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Speaker Review: C. Kanojia

"Combatant general" Chet Kanojia knows how to win.

Aereo’s CEO Chet Kanojia spoke to the class about the company’s fascinating journey as well as their plans for the near future. Aereo, which delivers broadcast TV via Internet to all mobile devices including tablets and potentially TVs, is currently only available in NYC. By mid-2013, they hope to expand to 15 new cities. Chet comes from an engineering background, and provided incredibly interesting insight to the TV markets. By creating a pipeline to consumers, Chet believe Aereo can essentially create the industry of broadcast-to-internet. Because Aereo is built modularly, Chet explains, they can install more units of technology as their consumer base grows, making it relatively low-risk to enter new markets. One aspect that is important to Aereo is that the price of technology goes down every year, and essentially becomes a technology subsidy to the company.

While Chet has a deep understanding of the cable and broadcast industries, what I found most interesting about his presentation was his personal philosophy. With his experience at Microsoft and knowledge of startups, he said that before the marketing, business plan and even budgeting, the most important part of businesses it to have a great product. This seems relatively intuitive, but with the rise of business areas like media buying and planning, it is easy to forget this key point.This resonates in the video game industry as well. While business strategy has become increasingly important in this “digital revolution,” it is still commonly believed that if a game is great at its core, gamers will be attracted to it.

The one thing I am curious about Aereo is what their team looks like – What percent is composed of technicians? Of customer support? Finance? Chet said one of the greatest challenges moving forward will be acquiring and retaining talent. It would be interesting to track company’s composition over the next few years.

GameStop To Close 200 Stores

GameStop, the world's largest dedicated video game retailer, plans to shut down 200 stores by the end of this year. With about 6,650 stores across the globe (and over 4,400 in the U.S.), GameStop announced about 3% of their stores are losing money. While 156 has already been shut down, GameStop still opened 123 new locations over the year.

In the face of the industry wide slump, GameStop has managed its business considerably well especially by expanding to re-sale of Apple iPads and other mobile devices as well as growing their digital download business. While these store closures could negatively affect retail software and hardware sales, some analysts do not believe it is of particular significance. After all, for retailers are large as GameStop, 3% is not a particularly high number.

In a conference call to investors, president Tony Bartel said:

"Although the industry had another difficult quarter, we continue to outperform the rest of the market, as our competitors saw 24 percent software declines, while we have only had a 12 percent software decline, increasing our [third quarter] software market share to 44 percent in the U.S."

Whether or not GameStop will continue to perform above industry expectations will rely heavily on its ability to produce revenue through alternate ways, such as digital sales and subscriptions. While 3% closure may be relatively small in the scheme of things, it still speaks to the changing nature of the industry, and in the coming years, GameStop may not be able to rely on their retail sales.

The company earned $9.55 billion in revenues for the 2011 fiscal year. While revenues have been on a modest incline since 2008, analysts at Trefis predict a decline from 2012 out.

PlayStation Mobile, Lowering Entry Barriers

Many initiatives, such as crowdfunding sites, aim to lower the barriers to entry in the video games industry, where the barriers are traditionally very high. PlayStation Mobile, which launched on the Vita and PlayStation-certified Android devices early October, >now allows all game developers to sell games on the platform.

The idea is any individual or studio can release their games on the PlayStation store as long as they follow the guidelines and pay a $99/year publisher license fee. According to Sony, this is just the first phase and hope the continue developing this platform.

The biggest problem open platforms pose is quality of content - If anyone can post anything, it is difficult to manage what stays and what goes. While Sony plans to police the PS Mobile so copyrights aren't violated and all guidelines are followed, they hope to have a close working relationship with developers to better curate the game selection.

In crowdfunding news, >Star Citizen recently broke crowdfunding records by raisng a total of >$6.2 million in funds through Kickstarter and their own website (which actually collapsed due to high traffic volumes, hence the Kickstarter account).

Where is Social Gaming Headed?

Earlier this week, Facebook announced its Apps and Games Group beta, which allows friends and non-friends to better connect around app activity on Facebook, all with the hopes of enhancing the social experience of social games. According to Facebook:

"Now games can seamlessly create and invite players who may not know each other outside of the game to join Groups around clans or other joint activities. Groups can facilitate community interaction and drive deeper connections among players."

With more than 1 billion users, Facebook is continuing to work with developers to find the golden formula for capitalizing on this immense market. Zuckerberg also announced in early Oct. that gaming on Facebook isn't doing "as well as he'd like," but is this due to the games-Facebook integrated experience? Or is it an industry wide trend?

