KGC 2005: The Revolution will NOT be Televised, Bill Roper

 Posted by (Visited 13252 times)  Game talk
Nov 092005
 

Here’s my rough notes on Bill’s keynote. I think that many of the Korean audience were nodding “ho-hum, we know all this already” as he spoke.

The Revolution will NOT be televised: it’s HERE and it’s ONLINE.

This is my first time ever using a Powerpoint.

Some intro on Flagship… if I don’t mention our CFO, my trip would not be reimbursed.

What is the Revolution?
A dynamic shift in the game market. Major pc developers around the world are moving from box product to online gaming with online distribution through broadband. Revenue streams are shifting as well, to subcriptions and beyond to account based Real Money Trades (RMTs).

Sure, the traditional PC market is shrinking…

  • but 3 of the top console publishers are getting into PC: THQ, Namco, Midway
  • but the top 3 PC genres are growing in market share: action, RPG, strategy
  • PC players are moving away from boxes and going online and spending more money than before

    Online games are $3.78b industry, and 85% of that market is PC based. There is double digit growth year over year — one of the fastest growing sectors in the whole gaming industry. Gamers spend more time online now. There’s 2 blurry categories: serious online games, core, AAA, like the persistent games; and casual games. Gamers will pay for a compelling experience

    NetEase just announced their Q3 results: total revenue had an 11% increase, 82.6% Year on year. Revenues on online had 119% year on year growth. Online ads grew by 37.3% quarter on quarter and 43% year on year. Gross margins for online declined “slightly” to 89.7%. That was down from 90.2% because of bandwidth costs. I know a lot of publishers would love to have that decline.

    Revolutionary Thoughts:

  • new revenue streams
  • the return of ads
  • the Net has not peaked

    New revenue streams:

  • subscriptions
  • RMT
  • digital distribution

    Start with subs: a typical console game has 20-40 hrs of play, but an average MMO player spends 22 hrs a week. You can be profitable with only 60k subs. They can be profitable with low sales numbers compared to typical box product — which mean new genres and experiments can be done.

    Put this in perspective with numbers: South Korea game revenues were $551m in 2004. Online games came to $298m in 2004 in China — expected to quadruple by 2009. Online games in china will be 1.3b in 2009. Morgan Staney says even more, $1.5 billion!

    For perspective, Korea only has a 50m population. They make $551.4m in revenues. North America is is 6 times bigger, but only makes $750m. Big gap there.

    RMT:
    It was an unintended consequence of the industry, originally gray market but now gaining worldwide acceptance. SOE announced at AGC an MMO that is RMT, and acknowledged that this was based on the Asian business model. Also they took a big step with Station Exchange.

    RMT is about $880m in revenue per year. There are several players in the Western markets: Station Exchange, IGE, XBox Live 360…

    Digital distribution:
    A paradigm shift for the value chain of the pc industry. It’s a difficult time overall — cost is increasing rapidly, everyone is talking about how frightening it is. A lot of that is because of current distribution models.

    In the US, the current model is that a developer (indie or not) develops a game for a publisher. The publisher makes disks either in-house or with a 3rd party. There is no 1st party like in console, the 3rd party manufacturers know this, and push up prices. Publishers also get hit when retailers force higher wholesale price since they control the shelf space. Mid- to small-size publishers get squeezed out because they cannot afford all this.

    A digital distribution pipeline allows indies to release and distribute worldwide, reduces the role of retailers and manufacturers. The risk is loss of traditional marketing exposure, but the benefit is greater margins for publishers and developers.

    The return of ads:

  • contextual and not cost per click
  • product placement
  • advertisers producing games

    Context is King. The ads that work are contextual, not demographic. We know more about our audiences than TV or radio do — we know the game system, when and what they play, their attention span… we know we have an interactive minded audience.

    Examples: product placement–racing titles and sports are a good example–nice context, doesn’t violate game. /pizza in EQ2. Kart Rider has sponsorships for virtual cars.

    Advertisers making games — they have very similar goals to developers. They are producing net-based shows, just like they used to make soap operas (that’s where the name came from). Pepsi Smash for example. They are already making casual games for ad outreach. It’s called advergaming–not all of them are that great… but there is an opportunity there. Ad-based minigames in larger scale games… The industry is growing up.

    The Internet Has Not Yet Peaked

    There are 1 billion Net users. That’s 130m more than last year. There’s a lot of growth left for online games. More, that growth number has been steady for the last few years.

    There were 57m broadband users in 2003, and at the end of 2005, there will be 209 million. Korea can thank the highest broadband penetration for their games culture — 75%.

    US has 29% by households (?) [[ thought it was higher]]. Forrester: 62% broadband by 2010 in US.

