What Games Are: Squeaky Bum Time

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Editor’s note: Tadhg Kelly is a veteran game designer and creator of leading game design blog What Games Are. He has recently moved into managing developer relations at OUYA. You can follow him on Twitter here.

You can get a little bit sick of interesting times. Just when you think the rules have changed and your industry now works in a new way, the new way is subverted. Just when you think you’ve got a handle on the new way to get rich, it turns out that the market gets stuck.

That stuckness is a feeling in the mobile games industry at the moment. Outside of the lucky or well-funded few, the mobile market seems to have become a swamp. Previously verdant platforms are perceived to have turned into dense jungles full of predators. Once-easily acquired users have vanished, replaced with networks looking to charge a premium for access to quality users. Investors seem to be backing the hell off. All in all it seems that 2014 could be – to paraphrase how Alex Ferguson famously characterized the experience of managing a football team – squeaky bum time. The time when there’s nothing to do but watch the market play out and pray.

Is it really?

Has Mobile’s Big Crunch Come At Last?

Big crunches are nothing new in the games industry. Probably the most famous crunch was the North American Video Game Crash in 1983 that was largely attributed to the meltdown of Atari, but there have been many others. They typically occur 3/4 years after a new platform or innovation has had the chance to bed in and stop being seen as a startling innovation.

Crunches typically come on slowly rather than all at once. They start with the news of small or mid-level studios shrinking down and refocusing, and some sentiment around how the changing platform has made conditions tougher for the small guys. Indies are typically the canaries in the coal mine as they are the ones without the deep pockets to survive the turbulence, but the same pressures affect everyone. Often a lot of negative talk arises about visibility and discovery, about the prevalence of too much competition or about changing financial terms that make a platform less profitable.

As they say in Battlestar Galactica, all of this has happened before and will happen again. It happened in the world of web portal gaming when it became smarter for Flash sites to focus on game-a-day business models rather than promoting deeper content. It happened on Wii when so many studios rushed to make gesture-driven games for a market that had decided that gestural gaming was really just a novelty. It happened on Facebook when many of the viral channels that had driven previously enormous successes were turned off. It may be happening right now in the world of Steam indie games as the new Greenlight channel becomes clogged with hopefuls. And so it goes.

All signs suggest that it’s now happening in mobile games. Investors have largely cooled on mobile games, offering bad terms or preferring to wait and see. This is perhaps of no great surprise as angels and venture caps alike are generally only interested in games from a platform perspective. When they see no real platform opportunity they tend to say “games are a content business and we don’t invest in content”. Even very solid gaming businesses with platform potential are currently struggling.

What often happens during a big crunch is that studios start raising the quality bar. Great art is often the best proponent for your game, especially if you can get platform holders to notice and push your game for you. This has happened startlingly quickly in mobile. Where once (like, 12 months ago) the perceived wisdom was all about how lean the process of game making could be, now it’s about how fast and fat you can get. Notable figures such as Kristian Segerstrale (founder of Playfish and an early investor in Supercell) now believe that $1m has become the bottom floor for success in mobile, and when factoring in marketing costs the figure is likely at least double that. 

$1m is the same budget that average original PlayStation games used to cost. If a similar pattern to the PS1 holds then I would expect to see a continuing and exponential increase of development costs in mobile over the next few years. That may sound startling, but consider how PS2 games were often expected to cost about 20% more to develop than PS1. In reality the cost turned out to be 3-400% more. PS3 games cost 400% more than PS2 games. And yes, PS4 games are set to do the same. Over the course of around 15 years the cost of making a typical console game went from $1m to around $60m (and that’s not even factoring in the top end stuff, like the $265m GTA V). 

Not only are these scary numbers, they are indicative. The cost of developing games in mobile and tablet may well double every year for the next few years, and by 2017 we may see an average tablet game budget of $7m-$10m. Suddenly the future of mobile and tablet looks a lot like PC and console games.

To Doomy And Gloomy?

At ADC/GDC Next in Los Angeles I heard more than a few people say that the problem with mobile games is over-supply. There are tens, hundreds even, of thousands of studios around the world trying to make games, and of course a big shakeout is inevitable. Even for the big companies saturating user acquisition channels times seem to be growing unsteady and the vulnerability of their performance marketing model (as I wrote last year) is high. I’m idly wondering, for example, whether advertising economics are the real reason for Supercell’s puzzling recent sale. Perhaps the numbers suggested that it needed a war chest to weather a coming storm.

We’re seeing far less Dots- and Draw Something-style success stories than we were, and it’s been quite a while since the last “14 year old kid creates game, beats Angry Birds” tale. But of course that isn’t the whole of the story. While there’s no denying that the landscape has changed there’s still an immense appetite for content out there. Arguably mobile gaming is experiencing volatility by way of transition rather than implosion. It’s not the next Atari crash.

Take, for example, the change in mobile publishing. A couple of years ago mobile publishing was essentially a lean promotional sort of business, but some companies (like Tilting Point) are trying to turn it into a smarter business. Rather than behave like an aggregator the new thinking is to find a role for quality-label content and establish specific funding relationships with key developers. Not unlike the original PlayStation market, the model is that with the right number of bets in place, one successful game will pay for nine failures. At current budget levels that sounds pretty smart.

As another example, consider Flurry’s recent report that suggests a “middle class” development model is taking hold. Far from being depressed about the state of the app industry (and I presume games as they tend to be the most successful kinds of app) Flurry is noting the appearance of mature niches within the space, just as happened on PC and PC online. They’re noticing how what I’ve called marketing stories are now a key driver for success in those niches, and this is excellent news. It means there is a whole wealth of opportunity for studios who want to focus on specific sub-sectors of the market, and also that users of mobile platforms are staying for the long haul rather than walking away.

As a third example consider the rise of the messenger-social application. Teenagers are bored of Facebook and want to use their mobiles to socialize. They want to swap pictures and stamps and so on. And they want to play games. Messenger apps like LINE and KakaoTalk and are quickly promoting a game-distribution aspect to their business in exchange for a 20% cut (on top of Apple or Google’s 30%). That’s pretty good if they prove to be a reliable point of access to millions of users.  Messenger gaming probably represents the biggest low-hanging-fruit opportunity in mobile, especially for light casual and social-style games because they have the users.

Focused Change

My overall point is that mobile gaming’s crunch is more in the vein of maturation rather than apocalypse. The low-hanging fruit days are long gone, and with them the easy money of cheap user acquisition. But it’s not like, say, the days of the Wii when the market stopped playing entirely. The customers are still there, in droves,  but to inspire them to play your game needs a much smarter attitude than before. It is no longer smart to make some conservative games and blast them all around ad networks in the hopes of striking it big. As we move into 2014, niches, partnerships and higher budgets are inevitable.

But so is success for studios that get that mix right.