One of the highly discussed and debated gaming topics in 2012 has been the state of social gaming. Concerns of the "social gaming bubble" bursting emerged late last year, and while it seemed to be largely defended at the turn of 2012, with the downturn of Zynga, more analysts have begun to examine this issue. While Zynga does not necessarily represent the entire social environment, it certainly has been synonymous with its growth. Afterall, in 2011, it did account for 12% of Facebook's revenue.

When growth was its strongest, analysts predicted strong growth, but by May of this year, a slow-down was clear, not only in user acquisitions but also time spent by their largest demographics. What is further troubling for the industry is the difficulty of user acquisition. A study by Playnomics revealed 85% U.S. users quit after their first day.

However, isn't the low player engagement a quality that is essentially built into the idea of social games (versus mid- hardcore games)? As we saw, instead of solving the problem of user engagement, Zynga is now trying to pull itself up by grabbing users in the mid-core market.

With the ever-rising development costs and over-selection of games available, social gaming on Facebook has reached a plateau. What will be interesting to see is if social games will move to a different platform, such as Google+, or if they will become so heavily integrated in other gaming systems that purely social/online games cease to exist.

Video Games and Hollywood

Ubisoft Motion Pictures, their film and TV division, announced a partnership with New Regency last month to bring Assassin's Creed to movie theatres in 2013. Video games have had their way of making it onto the movie screen: Tomb Raider, Max Payne, Resident Evil... the list goes on. So why does this one matter? There are three main reasons: 1) It stars Michael Fassbender, 2) The franchise is widely successful and has sold over 38 million units, and 3) It stars Michael Fassbender.

The most recent game in the franchise, Assassin's Creed III, is estimated to have sold 3.4 million units in its opening week, and again, despite industry retail trends, outperformed (by more than double) its predecessor in the same time frame last year. A Wii U version will also be released soon. Will these same fans, and perhaps even a wider audience, be lured to watch the movie when it's released?

While Hollywood is a repeat offender of destroying some of our favorite books and TV shows, it seems a lot of damage has been done to video game movies. By oversaturating them with action and violence and pairing it with an underdeveloped script, many video game movies have not had the success their title deserves. Hopefully, because the much of the game is rooted in adventure and plot, Assassin's Creed will become a successful adaptation. And let's not forget no other game movies starred Michael Fassbender, especially because I have taken every opportunity I could to remind you.

Currently, the top two grossing adaptations are Lara Croft: Tomb Raider (the first one) at over $131 million and Prince of Persia at over $90 million. Other titles Ubisoft is working on bringing to film are Ghost Recon and Splinter Cell.

Traditional to Social, A Two-Way Street?

With the general decline of retail sales, many games companies, as much as possible, have been capitalizing on the social/casual industry and creating social gaming platforms of their own. But can movement in the other direction help as well? Zynga is hoping so.

In addition to focusing on more online gambling titles, Zynga has acquired November Software in order to produce mid-core F2P action game Battlestone. November Software, founded in 2011 by EA and LucasArts veterans, announced they were building a heaving 'streaming' centric engine that would allow the company to bring major motion picture titles to mobile devices. According to the company, their technology would allow mobile games to push 60-frames per second.

Screenshot preview of Battlestone, see teaser trailer here.

The acquisition seems to be Zynga's effort to break into the midcore games sector and redefine its image. By diversifying their product offerings and breaking into new sectors Zynga can potentially regain a large portion of users which they have lost in recent years. November Software's tech will allow them to creates "high-end casual user experience" with the accessibility of mobile gaming and quality of traditional console games.

Although many traditional games companies have launched social gaming platforms, such as EA's Origin and Ubisoft's Uplay, these platforms supplement existing game offereings and were were not necessarily created out of financial need. While Activision Blizzard is planning the launch of their own mobile-social platform ring Activate, sales of their retail titles continue to soar. Recently, the company well surpassed their third quarter projections, raking in $841 million (as apposed to analyst estimates of $710 million).

Zynga has taken on a huge risk in this project. Will games developed by November Software boost their image and help retain their current users? Or is Zynga spreading themselves to thin and desperately searching for solutions? While it has become increasingly crucial for companies to keep up with the rapid industry trends, their brand value and identity remain important, and its unclear of this acquisition will strengthen Zynga's or further confuse consumers.

The Angry Birds Strike Back!

On the day of its release, Angry Birds: Star Wars took the app store by storm and took the iOS top-selling spot in a record time of 2.5 hours. In the new game, not only do the setting and characters get a Star Wars makeover, but they also take on special abilities, such as lightsaber attacks and electric powers.

