties could also probably work on mobile, though I very much doubt that Blizzard (which retains a strong degree of independence within the group) is a good cultural fit for King, and is deeply unlikely to work with it in any manner which gives up the slightest creative control over its properties. King’s properties, meanwhile, don’t look terribly enticing as console or PC games, and conversions done this way would almost certainly defeat the entire purpose of the deal anyway, since the objective is to bolster Activision’s mobile business. The prospect of a mobile game based on Call of Duty or another major console IP may seem superficially interesting, but we’ve been down this road before and it didn’t lead anywhere impressive. Sure, core gamers are on mobile too, but they’ve by and large been nonplussed at best and outraged at worst by the notion of engaging with mobile versions of their console favourites. It’s genuinely hard to piece together the various IPs and franchises owned by King and Activision and see how there’s any winning interaction between them on the table.
This is what makes me keep returning to those other mega-deals – to Star Wars, to Marvel, to Pixar – and finding the contrast between them and Activision / King so extraordinary. Each of those multi-billion dollar deals was carried out by Disney with a very specific, long-term plan in mind that would leverage the abilities of both acquirer and acquired to create something far more than the sum of its parts. Each of those deals had a very clear raison d’être beyond simply “it’ll make us bigger.” Each of those companies fitted with the new parent like a piece of a puzzle. King’s only role in Activision’s “puzzle” is that they do mobile, and Activision sucks at mobile; there’s no sense of any grand plan that will play out.
In all likelihood, Activision has just paid a huge premium for a company which is past the peak of its greatest hit title and into a period of managed decline, not to mention a company with which its core businesses simply don’t fit in any meaningful way. King’s a great company in many respects, but its acquisition isn’t going to go down as a great deal for Activision – and we can expect to see plenty of that $5.9 billion being frittered away in goodwill write-downs over the coming few years.
When Titan first came to light in 2007, most people assumed it would be Blizzard’s next big thing, ultimately taking the place of World of Warcraft which was likely to see further declines in the years ahead. Fast forward seven years, WoW clearly has been fading (down to 6.8 million subs as of June 30) but Blizzard has no MMO lined up to replace it, and that fact was really hammered home today with the surprise cancellation of Titan. In fact, the developer stressed that it didn’t want to be known as an MMO company and one may not be in its future. Cancelling the project this late in the game may have cost Blizzard several tens of millions of dollars, analysts told GamesIndustry.biz.
“Development costs for Titan may have amounted to tens of millions, perhaps $50 million or more. This is not an unusual event, however. Blizzard has cancelled several games in various stages of development in the past. Costs for unreleased games can be significant, but launching substandard games can harm the reputation of a successful publisher such as Blizzard. Expenses for development can be considered R&D, and benefits can include invaluable training, IP and technology that can be applied to other games,” explained independent analyst Billy Pidgeon.
Wedbush Securities’ Michael Pachter estimated an even higher amount lost: “My guess is 100 – 200 people at $100,000 per year, so $70 – 140 million sunk cost. It’s pretty sad that it took so long to figure out how bad the game was. I expect them to go back to the drawing board.”
Indeed, the market has changed considerably in the last seven years, and while MMOs like EA’s Star Wars: The Old Republic struggle to find a large audience, free-to-play games and tablet games like Blizzard’s own Hearthstone are finding success. Blizzard has no doubt been keenly aware of the market realities too.
“As far back as 2013, they had already stated Titan was not likely to be a subscription-based MMORPG. This is consistent with a market that is increasingly dominated by multiplayer games that are either free to play or are an expected feature included with triple-A games such as Call of Duty. Titanfall and Destiny sold as standalone games supplemented by paid downloadable add-ons. Blizzard maintains very high standards of quality, so expectations will be steep for new franchises as well as for sequels,” Pidgeon continued.
DFC Intelligence’s David Cole agreed, noting that after seven years of development in an industry where trends and technologies change at a rapid pace, Blizzard simply had to pull the plug on Titan.
“They realized that unless a big MMO is out-of-this-world unbelievable it won’t work in today’s market where it competes against a bunch of low cost options. If they felt that it just wasn’t getting to that point it makes sense to cut your losses,” he noted. “Also, you see games like League of Legends and their own Hearthstone which are doing very well on a much lower budget.”
“For Blizzard, I am expecting to see them continue to focus on high quality products but also focus on products with shorter development cycles and less cost. The market is just not in a place where you can have games with 7+ year development. It is changing too fast.”
For most developers, junking a seven-year long project would instantly spell turmoil, but thankfully for Blizzard, it’s part of the Activision Blizzard behemoth, which has a market cap of over $15 billion and, as of June 30, cash and cash equivalents of over $4 billion on hand. It’s a nice luxury to have.
