Anything But Business As Casual

[Disclosure: A slightly modified version of this article appeared in the April edition of DFC Dossier.]

What in the early Internet days started as an afterthought today has grown into a market of its own. In 2008 the total revenue for casual PC gaming totaled a respectable $1.58 billion* in Western Europe, North America and most of Asia. DFC expects this number to increase to $1.69 billion in 2009.

Life’s been pretty good thus far: an average annual growth rate more than 60% has allowed everyone to do well. As more competitors entered the party, casual gaming also underwent a lot of consolidation as big-ticket publishers aggregated eyeballs for advertising’s sake. RealNetworks spent a lot of money to capture an audience large enough to sustain its ambitions for world domination. And as the current biggest casual company with 11.7% of total market share (based on revenue), it’s fair to say this strategy has paid off. The company is currently working to spin off its games division, RealArcade, as a separate entity.

The industry’s biggest aggregators continue to report a growing number of unique visitors every month. In early 2009 Dutch SPIL Games zipped past Yahoo! Games and stole first position according to ComScore. SPIL’s combined properties claim a banner-crushing eight million unique monthly daily and 100 million monthly players. (thanks Kate!) And with a solid relationship to a key demographic of 35 to 50 year old females, casual game companies like RealNetworks, Intenium and iWin continue to do well. And we all lived happily ever after. Right? Not quite. Despite growing into an entertainment staple, casual gaming also faces a few predictable obstacles in 2009.

For one, the explosion of online gaming sites is rapidly turning its content into a commodity. The alchemy behind discovering the golden formula apparently consists of sandblasting Internet audiences with marginally different content. With an army of clones flooding online outlets, alienated customers have become even less likely to whip out their credit cards, and conversion rates decline. As a consequence, the holy grail of premium content and its loyal disciple marketing are quickly raising the entry barrier for newbie designers. Despite low development costs, in 2009 one is hard-pressed to compete on equal terms with the marketing efforts of the industry’s fantastically successful companies like PopCap and PlayFirst.

One of the drivers behind PopCap’s $127 million annual revenue, for instance, is its aggressive promotion across a variety of platforms. Bejeweled, perhaps the industry’s crown jewel, is not just available on PC and Mac, but also found its way into slot machines and airline entertainment systems. Alternatively, PlayFirst garnered a lot of success with Diner Dash by carefully, but consistently, building out the overall franchise. Today, its time management portfolio contains 28 titles, all of which relate in one way or another to the original game.

A second obstacle is the decline in online ad spending. As the financial backbone of most of the casual game industry, its overall growth heavily depends on a healthy flow of advertising dollars. What this essentially means is that ad companies will likely pass on small developers. We find evidence in the change of revenue distribution over the past few years: where in 2001 portals only accounted for one-fifth of total revenue, in 2008 their share has more than tripled, leaving less for the small fries.

Retail me this

Despite these trends, the questions facing the casual game industry are not new. Like so many Internet companies before them, casual game companies are merely trying to figure out their retail basics. In only a few years, the retail side of casual gaming has quickly matured. Amazon’s recent acquisition of Reflexive, for instance, brings a lot of online retail expertise into the space all at once. Amazon’s experience in converting consumers who land on the main site into customers who spend money is an important contribution to the overall business. With 88 million unique customers, Amazon is expected to yield a substantial audience: even at the current conversion rate of one to three percent it amounts to 800,000 to 2,640,000 potential customers.

The declining price point, however, has got a lot of publishers worried. With a lower CPM and a much lower price per unit, the margins are becoming smaller. And so it helps if you’ve been profitable in recent years (which is not something a lot can say). To deal with this, many publishers offer a subscription model, like Big Fish Games, to retain as many of their customers as possible, and guarantee themselves, fingers crossed, a stabile income. But since the introduction of $5.99 monthly subscription, it’s been clear that the heyday of $20 a pop are over.

So what’s the future of casual gaming? The short answer is market expansion. In all directions, game companies are trying to capture a larger audience. Emerging markets are an easy answer to this problem. As new audiences are outfitted with broadband, companies like SPIL Games is trying to roll in and grab these not yet inundated eyeballs. With France, Germany, the U.S. and U.K. reaching a point of saturation, the new battle ground will likely be in second-tier markets like Poland and Latin-America, where GDP is slightly less than in the traditional First World, but still high enough to sustain an online advertising market.

