Neil Young: "This is the best time to be a game designer"
The CEO of ngmoco talks about DeNA's excellent quarter, Zynga, and game design
GamesIndustry International caught up with ngmoco CEO (and DeNA director) Neil Young recently to ask about the latest earnings for DeNA, the parent company of ngmoco.
Q: DeNA, ngmoco's parent company, announced its earnings last week, and they were better than expected, weren't they?
Neil Young: We had a great quarter, best in our history. Our guidance for the first half of the fiscal year was raised also. It's a pretty good time globally for the company. There are a couple of things I think that are important to note. There was a lot of concern in the investor community around some regulations from the Japanese government around a system called kompu gacha, which is one of the monetization systems used in mobile social games in Japan. I think that there was a big concern that that would impact earnings and revenues, and our position has always been that's one of many, many monetization schemes, and we're always introducing new systems and mechanisms to be able to generate revenue in the games that we make, and we didn't actually forecast it as being a big problem and that turned out to be the case. It didn't really have a big impact on our revenues even though we phased it out in our titles.
I think the second thing of note is the pace at which the business outside of Japan is accelerating. In the month of July we approached $10 million in Moba-coin consumption in Mobage West, which is every territory outside of Japan, China, and Korea. It's a pretty exciting growth rate for the business there. I think that's supported by a few things; obviously the success of Rage of Bahamut, which is the #1 grossing game on Android and iOS. It's been the #1 grossing game on Google Play now for 17 consecutive weeks uninterrupted, so that's a pretty good. Also some of our other titles are seeing ARPDAU (average revenue per daily unique) levels which are comparable to the levels we're seeing in Japan, like Ninja Royale and Blood Brothers and some of the other games that we've been bringing over from Japan, Deity Wars and Fantasica, they're starting to reach those same levels. We're pretty encouraged about the potential of the market outside of Japan as well.
Q: Some Japanese properties like Pokemon and Yu-Gi-Oh have become cultural phenomena in the West through card games, video games, animation, toys, and more. Do you think that some of the properties on Mobage like Rage of Bahamut could break out in the same way, and is that something you are working towards?
Neil Young: I think that they can. I'm not sure which ones necessarily will; it's very difficult to predict that. The way that we think about these games is that we're obviously building trading card battle products either in our first-party studios or third-party companies that we work with from Japan. The underlying systems inside those games are what we call GDPs - game design patterns - be they fusing elements together inside games, be they events management, be they the gacha types of systems. Those patterns can be expressed in many, many different kinds of products, whether that's a trading card game or a roleplaying game or a strategy game or a monster-hunting game. What we try to do is match the right selection of those designs with teams that we think are going to work really well outside of Japan. Some of those things will be games that have been sourced originally in Japan and just for whatever reason resonate globally, and others are new things that we create and try to take advantage of the superior underlying design knowledge matched with themes that are appropriate for Western audiences.
Some of that will be original IP and some of those things will be licensed IP. We're going to take those systems and patterns and marry them with Marvel and Marvel's characters. We have a new product coming out this year with Marvel characters. We also signed an exclusive multi-year, multi-product deal with Hasbro for Transformers, one of the most successful movie franchises of all time. We signed that deal very specifically because we understood that that property would work very, very well with the types of systems that we know can be successful. At the end of the day it's going to be a full range of things that we try to deploy.
"The most important intellectual property that you can value in this mobile space is not the game idea itself, but it's actually the relationship with the customer"
Q: There might be some reason to believe that Japanese consumers would like giant transforming robots, I suppose.
Neil Young: Actually in Japan we have a collaboration where we do Gundam games. That's been a very successful property for us. Ironically, probably the one territory in the world where Transformers isn't quite as resonant as everywhere else is Japan because of the Gundam phenomenon. Gundam is #1 and Transformers is #2 in Japan. Transformers has done $2.8 billion globally, and the last Transformers movie is the seventh highest-grossing movie for all time.
It's obviously a very appealing IP, but what's really important for some of the types of games we build is having a universe that has lots of characters in it. Especially when you're doing card battle games the ability to have really beautiful, interesting characters that ideally have a great fan base associated with them is actually an important factor in determining whether or not you are or are not going to license an IP.
Q: Zynga's had some problems recently, some of which they attribute to the disappointing performance of Draw Something. Do you think that says anything about the nature of the mobile game audience?
Neil Young: I think that probably just says something about Draw Something, not so much the mobile audience as a whole. A couple of thoughts there; we've always maintained that the most important intellectual property that you can value in this mobile space is not the game idea itself, but it's actually the relationship with the customer. In mobile very few companies yet have been able to build a relationship with a customer and then move that customer from game A to game B once they've tired of game A. There's so much choice that's available to users really inexpensively in the mobile landscape.
If you can't build and maintain that relationship with the customer - and it doesn't have to be necessarily a direct relationship, it just has to be the ability to put new applications in front of an audience on a regular basis - if you can't do that then you're always going to be at the whim of what the last great hit was. Some hits have a lot of lasting power and others don't. Part of the strategy for us with Mobage has always been to build a platform that connects us with our users and our users with our products, with the goal of being able to keep them inside that network over time, or at the very least have a fighting chance of introducing them to a new title at the moment that they have tired of an old title.