As Rovio Entertainment prepares for their IPO next year, they have added yet another successful game to the Angry Birds franchise. The Finnish company, valued at $9 billion (!), was founded in 2003 and is now looking to go public in 2013 either in Hong Kong or New York. And with the successes the company has experienced, going public seems like the next logical step. Earlier this year, Rovio reported their 2011 revenues was $106.3 million, a 963% increase over the previous year. When it was introduced, Angry Birds Space became the fastest growing mobile app in just over a month, with 50 million downloads in the first 35 days.

In addition to the games, which consists of the original, Space, Seasons, Rio and now Star Wars, Rovio makes much of its revenue from related merchandise. The company began selling plush toys in Dec. 2010, and by Mar. 2011, they had sold over 2 million units. They continued to sell around a million units of toys and t-shirts each per month throughout the year. If you find yourself in Finland, the UK or China, you can also visit an Angry Birds theme park.

So what's next for the franchise? Now that consumers can put the lovable characters onto the credit cards, bloggers wonder if there is anything that cannot be branded by the birds (See: "What's Next, Angry Birds Toilet Paper?") One thing fans can look forward to a TV series as well as a full-length feature film, set for 2015. Excellent.

Zynga CEO Confirms 5% US Workforce Layoffs

"This is the most painful part of an overall cost reduction plan that also includes significant cuts in spending on data hosting, advertising and outside services, primarily contractors."

At the beginning of this year, I wanted nothing more than to work at Zynga upon graduation. Suffices to say, my potential employment opportunities there have gotten much less since then. With the way things are going, it is definitely not a great option, and in a few years, may not even exist as an option (at least not under the current corporate structure).

In just 6 months, the company's stock dropped from its height of $12 to $2. Now, Zynga Chief Mark Pincus has confirmed U.S.-based employees, roughly 160 of its 3,200 workforce. (Pincus's statement to employees can be read at end of article.) In addition, the company will be closing its Boston shop, reducing the workforce in Austin and considering the closures of their Japan and U.K. offices as well. It is interesting to note that these listed offices all came out of acquisitions.

Earlier this month, analysts said Pincus had roughly 9 to 12 months to turn the company around - My guess is the time frame has gotten even tighter since then.

We have already noted social/casual games companies have a difficult time monetizing users. While Zynga came to play first, other game developers how have a firm grasp on the casual sector, and midcore developers like Kixeye are taking off. In addition, although making progress, the company has not sufficiently captured the mobile sector.

In just a few years, the pioneer of social gaming now faces pretty drastic financial troubles. Whether or not the company can be completely written off just yet, it is a testament to the turbulence of the games industry.

Speaker Review: P. Kern

Managing Partner Peter Kern at Intermedia, a private equity media company, spoke to us about the business he is in. The company acquires existing media properties for a finite period of time and helps the business expand. The most valuable information Kern gave us was each business must be treated on a case-to-case basis. There is no one way or formula to handle different media businesses, which makes the company's role incredibly dynamic. I was most surprised to learn that the company is mostly comprised of people who come from a media background. While it seems almost obvious now, I assumed all private equity businesses relied heavily on employees coming from a business background, or other quantitative fields. Because contracts and legal matters (I imagine) are a key party to Intermedia, I wonder if the company has their own legal team, or if they outsource to a third-party firm to handle it.

Wii U to be Sold at Loss, Industry Trend

Nintendo CEO Satoru Iwata revealed that even at $349 per unit, the company will be selling the Wii U at a loss. However, the exact price of manufacturing the Wii U was not released. While the company will most likely make money with add-on sales and by cutting manufacturing costs later on, Nintendo will be losing money on the pre-order sales.

What does this mean for Nintendo? Well investors certainly will not be happy, especially after the company reported a 6.8% decline in revenue to 201B ($2.6B) in the last 6 months, ending Sept. 30.

>>See full infographic: The Financial Risk To Launching a New Console<<

For a while now, manufacturing and production costs for consoles and games respectively have been on the rise. In fact, many companies have adopted the "sell now, profit later" model: Sony's PlayStation 3 released 2007 did not become profitable until 2010, Microsoft pursued similar strategy with the Xbox 360, and Amazon said the released new Kindle tablets and e-readers at breakeven prices. It was also not until recent Nintendo's 3DS became profitable.

Nintendo currently expects to sell around 5.5M units and 24M video games for the console worldwide by the end of March 2013. In comparison, the company expects to sell around 12M units of previous generation consoles in the same time frame. So far, confidence in the Wii U seems relatively low. Because Sony and Microsoft have not officially announced their next consoles, the Wii U will be the first in the 8th generation.

