In this series, Seth Gerson speaks with industry insiders to get their views on the past, present and future of the world of games. A long-time insider himself, Seth's experience, knowledge and access to thought leaders provides us with this unique looking glass into all aspects of the games industry.
Dave Anderson is a seasoned industry veteran, having spent 15 years in the industry, most recently as Head of Business Development for Activision. Dave gives us insight into the business development and licensing roles in game companies. He has sage advice and shares some of his career learnings. He discusses his thoughts on social and mobile gaming, curation, E3 and more.
Whether you are a veteran or looking for your first job, this interview provides a unique perspective.
Q: Dave, can you just give us a little background or how you came into the industry and what you've done?
Dave Anderson: Sure, it's funny this industry chose me more than I chose it. I came out of school in a time in the very early '90s, where there was not much of an option. We were in a recession and looking for jobs amounted to getting hired at the Gap as a sales associate. So I went to a small credit services company, which was working with Activision at the time. Activision had gotten itself on its feet and moving along, had just successfully released MechWarrior 2, which gave it a lot of credibility in a very crowded publishing market. I was essentially a consultant that came in to help, and eventually got hired on as a Financial Analyst in the finance department, really focusing on the A&R side of the business.
I spent about a year there and then moved over into the contract side of the finance department and eventually managed the royalties and participations group. I got very interested in contracts and at that time we were doing a brisk business in OEM licensing which amounted to taking part of our PC games and bundling them with IBM systems, or Dell's systems, or Gateway's systems etc.
My job was to track all those royalties coming in from those relationships. That led me into a licensing role, which was more in the business legal affairs area, and so I moved out of finance, of which I knew I would never have a career path, nor did I want one, and into a place that that really was a springboard for my career development, which was as an associate licensing manager at Activision.
Q: You are one of the few people I've ever met that started in finance in this industry. Could you pick a couple of things that you learned from the finance group, that you were able to take with you through your career?
Dave Anderson: Well I think that experience in the finance department was critical for understanding how a business operates. And despite what that business develops, manufactures, produces, distributes, what have you, whether it's a proverbial widget or video games, at the end of the day, it all funnels down to how a success of that company manages its financial livelihood. The experience I gained in the finance department was invaluable for me for understanding how a business operates, its profitability, its gross revenue and how they compare to the operational income. That was really helpful for me, when I grew the business development department at Activision, which I created and grew from about $10,000 of revenue to just under a quarter of a billion dollars of revenue.
"You have to approach any partnership from the standpoint of I am going to win, and hopefully they feel like they're going to win, so we can get this deal done"
Q: So what exactly is a licensing manager and what do they do?
Dave Anderson: A licensing manager essentially takes owned intellectual property and assets, whatever they might be, and seeks to find partners that will license that IP. That means that a licensing partner can take that intellectual property and those assets and create other products that are not core to your business. A good example would be if I'm making a video game, and I have a very successful video game, I might try find a t-shirt manufacturer that's interested in taking that video game likeness and putting it on t-shirts. And since that's not core to the video game business that I'm in, it's what creates incremental revenue for my company.
Q: That sounds like you need one real big skill, the ability to go sell it.
Dave Anderson: Absolutely, I think it takes a number of skills; there has to be a bit of industriousness with any licensing person despite whatever role they are in. Or if you grow that out, a business development individual needs to be able to sell, needs to foster good relationships with management, and needs to grow the business. A good BizDev person will find new opportunities to take the company assets and exploit them further down the line. That might be finding new platforms that your company is disinterested in developing for its IP, and finding partners that are interested in taking your IP and creating whatever products they create for themselves.
I would say to anybody coming into the industry to read contracts, if you have the opportunity to, because it really helps strengthen your understanding of how two sides do business together, and what the limitations are. You have a good understanding of the business side of the arrangement, and of the legal side of the arrangement, so that really, really helped me.
Q: So are relationships in the video game industry zero sum games?
Dave Anderson: Absolutely not. I believe that you have to create an environment where, for whatever reason, it's not a disaster for the other side. And that side is important to you going forward; let's say it's a Coca-Cola for example, I want to do everything that I possibly can, outside of something that's not going to be financially in the best interest of my company. In these cases it was Activision, and I wanted to make sure that that partner feels if we are going to do something again down the line, that they are going to have another chance for success. Because if you burn a partner, especially a partner as big as a Pepsi or a Coca-Cola, or a McDonald's, they're not going to do business with you again... you have to approach any partnership from the standpoint of I am going to win, and hopefully they feel like they're going to win, so we can get this deal done. And I think anyone you talk to that does deals or handles that responsibility on behalf of an organization, would say the same thing.
