Veteran game publisher Brian Fargo and other game industry veterans announced a plan to shake up PC digital game purchases this week with the announcement of Robot Cache and its planned cryptocurrency, dubbed Iron.
Their idea comes amid a sometimes hot, sometimes not — but always volatile — market for cryptocurrency and blockchain startups. Fargo’s plan to stage an initial coin offering (ICO) raised a lot of eyebrows among the 1,400 attendees to the Casual Connect USA 2018 event this week in Anaheim, California, where blockchain sessions were quite popular. Fargo’s new company will create a digital PC games platform as an alternative to Valve’s Steam digital distribution service.
But Fargo plans to give game publishers and developers about 95 percent of the proceeds from game sales, rather than just 70 percent as Steam and others do. It will also pay them quickly in contrast to slow payments by the big app stores. Fargo hopes to leverage his relationships from 30 years of making games to sign up the major game publishers and developers, which, in turn, will help draw consumers to the new store. The hope is to take away some of the arbitrary power over game distribution from the platform owners.
“I think this could be a paradigm shift for the industry,” Fargo said. “It could be a game changer.”
I sat down with Fargo and Robot Cache chief technology officer Mark Caldwell at a party for the CoinAgenda event in Las Vegas, ahead of the recent CES 2018 tech trade show. We talked about cryptocurrency, blockchain, the hype around Bitcoin, and the chance to use the new technologies to disrupt the status quo in games.
Here’s an edited transcript of our interview.
GamesBeat: So, is this a post-retirement thing?
Brian Fargo: Hey, I got a lot to do in the next three years. I have to make my biggest impact. I’m in a hurry. At inXile, we’re going to announce we have a new strategic investor, which is a huge deal, in the next week or two. You’ll want to know about that. It’s around a product. I have a particular piece of talent. It’s a new category we’re going into. It’s a pretty big play. But not as big as this.
I’m also doing an ICO with these guys. They’ve raised a bunch of money through the ICO market. I’ve known them a long time. We have all these video game guys who want to do something. We’re thinking about a play in the video game space, and I’m trying to get my head around this. Here’s my first conversation on the ICO. I said, “I don’t understand. What percentage of the company do they get?” Well, none. “Do they get a piece of the profits?” No. “What do they get?” They get a token.
In my business mind, it took me a while — it’s like a Dave and Buster’s, right? You’re giving the coins out. OK, I get that. But it took a while to get my head around the process working. What you want, you want an economy. A single game makes no sense.
One of the things, in thinking about what the blockchain does well — it minimizes the need for a middleman. That’s one great part of it. I was reading about one company that — let’s say you want a logo made or contract programming. Normally, you farm the job out, someone does the work for you, and the middleman company takes 30 to 40 percent. Now, it’s five or 10.
That started me thinking about digital games distribution. Does it really take 30 percent to administer that business model? I don’t think it does. And the fact that there are other savings, other ways to make money. So, let’s decentralize the digital game store for PC. We’re going to pay publishers and indie developers 95 percent instead of 70. That gets everyone’s attention. The margin swing for a small indie is life and death. And for the big publishers, on a million-unit seller, that’s a $6 million swing. For fun, we ran the numbers on [PlayerUnknown’s Battlegrounds], and the swing was $300 million, something like that.
All the publishers I’ve spoken to, smaller developers, they’ve loved it, as you would imagine. There’s nothing to lose. But consumers don’t care that publishers are going to get an extra margin. How do I get them to come over to the service? Here’s the innovative thing: Thinking about GameStop, we’re going to allow them to sell their games when they’re done playing.
At first, as you can imagine, the publishers didn’t like this idea. But here’s the thing. It’s a secondary license. You control the price. You’ll get the same 70 percent you used to from anybody else, only this time, the consumer picks up 25 percent, and we get our typical five.