Sources are suggesting that Activision is planning to launch an entertainment division that would be responsible for creating movies and TV shows based on Activision intellectual properties. The move might leave many scratching their heads if true since so many others have failed at trying to turn video game IP into gold.
Word is that CEO Bobby Kotick is taking to folks in an effort to secure the right talent to make this happen. Kotick has to be aware that this has not gone well for its competitors, but he apparently thinks that Activision IP is different and they will have no problem giving the people want they want.
Our take on this is that we will wait and see what happens, but it will not be easy to be successful, regardless of the IP that you have in your stable. The bigger question might be is it really worth the money and effort to try and make it work?
Activision Blizzard reported its financial results for the quarter ended June 30 today, revealing an unprecedented reliance on digital revenues.
The publisher reported revenues of $970 million in sales on a GAAP basis, 49 percent of which came from digital channels. On a non-GAAP basis (excluding the impact of changes in deferred revenues), the digital percentage was actually 73 percent of the company’s $658 million in sales. Activision attributed the digital strength to Blizzard’s lineup of titles (World of Warcraft, Hearthstone, and Diablo III), combined with digital sales for Call of Duty.
However, not all of those digital sales drivers posted strong numbers for the quarter. World of Warcraft in particular lost about 800,000 subscribers over the period, and as of the end of June was down to a paying player base of 6.8 million gamers. However, Activision Blizzard characterized this decline as a “seasonal” dip in advance of the next expansion, Warlords of Draenor, which is set to launch later this year. The publisher likened the downturn to the subscriber losses that happened in 2012 ahead of the Mists of Panderia launch.
On a GAAP basis, Activision Blizzard revenues were down nearly 8 percent, with net income down 37 percent to $204 million. However, the publisher still beat its previous guidance. On a non-GAAP basis, revenues were up about 10 percent to $658 million, while non-GAAP net income was reported at $45 million, down 50 percent year-over-year.
The quarter’s performance gave Activision Blizzard enough confidence to update its previous guidance for the full year. For calendar year 2014, the publisher had previously forecast total GAAP revenues of $4.22 billion, but moved that up to $4.24 billion today. The company also projected earnings per share of $0.91, up from $0.89.
Facing rising commercial demand for the devices, Dell has not been able to keep up with orders.
The Chromebook 11, which shipped in December, is listed as unavailable on Dell’s Chromebook website, and the company is asking potential buyers to call in orders.
“Due to strong demand, the Dell Chromebook 11 is currently not available for order on Dell.com. It continues to be available for our education customers and can be ordered through their sales representative,” said Ellen Murphy, a Dell spokeswoman, in an e-mail.
The laptop will eventually come online again, though the company did not provide a specific date.
With Dell keeping Chromebook purchases open mainly to commercial customers, individual buyers may have to turn to competitive products from Samsung, Toshiba, Lenovo and Hewlett-Packard, which are available online starting at under $200.
The Chromebook is a lightweight, low-cost computer for those who do most of their computing online. It has Google’s Chrome OS, and most applications needs wireless connectivity. However, more offline applications are becoming available.
Dell’s decision comes as Chromebook shipments rise and competitors launch new models. Chromebooks accounted for 35 percent of all U.S. commercial laptop shipments to date in 2014, jumping more than 250 percent compared to the same period last year. Chromebooks accounted for 5 percent to 6 percent of overall consumer laptop sales in the period, and that number will continue to rise, said Stephen Baker, vice president of industry analysis at NPD.
More than 20 Chromebook models are expected to be available by the end of the year. Acer last week shipped two C720 Chromebook models with Intel’s Core i3 chips. Dell spokeswoman Murphy said the company is committed to Chromebooks and will launch a new model with the Core i3 processor later this year.
Dell could be choosing commercial customers over individual shipments with Chromebook demand rising during the back-to-school season, Baker said.
“In a period when the product grows, you have to make some decisions,” Baker said.
Those who have been eagerly waiting for October to experience the latest adventures of Batman from developer Rocksteady, are going to be very disappointed to learn that the game will not make its originally announced October release.
Instead developer Rocksteady has confirmed that the game will be released in 2015. An exact release date has not yet been decided upon. We are hearing however, that as spring release for Arkham Knight is very likely.
While the exact reasons behind the delay were not announced, but the game is much bigger than previous Batman titles that Rocksteady has done and it is the first all next-generation title that the developer has done which also might be contributing to the delay. The game is still scheduled for release only on the Xbox One, PlayStation 4, and PC so the next generation status of the game has not changed.
Sales of Chromebooks enjoyed rapid growth,going from basically nothing in 2012 to more than 20 percent of the U.S. commercial PC market, analyst firm NPD reported, while Windows PCs and Macs remained flat at best.
