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Analysis: 'Coopetition' - Digital Distribution's Enemy?
Analysis: 'Coopetition' - Digital Distribution's Enemy? Exclusive
July 11, 2008 | By Russell Carroll

July 11, 2008 | By Russell Carroll
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    5 comments
More: Console/PC, Exclusive



[How are exclusive titles affecting PC casual game portals? In an article that has wider digital distribution implications, Reflexive Entertainment's director of marketing Russell Carroll (Wik, Ricochet) delves into the "coopetition" between online gaming portals - and how developers can get caught in the middle.]

The casual games industry got its beginnings online with downloadable PC games. That birth was recent enough to rightly refer to the industry as "in its infancy." With infancy comes both growing up and growing pains, and currently, the industry is experiencing the later.

Competition

In the downloadable PC space, each of the casual game portals fights for customer eyes as it attempts to sell ever more copies of Diner Dash and Bejeweled. There are literally hundreds of websites selling casual games to online customers, but as is the case in any industry, there are a few locations that dominate most of the sales.

Much like Target and Wal-Mart, the largest portals fight over similar customers who are likely to pick one retailer and spend most of their time shopping there. There is nothing amiss in any of this. It's simply capitalism and business as applied to the casual games industry. That is, it's all normal, until you add the next factor.

Cooperation

Unlike other industries, most of the players in the PC casual space are both creators and distributors. They make games in addition to distributing games through their own portals. As a game developer, it is financially advantageous to distribute games not only through your own portal, but also through your competitor's portal.

Coopetition

This leads to a very tenuous balance in the PC industry, where the portals work both competitively and cooperatively with other portals in something I call coopetition. As you might guess, there are flare-ups in this relationship that depending on your point of view are good or bad for the casual game business on the PC.

In fact, one of those flare-ups has occurred over the last few weeks, which has me very interested, and so as a wartime reporter who happens to be entrenched in the action, I thought I'd share a little bit of the news from the front lines.

First Shots

Last October, I wrote an article discussing the differences between the portals and some of combative interactions between them. I want to revisit just one part of that article here, and that is the first maneuvers made by the portals in their coopetition battle.

I noted in that article that there was a large difference in game catalogues between the largest game portals. This came about as some of the portals felt that selling games created by their competitors was negatively impacting them.

In what was the first major offensive in the battle between portals, the major game catalog holders both pulled their game catalogues from each other and stopped distributing their own games on their competitor's portals.

The effect of this is portals that have increasingly unique catalogues. Personally I feel this division of game catalogues is negative for the industry - I can't imagine having to go to Target to get EA games and to Wal-Mart to get Activision games, but if you consider the situation to be more like Pepsi and Coke, then it is conceivable that it may be helping the industry.

Covert Action

Whatever concerns I've had about exclusive game catalogues, certainly the portals have seen value in having games that are exclusive. Over the last 18 months the major portals have worked feverishly to have exclusive games.

These games were exclusive for a period, typically two to four weeks, after which they were made available to the other portals. As a higher and higher number of games became exclusives, the portals started noting that once they received a game that had been exclusive elsewhere, the sales weren't what was expected.

To quote iWin, the sales were "spent."

In response to losing sales, a rumor of portals refusing to carry games that have been exclusive elsewhere has been circling the industry, and one company, iWin, has officially substantiated the rumor.

On iWin's developer relations contact page, it states that, beginning August 1, 2008:

"[iWin] will no longer be accepting games for distribution on iWin.com that are offered exclusively on another website other than the publisher's own site."

While iWin is the first to announce this policy of not accepting any game that was previously exclusive on another portal, it is not the only portal considering or implementing this, or similar, but less drastic policies that treat games that have been exclusive elsewhere as second-rate hand-me-downs.

iWin, in its thoughtful response as to why it is taking this approach (a must-read for anyone in or interested in the PC casual games industry!) compares the situation to movies, noting, "When Disney launches a blockbuster movie like Chronicles of Narnia, they don’t give Loew’s or United Artist an exclusive." The response further mentions that 70-80% of a movie's revenue comes in the first few weeks.

Though the comparison between movies and casual games isn't a perfect one, certainly if the casual game's industry follows a similar trend of a high spike of sales during the first few weeks, then missing out on those first few weeks would be extremely negative.

However, will refusing games that have been exclusive elsewhere solve the issue? What's the likely impact on the casual games industry in the PC space?

New Combatants

One of the most intriguing pieces of this new battle is how it brings the developers into the fray. Developers must choose between having exclusivity on one portal, potentially limiting their distribution, or fully distributing on all portals, and missing out on the rewards that exclusivity can bring.

There are certainly arguments that can be made as to which is the financially better approach, and certainly there is no clear path that is always financially more viable, but regardless of what path is chosen, developers are choosing a path that aligns them with one portal's approach or another's.