    In recently announced financials, VUG made 150m euros for Vivendi. That was a 151% increase for them. 1st nine months was 88% of same time last year. Can you guessed what WoWed the analysts?

    Broadband users have more money and spend more time online, and it’s especially true in the US. I wish we had the PC baangs in the USA… PC and console gaming happened because we couldn’t find people to play with. But over the last handful of years, we got the best of both worlds. PC baangs completes the circle for me–play on the cool system but also have some community. Many baangs are changing to have food and Coke and boardgames and cards…

    TV in the US is getting scared– they are losing viewers, so are films–people are going online. Gaming is a huge part of that now. Innovations in biz models and technology show the potential–Skype and Kart Rider…

    This is not a localized phenomenon. In Bangalore cybercafes are trying to improve revenue by 20% by adding gaming. The market there is growing very fast. Reliance Webworld has 240 cybercafe locations in India now, and now 40% of revenues is (recently added) gaming.

    I don’t know if the PS3 and 360 are really going to be the convergence of PC and console and online. It is encouraging to see MS announce 1m customers for Live–but really, for a lot of online games happens in the first few hours.

    Speaking of markets–there are still 1 billion more people in China who are not online yet. There’s a huge amount who are online but not gaming, because we have not met their requirements.

    When we grew up we all played games–everyone we knew played. A lot of people fell out of it as they aged. But there’s a lot of people who didn’t, and there is a seed of desire, or need, within humans to play; that joy, excitement, competitiveness, exploration, done with an atmosphere for fun, that will never leave. There a hurdle, that games are seen as being for kids. But I think I will be found dead playing a game at a PC. Probably not winning it, but still playing, because I love games.

    People are used to going online now, getting content. The easier it is to deliver that experience the better off we are.

    The numbers of female gamers increasing, for example, as games that suit them (casual, less time, etc) appear. More niche games is also a way to go–flight sims for example. They don’t get made anymore because they “only” sell a few hundred thousand. But if margins rise, digital distribution, etc, 200k would be great, and good money. So game types that have fallen by the wayside may return. Worldwide there are surely a few 100k who want an oldschool adventure game.

    …but the publishers demand millions of units sold. To say that 100k is a failure is stupid. When we were working on Diablo, Davidson was PUSHING it to sell 200k. Today, publishers would laugh at you to propose that.

    I don’t know if anyone will make the 150m game. But 300m games of 300k each is wonderful too. 3-5 people working out of an apartment… refining craft and keeping that spirit of creation alive… So for me the revolution isn’t just money It’s about how we get more different games to people, touch as many people as possible, and bring something for current gamers and for nongamers or lapsed gamers.

    Q&A
    Oh wait, I am not getting translation, so I won’t understand the questions.

    How many copies do pubs want to sell to consider a game? Varies by publisher. If it’s traditional single player box copy model, it’s drastically higher. Tied to dev costs. For 10m they want 1m, 1.25m copies… it gets difficult for the bigger pubs. But digitally distributed games can be lower… or subs-based games. Most pubs are saying 500k or more, depending on cost.

    What about point systems, people buying islands, revenue beyond the $3-5 a month?
    Sure, Project Entropia… the sub or min fee is just a starting point [[goes on to describe a game more like Second Life, though]]. The exciting thing is that there are a lot of models available.

    [[gets handed a wireless earphone — “oh good, now I can understand Korean” but the next q is in english anyway]]

    What about publicity? It’s hard–say Second Life for example. Yes, hard. Gaming press loves big sexy stories but I’d love to see them really looking at the other types of games and getting that msg out. It bugs me that Entertainent Weekly does not have 2 pages for games, though they do for everything else. And gaming magazine subs are down bc of the Net… but the press could help by putting a focus on the smaller games. I found this indie game that was very collaborative and cool, and I pitched it to the gaming media, and they weren’t interested in the story. It will take some press visionary to go forth and really see the potential of the indie scene and start covering them. Tough task in Western media. For that matter, the Korean numbers do not get reported in the US either… It’s so nice to come here to Korea and not be fending off lawmakers like in the US because gaming is supported… smaller bands and film do get covered, so we need that for smaller games.

    • KGC 2005: “Blue Ocean Strategy in Games,” Kim Hak Gyu

     Posted by (Visited 15894 times)  Game talk
    Nov 092005
     

    Kim Hak Gyu did Ragnarok, and now Granado Espada. Here’s my very rough notes on his talk:

    Blue Ocean Strategy is about new markets… why talk management at a game conference? There is an overflow of games in the market. Some of the games I make are not always welcomed, and this is worrying. Too many games out there competing. This is a red ocean where the sharks are eating each other. You work and make your baby and then it’s not welcomed by the market.

    Blue Ocean is the opposite, it’s a market with no competition. Korean authors have not been doing well in writing business books like this. But this book was instantly popular.