NPD estimated that, throughout all of 2013, 14.4 million desktops, notebooks, and tablets were sold through U.S. commercial channels, typically resellers. That compares to 16.4 million PCs, overall, sold in the U.S. during the third quarter alone–excluding tablets, according to IDC. All told, about 46.2 million PCs have been sold in the U.S. during 2013, IDC found.
Within that segment, however, NPD reported some intriguing findings. Chromebooks, once largely the province of Acer and Samsung, have been embraced by Dell, HP, and others–not the least of which are paying customers. In 2012, Chromebook sales were “negligible,” NPD reported. But in the space of a single year, they climbed to 21 percent, NPD found, helping push overall notebook PC growth up by 28.9 percent.
Windows notebooks, however, contributed nothing to that, as NPD found that growth was flat. Worse still, Macs actually declined, with combined sales of desktops and notebooks falling by 7 percent. Windows tablet sales tripled, albeit off what NPD called “a very small base”.
The message? Businesses are turning to the Web, which Chromebooks almost exclusively run. And those low-cost, Net-focused devices are becoming engines of productivity. As a result, they’re receiving validation from traditional PC vendors including Acer, Asus, Dell, and Hewlett-Packard, plus Google’s own Pixel.
“The market for personal computing devices in commercial markets continues to shift and change,” saidA Stephen Baker, vice president of industry analysis at NPD, in a statement.A “New products like Chromebooks, and reimagined items like Windows tablets, are now supplementing the revitalization that iPads started in personal computing devices. It is no accident that we are seeing the fruits of this change in the commercial markets as business and institutional buyers exploit the flexibility inherent in the new range of choices now open to them.”
Naturally, tablet sales continued to explode, capturing 22 percent(or about 3.16 million units) of all the computing device sales sold through the U.S. channel. Of all tablets sold commercially, iPads dominated with 59 percent of all unit sales, leaving the rest to Android (which grew more than 160 percent) and Windows.
Baker said that diversity will be key to the future success of hardware makers, a signpost for what vendors might release at 2014 and the weeks and months following.
The Samsung Gamepad is compatible with all Android phones running Android 4.1 Jelly Bean and above, though Samsung said that it is specifically optimized for Android 4.3 Jelly Bean and above. It features an eight-way D-Pad, two analogue sticks, four action buttons, two trigger buttons, a Select button and a Play button.
The Play button is a link to the Samsung App Store selling console optimized games at “reasonable prices”. The Gamepad uses Bluetooth 3.0, but can also pair via NFC and even cast gaming onto the big screen using Samsung Allshare. Although there are a number of Chinese imports available, this is the first time a major player has brought an Android game controller to the table.
Samsung said 35 games are available through the Play button at launch with more to come in 2014. Launch titles include Need for Speed: Most Wanted, Asphalt 8, Modern Combat 4, Virtua Tennis Challenge, and Prince of Persia. These are in addition to existing games from Google Play.
Samsung is keen to tout this new device as an alternative to buying a more expensive console such as an Xbox One or Playstation 4 (PS4), and while we’re not really sure if it can match them, we can certainly see the advantages of a device like this over Android game consoles such as the Ouya or Gamestick.
The device is already available for pre-order at Expansys for $125.99. At present there is no date attached to it, and Samsung is only committing to “the coming weeks” as the time-frame for availability.
As it’s a device with a steel casing, Samsung clearly is not aiming this at the budget market, and if its functionality matches its specifications, it could be one to watch in 2014.
The Delaware Supreme Court has overturned a preliminary injunction preventing Activision Blizzard from buying Vivendi’s stake in the company. In September, the Delaware Court of Chancery blocked the sale due to a lawsuit filed against Activision by shareholder Douglas Hayes. Hayes argues that the sale requires the approval of shareholders to proceed. Vivendi filed an emergency appeal against the ruling in late September, attempting to remove the injunction before the October 15 termination date on the agreement.
The Delaware Supreme Court agreed with Activision’s assertion that the sale was a stock repurchase and did not require the approval of minority shareholders.
With the injunction gone, Vivendi and Activision expect the deal to close by October 15. The deal will have ASAC II, an investment group led by Activision Blizzard CEO Bobby Kotick, buying 172 million shares from Vivendi for $2.34 billion and Activision Blizzard buying 429 million shares for $5.83 billion. The two transactions would give Activision control over Vivendi’s 61 percent stake.
Wedbush Securities expects Activision’s stock to outperform once the deal is completed, with a 12-month price target of $22 per share.
“While some investors may have concerns about declines for the company’s core businesses, we remain fans of Activision Blizzard. The company communicates clearly, executes well, and its management appears to truly understand how to make money,” said Wedbush is a recently released note.