I think Zynga's challenges have much more to do with this shift in attention from Facebook to mobile, and their mix of DAUs is so heavily weighted towards casual mobile games with Draw Something and Words With Friends, that that has a really big impact on their mix of monetization. They have a lot of DAUs in their mobile network and on their mobile games, and that's a formidable collection of assets from a traffic standpoint. The ability to be able to advertise to those customers new titles is something of value. I really wouldn't rule Zynga out of the equation just yet.
"I think Zynga's challenges have much more to do with this shift in attention from Facebook to mobile"
Q: Zynga and other social game companies, like Wooga, are putting a lot of resources into mobile games. They're looking to move their Facebook users into mobile games. How do you see that impacting Mobage and what you're doing?
Neil Young: The Facebook audience, that's a real graph and with Mobage what we're really trying to do is establish what we call a virtual graph. Simply put, in Facebook you go to Facebook because of Facebook, and the friends that you have are the friends you have in the real world. In Mobage you come to the network because you like a certain game or a certain type of game, and then you get to meet people who also like games. We're very much centered on the interest graph around games and entertainment, whereas Facebook is a much more real-world graph. Those are two very different ways of attracting your audience in the first place.
I do think that the companies that have built strong audiences in Facebook will be able to transfer some of those audiences into the mobile world. What they're going to have to do is think about the niches, the deep segments.
I feel like mobile is a little bit more like cable TV. You certainly can have really broad appeal that touches tens of millions of DAUs, you definitely can have those types of products. But they tend to be lowest-common-denominator products that don't monetize very well. If you think about the landscape of cable television, you have networks that are very profitable and very successful that cater to an audience in a very focused vertical, whether that's travel, or food, or sports, or history, or whatever it might be. Mobile is a little bit like that; there are these really rich veins of audience around game types or subject matter types that one, we need to be able to target effectively and program for, and two, you have to have the monetization systems to fully deliver on the revenue potential of those customers. I think that's one thing that the Zyngas of the world and the Woogas don't have yet.
We're fortunate to have the experience our company has gotten in Japan. The market in Japan is a glimpse into the future of what the market in the West might look like. There are definitely some differences, but when you strip aside the cultural differences and the artistic differences and just look at the human behavior and the business systems, the human behavior is remarkably the same. The ecosystem in the West today is very analogous to the ecosystem in Japan in 2007. If you rewind back to 2010 here you have almost a one for one matching with Japan in 2006 in terms of penetration of mobile subscribers into the population, adoption of 3G, phones that from a human benefits standpoint provided basically the same human benefit; the ability to make phone calls, play games, browse the web, send messages, take photos, look at maps, buy goods and services with a single click billed directly to an account in a frictionless way, on top of low cost or affordable rate plans. I think the experience we've gone through in Japan with building Mobage have given us a head start to be able to capitalize on that.
Q: I know you have Ben Cousins working on a tablet title. What is your approach to the tablet market which seems to be really taking off this year?
Neil Young: Firstly, the mobile operating systems, Android and iOS, are kind of a misnomer. What they should really be called are consumer device operating systems, and the first large-scale consumer device that happened to be used in was phones. As those operating systems move from phones to tablets and ultimately to televisions, there's great opportunity to be able to move your software to those venues at the same time. That's been an underlying belief we've had at our company for a very long time. Tablets in particular have the opportunity not just to disrupt the PC gaming/laptop gaming space, but I really think they have a huge opportunity to disrupt what we think of as traditional console gaming. That's really where Ben is focused on. Ben, like us, really believes that there's this tremendous opportunity to disrupt the incumbent consoles by building superior quality games especially with his expertise in FPS games that can be played up and down that continuum with tablets in the center.
If you build a phenomenal iPad experience, and our expectation is given the resolution of the iPad today, and where we guesstimate things like Airplay are going, you will be able to play that game on a television and have a wonderful experience. You'll also be able to take that experience with you on the go, either with your iPad or with your phone. Ben is really trying to crack and solve that challenge both from a quality of game standpoint, from a user interface standpoint, and also from a monetization standpoint. Ben has been very successful with the free-to-play version of Battlefield, and ngmoco had it and the industry's very first free-to-play top-grossing application with Eliminate, which was a first-person shooter.
We're trying to take all the experience from those two things and combine them with what we now know about how to monetize in this free-to-play world, the superior ARPDAU levels we're starting to see in our Western games to deliver something that can be a great gameplay experience and a great business at the same time. I think that will be a whole new leg of revenue. If you think about social mobile games right now, at one end of the spectrum very broad appeal, low-monetizing, in the middle of the spectrum you've got those deep and still quite large veins that can monetize very well, I think there'll be a whole new segment that is catering to a core gamer audience that we'll be able to tackle quite directly with that one.
Q: Those core gamers sure can spend money.
"This is the best time to be a game designer"
Neil Young: Those core gamers are used to spending $300 per year, 5 games on average, $60 at retail. That's a lot of money. You also have to provide a lot of experience for that; it's non-trivial.
Q: It's a difficult transition for game designers to make if they're not used to free-to-play games.
Neil Young: Absolutely. I said this at a GDC speech a year and a half ago... this is the best time to be a game designer. When I worked at Electronic Arts we really just didn't know why our games sold or made money. It was the license, it was the game design, it was a collection of things, but we didn't really know. Now you absolutely know what game design feature users are engaging in the most, and paying for the most. It's a really wonderful time for the game designers who can make that transition. The most valuable people in the next decade of gaming are going to be the designers and the producers who can really effectively blend that highly iterative, deep understanding of what the users are doing with strong creative visions that can lead the market. People like Ben are those kind of people in my opinion.