Speaker Review: R. Siklos

I learned quite a few facts about the media business from Mr. Richard Siklos' presentation. Siklos, whose job functions lie in strategy and corporate marketing, stated that cable customer retention key to the business, and about 80% of the major networks’ revenue comes from TV productions and related businesses. As I assumed, it is easier for these cable networks to keep their existing customers than to attract new followers. The most important piece of information was, partially because it resonates deeply within my (video games) sector, is no matter what is working for the industry in the present day, innovation is incredibly important not only to the company as an ideal to strive for, but also for the survival of the industry itself. What I am curious is, aside from the naturally resistant nature of consumers and difficulties in changing their habits, are there currently technological or financial barriers to innovations and providing forward-thinking services? For the games industry, while analysts seem to unanimously agree the future exists in the cloud, our tech is not currently up to par yet, and I wonder if similar barriers exist for cable companies.

Life After Crowdfunding, or Lack Thereof

While raising tens of thousands of dollars for a game concept undoubtedly has its challenges, and real work still lies in the game creation. In July, a promising KickStarter game raised $28,739 (over their goal of $25,000!) but now, after blowing through roughly $5,500 a month, the title has been put on hold.

Haunts: The Manse Macabre, a game conceptualized by ex-Cryptic Studios vets, is now an example of zero ROI. Not to say it will stay this way, but the situation does not look good. Project manager Rob Dakan of independent studio Mob Rules Games explains that his handling of the staff has been naive, and with no more programmers or money (Forbes), work on the title has been halted. The primary program has returned to Google, and the second has also quit to move onto new projects.

On the company blog, Dakan has stated he believes full transparency is the best policy, and linked to several articles reporting on the issue. However, no itemized budget list has been made available yet, and the entirety of $42,500 provided by the Lewis Charitable Foundation has been used to pay salaries.

While lack of money and programmers are the two problems at hand, Forbes also questions KickStarter's model. While there have been several successfully funded and executed projects, analysts question if the story of Haunts is an anomaly, or if it's a sign the KickStarter bubble is about to pop. As the games industry grows, we could find ourselves at even higher stakes than $28,739. In an email to Forbes, Dakan writes:

"Ultimately I think the biggest mistake was rushing in and hiring a programmer instead of taking our time and finding a true start-up oriented founder who was a programmer. That was a mistake (there were others!), and I won’t make that again."

Maybe Gambitious is on the right route if video games crowdfunding is to continue.

Crowdfunding

Kickstarter and Indiegogo are two of the most well-known crowdfunding sites. Kickstarter is geared at creative projects, which includes anything from comics to technology and even food creations, and Indiegogo even includes cause-related projects. The most highly funded video game on either platform currently is Project Eternity, which has raised $3.9M from 74,000 donors.

Last month, a site dedicated to video games crowdfunding launched. Gambitious currently has 7 projects available for funding. However, apart from being solely based on user donations, investors (outside the U.S. for now) can also donate money in exchange for an equity stake in the project, creating what is now being called hybrid crowdfunding.

Another change Gambitious has made to the model it not everyone can post their projects online - The game developers must have their projects approved Gambitious staff after presenting a detailed business and execution plan. According to CEO Paul Hanraets:

“Unlike other crowdfunding platforms, Gambitious is designed specifically for the video game industry and ups the ante of developer credibility, investor engagement, and development cycle understanding.”

There are 4 upcoming projects. Despite this seemingly breakthrough idea, none of the original 7 projects are even close to reaching their capital goals yet.

Play Android Games on your Flatscreen

MHL Consortium, a group of developers for mobile devices (companies), offers a cable that allows users to connect their portable devices to the TV. Analysts note that "mobile" does not always mean on-the-go, and in fact, mobile and tablet gaming is a popular past-time in households as well.

>>Click here for full infographic on mobile gaming<<

According to MHL, they can turn any smart phone into a console, and any TV into a smart TV. The portable devices can also charge while plugged into the TV.

In almost completely unrelated news, I have been busying myself with Marvel's Avenger's Initiative app (on limited sale now for $2.99!) which is essentially Marvel's version of Infinity Blade, both which are smash-and-bash role-playing games. In contrast to short-engagement session games like Angry Birds or Cut the Rope, I definitely spent more time playing Avengers at home (namely in bed or procrastinating in front of my computer) rather than on subways or waiting for coffee.

