SAN FRANCISCO — Game publishers are cutting back on their staffs as console sales drop and digital sales gradually grow. But the larger entertainment industry sees gaming as a big piece of “transmedia,” or entertainment that crosses various media. That’s one reason why Warner Bros. is moving into digital games with the announcement last Friday that it’s opening a new game studio in San Francisco.
The studio will hire as many as 100 people in the next year or so to make games based on Warner’s entertainment properties. And it comes after the entertainment company built a successful console video game business on properties such as Batman and Lego. The studio will specialize in developing and publishing high-quality, free-to-play, mobile, social, and browser-based games.
The man calling the shots in this business is an industry veteran, Greg Ballard, the senior vice president of digital games at Warner Bros. Interactive Entertainment. Ballard will now have to manage Warner’s brands across game platforms and work with allies such as Kabam, the San Francisco-based maker of Warner Bros.’ Hobbit games. Warner will have to manage the projects that it undertakes in-house with those that it farms out to specialists such as Kabam. The tension on that front is similar to Warner’s relationship in past years with Electronic Arts, which made the Harry Potter games for Warner. But if Ballard bets correctly, Warner could begin to enjoy megahits that extend across entertainment platforms.
We caught up with Ballard at the Game Developers Conference. Here’s our transcript of our interview with him.
GamesBeat: What are digital games for you guys now? What counts as a digital game?
Ballard: Literally, the way we have constructed it, it’s anything that doesn’t have a physical wrapper, including downloadable content (DLC) that might be associated with a physical product. It includes all of our Steam-based PC games. It includes online massively multiplayer online games (MMOs) or some of the lighter stuff that we’re doing in the online world, and of course mobile. What’s happening is that we now believe that this is a big enough opportunity, and we’ve convinced the rest of the Warner infrastructure that it is, that I’m going to be focusing on what we call the “light freemium” market. Not just mobile, but browser-based games that might be on Facebook or other ways of reaching consumers. In general, the lower-budget, faster-moving, iterative digital games that we’ve seen grow in size and stature.
GamesBeat: So this includes some of the things Kabam is doing, right? Is there more browser stuff as well?
Ballard: Yes. Our initial titles are probably going to be mobile, just because we want to be getting up and operating. Browser games take a bit longer. But we will be doing some browser games.
GamesBeat: You guys don’t have a stable of things there now?
Ballard: Not for browser, no. In fact, the only browser game that we have is the one that Kabam has announced, which we’re co-publishing. Well, that’s not true. We have a couple of browser games coming out of Montreal — Lego Chima and Cartoon Universe, eventually.The Kabam games are Kingdoms of Middle-earth and Armies of the Third Age.
GamesBeat: So far, then, you’re getting into the market through Kabam. Was that part of the experiment? How did you view the entry into these kinds of games?
Ballard: That was an entry point for us. We knew that we had not yet established a capability in-house to do it. Certainly not to be able to do it as successfully as Kabam does. We reached the partnership with Kabam, and it proved to the remaining skeptics — I was never one of them, but there were some — that this is a huge market with nearly unlimited potential as a growing part of the games business. It galvanized our own internal interest in doing something.
The Kabam relationship will continue to be important to us, for the same reason. They can’t do all of our brands, or they’re not inclined to do all of our brands. The effort that we’re launching in San Francisco can’t possibly do all of our brands, either. We’re going to be a relatively small, focused operation for the first year or two. We don’t view this as inconsistent with doing further games with Kabam or other partners like Kabam. Nor do they see it as competitive. They know we’re not unleashing a huge effort to compete against them.
GamesBeat: So the precedent here is kind of like Warner and EA.
Ballard: Yeah. That’s not a bad analogy.
GamesBeat: How large do you think you’re going to grow the studio?
Ballard: The one thing I’ve learned at Warner is that growth is dependent on success. Assuming we are successful — and I believe that we will be — I expect us to have 80 to 100 people in 2014. We’ll grow from there. One of the pillars of Warner’s strength is its capability to quickly follow growth. If we find something that’s working, resources are almost miraculously made available, compared to the difficulty in the Valley. With Warner, success breeds all the resources you need.