You think about a used car lot. Typically, I buy a car, and I’m stuck with it for life. But this one, I can actually sell on one of these days. That’s what I think is going to motivate consumers to come over. Lastly, when you come on to our site, you can opt in and mine for crypto. We’ll convert that into our currency, such that you might get three to five games per year for free, just by leaving your computer on at night, which most people do anyway. We’ll explain the electricity costs and all that.
That’s the big idea. I think it can be a big paradigm shift for how people look at the business. We’ve had a few film people interested because it’s the same thing. If you put your movie on Vudu, 30 percent. That’s the standard thing. When you’re done with a movie on Vudu, you don’t get to sell it to anybody. I think this could really shake things up.
GamesBeat: So, the token becomes a bit more valuable? Consumers are reselling games. Or would they always sell it for a used price? That price isn’t going to go up, right? There’s no reason for that.
Mark Caldwell: You have to think of it as — it’s still a new product. It’s not like you’re running off a VHS tape. When you buy it, you’re not actually buying it from Brian. You’re buying it from us. You’re giving Brian his token, and you’re downloading the product from us, just like the guy who bought the new game. For the new buyer, he doesn’t know if it’s new or used. He doesn’t care if it’s new or used. But he’s buying it with the idea that he can sell it. How we dictate what gets sold new or used is something we’re working out with publishers in general. But you’re effectively buying a brand new product. He’s just getting the ability to recoup some of the money he spent on it.
Fargo: Once you sell it, you’ll have our currency in the system. Theoretically, if our currency went up, that would be worth more. But we’re not setting it up to speculate. The idea is to have an economy — like GameStop. They do, what, 25 percent of their business on used-game sales? People like the concept of selling stuff when they’re done. We already know consumers are used to it. We’re tapping into that.
I don’t know that anybody’s ever set up a system where you can resell product like this. When I first started this conversation with publishers and developers, their first answer is always, “Hell no.” But as I take them through the controls they have and the percentages they get, the answer usually changes to, “That sounds pretty good. We might want to invest in that.” It’s exciting. I think it’s going to get a lot of play.
The other thing we’re doing that’s unique about the ICO is there’s a lot of regulatory — there’s no clear direction on this. We’re taking a very conservative route. It’s all going to be institutionalized, accredited investors only. We’re not going to have an ICO countdown token event where anybody can buy in. We want to avoid any of the potential issues because we don’t know where the SEC is going to rule later on. We’re taking a super conservative approach. Anybody that’s accredited can come in, but we’re not going to open it up for unaccredited sales.
GamesBeat: Have you heard of the Game Credits guys, their ICO? They had the same idea, taking 10 percent, but they don’t have the resale component.
Caldwell: And they don’t have the publishers. A lot of people out there are saying they’re going to do something similar to what we’re doing. First off, nobody is doing exactly what we’re doing. Second, we’re the only ones that are going to have the publishers. The relationships that Brian and I and the other guys have with the publishers and hardware vendors and everyone else are going to give us a head up above everyone else. We plan to launch day one with a thousand games, publisher approved.
Fargo: There’s a lot of ICOs where they say, “Once you plug in our SDK or our API, all these great things will happen.” But I know what it’s like being on the other side. If I need to tell my guys to drop an API in, we’re not doing it. If I get 95 percent? Now we’re talking. But with us, we even do all the work. We do all the wrapping. We have to make it super frictionless. Otherwise, we’re in the too-hard pile.
Caldwell: The idea is to set up the publisher portal a lot like iTunes. The publisher goes in, publishes their game on our site, puts in all the graphics, does everything they want it to, lists it for sale, and they go. They control the whole thing.
GamesBeat: The other thing generally was that chicken-and-egg situation. Nobody wants to give 30 percent to Apple or Google, but they have the traffic. How do you change that equation?
Fargo: We’re going to have to be very clever about customer acquisition. That’s why you’ll be able to mine, why you’ll be able to resell. We’re going to have strategic alliances with people who have a lot of traffic sending that our way. Also, as part of the token sale, we’re going to use a lot of money on customer acquisition. We’ll be handing out tokens, spending marketing money, getting exclusive content on the site, that sort of thing.