The independent gaming scene has been growing by leaps of bounds, so it makes sense that the events designed to celebrate it are keeping step. This weekend’s IndieCade Festival in Culver City, California (on the West side of Los Angeles) is the largest in the event’s seven-year history. IndieCade founder and CEO Stephanie Barish said the event is expecting to draw more than 5,000 people to Culver City, which has a population around 39,000.
Much like the indie scene it promotes, the show has also been getting increased attention from the mainstream gaming industry of late. Sony has been a primary sponsor of the event for years, but the 2013 show sees Nintendo chip in for the first time, with Microsoft returning to the list after taking 2012 off. Activision is also on the list of sponsors, as well as Epic Games (for the Unreal Engine), Unity, and 20 more companies. Barish said some of the event’s more recent sponsors saw how Sony benefitted from its overtures to independent developers and have been following suit.
“[Sony has] put four or five years of effort now into the indie development sector and it’s really paid off for them,” Barish said. “Developers are really interested in meeting with them. They see there are possibilities, that Sony has proven [indies] can do well and are treated well. More and more the fact that independent games are interesting to a broader public is becoming apparent to the larger publishers. As well, there’s a huge creative energy and force and momentum coming out of the independent sector, and they don’t want to not be part of the future.”
That future is a big part of the attraction for IndieCade. Attendees to this year’s show will be able to try out a handful of games on upcoming hardware like the Oculus Rift and PlayStation 4. In all, IndieCade 2013 features 36 “official selections” for the festival, with dozens more games on show. Barish expects that crop of games to not only produce some of the next big hits, but also draw attention to the next crop of important developers. In the past, she said IndieCade has served as a coming out party for indie hits like Braid and Everyday Shooter, or developers like Telltale Games (who would go on to create the multiple Game of the Year award-winning The Walking Dead series). It’s also been a place to debut games that think outside the set-top box, like Johann Sebastian Joust, a six-player game that uses music and PlayStation Move controllers, but no screen.
“It’s really important for the mainstream to see what’s at the cutting edge, and we just continue to bring things in that are more cutting edge, that are more different than publishers or other mainstream things would even think to look at yet,” Barish said. “We’re really a window into what’s going to happen.”
Among this year’s selections are That Dragon, Cancer (a narrative-driven game set in a children’s hospital over three years), Perfect Woman (a “strategic dancing game” for the Kinect), and [code] (a PC game in which players delve into ersatz programming code to solve puzzles). While some of the IndieCade games will almost certainly prove to be lucrative for their creators, Barish stressed that isn’t the only way to measure their success.
“There’s definitely a desire for the Cinderella story, but having seen so many of the games, they’re really good,” Barish said. “So even if they’re not commercially successful, they’re impacting the way mainstream games are designed, the directions and the trends for those.”
The trend for IndieCade looks to be continued growth. This year saw the event spawn an IndieCade East sister show in New York City, a second installment of which is confirmed for February 14-16, 2014 at the Museum of the Moving Image. Beyond that, Barish said there has been talk about expanding the festival even further with a European event.
Fans of traditional, “core” games are often extremely hostile towards the new wave of casual and mobile titles, and even towards the people who play them. They’re keen to draw a line in the sand between these titles and “real” games and quick to portray players of Farmville, Candy Crush Saga or Puzzle & Dragons as mindless consumers of low-grade, repetitive entertainment that’s utterly disconnected from and disrespectful of gaming culture and the medium’s development as a form of art and entertainment.
There are good discussions to be had around those topics – not Internet flame-wars, but some interesting if slightly dry academic discussions defining the form and shape of “gaming” as a pastime, a medium and an artform. If we’re very lucky, some of those discussions could even avoid becoming tedious tug-of-war sessions between the “narrative has no place in games!” crowd and the rest of the world. None of them, however, will gain anything from employing “casuals” as a vicious epithet, or deciding to sideline millions of game players as insignificant because they’re “fake” gamers who play the wrong kinds of game.
Why does this kind of knee-jerk unpleasantness get so consistently applied to new, more casual audiences? There are uncharitable explanations which often point to uncomfortable truths – self-styled “gamers” have built something of a boys’ treehouse over the years, and dislike the invasion of new demographics which can include such unwelcome treehouse guests as women, homosexuals, trans people, ethnic and religious minorities, and even – gasp! – their own mothers and relatives. Is nothing sacred?! There’s also a broader sense in which this is not specific to games at all – there’s a more universal knee-jerk reaction which sees adherents of any niche pastime resenting and rejecting the arrival of a mass-market audience and products tailored to them. (“Ugh, you listen to chart music? Are your ears broken?” “You actually like JJ Abrams movies? What’s wrong with you?”)