GamesBeat: Even the choice of the studio location now is getting interesting. Why does San Francisco make sense? It seems like it’s getting awfully crowded with game companies here.
Ballard: It is. If you throw a dart out the window here, you’d probably hit a game company employee. That’s a big part of it, though. We wanted to be in a place where gamers have lunch with other gamers. When people go out at the end of the day, they’re having cocktails with their friends and they’re talking about the best way of acquiring customers at lower costs. There’s such a fervent ferment of discussion and culture around games right now. It’s hard to not be here and then claim that you’re plugged in to the gaming world.
The argument that I made to the folks at Warner was that by being here, it would be easier to recruit, but more important, the people we would be able to attract would be more plugged into the very fast-moving, ever-changing dynamic of this marketplace. We’re also closer to all of the key partners — the Googles and the Apples and the publishing partners like Kabam. There are lots of reasons to be up north. Here, right now, has a very special mix of things that make it attractive.
GamesBeat: I’m wondering whether we’re seeing a bigger talent war in this region, because of the many layoffs at the traditional studios. A lot of people are actually available. Two different big trends are going on, and I’m not sure whether it’s making it a good place to set up a studio or a just a very competitive one.
Ballard: I think it’s going to be good, because you’re right. A lot of people are realizing that the company they may have started this adventure with is losing momentum. We’re now seeing the sorting-out of the winners and the losers. The losers, many times, have lost not because of anything other than bad luck, or maybe one or two bad decisions along the way. The talent that they have can easily compare to the talent at the companies that have won.
For us, we think that this is a good opportunity to come in and attract people who may be looking more for stability in their next job and not so much for chasing after stock options. It’s good timing for us, to come in and tell the story of stability, of growth, of the chance to work on great brands for gamers. We think we offer the prospect of having a lot of success and a great career at Warner. So far, by the way, in my two days of discussions with people who have become aware of this, we have a lot of interest in working for the company.
GamesBeat: Do you guys have some particular titles in mind, or platforms? Is mobile going to be your first target?
Ballard: We’ll do mobile out of the box. It’s something I know well. It’s something we aren’t doing with the free-to-play model anywhere else in our Warner system, with some small exceptions. There’s a big opportunity for us to prove ourselves by doing a good, strong first offering. We’ve not decided which games are going to be first, however. A lot of that is going to depend on the people we attract. Are they more casual? Are they core? Are they 3D or 2D? We have a lot of choices to make along the way.
GamesBeat: Freemium — how do you guys look at what the opportunity is? I look at Activision. They’re still reluctant to give something away for free.
Ballard: Isn’t that the reason why startups have been successful against the large console companies? This is the story that you’ve written for 20 years. Large companies can’t cannibalize themselves. Smaller companies don’t give a rat’s ass. They come in and they do the things that the larger companies can’t afford to do, or culturally won’t allow themselves to do. They gain momentum and eventually become successful.
Warner, to its credit, may be a little bit late to the console business. It doesn’t have the same built-in resistance to new models. We haven’t had decades of experience with old models. We’re a bit more open-minded about doing something that is, in theory at least, threatening to the base business. We also have a new CEO at Warner who is very aggressively looking at new business models and considers innovation to be a pillar of what he wants to embrace at Warner. There’s a lot of things happening all at once at Warner that make this possible, but part of it is that we don’t have a long history like the Activisions and others that would keep us from doing this.
So to answer the question of what we think about free-to-play, everything that we have seen — and we’ve seen this at Turbine — is that you need to unleash people to spend their level of commitment to a game. Our previous efforts in mobile, though we tried not to make this the case, ended up limiting the amount of money that a real fan could spend on a game. Same problem as the console business. There’s only so much you can spend in the passion at that moment where you might spend all of your available dollars. The wonderful thing about free-to-play is that it does embrace that passion in gamers. It allows them to become as committed to a game as they want to be. That’s the essence of the model. The people who aren’t paying become valuable members of the community.
