Virtual items can be big business!

Why am I posting about real-to-virtual money exchange?  It's not necessarily a new concept by the standards of online multiplayer games.

While all multiplayer online role playing games have virtual economies (more info here), where players generate virtual coinage and spend it on virtual items, not all of them have an exchange for "real" money.  Some subscription-based games forbid players from selling in-game assets for real life money.  Others have what I would call a one way transfer: they sell a set amount of game currency for real world money, at whatever exchange rate they choose.

The game "Entropia Universe" takes this a step further by:

1.   Allowing a 2 way conversion.  This is huge in that it allows players to convert the money they make in-game into real-life cash.  They can set up their own businesses within the game to actually profit within real life.

2.  Keeps the conversion at a fixed rate.  Most other games offer "packages" that offer better discounts for bulk game currency purchases.  1 PED = 10 USD.

3.  Providing platforms (the software/server infrastructure) that allow 3rd-party companies to set up their own "worlds" in the universe.

It's an expandable business model that could be likened to international trade, only players can "import", "export", and "invest" across realities instead of physical barriers.

Entropia players having a party.

So what's the "news" here?

While a fascinating thing to discuss, the idea of alternate game worlds with real cash economies isn't necessarily breaking news.  Relatively recently, though, a new record was set for "highest virtual transaction" (most expensive item purchased in this real cash economy), exceeding the previous one by far.

Check out this article.  

The space station "Crystal Palace" was purchased for $330,000.00 (that's real life money, the station is worth 3.3 million of the game's currency).  This was not a stupid, frivolous purchase from an eccentric millionaire.  It was an investment.  He plans to collect a percentage of all transactions on the station and provide pay-to-use services onboard.

And money CAN be made.  One of Entropia's competitors, Second Life, also provides opportunites to make money, though those happen player-to player, not using the platform as a mediator.  A woman is known to make an annual salary of $150,000.00 as a real estate tycoon in SL, for example.

The Crystal Palace Space Station

How "safe" is this type of system for customers?  At least, to my knowledge, they can't go into debt to the game.  In it's terms, the least you can have is zero PED.  But what if the company that hosts the game goes under?  What happens for someone with a hard-earned fortune of PED who didn't have enough time to convert it to US dollars?  Wouldn't every player trying to make a "draw" at once be just like making a run on a bank?  How much can MindArk cover?

(Perhaps it's more stable than it seems.  After all, the game has a "sink" system that essentially ensures that, on average, people will put more into it than they will ever draw out.  [Casino, anyone?])

A bigger picture...

So what does this mean for the future of the game industry?  For one thing, I think this could mean some good growth opportunity for Shanda, one of the stocks I'm following, if this trend was to catch on.  (Since they are deeply in the Chinese MMORPG market, it's hard to tell though.  China has some strange rules about MMO play, and I'm not sure how much the government would approve of its citizens spending on virtual goods when they could be attaining real ones.)

This trend could also be seen as an opportunity to incorporate ads and product placement into the game realm.  While not unheard of in similar online games (like Second Life), it could get a lot bigger.  There's nothing stopping, say, a car company from putting its newest models into the game for example.

What about government policy?  Could it ever charge a sales tax on these items?  Tariffs if the creator of an item was bought from a foreign player?  (Am I taking this too far?)

And how about the impact a trend like this could have on the WHOLE economy?  

As these "alternate worlds" become even more realistic and enticing, will "real life" consumers divert their ambition for material goods and instead spend on cheaper versions of their dream products in-game?  Everyone knows that the "high" of buying a luxury car or any high-end widget tends to wear off rather quickly, so perhaps it would be better to get one's spending fix for 1/10th of the price ingame...

Or am I overestimating the power of fantasy over reality?  I suppose time will tell...

The Second-Hand market: A drain to publishers?

Something I've wondered is that role the used game industry played to publishers:  did it help them by "hooking" consumers into getting certain games?  Could this offset the lower sales?

I came across this article today that described the drain as "significant".

It discussed possible ways to combat the drain, such as adding special bonuses ONLY to bought games (an idea I fairly like) or blocking off certain areas of games.  I'd be guessing that, much like current PC games, the game would read a signature unique to reach machine, and shut down

(I remember reading somewhere that buying games used could save the avid gamer over 500 dollars per year, which is nothing to shrug at in this economy.  And where consumers save, publishers tend to lose-- or do they?)

I have my own proposed solution for game publishers:  to follow up on my previous post about online purchase of games, how about an online rental service, where players might be able to have their Xbox account charged per day of play.  The prices could even be higher, because there's no overhead, and also increased security for renters in knowing that they won't get a scratched or defective disk, and that it would be impossible to lose or return late!
An additional benefit would be that it would help publishers gain direct and exact statistics on which games are rented most, and what their rent/buy ratio is (if they don't have that already).  This could be valuable for measuring players' perceived "value" (or addictiveness!) of a game.

It's true that this would be more of a "if you can't beat 'em, join 'em" approach, but I think adding DRM is treading on thin ice, because PC gamers HATE it.  I can even see some gamers renting just to spite publishers if they're not careful!

