These series of guest posts are written by the teams attending the Tetuan Valley Startup School 2010 Fall edition. This post is from the “A Crowd Of Monsters” team, formed by Axel MGarcia & Rafael González… among other monsters.
Hi there!
Today I’m going to talk about the gaming business. I’m just going to try to provide some easy to catch overview of the gaming business opportunity by showing some numbers and insight of it.
First of all let’s see what’s a video game: A video game is a hi-tech product developed by a company that is intend to satisfy a user’s need.
Nowadays video games can be roughly categorized in two main “areas”:
- Casual games
- Hardcore games
It’s important to differentiate between these two kind of games because target market are slightly different.
Casual games are those games in which the player doesn’t needs any specific trained skills and can get fast rewards in a short period of time with few actions. Usually those games don’t have a complex long term goal but a lot of short gameplay (fun experience), implying fast challenges and rewards.
Hardcore games are more difficult than casual ones. They require great playing skills, provide a very inmersive experience in a fully virtual world and have a strong story-based goals. Like movies, hardcore games have a very well defined structure with an introduction, conflicts and resolution; and like books, hardcore games can get you engaged in an imaginary scenario during hours.
Target markets.
In one hand we have the casual gamers, who use to play on social platforms, portable consoles/phones or in a more collaborative next gen oriented consoles like Nintendo Wii. Probably most of you have already ear about Facebook, iPhone or Nintendo DS, all of them platforms that allows players to do more than one thing at time they play.
In the other hand we have hardcore gamers, who use to get stucked in front of their last gen display, during long periods of time without caring about the rest of the world (I also do it 
). And that’s normal, they are placing all their senses on consuming their 40€ /50€ product. Consoles like XBox 360, PlayStation 3 or PC are their best investment.
So there are people who really spend a lot of money on it… so let’s take a look at the business.
The Game Business.
Like with every product, games require a initial investment, a time to develop it, a distribution channel, and finally we get the revenue.
Due to technical requirements and user expectations, investment on hardcore games use to be much more expensive than in casual games. They require bigger teams, higher technological profiles and more studied casuistic in order to achieve a inmersive experience. While a hardcore game need a team formed by 20 to 60 members and a minimum of one year of development, a casual game can be made by a team of 4 to 6 members in 3 to 6 months, or even less. That’s why most of the new studios start with casual games, they don’t need a big team or big funds. Studios starting with bigger games need a publisher or investors to finance the game production.
Once the game is finished it have to be distributed and published.The way games are being sell to the users is changing. Nowadays digital distribution platforms are starting to gain adopters and allows players and developers to have a common market place that eases distribution and save transportation costs. Some examples are Apple Store, PlayStation Network or Steam.
Lets see a bit of the revenue that casual and hardcore games can generate.
A Facebook game can average game costs between $100k and $300k (+50% of marketing) to be produced and can get a estimated revenue of $150Mill per year.
The game Halo 2 from Microsoft, has get a production cost of $40Mill with a $400Mill of expected revenue.
These numbers, and the fact that social gaming is a recently born business is making a lot of small game studios arise around the world, which are becoming very popular between investors.
Only in October the games sector has spent $429Mill in acquisitions and $223Mill in investments in new projects. Biggest part of these amounts went to online games, followed by phone games, showing the tendency of the sector: social and online games, and phone games.
Definitely all developers and investors are looking for the next Angry Birds or FarmVille.
But unfortunately there are some important drawbacks to get into account.
The most important one is that market is rapidly becoming crowded of casual games, some times with a lot of very similar games, with few improvements and with a very simple revenue model as pay-for-play or in-game sell of goods. So visibility and originality are the two main problems that are facing those games.
In contrast, hardcore games, although most of them falling into one of the three main genres (action, simulation, strategy) have more ways to be original. Aesthetically, story, control, game mechanics, goals. That produce a different kind of engagement closer to the feelings of the player. Most of the AAA titles (best game qualification) engage users by making they feel something special, they create unique experiences; something similar to what you feel when reading a good novel or watching a good movie.
12 years old playing The Last Dance Part 1 – Boom Headshot !!!
A clear example of that, I think, is the recently release of “Fallout: Las Vegas”, a game that has been released with many bugs, but that in the first days on the wild has sell over 5Mill copies.. to bring over $300Mill in sales.
Only explanation I see is that “Fallaout 3” (previous game) created in players such a strong feeling that they are whiling to feel it again with the new story. Can you imagine something similar with Angry Birds 2? If they change the game by adding or modifying some of the gameplay, maybe… if not, I don’t think so.
Summarizing I would say that right now there is a big market opportunity on social and casual games because games are reaching new public that haven’t give a chance to games before. At the same time social recognition is a new reward system that is engaging many users and in-game goods are providing very good results as a revenue system. But there is also a huge market on traditional games; and it will increase in the future as new players from social networks and casual games, evolve into a more skilled gamers.
Finally just bring some links to the most important events related with game business:
And Game Bussines News:
- Gamasutra: The Art & Bussines of Making Games
- GameIndustry