In addition, more companies focus on Mac’s OSX, where they used to only develop for PC gamers. And the recent emergence of social networking platforms like Facebook promises a new source of potential customers. A company like Large Animal Games has booked some promising success by venturing beyond client-installations, and is aggressively exploring the potential of Facebook apps. And many see a “beacon of hope” in the iPhone. A next generation of sophisticated handheld hardware will without doubt demand its own library of delectable content.

Now that casual gaming is coming of age, it is faced with some maturing questions, leaving room for innovation and needing clever strategy to jump into the fray.

* This does not include mobile and consoles.





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About Waffler

Joost is fascinated by games and human behavior. His research explores video games as an entryway to contemporary media culture. After completing a Master's degree in Media studies in Amsterdam, he continued his research in New York. There he was project manager on a landmark investigation of three decades of ownership trends in the American media landscape, the results of which were part of a congressional testimony, a series of articles and a book. In 2010 he received his doctorate from Columbia University for his dissertation titled "Social Gaming and Communicative Exchange." Joost currently teaches at the NYU Game Center.

In addition to his academic pursuits, Joost is also founder and CEO of an online games research firm called SuperData. In early 2010 the company secured multi-year seed funding, and today employs five people. Clients include publishers such as Electronic Arts, SEGA, and Pokémon as well as all the major Wall street firms.

Joost lives in the East Village with his wife Janelle and son Maximus.

Selected Presentations
  • Video Game Data & Trends, Ottawa International Game Conference, Canada, 2013.
  • Business Principles and Market Trends for Multi-Platform Games, Festival of Games, Amsterdam 2013.
  • 2013 Game Changers: How Will Devices Impact Your Future Growth? (keynote), Game Developer Conference, 2013.
  • Free-to-Play State of the Industry, Game Connection Paris, 2012.
  • Online Games Research: Getting Publishers to Play Nice, New Media, New Demand Measurement Methodologies, 2012 Columbia University.
  • The Great Unboxing: Major Trends in the Transition to Digital and Free-to-Play Gaming, DCM East, 2012.
  • The Rise of Free-to-Play, moderator and co-organizer, Re:Play - The Theory, Practice, and Business of Video Games, 2012, NYU.
  • Trading Card Games: Delivering the Digital Promise, PAX East, 2012.
  • From Asteroids to Zynga: Three Decades of Game Design and Revenue Models, GDC Online, 2011.
  • Video Game Industry, 2010 Fordham University, 2010.
  • Social Media and TV, LATVfest, 2010 Los Angeles.
  • Top 5 Trends in Gaming, NY Games Conference, New York, 2009.
  • Kids, Tweens & Teens, State of Play IV, New York Law School, New York, 2009.
  • Game Theory, Play Money, Columbia Business School, New York, 2008. (event organizer)
  • Media Economics: The Question of Ownership, Hunter College, New York, 2008.
  • On Game Mod Communities, 106th Annual Meeting of American Anthropological Association, Washington, DC, 2007.
  • Game Mods & Post-Industrial Play, CITI Visiting Scholar’s Brown Bag Lunch Seminar Series, Columbia Business School, New York, October 2007.
  • The Video Game Vocabulary and the Production of Meaning, MiT5: Creativity, Ownership and Collaboration in the Digital Age, Massachusetts Institute of Technology, Cambridge, April 2007. (abstract)
  • Cities, Games and Media: Playing with and in the Urban Setting, Time|Space Dynamics in Urban Settings, Technishen Universität, Berlin, May 2007.
  • The Aesthetic Vocabulary of Video Games, Seventh Annual Convention of the Media Ecology Association, Boston College, Chestnut Hill, November 2006.
  • Haussmann’s Media Environment (revised), Sixth Annual Convention of the Media Ecology Association, Fordham University, New York, May 2005.
  • Media Technology & Society: Video Game Theory, Dissertation outline, Columbia University, New York, April 2005.
  • Good Day New York, Fox Television, aired August 20th, debate with Attorney Sanford Rubenstein on videogame violence, August 2004.
Contact: joost at waffler dot org

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