    How do we relate this to the game industry? At a company workshop we discussed these ideas with the employees. It was welcomed, so now I want to share it with you.

    [[Slide: a quote from Joel on Software! (In Korean)]]

    We’ve increased the amount of pixels in digital camera shots, but then we usually reduce the resolution of the pictures afterwards–so why chase the megapixels? Same happened with cars–we chase horsepower, but who gets to actually use this horsepower?

    How do you differentiate? People are choosing to increase numbers. If they don’t they lag behind the market.

    In the game industry costs will rise, you’ll have to hire more employees, in order to win in the market. At this point, I look back at the past… it used to be pay-as-you-go, small audience. It was a blue ocean back then. Now it’s a red ocean.

    If you do not create a blue ocean for yourself, you will not succeed. Consumer innovations and tech innovations are not always the same thing. The megapixel increase is a tech innovation but not a consumer innovation. Why should the consumer care even though you have spent all this tech R&D money?

    You need concepts that the user will care about. Last year I talked about this difference as the essence of marketing. If you just go for the safer route, then you will actualy take on higher risk. Differentiated market AND differentiated product is what you need. How do you do this? Many books talk about differentiation.

    ERRC — E- eradicate, which is removing. R is reduce. R is ?, c is creating. [[this is in the book]] You don’t have to be good in everything, or the best in everything.

    What is strategy? Extended Starcraft metaphor [[how very Korean]] Concentrate, fire on one point. Otherwise you’ll be roadkill. You will have a limited budget, and if you spread it too thin… that won’t work. If instanced dungeons is the trend, or whatever is the trend, if you include everything that is a trend, you think it will be successful. But you’re wrong.

    In Grenado Espada I was pressured a lot, just like being a good student. “Last time you came in second place, this time you should be 1st”. So I thought I’ll have the best graphics, 3 times more stuff to see, more dungeons, more quests. I wanted to do that, but I started to go crazy trying, because I couldn’t do it all. So I had to give up on things — the graphics. Instead, we do 2 or 3 villages that look really good. Instead, the players have to go into the same dungeons over and over because they are deep.

    This is value innovation. People are not paying attention to how it looks and how big it is, but instead to their experience. But you’ll need to get creative. If you try to do everything nicely, you can’t actually do everything nicely.

    How do you match all the years of investment into Lineage? If you just try to copy the best, you are trying to achieve failure from the get-go. You need to concentrate your resources in open areas. You may end up with a lesser user value otherwise.

    You may have noticed that the website for GE looks strange — we applied ERRC to it too — the typical website has a ton of buttons and small fonts. we developed it internally in a few days. No Flash, though we’ll add it. Instead of having to take pains to hit tiny buttons, we have big letters on the screen. We wanted a spacious website. We introduced a real name system on the forums so that users got really polite. Sometimes the competitors come to the website to start flame wars. But on the GE website, they have real names and pictures, and the users are polite.

    This website was cheap to make. We spent the money on areas that we wanted to focus on instead. We have community members who have been waiting for 2 years. I feel grateful to them and hope they spread the word about the website…

    There’s an old saying that something is perfect when there’s nothing left to take out. You see that students who focus on specialties have higher performance in their work. Frost — the road less traveled made all the difference. This is the challenge even though people may call you crazy. I want to emphasize that you have to push risky choices.

    Now, to speak on market differentiation. We have to segment the market and focus on non-consumers. The current market distribution is divided into teens, 20s, 30s, 40s, women… but we should not segment by demographics, it’s not helpful. Regardless of age, the main purpose of the game may be the same. A 50 year old might be a hardcore gamer. Why do we segment the market? To provide a product that consumers really need. It’s about targeting product. Look at how books are segmented on Amazon–by topic, genre… customers like customized service–we need to segment the market to do that, but not by age since that makes no sense. We need to get out of this box and overthrow this stereotype. We need to understand the behaviors of the consumers, so that we can make non-consumers into consumers.

    We know many office workers do MMORPG. But office workers don’t have much time, and the games demand it. So we see bots and macros… we have to focus on the consumer’s needs. Now there are services to level up characters. We need to understand that this is a different consumer. We need to provide easier experiences, we need to appeal to women. [[this talk could have been at GDC in the US!]]

    Look at recent fighting games–they’ve gotten too hard for non-gamers to get into.

    [[Tom Peters and Re-Imagine! cited.]]

    There is a large potential market for women. They should be our next target audience. What is blocking them?

    We see many foreigners coming to Korea to marry Korean men. Korea is no longer a homogeneous society. They will be naturalized. Korea is becoming internationalized. Think 20 years forward. Chinese kids can’t register on my website because they don’t have a Korean ID number right now! We have to think about foreigners, and fix the ID number barriers. There’s a real blue ocean there.