Q: What was the most valuable thing someone in the industry took the time to teach you or help you with?
Dave Anderson: It's a very, very good question, because I think that I could go along my career timeline and give you a person for probably every year. I can go back to the person that hired me and who really gave me my start in licensing, which was Philippe Erwin. What he taught me was to always think on your feet and always be prepared. He used to be able to go into any negotiation and was prepared to rattle off at least three things that were going to benefit the partner, and in case there was some sort of negative response, three things that would bolster his position. So, I would say Philippe Erwin installed in me preparedness and being ready fully.
Q: Fast forward, what are some other things that people have taught you?
Dave Anderson: I would point to George Rose who's taught me to be very scrupulous and very observant. That comes from his legal background in making sure that you don't get too high or you don't get too low over any given situation in the world of business development. It's a very mercurial mixture, where you have a lot of human beings, and you have companies that you are working with.
One day you could have the highest of the highs and then the next day you could have the lowest of the lows. But if you ride that rollercoaster, you can drive yourself up the wall. I used to tell my people that we are the furthest out on the tree limb before the tree limb snaps. And we have to be comfortable out there, because one day there is going to be strong winds. And it's going to be blowing us back left and right, up and down, the next day it's going to rain, and you have to be comfortable living in that environment out there. What do you get from it? You get perspective that people that are hugging the tree trunk won't fully utilize their opportunity.
Q: I have watched some curation companies trying to solve "discovery" analytically and algorithmically. I've been looking at others that are employing user curated content. Which one do you think wins out? For the most part, Google and Apple have pretty much ignored user curation.
Dave Anderson: It's very hard for anybody but Apple to curate within Apple's vigilantly monitored ecosystem. Apple has no incentive to do any kind of curation because they want to find that next App that might push you over the precipice to buy their hardware. And Apple is a hardware play, not an App play. And they are making good money off the Apps... so they don't have any real incentive to cull the herd, or to do any kind of category management, or make things a little bit more efficient.
"Facebook is nothing more than a distribution platform for other businesses like Zynga. The games business that sprouted there will continue to evolve on that platform"
Now on the Google side, it is this sort of open sea of content. And what are they at heart? They are an advertising company. So the more a user looks for content, the more they have opportunities to hit you with advertising while you are within their network. I think that it's really upon companies, especially in the gaming and entertainment spheres, to come in and help curate and unclutter, de-clutter the content associated with those markets. A good case in point would be NVIDIA and what they are trying to do to help create a curated game area which is only good quality, well reviewed games so that people have confidence to come in and check those games out and they know where to find those games in their tegra zone area. I think you'll see more and more of that on Google. So I think there will be certain companies that find an opportunity to and a reason to go ahead and create their own environment with Google's blessings.
Q: If I am trying to build a skill set and I am trying to get into the industry and make my mark, do I develop on iOS, or do I develop on Android?
Dave Anderson: If you want to make money right now, you are probably going to develop on iOS. Again, it's a very clean process and a closed ecosystem. That's hands down the right answer at the moment. I think ultimately you are going to develop on both, because it's analogous to, "do I develop only as an Xbox exclusive or a PlayStation exclusive?" What made Activision very successful was cross platform.
Q: If I am getting to work on a project right now, and I can work on a Facebook or Google+ project, should I bother looking at Google?
Dave Anderson: Well, I mean you can't argue with Facebook. I think they are approaching 700 million users, or maybe even more at this point. That's quite a community out there. And I think I read somewhere Google just passed 20 million, so they've got a lot of catching up to do. Neither company is going away anytime soon, so I think that there's going to be a place for Google and there might be folks out there.
For me, Facebook is nothing more than a distribution platform for other businesses like Zynga. The games business that sprouted there will continue to evolve on that platform. I think it's happening already. I'm not quite sure where Google's play is in all this; I mean they keep coming back to their fundamentals, which is they don't do anything unless there's some sort of advertising, or some sort of play there. So I have to think that ultimately it's going to be successful for them and create a line of distinction between themselves and Facebook. Obviously, MySpace has gone away and there's really no one else out there of much significance.
Q: A lot of industry veterans tell me social games are junk. But they monetize them incredibly very well. What are your thoughts around social games and are they really changing the industry?