So in relation to MHL, do I really need to see my gameplay on a widescreen HD TV? Even though it is not necessarily on-the-go gaming, I do relish the portable aspect, even while bumming around my apartment - I can have uninterrupted gameplay from my bed to the sofa to the kitchen. And personally, for a game that involves nothing beyond tapping and swiping at the screen of my phone, I don't believe I can have a value-added experience by being hooked up to a TV. After all, these games are developed to be enjoyed on mobile platforms.

Is the economy so eager to bid the era of consoles farewell? Is such tech the true needs of games consumers? If phones truly are to take over and replace the console market, it seems the next logical step is to sync wireless controllers to our iPhones and virtual gaming goggles everywhere we go.

eSports Anyone? League Of Legends Draws 12M DAU, 32M MAU

Riot Games is a serious company. They are the developer and publisher of League of Legends, a real-time fantasy online multiplayer strategy and battle arena PC game (free), which has roughly 12M users logging on everyday, 32M every month, and a total of 70M registered users. In July this year, the game averaged 3M users logged in simultaneously on any given day, surpassing number of users on CoD3 and as well users on Steam's top 100 combined. Worldwide, the average played hours a month surpasses 1 billion hours. Even averaged at 32M MAU, that's over 31 hours played per user a month.

For more stats, including demographics and social media presence, check out the >>infographic<< released by Riot Games.

At this volume of users, the game is also likely to be generating sizable revenue from in-game microtransactions, such as playable characters and items. Gamasutra also notes that unlike most F2P games, even three years after its launch, LoL has continuously exhibited growth - Last year this time, there was just 11.5M MAU.

Additionally, today is the finale of the season two World Championship Finals, held in LA, where the last two (S. Korea & Taiwan) of 12 qualifying teams from around the world duke it out for a prize of $2M USD, the largest in eSports history. After considering are prizes and pay-offs along the way, Riot Games will have spent $5M USD on the tournaments. The play-offs and tournaments are all streamed live online for those who couldn't grab a ticket to the actual event.

Genius? Ridiculous? Further comparisons - WoW only hit 12M at its peak of subscribers, and Xbox live has 40M monthly subscribers, but it is the incredible community Riot Games has created that allows a single game to grow the way LoL does.

Oh, and the championship winners also get a super swank hand-crafted Summoner's Cup...

>>EDIT 10/14<< Taipei Assassins won.

Mergers and Acquisitions Total $3.6B in 2012 Q1-Q3

According to investment bank Digi-Capital, the video game industry reached $3.6B in mergers and acquisitions in just the first three quarters of this year, surpassing the total amount of the entirety of 2011, which amounted to $3.4B (globally). So far, there have been 71 transactions, averaging at roughly $51M each.

Given past focus on acquisitions (Zynga and OMGPop at $183M, Sony and Gaikai at $380M, and more), this number is hardly surprising, and perhaps more deals will come in these last months of the year.

The report noted the majority of transactions was conducted by companies focusing on Massively Multiplayer Online games (MMOs), accounting for 22% of the transaction value and 9% of transaction volume. Mobile and tablet games are still raising money, and social-casual sectors are consolidating.

Two notable acquisitions in the past month is the NEXON (think Maplestory) acquisition of Gloops, a massive Tokyo-based developer of mobile games, for $458.6M (¥36.5B), and telecom group SingTel's 35.5% stake acquisition in The Mobile Gamer, a Singapore-based startup that creates and distributes social games for mobile devices.

ZNGA Stock Slammed, OMGPop Pricetag Cut

Zynga's stock decline over the past 6 months hit a low of $2.21 on Oct. 5 after the company announced expected losses, as well as lowered outlook for the full year of 2012. Zynga expects a 12 to 14 cent loss per share in the three months ending Sept. 30, and lowered revenue forecast to $300M - $305M (down from forecast of $322M last quarter). According to FactSet, the company will just breakeven on revenues of $286.7M.

In addition, Zynga has written down its $183M acquisition of OMGPop in March by as much as $95M. The company plans to release Q3 results on Oct. 24.

One suggested area of improvement is Zynga's weak presence in the mobile sector - The company has yet to release a hard-hitting title for smartphones and the Draw Something craze has worn out. In addition to a mobile transition, Zynga will have to find ways to captivate a larger audience:

"They have banked on the casual gaming segment, and to readjust the business to more core gaming, some casual heads probably have to roll," said P.J. McNealy, CEO of Digital World Research.

While the company still maintains over 300M MAU, its recent releases such as Chefville and Farmville 2 have not not been as popular as Farmville, which brought in 29% of the company's $332.4M revenue in Q2.

#Zynga #OMGPop

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