However, as mentioned in the article, this approach would hurt retails, who, as a whole, have a synergistic relationship with publishers.  While other retailers could technically follow gamestop's new practice of selling digital keys to unlock game downloads, they would probably still be hurt as a whole.

Small, Independent game studios: a force to reckon with?

I've picked up from classmates and professionals I've talked to that working for a smaller game studio can often be a better experience, where employees can wear many hats and developers as a whole exercise greater creative freedom.

But do these really make a big dent in the large console industry?  Can they steal the thunder from the large publishers' sequel franchises?
And can they actually be profitable and grow while still remaining "independent"?
Will the increased usage of mobile devices for gaming increase demand for smaller, quirkier games?

I was encouraged from this Seattle Times article (Seattle is a known hotspot for game development).  The article reflected bits and pieces of what I've heard about "indie" game publishers, tied them together, and made me rethink how much power they could have in the industry.

The article spotlights Torpex Games. 

I liked how the article pointed out the problem with large, leading video game publishers erring on the side of caution, with huge budgets at stake and tight deadlines to contend with.  It's just easier to work with tried-and-true formulas.  (Currently the top sellers are sequels!  Not that I don't think there's any room for sequels in the market, but I think an asset of the game is the surreal creativity that developers can pull off.)

Many of the video games of the early 1990's were full of innovative forms, likely because of limited resources.  Lately, many of the leading games have become more like cinema that players have some control over.  Is there still room among customer demand for smaller developers who make up in good ideas what they lack in limited resources? 

According to the article, the key is in online downloads and purchases through consoles.  All of a sudden, this opened up the possibility for smaller, more offbeat games (>$50.00 anyone?).  Customers don't mind taking a risk on a new approach to games if it only costs 10 (or even 5) dollars!  Mobile gaming apps also contribute to this incentive for small, low-risk games, with lower overhead because they're downloaded digitally.

On top of this, Microsoft has even opened up an app to allow amateurs to develop for Xbox live.  Though Sony and Nintendo haven't jumped on the bandwagon yet, I think this still a sign of a trend towards a more "pure capitalistic" system.

However, the bottom line is that this trend probably won't overtake the larger console games as the staple of the industry, but could establish itself as a healthy supplement with many business opportunities.

Harnessing the female gamer market

As I said I would, I'm now making a post on some of the current news and (mis) information about female gamers and current trends regarding the subject.

Here are a couple of articles to read first:
Designing and marketing games for female players
and Why is this such a challenge?

Here's an article about some titles that have been developed so far in attempt to tackle the challenge.

Quick fix:  Pinkify it?

The Stats:

First, let's start out with some statistics.  According to the interesting and oft-surprising 2010 essential facts about the computer and video game industry, 40% of video game players are female (42% for online), as well as 46% of video game BUYERS.  That's a pretty huge market that supposedly most developers are currently ignoring or misjudging.  Of frequent (hardcore?) gamers, males have been playing for 13 years, while females have for 10.  A supplementary stat are parents:  48% of parents play video and computer games with their children at least weekly.  I would be guessing that a higher percentage of this amount would be women as well.

To interpret the numbers, midway through the report is a list of the top 20 selling video (console) games of 2009.  I'm seeing Call of Duty: Modern Warfare 2 at number 1, New Super Mario Bros, Wii Sports, another Call of Duty, Halo 3, Madden NFL, Assassin's Creed, Left 4 Dead, UFC 2009, Resident Evil 5, other mario franchises, Pokemon.  All of these titles, to those familiar, are obviously marketed towards males.  But somehow, the number of female buyers is still 46%.

(I'm sure this isn't the whole picture.  Mature rated games tend to be lower in selection, with just a few titles dominating the niche and generating large sales, while there are a wider variety of "e" rated games.  And we don't know what portion of the 46% of women buyers are mothers getting games for their kids.)

Before proceeding though, what may lower the credibility of these statistics is the huge discrepancy in that data, and that provided by Nintendo here. According to these statistics, female gamers make up only 25% of the market (1:3)?  And here I'd thought the wii was more popular among women than other consoles because of the exercise opportunities it offered...

Marketing:

A lot has been written on what video game publishers (including all whose stocks I'm following: ATVI, ERTS, and SNDA) should do to reach more women.

For kids:  The setup below makes me cringe...  I suspect the majority of designers/developers for these games were NOT women. (I just had to laugh at the top part.)

(Aside from trying to "separate" girls out and/or pit them against boys, what bothers me about this rack is what in my opinion is less creativity.  If you look closely at the titles, they all appear to be rehashed from movies and television.  I'm seeing "Raven," "Hillary duff," "the Little mermaid," the word "cooking", some other girl band, and Bratz.  My problem with these types of games is that none of them really provide alternative and immersive worlds.  The beauty of games in my opinion is that they allow you to often explore other planets and other realities, but these games appear to be stuck on earth, albeit a very pink and "popish" one.)

To quote one of my articles:  "Don't develop a video game version of The Devil Wears Prada and then complain when it doesn't sell".