Developers are being unwittingly recruited into the battle and are at the forefront of the current skirmish, and as it true of all battles, those on the front lines are the most likely to be injured by the fighting.

Speculation

So what is the end result of this latest move? Until it has all played out we can only guess, but it turns out that guessing about the future of the games industry is a lot of fun, so let's have at it.

There are few industries that can support competing products that are very similar. In the PC downloadable Casual Games industry, the game catalogues between the largest portals still have a lot of overlap, but due to exclusives over the last year and a half, the titles in each portal's catalogue have become much more unique (even if the products remain VERY similar).

I expect that catalogues will continue to differentiate, and I think that is a bad thing for the industry. The separation of catalogues makes it more difficult for new brands to grow strong (notably that may mean older brands are strengthened in the current climate). Like iWin, I think creating a climate that makes it harder for new brands to grow will ultimately keep the PC space more niche.

When something is only available at Wal-Mart or at Target it hurts sales of that item overall unless it already has a strong established brand. Certainly the decreased availability of a new product does not help it in creating awareness and brand strength.

On the flip-side, exclusives, if continued, I believe are very beneficial to the individual portals. The fact that portals with an exclusive can command such a large portion of a game's sales works out tremendously to their advantage and can be used to build a base on which they can create more sales with each new exclusive. The additional earnings allow the portal to grow faster than its rivals.

While the growth of the largest portals may or may not help the developer, clearly the additional money gained from exclusives will directly help the portal and put it in a better situation than its competitors.

And The Band Played On

The casual games industry, like all other industries, exists to make money. It just so happens to be making money off of casual games, and so we tend to think that the competition is more friendly.

While certainly it's a friendly industry, the latest offensive in the battle has drawn more battle lines and has conscripted developers into the fray, making the tenuous balance a bit more tenuous and a bit less balanced.

The end results are uncertain as the battle rages on and competition heats up, but the change in how portals treat exclusive games is a major one that will greatly affect the landscape for the foreseeable future.


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Comments


Aaron Murray
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I really hope the will be able to stop this exclusive distribution battle...it is far too difficult for independent developers to pick and choose (and gamble) with their games and money with the hope that they pick "the right" portal(s).

Chris Hennebery
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Game software is the only business run this way. My company distributes downloadable software through major online channels like TigerDirec.com, CompUSA ect and we would never expect to get (or even ask for) exclusivity on distribution... makes no sense. Software publisher (including games) need to monetize as many different ways as possible.



The reason we’re in this current situation is because gaming companies have gotten more and more into the online retailing industry. They want to go directly to consumer which is fine, but it should not be done at the price of long term profitability. Ultimately, it comes down to core-competencies: game designers and publishers are great at making games because that’s where their competencies sit. I submit that they should focus on those core competencies and let businesses focused on merchandizing (like the Buy.com's and TigerDirect's of the world) focus on selling and managing the retailing... We don’t need to re-invent the wheel here. The manufacturer-to-distributor-to-retailer-to-customer wheel has been around for a long time and its worked pretty well.

Jim McGinley
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Are games product or are they shows/content? AAA Games are clearly products, but casual games are fast becoming shows/content.



My TV has a lot of channels, and it's fairly easy to find the shows I'm looking for. Portals are becoming like TV channels. i.e. People know what kinds of games they'll find at "NewGrounds" versus "Pogo" versus "Adult Swim". I think you'll see more distinction and fragmentation as time goes on, and I believe that's a good thing.



If multiple portals sell the same game, why do we need more than one portal?



On a related note, since distribution is no longer an issue, and developers have direct access to their clients (FINALLY), I have no idea why the "manufacturer-to-distributor-to-retailer-to-customer wheel" mentioned in the comments would even be considered.

Johnny Tilson
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I really like the TV analogy to casual games, because they certainly act a lot more like television shows than games put out for consoles or PCs. Casual games are monetized off of ads, which makes it very difficult to make any money in this business unless you have a quality game and good distribution. This is why I agree with Chris' statement about the manufacturer-to-distributor-to-retailer-to-customer wheel. It is very hard for a developer to both put out good games and run a distribution site unless it is a rather large developer group (these games don't have a long life-span so a constant flow of games must be put out). Fragmentation does have its downsides, but it will allow developers to send their games to the rights sites and in turn to the right target audience, which hopefully leads to higher CPMs and bigger profits.

Hoby Van Hoose
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If portals want to be like TV channels then they need a central listing for customers to flip between them. Otherwise there's no means for customers to find out about them and their oh-so-exclusive niches.



Since I doubt they'd agree to such a thing, I think the best solution is if they stop trying to get exclusive deals and just work together. If they still want monetary benefit by being the most important to a developer, then they should agree to some kind of finders-fee / referral terms where the games are available everywhere but a chunk of the profits get split between the "home" portal and the secondary portal.


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