Dave Anderson: Yes, and here's why. They are not luring away traditional console gamers that tend to be 13-34 years old, typically 80% male... Social and Mobile gamers are not cannibalizing that set much, if at all. I feel that what they are doing is opening up the demographic concentric circle out mainly on the social side. This is not really up for debate for women. So they are bringing more people to the gaming party, and I think that's great. You are starting to see a whole paradigm shift.
It's really a market transition in terms of going to free-to-play games and to a micro-transaction based economy. Because of that, social games are monetizing exceptionally well. If I can get into a game for free and I get hooked, you've now proved to me the worth of that game and I want to continue to be part of it... and that means I am going to spend some money.
Q: I constantly hear "games are so expensive." But when you think about it, some games offer 40 hours or more of gameplay, so movies are a lot more expensive per hour. My question is, there are only 24 hours in a day, so who's the loser in terms of mind share?
Dave Anderson: You can answer that artfully in a number of different ways. You can say that people are better multi-taskers now. They are more efficient than they once were, and we have all of these great machines that help us become more efficient and more productive. I think you could say that and feel confident that I can listen to music and other entertainment sources while I am playing my short burst gaming or my long extended gaming, while I'm texting and eating, right? But what you are seeing is a trending off of traditional forms of media--reading the newspaper, radio, things like that. If there's a loser that's probably your old media sources, which are probably the ones that we are seeing under-indexing versus the games and other forms of entertainment.
Q: Is the future of this industry social games? Is this a gold rush now?
Dave Anderson: I wouldn't limit it to just social games; I would just say gamification in general. I would say that there's just a richness of opportunity. Where else? There are the cable access channels that you can shoot your own TV and public airways. But aside from that, it's a very tough business to break into and to work your way up. But if you are talented, you and your buddy can create a game and get that into distribution, almost instantaneously. Then it's just based on the quality and the interest level that the community out there has for whether your game is going to be successful or not. But the path is a more direct one.
Q: Every time I hear people jumping into games, the first thing they tell me is it's going to be the most viral game of all time. And I think those who are in social know right now, there really are no guarantees. So if you are making your own game, or you've just started your own company, how would you approach distribution?
Dave Anderson: When looking at distribution with a two-man team, I'm thinking about the iOS ecosystem and sort of the social Darwinism of that... the most interesting and the most fun apps survive. When we are talking about social games, it is a different business, and at that point it's all about user acquisition, which is fundamental. You need to acquire users and there's no real way around that unless you've got a media partner that is underwriting your marketing costs. Getting a huge user uptake is very expensive. In that case, you can still be a relatively small, scrappy crew and get something done, but then you are probably looking at a more traditional path of finding a partner that can help you.
Q: In this digital, self-publishing era, most think "I can do everything myself." Why would I partner with someone?
Dave Anderson: Well, simply because you don't have the deep pockets to create that user uptake in a quick manner or a faster manner. Facebook is a platform, Zynga is a publisher. You are going to have to partner with a source that's going to be able to get you seen on that platform.
Q: So, if I give a little piece of the pie away, a little piece of revenue away, I basically jump into a much larger pie?
Dave Anderson: I think that principally you see that is the way it worked in traditional gaming back ten years ago. I could be a developer and would not be a one- or two-man group even then, but a small team that needed an Activision, or an EA to help them get to see the light of day on a Wal-Mart shelf. I think it's the same digitally here, so whether you want to go through Steam, or you want to go through your social and want to get into Facebook or any of the other platforms out there on social side, you're going to have to make a deal.
Q: So switching gears, let's look at E3. Everyone I talk to wants to go to E3, but when I ask people what this show is for, the first thing they tell me is it's just for the press. Who is this show for?
Dave Anderson: I think it depends on whom you ask. The publishers are going to say it's for the press. If you just ask me what the value is, it's the one week during the calendar year that this industry gets the extended press coverage, gets the extended awareness, which I think it richly deserves. So it's a coming out party for video games, for social games, for all sorts of games that are coming out for technology that is revolutionizing the industry - not just the gaming market, but I would say the home market, the mobile market, and the communications market. Yes, it's really for the press, and it's really for the retailer. It's not a consumer show, so it's a business show, it's closed and it is commercial.
Q: If you're trying to get into the business, do you go to E3 and try to get a job?
Dave Anderson: No. But, If you're trying to look for a job and you're lucky enough to score a badge to E3, you should go and check out what's going on in the industry; that's the value.
More insights from Seth Gerson can be read on his blog, ibelieveingame.com.