[casual_games] If Vista is going to be such a problem...

[James Gwertzman]

Most of the posts on this subject so far have been negative about the
new Game Explorer, which surprises me since I expected more independent
developers to be excited about Game Explorer. Frankly it's the
entrenched portals with their own third-party solutions (like
RealNetworks and WildTangent) that I expected to be the most negative.

That's why I'm not at all surprised that Alex St. John is opposed to the
Game Explorer -- it threatens his own game channel solution. But for the
indie developer I think it's overall a net improvement.

Here's why PopCap is, on the whole, positive about GameExplorer.

For one thing, we're happy that Microsoft has finally elevated games to
the same status as a recognizable media type, alongside music, movies,
photos, etc. Having a "My Games" area that is built into windows, along
with standards for how windows games should install themselves there,
describe themselves, provide parental ratings, etc. are all good things.

Until now, with no standard way of handling this from Microsoft, for the
average consumer things have been a mess. Either you end up with dozens
of games littering your hard drive and start menu, each installed
wherever the developer or portal decided to put it, in a big mess OR you
have third-party solutions developed by companies like WildTangent or
RealArcade which do solve the problem (in both cases more elegantly than
Microsoft's Game Explorer) but only for games bought through those
channels.

Now with a single place to find all games, and with better promotional &
marketing information listed for each game, we think the average
consumer experience is much improved.

As for the parental controls and higher security settings, we understand
why Microsoft put the features in there and agree that it's a good thing
for reassuring anxious parents who might not otherwise download games at
all. How many people will actually use it? We think very, very few. In
general most users do not fiddle with those sort of settings. And if it
ends up being a problem, then of course it will get solved -- either
portals & publishers will start covering the cost of an ESRB rating, or
the ESRB will lower the price for PC casual games, or developers will
start paying it realizing that it helps result in more promotion and
upsell for their games -- or all three.

There are certainly some problems with Game Explorer -- it is entirely
too retail focused. For example, I haven't heard anyone complaining
about the fact that Microsoft now has a "developer" and "publisher" link
for each game, but not a "distributor" link.

If people want to get upset about potential problems plaguing the casual
game industry, here are a handful that I think are much greater looming
problems than Vista:

1) The recent explosion of casual game content, and the effect it is
having on game churn on the portals and in top 10 lists. Thanks to all
the publicity and attention this sector has received over the past few
years, more developers are making casual games of higher quality than
ever before. Yet the number of consumers and the amount of time those
consumers have to play games are not rising as quickly, which is leading
to an erosion of the positive economics which made this sector so
attractive in the first place. Large companies with established
brand-names and deep pockets will weather this storm just fine, since
overall this is still a healthy market, however life for the small
developers is going to get much harder.

We're already seeing this happening -- more and more small developers
are being forced to accept publishing deals for their games as the cost
of development goes up and as the distribution channels consolidate and
become more and more powerful. I founded Sprout Games back in 2003, and
it ended up being a very successful small developer, but I wouldn't want
to try to start a casual game developer today.

Also I don't see the flood of content drying up anytime soon -- we're
starting to see more games coming out of Eastern Europe and parts of
asia, contributing to this issue. I suggest everyone read in their
history books about the famous dustbowl problem in the US in the 30's,
sparked by a collapse in the once-lucrative grain market.

2) The recent surge in the online advertising market is pushing more and
more portals to rethink the decision to sell download games via their
portals. The economics just don't make sense for them -- Wall Street
values them based on the number of online users they have and the number
of ads they can sell. Download games take users away from the site while
they are playing the game -- the users basically "goes dark" as far as
the portal is concerned while the user is offline playing the game. The
incremental revenue they make selling these games, especially with 1-2%
conversion rates, simply isn't interesting to them.

I expect to see a big push by the portals back to online-only games, or
download games with embedded advertising -- I predict the try & buy
model will become an ever smaller part of the revenue mix in the future.

3) Disruption to the current business models thanks to new competition
from Asia. Anyone who has spent time in Korea or China knows that the
online casual game markets over there are completely different than in
the US. Instead of a try & buy model they are all micro-transaction
based. There is a lot of debate over whether this model will work here
in the US or not, but a number of well funded companies are investing to
find out. Expect to see a lot of change over the next few years, which
is great if you're prepared for it and see it as an opportunity -- but
bad if you can't adapt.

---------------------------
James Gwertzman
Director of Business Development
PopCap Games, Inc.
+1-206-256-4210