The age of analytics is here - part one of the interview with GamesAnalytics strategic advisor and head of North American operations, Alan Miller, focused on why the online games sector needs better information on game experiences... and later this week we'll be featuring another analytics company just breaking cover with a slightly different take on the market.
But here in part two we talk to Alan - co-founder of Activision and with wide-ranging industry experience - about the challenges of new IP, the question of marketing for online games, and whether people are too harsh on his old company following the Guitar Hero business unit closure.
Q: The online games sector has moved so quickly - but how significant is it that games are such a big factor in something like Facebook, which has itself become an important part of a lot of people's lives?
Alan Miller: I think it says a lot - the rate of change in the industry right now is much greater than it's ever been in the last 25 years, since the industry sort of collapsed in the mid-Eighties. And it's heading in a way that's just wonderful.
It's evolved to electronic distribution, and away from bricks-and-mortar retail distribution - which had put many constraints on the games industry which I felt, frankly, weren't particularly healthy. It narrowed the types of genres that could effectively be sold through retail, and therefore narrowed the audience.
Now that electronic distribution exists, it opens up tremendous audiences - we've gone from audiences that might be 10-12 million with World of Warcraft, to audiences on Facebook... Cityville's got over 100 million users, and that's phenomenal.
I think it's great for consumers, and it's great for publishers as well. Small publishers, that could never get retail distribution, can now get very effective distribution. A game like Angry Birds can come out of nowhere and sell 1 million copies. It's just wonderful and amazing.
Your interview with Richard Garriott interested me last week - he talks about massive consolidation happening in the industry in the next two years, and that's something I disagree with. I think there is going to be consolidation, but online distribution - both driven through the internet and mobile networks - has removed so many of the constraints that it is going to continue to be a wonderful opportunity for small game publishers. However - they have to create great products.
But one of the great things that digital distribution provides is the ability to experiment with a game - a lot of the social games are made available initially in a semi-finished state, and the games evolve over time. So publishers who are nimble, and understand what their players are experiencing in their games, can make pretty rapid changes to those games.
That's something that a lot of the big traditional game publishers haven't realised yet - they'll spend 400 man-years developing a game over three years, put it into retail and that's it. That model just doesn't work online - so my point is, in order to be successful, these game publishers have to be very responsive to their players, and understand their experiences. And GamesAnalytics provides the kind of package to allow them to do that.
Q: Well, if there are frustrations or barriers in games, the core gamers are more likely to find solutions themselves (or online) - but it's arguably much more important for social and casual games to eliminate bottlenecks because chances are those gamers will just bounce off.
Alan Miller: I agree entirely with that point. As you say, core gamers are pretty much committed to the games, and spending a significant amount of money on them. But the more casual, social gamers don't have that commitment; so publishers have to work very hard to convince these online game players to make purchases - they have to provide them with wonderful game experiences.
Just about everybody is providing a basic level of play for free - but the real trick is how you can entice a player into spending money, to get them into the game, to enjoy certain aspects of the game... but to voluntarily pay to do so.
Providing good behavioural analytics is much more important for casual game audiences than it is for core - but it's still extremely useful for the core audience too.
Q: Certainly in the core market we've seen key franchises generally flourish, while bringing new IP to gamers has become ever more challenging. But is that the same for the social network games environment?
Alan Miller: Well, licensed IP became important for games that were distributed at retail, and the industry in general adopted that heavily. However, that hasn't been much of an issue for the online industry so far - it's grown to be in excess of $10 billion in revenue with an almost negligible reliance on licensed IP.
I think over time we'll see more of it coming into online games, and I'm very interested in the results. Gazillion will be bringing out Marvel Universe next year I believe it is, and I'm curious to see the response to that; but I really think that non-licensed or original IP has been around in online games for quite a while.
And a lot of the big publishers sort of acknowledge that. Disney purchased Club Penguin and Playdom and that's an endorsement that they consider these companies, that have been developing without the use of any licensed IP, to be important. Playfish was acquired by Electronic Arts in an identical situation. So I think, somehow, it's of less importance to the online game industry.
Q: And that's good news for the small companies, who can come up with good ideas and not have to rely on a license.
Alan Miller: I think the bottom line is that high quality games will do better online than at retail. That sounds funny - but what I mean by that is that being successful at retail distribution wasn't simply a function of having a high quality game. I'm sure we've all bought games that were wonderful eye candy, or were involved with a licensed IP... but the games were not very good.
But in the online space, because there aren't the barriers that had been imposed by retail distribution, game publishers could create wonderfully entertaining games - and people will find out about them. I don't think it's going to be dominated by licensed products - but I could be wrong.
Q: There seem to be two schools of thought about marketing for online - some people seem convinced that without any marketing you don't stand any chance at all; but others preach a view that if a game has genuine quality it will succeed. What's your view?
Alan Miller: Up to this point very little has been spent marketing online games. I think there might be a difference of perception about high quality production values versus entertainment - they're not the same. You can invest a lot of money in something that's very pretty, but it might not be entertaining, so a lot of people can get frustrated - they put a lot of effort in, then when it's released online it doesn't do well. Perhaps that's because it's not entertaining.
I do think publishers will begin to spend more on marketing to make consumers aware of their products; but there isn't the shelf space constraint that there was at retail - anybody can get their game online, and I do believe in the power of the internet, the power of the social grid, to inform players about what's good.
So I come down on the side that says marketing and advertising is much less important in the online space than the retail space.
Q: You have some history with Activision, and it's been an interesting time for that business in the last couple of weeks. It's also a company that seems to generate a lot of polarising comment. What's your view on its current business plight?
Alan Miller: I'm happy to comment on that, but I've not been associated with Activision for 25 years, so my perspective is entirely as an outside observer.
I was sad to see the Guitar Hero franchise drop, because it was such an enjoyable product, and I think it brought a lot of new players into the games industry that might not otherwise have been attracted to videogames.
But it's hard to be a game publisher, and constantly create entertaining products. Activision has actually been pretty prescient about the importance of online through the merger with Blizzard - that's the most highly-valued independent publisher now, with a stock market valuation of $13 billion as of last week, which is two or three times more than others such as Electronic Arts.
The problems that Activision is having right now in the limited area of Guitar Hero is reflective of the massive change going on in the games industry, as it transitions from retail to electronic distribution.
Guitar Hero specifically had a big problem in that it required pretty expensive peripheral prices to really enjoy it - and that's a much more viable sale at retail, where the peripheral can sit right next to the box. It's hard, in my opinion, to get a lot of the more casual players to spend $100 for a guitar, just to play a game.
And additionally, a lot of the new platforms - like the iPhone and iPod Touch, and others - don't really accept complex peripheral devices very well for games. But I'm sad to see Guitar Hero go.
Q: It's difficult to argue with those numbers - but it's a company that people seem to enjoy taking a shot at. Is that fair?
Alan Miller: Well, I think it's a little bit strong, that reaction. It's very difficult to be a games publisher - your objective is to make enough money to continue in the business and make new games. I know they're not a very extravagant company; I know several people that work there who don't have plush offices - and they try to create wonderful products.
But as a publisher, you're taking the risk - and it's not just the development risk, it's also the marketing risk. It's a very expensive proposition, and you don't have the luxury of putting products into the market that you don't think are going to perform and be profitable.
Alan Miller is strategic advisor and head of North American operations at GamesAnalytics. Interview by Phil Elliott.