GamesBeat: What are some lessions you have already learned?
Ballard: I think that’s the biggest one. Even on the paymium side of our business, we were imposing caps on how much people could engage with our games. Frequently we saw people hitting that cap and either losing interest in the game or just not monetizing anymore. The single biggest thing that we’ve observed is that there’s a range of levels of commitment and passion about games. You want to be able to capture the economic value of all those different levels of commitment.
GamesBeat: Embrace your whales.
Ballard: [Laughs] Embrace your whales. I found out my son was a whale at one point. It’s like an expose. “My Son Was A Whale” by Greg Ballard. On my credit card. [Laughs] It’s every parent’s worst nightmare.
GamesBeat: That seems to be one of the things where the social and mobile people have done a lot for the whole industry.
Ballard: That’s right. Just to talk a little bit about our history for a moment, Turbine was really the first American company to make this big change. They went from a subscription-based game, The Lord of the Rings Online, to free-to-play. I had a common board member when I was at Glu and they were making that transition. That board member was jumping up and down and saying, “We should do the same thing at Glu.” We were resistant for the very reasons you were just mentioning about Activision and others. It would have cannibalized our business. But we watched what happened — everybody in the industry watched — and the revenues for Lord of the Rings went substantially higher in the aftermath. To some extent, that pioneering effort by the folks at Turbine, followed ironically by some of the folks who left Glu and started Playfish, among others, was a lightpost for where this industry is going.
GamesBeat: How do you keep up with some of the startups and move fast? What is good to move fast at? What’s also good to sit back and watch?
Ballard: That’s a very good question. The place where it was good to be conservative, and maybe even somewhat slow, was in starting the studio to begin with. Had we done this three years ago, it’s not clear to me that brands had yet become as important or as valuable as we believe they’re going to be. Waiting was ultimately helpful. Now we have to be very quick and nimble in reacting to the market and getting our games into the market.
This one of the places where what we’re doing is the most innovative. At the highest levels of Warner, we have been instructed to have this studio be as autonomous as possible in a corporate environment. [Chuckles] I’m learning that’s still not as autonomous as other studios might be. A lot of people from corporate are willing to help. But we are going to try and run this organizationally to where we have very few decisions that have to migrate up for review at Warner. The idea is a single point of contact between my boss and the organization. Only when we need additional capital or to vary our plan are they going to be looking over our shoulders. If we can do that, I believe we will have the best of all worlds — big brands, big capital backing, but a quick and nimble operation.
GamesBeat: With mobile, one thing that’s unclear is how many titles you should release a year. Kabam has relatively few, but they’ve gone to the top of the charts. Their kind of game enables them to do something relatively infrequently. What sort of model do you think you would be following?
Ballard: I like the big, successful ones. [Laughs] That’s the model we choose. It’s interesting. You look at something like my former team at Glu. They’re doing something like 15 titles this year. Each one of those is smaller. It doesn’t generate the same sort of revenue that a Kabam title does, but that’s their model. We’re going to only release a few titles a year for the first couple of years.
That’s in part a decision that is biased toward the Kabam model of “fewer but bigger.” It’s also to get our legs underneath us and figure out how we can make high-quality titles repeatedly and well. I suppose even if I believe that the Glu strategy was the right strategy — it might be — I’m not sure if we could get there very fast. It’s convenient that we’re doing fewer titles. We hope that we have even a fraction of the success that Kabam has had.
GamesBeat: Mobile can go a lot of different ways. Does the corporation expect it to contribute very quickly to the overall picture in games?
Ballard: There’s a fair amount of patience and willingness to invest, but we certainly believe that in several years it should be an important contributor. It’s already an important contributor — not through our freemium games, but through our premium games. Lockdown, for example, has done extremely well. Scribblenauts has now been downloaded three million times. We have titles that have done well and been very profitable. If you look at the profitability of the mobile group within Warner, it’s probably one of the most profitable parts of the games business right now. The dollars aren’t as big as they are in the console business, but they’re meaningful and noticeable.
