Posts Tagged ‘economics’

Retail

Wednesday, March 18th, 2009

During the previous week Apple’s been at the forefront of my mind. Some of it’s good, particularly with the iPhone updates (which I’ll come on to later), but a lot of it’s not been so great. It’s a shame really, as Apple are trying to convert people like myself who have been firmly wedded to PCs since the year dot and don’t really want to move to something unfamiliar. But I’m currently in the market for a new gaming laptop (nothing special, just some simple MMO/RTS stuff), so I thought that I’d give them a shot.

It was with some nervousness that I reached the Apple Store in Regent Street, London. I’d heard a lot about the place from Stephen Fry’s twitterings about the place, and was hoping to find someone on-hand to take me through the various machines on offer. I’d been willing to give Apple another chance after I started using an iPhone in the middle of last year – a phone that I’m incredibly pleased with and find an absolute joy to use. I’ve tried many Nokias, Motorolas, Samsungs, Sony Ericssons and so on but find the little touchscreen device the best one I’ve ever used. I guess that my expectations had been set high from that – after all, if a firm can get something so right on a phone, surely they can manage something as simple as a retail experience?

Well, in a word, no.

The first thing that struck me was the layout of the place. On each side of a central staircase were rows of high wooden tables, each laden with Apple kit tethered so as to prevent it escaping out of the front door. Next to each item was a small card informing you of the name of the item you were looking at and how much it would cost to walk away with one, but little else besides. The biggest problem though was being able to actually use one of the machines. Although there were banks and banks of them, every single one was in use. And the users didn’t appear to be ones considering a future purchase, as almost all of them seemed to be plugged into Facebook. I briefly thought about the potential chaos that could be made from the tactical installation of keylogging software, but quickly dismissed it as I attempted to gain the attention of a turquoise clad expert to show me the ins and outs of Mac OS X. Alas, a couple of attempts to engage one of the Apple sales team resulted in abject failure. Crestfallen, I beat a hasty retreat to a nearby Starbucks where I discussed with those with me about the state of retail today. Needless to say, it’s unlikely I’ll be purchasing a Macbook this year.

My other experience with Apple this week was about the iPhone 3.0 software update that’s due to hit our phones sometime in the Summer. While I’m really glad about the inclusion of new features such as Bluetooth Stereo (finally my Motorola S705 has a purpose again) and MMS, I’m a bit concerned about the new micropayments system that’s being brought in. This new system basically means that applications will be able to allow you to make purchases from within the application. There’s a couple of uses for this, from an episodic game that allows you to buy more levels or content online, through to games like The Sims that could provide you with an in-game catalogue of items that you could pick up for a few pence. It also means that developers could release one version of a game for both trial/demo and full versions, with the user making a micropayment in order to enable the full game. But, like with anything else that requires me to fork out cash, I’ve got some concerns about the approach. I’m wondering how easy or hard it would be for an application to spoof an iTunes login page and harvest your details as well as taking a payment for the content you wish to unlock. More than that though, I’m wondering how it’ll impact the shopping experience. Currently I know how much I’ll pay for an app, as it’s all done up front. The nightmare scenario I can see coming is an app that costs a tiny amount to buy, but has some astronomical micropayment costs associated with it. In this regard, the costs need to be clearly presented up-front on the iTunes store, or it’ll be a riskier business for consumers. All that said, it may be that this can be used for subscription based services as well. If it can, this paves the way for MMOs to finally make their way onto the platform.

In both tales today, there’s a common theme: Retail is Detail. It’s an old adage that I picked up when working at an electrical goods retailer when I was young. and it’s still valid today. And although the giants of Cupertino may produce some absolutely fantastic kit, if they can’t get people to sell it then it’s a wasted effort. In the current climate, being able to convert visitors to your stores into sales is absolutely crucial. And while having an open door policy may get people in the door, it’s meaningless if all you’re doing is taking them to Facebook instead of the till.

Value

Wednesday, January 7th, 2009
Halo 3: $30 in development cash

Halo 3: $30 million in development cash

Developers and publishers have for many years sought the holy grail of gaming: a reliable, recurring revenue stream. Traditional game development can be a high-risk business, with top class titles such as Halo 3 estimated to cost around $30 million. This cost can be shared and managed between the developer and publisher, with the balance of cost on each depending on the commercial agreements in place. Trouble is, there’s a large amount of risk involved in this process – what happens when a game eats through a wadge of development cash only to fail to sell well once it hits the stores? Being as averse to losing money as the rest of us, publishers try to reduce the risk by financing titles that are likely to do well, either because the characters or concept involved is already well known (a sequel or franchise), or because the developers have prior history of creating similar successful games in the past. Once a developer released a title, they became almost dependant on it’s success to fuel an appetite for future products. This cycle can play havoc with cash flow, especially with the average title taking between 18 months and 3 years to develop.

The strategy of almost every developer is to try and smooth out the bumpy cash flow they face. Some larger studios aim to run two or three development cycles in tandem, with the conclusion of each offset from the others. Smaller studios may look to partner up with a large publisher then seek milestone or interim payments on the road to delivery. Both of these are more a case of commercial mechanics that are unlikely to have an impact on the overall delivery. Publishers may also seek to re-release popular games at a lower price point, under a “classic” or “platinum” banner if the game does well initially, potentially bringing in further revenue. In terms of getting further revenue from customers who buy an initial game, there’s only one further choice available: expansion packs. In a similar way to tabletop or role-playing games, a developer could re-use the existing technology and game mechanics and just provide a continued storyline with new creatures to defeat and areas to explore. An example of this is Beyond the Dark Portal, an expansion for Warcraft II: Tides of Darkness.

