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We had a great time at our well-attended GamesBeat 2012 conference last week talking about the road ahead in games and the Crossover Era. Here’s a summary of some of the sharpest thinking we heard at this year’s event, which made clear that change is spilling over into all sectors of gaming.
As one observer put it, there was a lot of “high energy” at the conference, even if the industry doesn’t know exactly where to go yet. Despite all of the worry about the difficult transition ahead, analyst firm DFC Intelligence predicted this week that the worldwide game business will grow from $67 billion in 2012 to $82 billion in 2017. So despite some short-term worry, the road ahead in gaming will be awesome.
Crossing over to mobile gaming
Mark Pincus opened the conference with a fireside chat before our combined audience of MobileBeat 2012 and GamesBeat 2012. He said the mobile ecosystem has to level up before it’s as attractive a market as Facebook is for social games today. Zynga wants to be able to launch a game and reach 10 million users within 90 days. It can do that now on Facebook, but not yet on mobile in a consistent way. To get there, he believes that mobile has to become more viral, with better discovery and less friction between platforms.
“We found on Facebook that games can get viral and pass through a lot of people,” Pincus said. “Really, on mobile, games spread through word of mouth. It happens in pools and hotels and airplanes. It doesn’t happen online. I’m excited about when it can happen online, and it can happen at a much faster rate.”
What the industry really needs is a “dial-tone,” or an easily accessible platform, that enables games in a big way. That will ease the transition that many companies are making as they move from the large revenues of traditional markets to the unpredictable revenues of mobile games. Pincus believes the future of games is, per Zynga’s mission, more social.
But Will Wright, creator of The Sims and founder of The Stupid Fun Club, believes the future of games is more personal. In his 122-slide talk, he synthesized trends such as the proliferation of sensors, improvements in artificial intelligence, location awareness, and the vast intelligence gathering and data analysis that is now possible with modern technology. That can all be used to deliver games that are as “personal as our dreams,” Wright said, and make games that blend reality with the digital world.
Personal games will be matchmakers, connecting you with the world around you, depending on what mood you are in, what is nearby, and what you have in your wallet. Summarized by GamesBeat writer Kat Bailey, Wright’s vision is that, in essence, reality will begin to replace consoles as the platform. “We don’t have these little islands. We are building experiences that are accessible at any time,” Wright said. “They will be more like biological experiences.”
Investments in mobile aren’t slam dunks yet in part because of the rising cost of user acquisition. If you aren’t Zynga, this is a big problem, and you may wind up having to team up with them. But big companies, from Activision to Disney, are moving into it with high hopes.
Where to put your money
Our investor panel delved into turning ideas into fundable startups. Mergers are still running hot, but game startup investments have cooled off from last year. Social games have slowed down, but gamification, or applying game mechanics to non-game apps, is still popular. Asian game companies like Tencent continue to expand, pumping up the value of Western game companies. Discovery is still a key problem for mobile and social games, said Jeremy Liew, managing director at Lightspeed Venture Partners. Tablets are fueling a lot of new game startups, and social casino games are still hot. Game rewards are even becoming a new twist on traditional business models.
“[Tablets] are the TV of the next 10 to 15 years,” said Nabeel Hyatt, partner at Spark Capital. “If you think about how important television is to culture, I think the tablet will be that important to culture.”
Numerous speakers — Mitch Lasky of Benchmark Capital, Will Harbin of Kixeye, and Liew — said that free-to-play titles such as Riot Games’ hit League of Legends represent big threats to console games. Harbin believes that browser technology will advance enough that no downloads will be necessary and pure browser games will soon be able to rival the graphics quality of console titles. The excitement about free-to-play may be why Ouya’s game console project on Kickstarter has raised more than $5 million already.
We actually had a game console top executive in attendance. Bing Gordon, a partner at Kleiner Perkins Caufield & Byers, showed up and read a poem about me. And then he introduced Don Mattrick, president of Microsoft’s interactive entertainment business, who mentioned there are 2.8 billion gaming devices of all kinds across the world. He predicted that would double in five years. Microsoft itself is spreading out beyond the consoles with its SmartGlass project and Surface tablet.
Gordon said that Microsoft has to try to make Xbox Live the “real crossover service” for all gamers. No one has created a better service for gamers, and Microsoft could turn Xbox into a true platform, like Office or Windows, Gordon said.