It’s not as if we’re going to be a force on day one. But there’s a compelling story there for everybody to keep supporting it and for users to come over. There are all these sites. You’ve heard of Itch? They have huge traffic. It’s like a Humble Bundle indie store site where people tip the store, pay whatever they want. You look at the traffic there, and it’s massive. There are stores other than Steam that do quite reasonable revenue. Even a 10 percent market share is a big deal.
GamesBeat: Can you share proceeds with someone like that if they produce a sale for you?
Caldwell: Like an affiliate? It’s possible. There’s no reason we couldn’t do that. It’s not something that’s in the plan right now.
Fargo: We’re looking to strike deals with some of the hardware manufacturers. As an example, if you’re mining with an AMD card, we know that. Maybe we can give you some extra perks if you’re mining with an AMD. They want to sell hardware, and we want to find customers. There’s a lot of great symbiotic relationships we can build.
GamesBeat: Is there a name for the coin?
Fargo: Iron, like the Iron Bank.
Caldwell: Brian said to me once, “You drag a magnet through the sand, and you produce iron.” That’s our mining mentality, right there.
Fargo: It’s interesting. The response to the concept has been really strong. I’m talking to a guy at Nvidia. He says, “I work at Nvidia, and I don’t even mine.” You figure, something like 0.03 percent of people own crypto? The people that mine, it’s even smaller than that. The idea that I can just opt in, leave my machine on, and I come back in the morning. We’ll show you a little ticker in real time. Our little robot will be mining away. It’s compelling. You just come to our site and buy a game.
GamesBeat: The sense of scale is good to know. How much money do you have to have in order to do this, to attract the audience? Are you targeting PC games, console games, mobile games?
Fargo: It’s all PC, yeah. You can’t do console this way. Those are closed, walled systems. We couldn’t do it if we wanted to. We’d like to get to 10 percent market share pretty quick. We’re giving guarantees to people, to publishers. We’re doing a lot of things to get content that have never been done before. Usually, people just set up the store and say, “I’m the Steam reseller. Please give me your game.” That’s not a new pitch. This is something where the publishers can make more. There’s more margin to play with. There’s a lot of little clever things we can do in terms of exclusive content, paying people to sign up, using the currency to get them on board.
GamesBeat: How many [stores] are out there doing this? Do you call this a store?
Fargo: Yeah, it’s a digital store. All of the stores, for the most part, are Steam digital key resellers, except for GOG. GOG does a great business. If we did GOG numbers, we’d be in great shape. Think of how many people buy GOG just because they don’t like DRM. What if we get a similar number of people that want to buy games and resell them when they’re done?
GamesBeat: Where do you need to get your backing from? Is it the publishers and then you can go to investors?
Fargo: To raise the money for it, do you mean?
GamesBeat: And get the momentum. Do you need someone like Take-Two to say yes? Or do you just need a lot of small guys?
Fargo: I think it’s going to be a combination of some of the bigger ones, which we’re getting, and some of the important indie developers, who are also coming aboard. Usually, when you go out and pitch, there’s a funnel, right? X percent of the people you talk to say yes. But there’s almost not been a “no” for us. Some people have technical reasons. But everyone would love to see a switch up in the status quo of how this works and get a bigger piece of the pie.
GamesBeat: How much does Steam actually get?
Fargo: They take 30 percent. You’re getting 95 versus 70.
GamesBeat: Google+, when they started out against Facebook, they were saying, “We’ll take 10 percent.” And then, when they actually launched, it was 30. Why does everyone settle on that as the cost you incur running the store, marketing games, and otherwise doing what a store owner has to do? I never quite understood why everyone does 30, other than that’s what the market will bear.
Caldwell: That’s what the publishers are willing to spend to get the traffic.