At the root of much of the dislike of casual games and their players, however, lies a more basic concern – a fear that the rise of this kind of game is going to replace and erase the sorts of games which existing gamers actually enjoy. Watching Clash of Clans or Candy Crush Saga roll in countless millions in cash is a deeply uncomfortable feeling for the kind of gamer who trekked for tens of hours across Skyrim, who can utterly lose themselves in the flooded corridors of Rapture or the dingy streets of Dunwall, or whose adrenaline pours out when they’re ambushed by the Covenant or surrounded by the Combine. If Candy Crush Saga can make so much money, is that the future? Is that all we’re going to be left with – if not thematically, then as a business model or a creative approach?
That’s the fear that drives the aggression. There’s a hobby which we love, and a wealth of creative works which have given us unforgettable experiences – gamers fear that the new business reality represented by F2P and casual games is an outright threat to that experience and that hobby. In the chase after the new casual audience, game companies will be forced to abandon the pursuit of the kind of experiences which enrapture and delight the existing audience – or at the very least, to turn them all into tawdry fairground toys which demand that you pump coins into them to keep on playing, robbing them utterly of the atmosphere and immersion which is so much of their appeal.
I wonder, then, if the atmosphere of discussion and debate around games might become a little more civil (on this topic, at least) in the wake of two fairly important events in the past week. Firstly, you can’t have failed to notice that GTA V came out and smashed through sales records not only for games, but for just about every entertainment media imaginable. Of course, week-one sales of games surpassed the revenue of blockbuster movies long ago, but GTA V cements games as the dominant entertainment medium of our era by finally silencing the last bastion of naysaying – not only did it make more money in a single weekend than the biggest films in the world make in their entire lifetime, it was also purchased and played by more people in one weekend than the number who bought tickets for any recent movie. Revenue or volume; count it how you like, GTA V is the biggest entertainment property on earth.
Meanwhile, in Japan, another entertainment property went on sale – Monster Hunter 4, Capcom’s latest release. Its figures don’t rival GTA’s, but in the supposedly “declining” Japanese games market, it sold over two million units in its first week and helped to drive hundreds of thousands of sales of the 3DS – a console that’s meant to be a miserable flop thanks to the unstoppable advance of smartphones and tablets. That can’t rival Apple’s 9 million unit sales of the iPhone 5S and 5C, of course, but then again, that’s not a remotely useful comparison, no matter how often blowhard mobile evangelists trot it out – the 3DS purchasers are all confirmed gamers who will go on to spend heavily on expensive game software, while only a certain portion of mobile phone owners play games, a much smaller portion pay any money for them, and the amount of money they pay can be quite small (or quite large, of course, but certainly rarely exceeding the spend of a console owner).
GTA V and Monster Hunter 4; two games which are absolutely squarely aimed at the core gamer who is presently so terrified of being squeezed out by the flood of mobile, casual and social software. Two games which, completely uncoincidentally, have just become the biggest entertainment properties in the world and in Japan over the past few weeks.
There is no threat here. There’s a small and dwindling clique of hardcore evangelists who will try to characterise GTA’s success in particular as an outlier, an erratic piece of data that doesn’t change the overall context of the industry, but they’re absolutely wrong. GTA’s enormous release is actually a perfectly logical and predictable continuation of a curve which has seen the top-rated properties in traditional gaming ranked higher and higher in sales terms over the past decade or two. GTA V is not a last gasp of sales success for a doomed industry; it was inevitable that eventually, a core videogame would achieve this level of sales success, and it is also inevitable that a future franchise will surpass this (although perhaps not for a few years, as the new console generation and the other systems which will play host to the next giant release need to establish themselves first).
Social, mobile and F2P gaming isn’t going anywhere. Developers are going to get better and better at creating and honing those experiences, targeting specific audiences and even creating experiences in those categories that appeal to core gamers – no question. But this isn’t the only way to make a game or to make money from games. There will still be a huge audience who want 8 to 12 hour long amazing narrative-driven interactive experiences. There will still be a core audience for combative multiplayer. Hardcore FPS, long-form RPG, exploration of vast worlds; all of these things have huge audiences which, far from being drawn away by the lure of Hay Day or Bubble Witch Saga, are continuing to grow and expand. Yes, the really impressive expansion right now is at the casual end of the market – but that doesn’t stop core games from selling even more than they used to, as this month’s success stories prove.
This isn’t a zero sum game, and everyone needs to stop talking and acting as though it is. As long as there’s an audience that wants and is willing to pay for core game experiences, there will be companies that provide for that need. Mums playing Candy Crush Saga outside the school gates do not in any way detract from the value of the market that wants a new GTA, a new Monster Hunter or any other core experience. This expansion is not be aimed at core gamers, and a big mistake being made by lots of companies now is trying to apply rational choice models to a fundamentally irrational consumer behaviour and deciding that core gamers actually SHOULD want this kind of business model or game experience. However, that mistake aside (and it’ll stop once a few companies get badly burned for their foolishness), this expansion also does not harm core gamers. Once they realise that, perhaps we can all tone down the rhetoric and instead enjoy the hegemony of videogames as, quite remarkably, this generation’s truly dominant entertainment medium.