I personally think younger girls want their own strange and "exotic" worlds to explore as much as boys.  Perhaps not as dirty and gritty, perhaps not even as violent, but just as CREATIVE and IMMERSIVE.  I don't think rehashing the pop culture they're already bombarded with will attract any more players.

Have I overestimated the female desire for fantasy, or is the current market missing the mark?

Content:

I've heard a game concept artist Jason Chan say that creating female characters for teen/adult games is a challenging balance.  They have to be strong and aggressive enough to appeal to female gamers, but have to be sexy enough to appeal to males.  And clearly the latter seems to be a higher priority in many games.

And for teens/adults:  Who is Lara really being marketed to?

Not to be forgotten is the percentage of female game artists and designers, which is 5%-10% (though growing), less than many better-known professions with high gender gaps.  This, however, has been attributed to less interest.

So this turns into a chicken or the egg question:  What's coming first:  Will an increasing amount of female game designers bring new ideas and perspective to the table and make games more appealing to female players, or will growing female consumer interest drive more women to work as game designers?

I think it's obvious what the conclusion is though.  Whoever gets this balance right stands to gain a LOT.

Child of Eden and the future of "eye candy" games

A friend showed me a trailer the other day of a new "rhythm action" type of game by Q Entertainment.  (You wouldn't believe it to be a "shooter" by the preview!)























Definitely mezmerizing!  I'm thinking that this type of experience may draw more sensitive, artistic types to video game consumership, perhaps even more females as well (I think I'll make a post about what the female market means for the games industry).

Will this type of thing become the next fad?  We've seen lackluster sales in niche music games like guitar hero.  Perhaps this type of music-interactive genre is temporary by default, just as your average pop star?  This is all I can say for the average consumer, though I don't think I'd be able to get tired of a game like Child of Eden, despite never playing it before.  It's just right up my alley!

 This type of game, in a way, strengthens the long standing analogy to addictive drugs (though that's not the reason it appeals to me).  From some of the Youtube comments I saw, I'm not the only one who sees this connection.  Will people in the future use video games to legally simulate a psychedelic trip, or as a companion to a chemical substance?  Whether either or both happens, I can only see it resulting in sales increases.

Activision Blizzard teaming with Bungie for 10 years

(Note:  I'm counting this as Monday's entry.)

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A friend brought this to my attention so I thought I'd report on it.

This is big news, because Bungie not only owns the famous "Halo" franchise, but is in general esteemed through the industry.

Here's the first article I found.  It states that Bungie will maintain the rights to its intellectual property, and Activision Blizzard will PUBLISH it. To be honest, I wasn't exactly sure what a video game publisher DID exactly.  I was pretty sure they were like a book publisher, both manufacturing and marketing the material.  I turned out to be mostly right:  http://en.wikipedia.org/wiki/Video_game_publisher

Anyway, a more detailed article on the sale can be found here.

So what does this collaboration mean?  ATVI has a pretty far reach and a strong hold on online markets, so I'm guessing it plans to distribute Bungie's games to a far wider audience.  To speculate even further, perhaps it plans to harness Bungie talent in its mysterious upcoming new MMORPG.  That could be pretty awesome if executed right.

Critics of this deal are concerned that Activision Blizzard will eventually try to take over Bungie, and this deal is just the foothold.  They also point towards the "infinity ward situation", a mess of lawsuits resulting from ATVI firing two heads of one of its subsidiaries, Infinity Ward, before they received any royalties.

Anyhow, I'm hoping for the best.

Project Natal: Kinetic Motion Sensing System Unveiled!

Turns out the whole industry could ripple with Microsoft's new motion-sensing technology.  I presume it was created to compete with the Wii, as it was initially developed to attach to the Xbox.

The author of the article didn't once compare it to the Wii though, which I find odd.  Perhaps the technology is different than I'd thought?

Turns out the first article wasn't very informative, because it didn't say anything about why Microsoft's technology is leaps ahead of the Wii:  it requires NOTHING to operate!  That's right, absolutely no hand held electronic controller of any kind.

According to this article, Project Natal has facial and voice recognition, can react to audio commands, and, most importantly, various kinds of movement recognition.  For example, players can grip an imaginary steering wheel for racing games.

Even better for consumers, this is an addon for the current 360 system, so they don't have to go out and buy anything totally new.  This makes me speculate about PC games as well... with the right adapter, could people one day mount this device on their laptop and play this way anywhere?  (Granted, using such large movements for such a small screen might be awkward, but who knows?)

I think it might be safe to say that console-based game companies who develop for the Xbox platform may enjoy a boost over PC games (like Shanda and to some extent Activision Blizzard).

HOWEVER, I dug to find out that Shanda is dissatisfied with its current "EZ" platform and is looking to mirror the Xbox.   (This is supposedly due to China's restrictions on the Xbox, and rampant piracy.)  I find it just as likely then that they will also seek to develop their own version of Project Natal.  (Reference here.)

I wish I knew the timeframe this would happen.  The Fox article called it a potential homerun of the decade, which makes me guess it will be out before the end of 2010!