I want to come back to emphasizing this point — we are responsible now, in San Francisco, for publishing all of the titles from Warner in the mobile and browser arenas. All of those titles will collectively contribute to a pretty sizable business.
GamesBeat: What do you think of transmedia, the whole joint strategy of releasing across platforms and across media?
Ballard: We’re very intrigued. We’re intrigued in no small measure because we’re perfectly situated to do it. There aren’t many companies that have a vibrant film and video studio capability along with a games business. I expect that at some point we’ll do something.
The biggest challenge is that this is one of those concepts that’s a lot easier to talk about than it is to do. Every time I have looked at a proposal, I’ve found that the film is very intriguing, very exciting, and then the game bears only the faintest relationship to the film or the video. Trying to get to where the game is a truly meaningful interactor with the video is the challenge of transmedia. So far I haven’t seen anybody pull it off. Now, I’m not a creative person. All I know is that when I see something, sometimes it clicks and sometimes it doesn’t. I haven’t seen one that’s clicked yet. But I love the idea.
GamesBeat: I’ve seen huge efforts like Defiance with Trion Worlds and SyFy.
Ballard: And it remains to be seen whether it will work. The beauty there has to be that the interaction between the two creates something bigger than the sum of the parts. We don’t know yet whether Defiance will do that. I hope that it does. It’s good for the industry if it does.
GamesBeat: Movie games seem to be doable much more easily in social and mobile. Under the console model, it kind of broke down. You had to make a game two or three years ahead of time. Release dates got spread apart. I don’t see too many movie games like that anymore. With the shorter release cycles of mobile and social, it’s much more manageable.
Ballard: The budgets are smaller as well. The one thing we have to bear in mind is that the lifetime of a mobile game should be 18 months, if you can pull it off. It’s a long tail. A lot of these movies come and go in the mind of the average consumer such that it’s hard to imagine them staying engaged with it that long.
The beauty of Warner is that many of our movies have transcended brands. When you talk about something like The Lord of the Rings, you’re talking about a brand that’s bigger than any one movie. The DC characters may have movies associated with them, but the brands themselves are bigger than the individual movies, and there are other brands within Warner starting to take on those characteristics. What I hope we will do is take advantage of those brands and help some of the other brands become more transcendant. You’ll see us doing a fair number of movie titles, but movie titles that we believe have longer legs.
GamesBeat: As far as organization goes, do you have digital people in every studio, or is this going to be the digital studio?
Ballard: It depends on the developer. NetherRealm did Batman: Arkham City Lockdown. They’re working on a title right now that hasn’t been announced yet. Different studios have different capabilities. Not every single developer has them.
Part of what we’ve decided to do with this operation is centralize the publishing and the marketing of all the efforts from the studios. The rest of our studios will continue to do mobile games, but we’re going to manage their marketing. Each studio won’t develop an expert on e-commerce or a person in charge of monetization. That will be either here or with a handful of people in Burbank still. What we’ll do is let developers be developers. We will be one studio developing free-to-play games. The other studios will continue to do big mobile games that are oftentimes associated with a console title.
One last comment. When I was at Glu, I remember being at Steve Jobs’ announcement for the App Store. I had a conversation right afterward with the guy who ran my studio. He pointed out that one of the challenges for a company like Glu, going forward, was going to be competing against the console companies who would be able to bring the richness of their assets, developed for console, to the smartphone much more cheaply than a company like Glu or Kabam or others who were building from scratch. Ironically, that wonderful confluence of high quality and low cost was available to one player in the marketplace but not available to others. We intend to continue to exploit that when we have a console title and make robust, beautiful games, but those may actually end up being premium games for sale, as opposed to free-to-play. Maybe, in that sense, we too can’t quite get used to giving away something for nothing.