The mobile and tablet market has grown tremendously in the last several years. The number of apps on Apple’s App Store and Google Play is downright mind boggling, and if you’re an app developer… well, best of luck to you. As the new survey from App Developer Conference organizers revealed this week, piracy and discoverability are making it incredibly hard to succeed. Nearly half of the app developers surveyed made no profit at all.
So the question has to be asked: after years of flocking to mobile, are developers actually retreating to the PC and console space? “I speak with lots of mobile devs regularly and most are moving away or at least thinking of it, either to other platforms or out of the trade completely,” Paul Johnson, managing director and co-founder of Rubicon, told us. “Having to give your game away for 69 cents a throw (after Apple’s and Google’s cut) and then competing with 1000 new apps each day is hardly a draw for anybody. We’ve reached a point now where even those slow on the uptake have realized the goldrush is over. It’s actually been over for a few years.”
Jeffrey Lim, producer, Wicked Dog Games, agreed: “The mobile space offers certain advantages, like having the largest customer base and relatively low development costs. However, there’s no doubt it is getting harder to be profitable with the ongoing piracy and discoverability issues.”
“So yes, we do think developers (especially indies) are considering going back to develop for the PC – and even game consoles. The cost of self-publishing on these platforms has dropped significantly, and console makers are also making their platforms more indie-friendly now,” he added, alluding to efforts on next-gen systems like Sony’s PS4.
Chillingo COO Ed Rumley isn’t quite of the same mind as Johnson and Lim, but as a publisher, Chillingo has noticed that too many developers simply are failing to make high quality games, so it’s no wonder that their titles are being ignored.
“The number of games being submitted is growing, as is the number of developers contacting us. I’m not sure if some are being scared away, but we know from experience that some developers underestimate the time and quality it takes to make it in mobile now. Consumers are a savvy bunch and spot second rate games a mile off. You can’t just knock something together in your spare time, upload it and wait for the money to roll in anymore,” he warned.
Michael Schade, CEO, Fishlabs Entertainment, acknowledged the big challenge in mobile, but he doesn’t think developers are going to have to look elsewhere.
“Sure, mobile’s not an easy market to breach into, but then again, which market really is? No matter what business you’re in or what product you’re trying to sell, you’ll always have to work hard to gain your ground and make a name for yourself,” he noted. “So that alone shouldn’t scare you away from mobile, especially when you keep in mind that no other platform in the history of digital entertainment has ever evolved faster and born more potential than mobile! With more than a billion smart connected devices in use and hardware capabilities on par with current-gen gaming consoles, today’s smartphones and tablets constitute by far the most widespread, frequently used and innovative gaming platform the world has ever seen.”
Schade also remarked that the last few years of veteran developers getting into the mobile scene has made things more difficult. “The fact that more and more established PC and console veterans open new mobile gaming studios and more and more traditional publishers port their titles to iOS and Android, doesn’t make it easier for one particular company or product to stick out. But that’s not necessarily a bad thing, as it clearly shows that the trend goes towards mobile, rather than away from it,” he said.
For every developer we spoke with, the discoverability issue reared its ugly head. There’s no doubt that this is a major concern. While building a high quality game can help, it’s simply not enough. In the world of apps, you cannot let the game do the talking for you.
“I think many developers have the misconception that it’s simply enough to release the game and let it speak for itself. They underestimate the importance of a marketing/PR campaign leading up to the game’s launch,” Lim stressed. “As a result their games fail commercially; not because of the quality, but due to lack of visibility. Hence the marketing/PR campaign should be seen as an integral part of the game’s development. An appropriate portion of the overall budget and effort should be allocated to increasing the game’s visibility, and if developers do not have the experience or time in marketing/PR they should consider hiring professionals in this area to lend a hand.”
Gree vice president of marketing Sho Masuda concurred that marketing is becoming crucial to mobile success. “They have to spend more time thinking about marketing and post-launch efforts in addition to building the the games. Fortunately, there are a lot of tools and services available for devs of all sizes to ensure that they can get the direction and support they need in these areas. Additionally, the mobile dev community is a very, very tight knit community and there is an amazing level of information sharing and support,” he said. “We encourage mobile devs of all sizes to talk to their peers, take advantage of all the meet-ups and events, and get to know all the services available to help get eyeballs on their games.”
A number of devs also believe that platform holders have a larger responsibility that they’ve been shirking so far. “For platform holders (e.g. Apple’s App Store), they can start to curate apps released on their store because there are too many clones of existing games that are taking up the traffic. They could attempt something like Steam Greenlight; although it is still an imperfect system, it’s better than not having any curation at all,” Lim commented.
