Continuing our ongoing look at videogame markets around the world - and particularly how they've been affected by the economic recession - here we get an update on the situation in Russia, a country that's often been nominated as a key growth region.
In this interview, Akella's VP of publishing, Vladimir Koudr, talks about the current split between platforms, which companies are facing the most pressure, and how the piracy situation is continuing to improve.
Q: Fill us in on Akella's background.
Vladimir Koudr: Akella is one of the oldest players in the Russian games market - it was created in 1993 - and during our history we've had a few very successful milestones. We were the first Russian company to fully localise a title in Russian, a racing game from Ubisoft called Pod. In fact, it's fair to say that was the start of the legal and European-standard market in the country.
Our first self-developed big title was Sea Dogs, a pirate game published by Bethesda, and later on we started developing another big product which was originally to be Sea Dogs 2 - but that changed to Pirates of the Caribbean.
Bethesda bought a license from Disney to publish a game after the success of the movie, so one year before the planned release, we made some big changes to the game and developed it on Xbox instead - so it was the first Xbox title developed in Eastern Europe. So far we've sold around 2 million copies of the games in Russia alone.
In 2005 we received investment from two companies, which has helped us to increase our activities - and up until 2008 we grew pretty quickly, along with the rest of the Russian market (in 2007 the market grew around 30 per cent, but that's fallen off now).
Now we're developing a new game called Disciples 3 - originally it was a franchise which belonged to Strategy First, but we purchased the brand and now we're developing the title.
Q: What was the reason for buying Disciples?
Vladimir Koudr: Well, previous games in the franchise were very popular here in Russia, and we're expecting good results in the international market. We're going to release Disciples 3 after Christmas, it's really in the final stages of development. It's in the same genre as Heroes of Might & Magic.
Q: How well do you think it will sell internationally?
Vladimir Koudr: It's a PC game, so our main expectation is from markets where PC games are relatively strong - Eastern Europe, Russia and of course Germany. We also have some pretty strong expectations from the US.
Q: How about the digital download space - will you partner with people like Steam, or GamersGate?
Vladimir Koudr: Yes, we're going to distribute it through the major digital channels, although unfortunately they're not very strong in Russia - but retail is pretty strong. Russia is a PC game kingdom - over 80 per cent of retail and online is PC-based. Consoles are less than 20 per cent - that's all the consoles together.
Q: Is that because of the price points?
Vladimir Koudr: It's historical - for example, 15 years ago it was 100 per cent illegal, just pirated software, and it's easier to pirate a CD-ROM than it is a cartridge, so that made it harder for people to get pirated console games. It was much cheaper to get a PC, and get all the software for free.
So the installed base grew quickly - at the moment in Russia there are about 9 millions PCs that can play modern games. Compared to the consoles... the installed base for the PlayStation 3 is about 200,000, for example, while Xbox 360 is about the same.
Q: What's the future for Akella - do you make games mainly for the Russian market, or are you looking to more international exposure?
Vladimir Koudr: For the big titles, the triple-A games, we want to create products that will sell internationally, but also in Russia. This year we're expecting more from the Russian market, because it's grown pretty quickly - and of course it's easier for Russian developers to create games that will be more popular here. We've got a better understanding of this territory; we're from the same culture.
It's possible to find a game that will be hugely popular in Russia, and also sell well in Europe - or the other way around. But for games that are hugely popular in the US, sometimes they're really not so popular here in Russia.
We have a really strong publishing line-up for next year - as I said, we've got Disciples 3 very soon, and a number of very strong titles after that, like Assassins Creed 2 and particularly Metro 2033 -which will be published by Akella on PC.
It's a game that looks like it will become extremely popular in Russia - we presented it at our specialised booth at Russia's biggest public games show, Igromir, last month, and the buzz was just great.
Q: So which genres are popular in Russia?
Vladimir Koudr: Well, major titles are pretty successful everywhere, but the best genres are first-person shooters and action games, then strategy titles, RPGs and some racing games. Particular titles that have had good results would include Prince of Persia and Assassin's Creed, from Ubisoft. PC versions of console games are popular too - we sold close to 400,000 units of Test Drive Unlimited here in Russia, while Prince of Persia was around 1.5 million.
Q: How much does a premium game sell for in Russia?
Vladimir Koudr: One of the reasons the PC games sell is because they have low price points here, while console games are pretty much the same as everywhere else. So an A-category PC game would sell for around USD 20 at retail.
Q: That's still pretty good money.
Vladimir Koudr: It's not bad - a while after release the price drops to USD 20 everywhere, or its equivalent, but here it stays at USD 20 the whole time, there's no price drop later on. The whole lifetime of the product it remains at its starting price. For a B-category game you're looking at USD 12-15 at retail.
Q: How do you see the Russian market developing in the future?
Vladimir Koudr: Well, the console market here is growing - more quickly than the PC market. It was close to zero about five years ago, but now it's just under 20 per cent.
But when it comes to development here, it's not an easy business - recently Russia's been the oil country, and wages were higher because there was more money coming into the consumer markets. However, in my opinion very few Russian studios can actually create really competitive international titles... but maybe that's like everywhere - 90 per cent of studios create average titles, and only 10 per cent can really make something special.
Q: It's said that Russia is very strong with artistic talent - is that true?
Vladimir Koudr: Yes, that's true. I think there are two major problems for Russian developers - high salaries, especially in cities like Moscow (which is like a big European city now) where people expect good wages. For developers, that's not very good. Ten or fifteen years ago it was possible to make a decent game at a much lower cost than the rest of Europe, for example, but now that's not the case.
The second problem is that we have a shortage of designers here with the expertise of making games that will appeal internationally - in the US market particularly - because of the cultural difference. So if a Russian developer wants to make a game for the US market, they need to hire an American producer.
Q: But importing talent from the US must be more expensive?
Vladimir Koudr: To an extent, yes, but good professionals cost pretty much the same everywhere.
Q: How did the worldwide economic situation affect the Russian industry?
Vladimir Koudr: Well, the economic situation in the last year isn't very good. The retail market dropped twice, and the Rouble was devalued by about 25 per cent. In our sales structure we can see more than 70 per cent of sales are based on international licenses - so we pay for the license in Dollars or Euros... and there's a problem. The fall in the currency has really damaged the business.
Q: How long will it take to recover?
Vladimir Koudr: Well, we can see some signs of recovery - September was about 35 per cent lower than last year... but that's better than the Summer, which was about 50 per cent down.
In my opinion we'll see a real recovery next Fall, but this year will just be year-on-year drops.
Q: Will more companies close down in Russia?
Vladimir Koudr: Yes, but that will be mostly development companies - before the crisis it was very difficult to get loans from the banks, so small- and medium-sized developers worked only for money from the Russian publishers.
Now the publishers suffer from a drop in sales, so they don't have enough money to invest in the development - so those smaller companies are closing as a result.
Q: On a final note - we heard last year that the situation with piracy had been improving. Is that still the case?
Vladimir Koudr: Yes, that's true. Normally in the international media we can see information about the piracy levels of business software - but in games software the piracy levels are much lower, because Russian publishers and distributors are fighting hard, and creating effective models for people to buy games legitimately.
In major cities like Moscow of St Petersburg, the market is probably about 70-80 per cent legal - but in remote regions the situation is the opposite, and the piracy market is at about that level, but that it is improving.
Vladimir Koudr is VP of publishing at Akella. Interview by Phil Elliott.