    Another important point: companies and consumers and direct contact–most of the time the channels in between are a stumbling block–game rooms, etc.

    I am running out of time… my presentation will be on the website, and I do recommend these books.

    [email protected]

    KGC 2005 Opening Reception

     Posted by (Visited 5458 times)  Game talk
    Nov 092005
     

    Today Erik Bethke toured me around some of Seoul and his GoPets offices. And afterwards, we went to the opening reception for KGC 2005. There were a lot of government folks there, and I spent the evening sitting in between the guy who made Ragnarok and the General Director of the Minstry of Culture and Tourism. I signed a lot of books, because every person who came to the reception got a copy of the Korean edition of Theory of Fun in their welcoming packet. I spent much of the time discussing how games fit into human culture with the General Director, who is worried that the games programs in Korea are turning out lots of good programmers, but no designer/developers who treat games as a medium of art and expression.

    I, along with a bunch of other folks, was asked to give some opening remarks. Here’s my rough approximation of what I said as I winged it:

    First of all, let me say what an honor it is to be here. I’m just a game designer, so getting to have dinner with high level government officials is a real treat.

    The question posed was, what is the future of games? Predicting the future is hard, though. If it were easy, history would be very different, I suspect. Sure, I can point to things that are on the wall, or point to trends that we see today, and maybe extrapolate out, but that would mostly be telling you about how things already are.

    Really, when we look to the future, we have to think about what our beliefs and hopes and dreams are, and go from there. So this is what I believe:

    I believe that games are important.

    I believe that there are only a few ways that children learn: from stories, from parents, and from play.

    I believe that games teach us in ways that other things cannot. We learn of teamwork, of coordination.

    I believe that games, especially online games, bring us together. There is no better evidence of that than the people in this room.

    It’s such an honor to be here because the people in this room are people who take games seriously. You are all people who believe in games, and in communication, because we are all here to exchange ideas. Games give us models of the world, something we can test assumptions with, try new ways of doing things, and create communities that cross boundaries, cultures, and even national borders. As we learn from games and from each other, maybe we’ll be able to better predict the future, just a little bit.

    So those are the things that I believe. Again, it’s an honor to be here among all these people — all of you — who also believe in the importance of games. I might not be sure of what the future will be, but this gathering, and these beliefs, give me confidence and hope in it. Thank you very much for having me here.

    Nobody seemed to notice that I was wearing sneakers with my suit. After all, I had changed into the blazer and button-down shirt in the basement parking lot of the hotel. I wasn’t gonna lug shoes with me as we walked Seoul!

    I’m in Seoul…

     Posted by (Visited 5662 times)  Misc, Reading
    Nov 082005
     

    Or actually, I’m out of it, wherever this hotel is. Tomorrow I’ll see the city proper.

    I suspect the city will be branded Samsung. Everything else here seems to be. 🙂 In the immigration line at the airport, the screens telling you the rules were not only flat-screen Samsung TVs, they also were interrupted by ads for Samsung phones.

    Had dinner with Jason Della Rocca. I surely didn’t need to travel quite so far to do that…!

    Finished off that Warshawski novel (it was Hard Time, if you’re curious, but I don’t have much to say about it). But I also finished off Fifty Degrees Below, which is Kim Stanley Robinson’s sequel to his earlier book Forty Signs of Rain. I enjoyed it, but as usual with his stuff, it can feel kind of slow in places. You could call it the brainy version of The Day After Tomorrow — it also deals with a thermohaline shift, as well as with other dramatic forms of climate change, but it’s DC-insider setting (the halls of the NSF) gives a very differentperspective on events. Most of the book is told from the point of view of a scientist who has some problems interacting with the rest of humanity — someone who spends a lot of time thinking about evolutionary biology. The real story, however, is happening slightly offstage — the battle for the hearts and minds of the public as regards climate change.

    It’s full of sharply observed details about how life would adapt if there were things going on like cold snaps to 50 below in DC. I was particularly amused when the reinsurance companies showed up willing to pay billions of dollars to dump thousands of tons of salt in the North Atlantic; it was the cheapest way out for them. If anything, the weakness of the book is that it demonstrates all too clearly just how adaptable humans are — by never crossing over into the sensationalism of Day After Tomorrow, it also makes the catastrophes cozier. A whole bunch of DC homeless manage to survive that cold snap, for example.

    This is a spiritual take on the issue as well, what with the presence of Tibetan monks and a possible reincarnated lama, the protagonists’ delving into Ralph Waldo Emerson, and so on.

    OK, I’m drifting off (my biological clock still thinks it’s 5am) and I can’t seem to wrap up my thoughts on the book into something coherent. So I’ll stop there. 🙂

     Older Entries  Newer Entries