Paul Johnson agreed, telling us that he’d really like platform holders to have a much more active role, as the discoverability issue has “about reached terminal” for unknown devs.
“If Apple don’t pick your game out for a feature, and you can’t drum up enough interest before launch yourself, then I’d say you’re pretty much screwed. It doesn’t matter how good your game is if nobody ever sees it and downloads it. They can’t tell their friends about something they themselves don’t know about!” he stated.
“The only thing I think the platform holders could do to help is stop allowing crap to be released. There’s only so much space for features and the end users only have so much effort in them to look under all the categories all the time, so I really don’t think adding more of them would help much. Maybe more apps for shorter times, but this is all a drop in the ocean really.”
“The one thing I’ve come up with that would make a real difference is for the platform owners to charge five grand for a developer license. All the utter crap would disappear and there’d be less apps fighting for space,” he continued. “And the end-users wouldn’t have to waste time downloading the crap as nobody who makes stuff they don’t believe in would dream of fronting that license fee. It’s Draconian but it’s really the only thing I can see having any noticeable effect. Anything else is just lip service.”
Discoverability issues aside, another major – and possibly growing – problem for devs to contend with is piracy. The App Developer Conference survey showed that 26 percent of devs had their apps pirated and a similar amount even had in-app purchases stolen.
James Vaughan told us, “Plague Inc. has a piracy rate of about 30-35 percent, which equals millions and millions of copies, but I don’t consider piracy to be a problem; it is simply a fact of life and I don’t get too worked up about it. Piracy is a byproduct of success and I choose to focus on the success which has resulted in piracy rather than the piracy itself. (The best way to stop your game from being pirated is to make a crap game!) I focus on continually improving and updating Plague Inc. which makes the game even more valuable to the people who have brought it (and encourages pirates to buy it as well).”
For those devs who actually do lose sleep over piracy, there are some ways to combat it, Lim said.
“There’s no question that piracy is prevalent, and I think it will continue to be so for a long time to come. In fact, with high-speed Internet access and the wide spread use of file-sharing software nowadays I think this problem is going to get worse,” he observed.
“The first way to deal with piracy is to implement the appropriate business model, and I think free-to-download with micro-transactions is the right way to go. Making the game free for download can work to our advantage; it allows us to reach out a larger customer base. And if players are hooked by the game, they can be enticed to buy additional high-quality content for a minimal price.”
“The second way would be to build a strong rapport with our customers – e.g. through frequent interactions on social media, events or even email. Developers of notable games (e.g. Hotline Miami and Game Dev Tycoon) have addressed piracy in this manner. By having a loyal customer base which is appreciative of our efforts in delivering quality content, they would empathize with us and be more willing to pay for the games in support of our development efforts.”
The good news for iOS devs, at least according to Schade, is that Apple’s store is less prone to piracy. “Having lived through the ‘dark ages’ of Java and made it out of there with two black eyes rather than one, piracy has been a very delicate topic for us at Fishlabs ever since. Based on our own experience, however, it is not as much of an issue on the App Store as it is on other platforms,” he noted. “I guess that’s mostly because Apple still has a lot of ‘premium’ customers willing to pay for high-quality content. Of course, we’re well aware of the fact that neither the closed iOS environment nor the Free-2-Play model will ever be able to eradicate software piracy entirely, but at least they are doing a comparatively good job at containing it as good as possible.”
If developers can effectively navigate the problems of discoverability and piracy, there’s no doubt that the potential is massive. One look at the overwhelming success of Angry Birds, Temple Run, Clash of Clans and others proves what’s possible. But for the vast, vast majority of devs, that’s a pipe dream.
“From the consumer angle, it’s a golden age. The amount of good quality games that can be bought for laughable prices is fantastic and there’s a ton of money being spent on this platform as a result. The problem for developers is that each individual cut is tiny. This isn’t even remotely sustainable and I don’t know what the future is going to look like. If I was starting again now from a blank slate, without an existing fan base, I wouldn’t touch mobile with a ten foot pole,” said Johnson.
Activision Blizzard’s moves to separate from its parent company Vivendi has been put on hold. The move, which surprised many, angered one shareholder that he sued to prevent this from happening.
Delaware Chancery Court was told that the whole move is a huge waste meant to cover a power grab. But now the court has put the move on hold until it can be argued in court. In order for the separation to continue, either the injunction must be modified on appeal or a majority vote by non-Vivendi stockholders must come down in favor of continuing the process.
Activision Blizzard said it was exploring options to ensure it still takes place. Vivendi has been trying to get rid of Activision Blizzard for nearly a year now in hopes of boosting its shares.
In a “fireside chat” at Casual Connect, ex-EA CEO John Riccitiello sat down with journalist John Gaudiosi to talk about the state of the business.
