Neil Young, CEO of ngmoco (Japanese mobile social giant DeNA's subsidiary), spent many years at Electronic Arts before founding ngmoco to create mobile games. While the Entertainment Software Association insists that E3 is more relevant now than ever before, Young clearly doesn't agree. In fact, he believe that his company's rival Gree is wasting big money by paying for a large booth at the show.
GamesIndustry International spoke with Young about E3, the traditional game industry, and where mobile games are headed - and if those things have any connection.
Q: What is the relevance of E3 to the game industry these days? Has it diminished?
Neil Young: Yeah, I think it's diminished massively. E3 was invented as a place where all the buyers could come and see the products that the publishers thought were going to be the big hits. That led to an arms race of publishers building bigger and bigger booths, with more and more elaborate displays to try and influence the opinion of buyers that their products were their big products. That's the core of E3, and then surrounding E3 there are these two other dimensions. One is the press that gets generated around it, and you could argue that's a benefit to consumers, and I think it is interesting to customers, but really the awards and what-have-you are just another way to pre-validate products before their release. The third dimension is the business that gets done in meeting rooms that are off the show floor, and that has varying degrees of value.
If I think historically, when I was at Electronic Arts, the most value I personally would get out of E3 was meeting with colleagues from around the world and getting the opportunity to spend focused time with them, and also to stay connected to people in the industry. I think as we move more and more to digital distribution, to mobile and mobile operating systems, and we move away from the packaged-goods centric business, I think the relevance of E3 diminishes and will continue to diminish.
Q: Why do you think Gree has a large booth at E3?
Neil Young: It's hard for me to comment because I don't know what their mindset is. But I would say that they probably don't fully understand what E3 is about. They want to look big and look important, and that is the biggest show, but ultimately if they do the ROI on it it's going to be a waste of money for them. It's just a message to the industry I think, and the industry it's sending a message to is the wrong industry.
"As we move more and more to digital distribution... I think the relevance of E3 diminishes and will continue to diminish."
Q: Did DeNA ask you whether you thought they should be at E3?
Neil Young: We made an active decision to not be there. E3 is just very expensive. The value was kind of hard to justify when I was at Electronic Arts; at EA we looked at it and said, "Man, this is going to be expensive but it's kind of something you have to do." But we're not really in the packaged goods business; we really don't have to convince distributors or buyers at retailers to take our software. I would rather honestly use the time and the energy and the money to make great games and reach customers.
Q: I've heard lots of complaints from the development side that E3 can disrupt the process.
Neil Young: It can, but probably the most value that I personally got out of E3 was when I was showing products there at EA. It's a wonderfully humbling experience to show your software to people outside of your team and outside of the company. You very quickly understand what's going to end up resonating with not just buyers, but end customers. It was very painful preparing for E3, but the act of doing it was a forcing function to figure out what it was you were actually making, and in a very concentrated way get feedback from other humans. As painful as it was, I did appreciate it for that.
I think Gree is sitting next to Konami on the show floor, and then EA or some other large publisher is on the other side. That's just not going to be a great environment to show your software. You're going to have a whole bunch of handsets stuck on retractable wires on podiums going against a 160 foot long display with guns blaring and music blazing and Xbox 360s and PS3s pushing the maximum number of pixels possible. It's difficult to create the type of buzz and excitement and energy against those kind of more visceral experiences. For companies like ours, it's not a great thing to do. We will have people at E3, we're just not exhibiting on the show floor. I do think it's a critical mass of people in one place, and whenever you have that there is an opportunity to be efficient with meetings. But you know what it's like; by day two or three most people are so exhausted or hung over they find it hard to function.
Q:The traditional video game publishers are all talking seriously about smartphones and especially tablets as an important part of their future. Should you be worried? Will they be able to offer a kind of game that you don't?
Neil Young: We want to offer all types of games that build on what we know, and we've got a range of things in development that range from casual card-collecting games to the other end of the spectrum. We've got first-person shooters on tablets being built by Ben Cousins and his team in Sweden that worked on Battlefield and Crysis. We want to offer a range of user experiences that are fundamentally social and are fundamentally free-to-play and leverage what we know about building a business from free-to-play games. So I don't think that console publishers coming into the space will necessarily create categories we can't compete in, and I feel good about the knowledge base we have in the company and where we are from a learning standpoint and how to monetize phones and tablets.
As somebody who used to work in the console business, it's hard-earned knowledge, it's not something you can get overnight, it's stuff you really have to learn. At ngmoco we've been learning it now for nearly four years, and DeNA has been learning it for another four or five beyond that in a market that is much more scaled. I like our chances against console publishers. Those guys are really struggling, they're really wrestling with how to go from being packaged goods companies that have at their core a skill set around building big products that ship as physical packaged goods titles.