Brock Pierce, head of Clearstone Global Gaming Fund, navigated through the excitement around social casino games in a crowded breakout session that had so many attendees we should have put it on the main stage. Among the startup CEOs on the panel was Christopher Griffin of Betable, which introduced a clever work-around that could introduce online gambling to social casino games in spite of gambling law restrictions.
Getting around the restrictions of platforms, and reducing the friction that stops consumers from playing games, is what Electronic Arts is trying to do with its digital crossover strategy. Kristian Segerstrale, executive vice president of digital at EA, said in his talk that his company is working on a platform that will enable universal, seamless play anywhere, anytime, across game devices. He noted we are moving from a market of 300 million gamers to one with 2 billion players.
“To me, that’s the true next generation of gaming,” Segerstrale said. “Connecting these devices, connecting these consumers, in ways that no one has ever imagined before.”
Rovio is also trying to take its Angry Birds game, which has been downloaded more than a billion games, across every platform. Peter Vesterbacka, chief marketing officer and Mighty Eagle at Rovio, revealed in his fireside chat that the company would use the distribution power of Angry Birds to slingshot another game, Amazing Alex, to its network of consumers. His team acquired that game and gave it the “Rovio treatment” to improve its quality.
“You can’t make a crap experience better by throwing better analytics at it,” Vesterbacka said. “It has to be a great experience to start with.”
The investment going into mobile and social games, rather than the consoles, seems pretty clear at Disney. Bart Decrem, senior vice president of mobile games at Disney, said in a fireside chat that he wants to create a new generation of characters on mobile games that will become the future franchise characters for all of Disney. The company has three big hits in the mobile charts right now, including the Where’s My Water? game featuring the new character Swampy.
How businesses and consumers are changing
Day two of GamesBeat kicked off with a panel on Kickstarter, the crowd-funding phenomenon that took off this year thanks to Tim Schafer, the zany game developer and chief of Double Fine Productions. He wanted to raise $300,000, reaped more than $3 million in pledges from fans for a crowd-funding game project. He was joined by Brian Fargo, who raised $900,000 via Kickstarter for his Wasteland 2 game.
“Kickstarter is changing the dynamic for the game industry,” said Fargo, chief executive of InXile Entertainment. “It’s a way for every creative person to control their destiny.”
Kickstarter is also turning out to be a great way to validate game projects, as Ouya discovered. Mitch Lasky of Benchmark said that crowd-funding could indeed disrupt angel investing, and venture capital as well, if the amounts go higher. But he noted, “I think if one of these companies turns out to be Zynga and worth $4 billion, I’m not sure I’m going to be happy with a T-shirt,” or the typical reward for giving money to a crowd-funding project.
Chris Petrovic, head of GameStop Digital Ventures, argued persuasively that retail isn’t a dinosaur. Rather, by combining the benefits of online and brick-and-mortar retailing, the giant retail chain may adapt to the world of digital distribution.
David Wallerstein, senior executive vice president of China’s giant internet and entertainment firm Tencent, noted that the company has a market capitalization of $52 billion. It is mostly focused on the Chinese market and could stay in the market for years, riding the growth curve. But it has ventured into Western markets — investing in Riot Games and Epic Games — because Americans are the toughest people to entertain and are very demanding when it comes to the time they have for entertainment. Wallerstein doesn’t think China’s game developers have matched the U.S. game developers in quality, and it wants to learn how to do better.
John Spinale, senior vice president of social games at Disney, noted that Disney bought Playdom to become hip to the new age of games, allowing it to take its brands into the digital space and stay in touch with a new generation of players. On a regular basis, Playdom is launching new games based on Disney properties (Animal Kingdom and Avengers Alliance), and those brands are helping Disney’s social games stand out in a sea of other titles.
Seamus Blackley, one of the creators of Xbox who is now president of Innovative Leisure, has recruited veteran designers of classic Atari games to work with young game programmers on iPhone games. He noted that consumers “want to have a game experience on whatever device is in front of them. In fact, when you look at what’s going on with Blackberry today, Blackberry failed to have games. And devices that fail to have games fail in the marketplace. People expect to be entertained.”
We had some great speakers this year. It was flattering to hear that our conference leveled up from a year ago. But really, our stage was a reflection of what is happening in the game industry. The once-small companies are now big. The whole game industry has leveled up.