Gaudiosi asked what Riccitiello thinks of the state of the industry today and who the winners are in mobile. “It’s shocking how long titles stay in the Top Fifty,” Riccitiello said. He also noted that there’s no publisher with broad, long-term success on mobile. “Most publishers have only one or two titles in the Top Fifty,” said RIccitiello. “Almost no one has a title with more than a year in the Top Fifty, and there’s never been a successful sequel.”
Riccitiello’s solution? “Mobile needs to build brands,” he said. “Madden is in its 25th year. So far there’s precious little to indicate mobile is building long-term brands.” The touchstone for Riccitiello is how well people do version 2.0 of a successful mobile game. Can publishers create brands that will last for multiple years? He feels that is going to be a key towards creating a valuable mobile publisher for the long term.
Gaudiosi asked what the role of a publisher is in mobile games, and Riccitiello said that’s still developing. Classically, he explained, publishers do three things: Provide capital, turn content into money (transactions), and provide editorial service. Mobile developers still need capital (especially as budgets increase), and help improving a game (both technical and design help) is always useful. What’s not clear, according to Riccitiello, is how helpful publishers can be in handling transactions when the platforms provide much of that mechanical assistance. The conversion of content into money is a mix of technology, marketing, and design, and mobile games are showing themselves to be different in many ways than games on other platforms.
What needs to change, according to Riccitiello, is the balance of revenue between the distribution platforms and the content providers. “For Apple and Google over the last five years, perhaps half or two thirds of their increase in shareholder value is directly from mobile products. That’s about $300 billion of capital created by the distribution platform,” said Riccitiello. On the other side is content. “Games are about 75 percent of all mobile app monetization; perhaps $25 billion of shareholder value has been created by content. That’s ten times more value created by the platform creator. That wasn’t the case in console.” Riccitiello feels that there’s great potential for game creators to change that equation and generate a lot more value from the content than from the platform.
Gaudiosi then asked Riccitiello what mobile can learn from console. “I’ve visited with many developers since I left EA,” Riccitiello said. “Many have told me they want to bring console level graphics to mobile, and that will make them better. I tell them investing in better graphics without a better game is a road to ruin.” Riccitiello feels that while mobile power is increasing, the rewards will go to developers that generate more satisfying games, not just better-looking games. “One bit of advice as you’re looking at more powerful mobile,” said Riccitiello. “Think about how that allows you to create an experience you haven’t seen before. What game mechanic wasn’t possible before?” Developers that find good answers to that question will do well.
Finally, Gaudiosi asked if Riccitello had any thoughts on how second screen gaming is impacting the business. “No one really knows the answer,” said Riccitiello. “I sit on my couch looking at my email, playing a game on console, and playing Candy Crush on my tablet. I’m using mobile screens all the time. I have seen some absolutely stupendous dual screen experiences with console and mobile. I don’t think we’re scratching the surface so much as we’re waving our hand above a surface that we’re yet to scratch.”
Riccitiello said that some of us would argue that all you need is a tablet or a phone and wireless HDMI out, but he disagrees. “TV is going be used for mobile games and dual screen will be a really big idea when you figure out a gameplay experience that is better.”
Activision Blizzard is to become an independent company as CEO Bobby Kotick leads an investor buyout from Vivendi worth $8.2 billion.
The publisher of World of Warcraft and Call of Duty will buy 439 million shares from Vivendi for $5.83 billion. In addition, an investment group lead by Kotick and co-chairman Brian Kelly, will purchase 172 million shares worth $2.34 billion.
With Vivendi no longer a major stakeholder, Activision Blizzard becomes an independent company led by Kotick and Kelly, whose investment group also includes Chinese operator Tencent, Davis Advisors and Leonard Green & Partners.
“These transactions together represent a tremendous opportunity for Activision Blizzard and all its shareholders, including Vivendi,” said Kotick.
“We should emerge even stronger-an independent company with a best-in-class franchise portfolio and the focus and flexibility to drive long-term shareholder value and expand our leadership position as one of the world’s most important entertainment companies. The transactions announced today will allow us to take advantage of attractive financing markets while still retaining more than $3 billion cash on hand to preserve financial stability.”
Kotick added, “Our successful combination with Blizzard Entertainment five years ago brought together some of the best creative and business talent in the industry and some of the most beloved entertainment franchises in the world, including Call of Duty and World of Warcraft. Since that time, we have generated over $5.4 billion in operating cash flow and returned more than $4 billion of that to shareholders via buybacks and dividends. We are grateful for Vivendi’s partnership through this period, and we look forward to their continued support.”
Kotick’s investment group will hold around 24.9 per cent of the company, with Kotick and Kelly investing $100 million combined of their own cash. Vivendi will continue to hold around 12 per cent of shares.