That's really different than building something very quickly with a compelling core and then iterating over time in a live service environment. It requires you to rethink your process, and rethink your culture, and even rethink the people that you have. I think the transition that publishers will have to go through to get from where they are today to where they would need to be is at the very least going to be painful. I would predict that along the way quite a lot of them are going to end up failing and maybe becoming no longer relevant.
Q: It really does mean you have to rethink everything, from the design to the processes to the marketing.
"It's a wonderfully humbling experience to show your software to people outside of your team and outside of the company"
Neil Young: It's just different. I love good console games as much as the next guy, but I'm going to be buying less of them. I'm only going to be buying the things I really really like, and my expectation probably is that over time they should be more like service games. They've got this constant stream of new content, or new things for me to do, or new experiences. I think that's going to mean there will be fewer and fewer big titles that are serving the market, which will create some element of disruption.
Q:Japan's government recently ruled the "kompu gacha" mechanic illegal, and DeNA along with other companies has agreed to remove that game mechanic from their games. Does this affect any games outside of Japan? Will this materially affect DeNA's earnings in the future?
Neil Young: Kompu gacha will have an effect; removing that from the games in Japan will have an effect and we don't really know what that effect is yet. It's difficult to just disconnect one monetization method from the whole ecosystem and make predictions about the type of impact it will have. We have lots of different types of monetization schemes, and kompu gacha is one extreme end of one of those monetization schemes, the gacha-based monetization schemes. There are many other schemes; fusion is a scheme where you combine elements together, and a pay-to-accelerate harvest is a scheme. We see most of the monetization benefit coming from events management. For a given game that has a certain ARPDAU [average revenue per daily active user] through its underlying systems, when we run an event we're able to 3 to 6x the monetization during that event, and we've built multiple event harnesses for our games, so we are essentially running events constantly. So there's lots and lots of different ways that we make money.
But kompu gacha will have some impact. We're really, really careful to make sure that the systems we deploy outside of Japan are fully compliant with the law. We've gone back and redoubled our efforts to make sure that we truly understand the laws of each land that we do business in. We're pretty confident that the systems we have today will stand up against the legal standard. That being said, laws changes, and the interpretation of the law is sometimes, you know, that's the art of law. So if there's any system that we have that doesn't comply we will ultimately change it. We're in the business of doing business around games. As the business evolves and matures we change with it. It's a necessary part of being in a space that's moving and evolving so quickly.
Q: It's not like the somewhat measured pace of the traditional console business, which seems almost glacial sometimes compared to mobile.
Neil Young: Yeah, it really is. We've got hardware evolution, we've got user behavior evolution, we've got software invention and evolution, and we've got a very dynamic landscape of law and business that is also being invented in some cases as we go along. That makes for a very exciting time. I wouldn't trade it for the old glacial pace again. It's very exciting, it's very invigorating; it's rare that you have front-row seats in such a big shift of a media business.
Q: Is there an equivalent in your mind of E3 for mobile games, someplace that gathers the attention of mainstream media to mobile games? If there isn't, should there be?
"We've got hardware evolution, we've got user behavior evolution, we've got software invention and evolution, and we've got a very dynamic landscape of law and business that is also being invented in some cases as we go along"
Neil Young: There isn't; maybe there should be. Especially if it was targeted towards consumers versus hardware manufacturers that you're trying to convince to pre-install, or a service provider, or an Apple or a Google. You know, when I was growing up some of the most fun I had was going to computer shows in the UK that were just literally for customers, and I sort of miss that. I think there's something really magical about those kinds of festivals, so I wish something like that really existed. Kind of a ComicCon for games would be great, that would be cool. There's really nothing that exists like that right now. The closest thing for mobile is Mobile World Congress, which is in Barcelona each year, but it's very much hardware manufacturer-centric.
Q: I imagine games aren't a big part of that.
Neil Young: No. There's a games pavilion, and individual games companies have setups, but it's much less game-centric than E3 would be; it's kind of like CES. I do think it would be really good to have a ComicCon for games, where there was a really consumer-centric experience. I would go to that, would you go to that as a gamer?
Q: Absolutely, it sounds like fun.
Neil Young: Yeah, it sounds much better than trudging around a show floor, having people pitch you on why their game is gonna be the big hit game next year.
Q: Go around and just have fun with games.
Neil Young: Exactly, that's what it's supposed to be about. It's hard to make fun if you're not having it.
Q: Sometimes we lose sight of that. Thanks for your time, Neil.