GamesBeat: It seems like Steam could run their store far more efficiently on just five percent. They have so much momentum that 30 percent — it’s like they’re not earning it, right? Anyway, that number always bugged me. Google was theoretically going to come in and fix things, and they never did.
Caldwell: And Google+ lost.
GamesBeat: Did they learn something? “We’re going to incur so many costs that we have to take a higher percentage.”
Caldwell: We’ll never know because they never tried, and Google+ never took off.
GamesBeat: Do you guys face some risk that you’re maybe taking too small a percentage?
Fargo: We believe we’ll also be making money on the mining side and doing some other things. It isn’t just that. But our numbers don’t show that it takes that much to run a store. The good thing is we’ll be raising enough money to give us some landing room, some room to experiment and try different things.
Caldwell: Plus, some of the stuff we’re doing is decentralized. Some of the services and things we’re doing, we don’t have to run servers and maintain things for them because the world is doing it for us. That’s a lot of the infrastructure costs that we don’t have to spend. That helps our numbers line up with five percent. Volume is where we’ll make it, obviously. If we only have one or two people, five percent doesn’t cut it. But if we have the volume of games we expect to get, the volume makes it work.
Fargo: If, for example, we launch and, over time, we have every major publisher with all the new releases — that’s what you strive to get, and they’re going to like getting 95 percent. Then, we’re right there with everyone else. Plus, we’re trying different things. And then, we’ll have all the consumers saying, “Hey, I get free games by going to Robot Cache, and I can sell them when I’m done.” That word of mouth will bring a lot of people in. At least that’s the goal. It’s compelling.
GamesBeat: One worry could be that Steam might outspend you on marketing by, whatever, six to one?
Fargo: They could drop their fees, too.
Caldwell: It’s not just a marketing game, though. We can do deals with [publishers] where we get one month of selling a new product before Steam does. There’s lots of ways to fight back. Steam is the gorilla without a doubt.
Fargo: I’m not going to say we’re taking out Steam. And guess what, I’m super appreciative of Steam, too. Trust me, I have nothing bad to say about those guys. But why not have another guy who’s in there with 10 percent? To do that, you need to come up with something unique if you’re going to get some market share. We think this is unique.
Caldwell: How many Steam players want to sell back their digital games that they … can’t use anymore? Almost everybody on Steam wants to do that.
GamesBeat: If you bought a $50 game, as a consumer, what are you selling it back for?
Caldwell: $50. Again, the consumer doesn’t realize….
GamesBeat: So, you get a quarter of that; $12.50 goes into your pocket….
Caldwell: Right. The publisher, at the worst, gets the same they’re getting now. At best, they get another 25 percent.
Fargo: We think it’ll spur some extra sales for two reasons. One, you’ll call your friend up and say, “Hey, you wanted this game. Buy it from me.” And then, once you get the tokens, what do you do with them? You buy another game. We think there will be extra sales on both sides. It spurs the economy. The feedback has been — I’m used to pitching products. Some people like them, and some people don’t. The way this has been, at the end of the conversation, they want to invest. We have a few more things we have to get together. This is the most complex thing I’ve ever worked on before, from SEC money transmission laws to international treaties.
GamesBeat: I’ve talked to some other serious people about blockchain ideas. It sounds like a big opportunity. Tim Sweeney is talking about the open metaverse. Phil Rosedale is talking about connecting virtual worlds, taking avatars across platforms.
Fargo: As long as people support it. You have to have all these different people supporting it. One of these things for us about blockchain is that — the indisputable thing about it is it’s a great piece of security. It’s nearly unhackable. That gives publishers the comfort that their game cannot exist in two places at once. Now, games can be hacked, and you can remove the checks, things like that, but the minute you go to our store and try to resell that, we’ll pull it right out of our library. That’s the big advantage over a central server. That can be hacked, and all of a sudden, people are reselling their games like wildfire all over the internet with a DRM-free version. This is unhackable in that way. It’s a unique money-raising event, too. We can start doing some different things.