Spore: Creepy concerns

Spore: Creepy concerns

Expansion packs aren’t without their downsides though. EA Games took expansion and content packs to an extreme level with The Sims 2. Over the course of four years,  eight expansion packs and ten “stuff” or content packs would be made available to buy from retail stores. Seeking to repeat the process, Spore was quickly followed up with the Creepy and Cute pack. Unfortunately, EA had lost a substantial amount of goodwill in relation to Spore due to the SecuRom debacle upon release. Users (and I have to count myself among them) experienced further problems in using this new content with existing saved games, further damaging the reputation of a game dogged with controversy. It’s when moving into areas like this that publishers have to be careful, particularly in the current climate. Players have to feel that they’re buying an entertainment product, not a chore. More importantly though, they have to feel that they’re buying something that represents to them value for money. With retail growth slowing during the crucial winter season, it’s more crucial than ever to reward customers for their purchases. Some publishers have started to move in this direction by lowering the prices of some of their newer releases, but if discounting becomes the norm it increases the risk that a game will not generate a profit.

Aion: Tower of Eternity: NCsoft's next MMO

Aion: Tower of Eternity: NCsoft's next MMO

The question is, can MMO studios fare any better? Although they release videogames to similar schedules and charge about the same for them, they generally take longer to develop and require additional infrastructure to support them. Likewise, while they can provide a regular revenue stream, players expect regular content updates to be included as part of the agreement. Plus a fair chunk of that recurring revenue has to be spent on operational costs such as maintenance, customer support and so on. And don’t forget, a developer has to splash out on getting all this up and running before a single copy of the game is bought – if the game doesn’t sell or if forecasts are wrong, they may end up with too few subscribers to sustain the online platform. The history of Istaria: Chronicles of the Gifted (formerly Horizons: Empire of Istaria) serves well as an example in this regard, with the development and ongoing maintenance changing hands several times. Firms such as NCsoft, with a range of multiplayer games spanning multiple markets, and with a support and server infrastructure already in place, may fare better in the medium term.

Of course, this does depend on subscriber loyalty. As we dip further into an economic downturn, are players more likely to give up buying new games to continue paying for subscriptions to their current ones? How high is a gaming subscription on a player’s list of financial priorities – is it something they’ll hang on to as long as possible, or something they’ll only cancel if almost forced to? How much of an improvement does a new MMO have to provide before players switch from one game to another? It’s difficult to say for sure, but I have a feeling that players are likely to consider giving many other things up before closing out on a game they’ve enjoyed playing for some time.

Progression

Monday, December 15th, 2008

I’m writing this during one of my regular trips up to Leeds. It’s not so much that sitting on a train encourages me to write as much as giving me something to occupy my mind. Besides, it makes a change from plugging in to an iPod, closing your eyes and pretending to sleep for five hours. After the amount of caffeine I’ve consumed this morning, sleep is something that would elude me. So, time to fire up the laptop and make the best of it

While we’re on the subject of train travel, I’ve recently discovered that CrossCountry Trains will be removing the buffet car from all their services in the next few months. Apparently this decision has been made by “public opinion”, and that customers would prefer to have additional luggage space instead of a shop to pick up refreshments on their long-distance journeys. Now, far be it from me to fly in the face of public opinion, but it does feel like a rather short-sighted decision. With the shop, you also have an additional member of staff on hand should the situation arise. Besides, I find it difficult to imagine that there would be much space to gain by its removal. Perhaps the public will come to regret expressing an opinion in the future. Time will tell

Anyhow, time to move on to things technical, and on this the subject of projects. The World of Warcraft Model Viewer – a program that allows one to view creatures, items and so on from the game data files – is on the move once again. The machinima community rely on this program for a large amount of their video work, and have been unable to use it since the Wrath of the Lich King expansion released last month. With the original developer on an extended leave of absence, it appeared as if the project was to be stuck in limbo. Luckily, a team of coders have descended on the project and managed to get various upgrades in place, with a new version of the software to be released shortly. Crucially though, the source code will also be made available through the popular Sourceforge service, allowing other developers to provide further updates and hopefully prevent the project from stalling in the future

Next up, further community project development. Earthenring.EU, after an initial flurry of activity, seems to have died down somewhat, particularly on the content front. I’m currently thinking of ways to encourage users to generate more content, partly so that they use the site more often but also so that they feel encouraged to contribute more to the melting pot that is the realm’s backstory. I’m thinking that a Wiki Watch might be a good weekly move, highlighting a couple of new articles each week. Ideally though I want to farm the generation of this editorial or opinion based content out to other people, rather than producing my own lacklustre point of view. It seems that getting this engagement from other users is the hardest part – everyone has a thirst to consume while few have a desire to create. Not that I’m saying it’s a bad thing per se, just that it demonstrates how people behave differently in a given situation

Finally, to conclude, a bit of economics news. I read recently about how the videogames industry expects to weather the economic downturn rather better than others. Executives are currently banking on consumers purchasing videogames as “value for money” entertainment, rather than spending it on other leisure activities elsewhere. The trouble is, while I can appreciate this in the short term, I would disagree with the long term outlook. Sony are still struggling to shift the PlayStation 3 in significant numbers, while the lower-spec Wii is selling like hot cakes. I’m wondering how much gaming innovation and entertainment can be provided on a single iteration of console hardware before titles start to feel repetitive and derivative. It is possible that the industry will continue to generate new titles for a time, but will they be able to continue without new hardware to sustain their development? History is uncertain on this one. I guess the only similar industry to look to is printed media, as the form has gone through little change over the years, yet people still buy new books. But with videogames the story is just one facet of an overall experience, combined with an art direction, sound direction and musical score. Do all of these add to creating greater diversity, or will they lead to a merging mish-mash when deprived of new tech to expand on to? We’ll have to see.

Well, that’s it from me for another week or so. Till next time, thanks for reading.


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