February 19, 2009

The Portal Price Wars

I might be a couple of weeks slow in catching up with indie news, but recently I’ve been pondering the current portal price wars. In case you missed it, earlier this month Reflexive, which is now owned by Amazon, opened up as Amazon’s casual game download service. One of the earliest moves they’ve made is to sell the vast majority of their games for either $6.95 or $9.95. Apparently they also initiated this change without warning to many developers.

You can read some of the indie developer reaction to this over at the (now somewhat lengthy) thread over at IndieGamer. Opinions are mixed. Some welcome the new price point, or are at least resigned to it, while others are up in arms. The fallout is still underway. Hundreds of indie games have been pulled from Reflexive after this move.

With Amazon storming into the market, it seems to be a somewhat precarious time to be a portal indie. My feeling is in agreement with the indies that believe a cut-throat price war has just begun. The other portals won’t stand still while one undercuts them by a large margin. They’ll start fiercely competing with price cuts of their own or more special deals such as their game clubs or permanent discounts for loyalty benefits.

The problem for the portal indies is that any discounts directly affect them. Nearly all payment deals with portals are for a fixed percentage of the final sale price, usually along the lines of 40% for the indie. If a portal decides to sell your game for $7 instead of the usual $20, they’ll only give you roughly a third of the money per sale. And it’s highly unlikely you’ll be selling three times the volume to make up for the loss.

Another problem is portals may demand more in terms of rules and benefits from indies. At the moment indies going the portal route will usually sell through many if not all portals available. However some portals are now giving strong preferences to “exclusives”. I’ve read of a case (Encord’s Totem Tribe) where, when an indie wanted to release across all portals simultaneously, one portal reacted by dropping all advertising due to non-exclusivity. Then when the game sold reasonably well there (it was selling like gangbusters at other portals), it apparently suddenly vanished from this portals Top 100 list.

A further issue is that many portal indies also like to sell direct from their own site. Third party payment providers give indies a much larger percentage through direct sales (usually about 90%). However despite whatever loyalty customers would like to give direct to indies, if an indie is selling at $20 while a portal is selling at $7 then it’s hard to resist that type of discount - and who can blame them? Indies will be forced to make a choice between dropping portals or cutting their own prices.

I’m just a newbie without a direct stake this round in the form of a game for sale, but as someone calculating his market strategy this is an important development to consider. The question I have been debating for months is whether I aim for a more casual market or go for something more, for want of a better word, “indie style” indie.” Casual” would mean going along the lines of Bejeweled or Diner Dash; idea generation and development might be easier, and it would fit in well with the portals. “Indie style” means more along the lines of World of Goo or Darwinia. It’s higher risk, better ideas and more development are required, plus the marketing is considerably more complex. However if handled right and with a bit of luck this more naturally leads to a better sustainable business in the long term.

My intuition was that the stand-alone indie position was where I should aim to be in three to five years time. This has not changed. However, I was debating whether it was sensible to release a few casual games to begin with to portals to wet my feet in indie development and to build up some cred with customers and other developers. It is the feasibility of that strategy that is now under close review with this latest batch of portal wars. My strong impression is that, by feuding amongst themselves to grab the largest slice of the casual gamer pie, portals are tearing a rift between indie developers. At the end of this speciation, we’ll have casual developers working for the big portals. The true indies will be working for themselves.

I’ve been loath to use a terminology like “true indie” against casual developers, because I always thought it was a bit snobbish, in a “my genre is better than yours” kind of way. I don’t see anything wrong with casual games.; heck, that’s why I’m considering developing one. I think the time management genre (Diner Dash and its ilk) is brilliant, and the match 3 genre will always have its place. The casual space has some great genres to work in that I’d love to participate in myself. The problem is that the business for the casual genre is being sewn up by the portals, and the portals are demanding more power over what their developers do. If as a casual developer, I am forced to develop to their standards, release to their schedule, and have no say over pricing, then in what way is that “independent”?

I could live without the “indie” label (it’s not as if it matters that much what you call yourself). But labels aside, the deals with the big portals are looking less sensible with these developments. Already I was sceptical about the benefits of working with a portal. The deal is you allow them to take about 60% of the sale price in return for marketing and placement in front of a lot of eyeballs. Except games are typically only marketing for a very short time while new at the portal before slipping into their back catalogue, and in even less time if you don’t give them exclusivity it seems. You have to use the portal’s boiler-plate DRM methods which crackers know how to break instantly, meaning your game will speedily hit the torrents. You can’t have any mention of your own site, so unless your customers go hunting on the internet they’ll associate your game with the portal not with you, plus little chance of offering healthy after-sale benefits. And now it seems you have very little say on the pricing the portal uses; you’ll have to suck up any losses if a portal wants to offer a discount. Is the benefit of being at a portal site really worth all that?

I guess it’s not all bad, and it would be a mistake to tar all portals with the same brush. I know there are a bunch of more niche portals and affiliates out there with far more sensible deals, which treat the relationship between portal and developer far more like a partnership. The mistake would be to put yourself in a position where you need a portal, so if a portal dictates terms to you then you have the option of walking away.

The question is whether you can be a casual game developer and still do that. With the portals having a lock on casual sales, it would be tricky. Certainly, if your game is just a clone of a standard genre, then you’re pretty much stuck. If you have something genuinely novel, yet casual, then you might be able to strike it alone. But with such a hold on the casual audience, portals might still be able to bury you, especially if your casual game idea is easily clonable itself. And you might still be forced to sell your new casual game at the same rates as the portals. Even if your game is not available at their sites, the portals will set the expectation for how much a casual game should sell for. If your game sells for $20 with portals selling theirs at $10, customers will see your game as expensive even if that price is fair for the entertainment provided.

The pricing issue is the one thing I’m most concerned about. I’ve thought the $20 price median for indie games was a fair expectation. But if the portals start shifting customer expectations towards $10, it will have a knock-on effect throughout the entire industry. $10 is cheap - too cheap for quality games. Most indies who do pricing analysis on their titles usually end up with prices around the $15 to $30 mark.

The problem with $10 or less for games is that you’re now pricing them as throw-away entertainment bracket. That’s probably my biggest issue with this portal pricing. To them, games are just a commodity to be shovelled out to bring in the most profit. I can understand that from their point of view; if I were making toys to sell at a toy store, I’d expect the store to act somewhat the same. However, at $10 or less, the portals are treating their games as if they’re like cheap, mass produced crap that you sell from the discount chain store, rather than pieces of lovingly hand crafted pieces of entertainment art. If a portal expects games to sell for no more than $X, then developers will adjust to that reality by producing games that are worth no more than $X. I don’t see how quality can be maintained under this kind of market pressure.

So, rambling discussion aside, what should I do about it?

It’s becoming more clear to me that I can’t rely on portals to replace my own marketing. If I want to go indie, I’m going to have to centre it around my own website. Admittedly that was my plan all along, but the strength of the argument for it wasn’t made clear to me until now. It also means I’m essentially alone and will have to build up attention from scratch.

I may still consider portals as part of a complete marketing strategy, but only on my own terms. If I feel the exposure to new customers outweighs the downsides, then I’ll go ahead. But I certainly will not be basing my entire delivery strategy around the portals.

I am also now leaning away from going down the casual path, even as just a warm up before switching to more unique titles. If I do go casual, it has to be in a way that doesn’t make my game feel like yet another portal game. That almost certainly means no match three, no time management unless heavily altered, no hidden object. I’m far better off aiming for something unique. Which is extremely hard, unfortunately, but no-one set making games was easy.

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2 Comments on The Portal Price Wars

February 20, 2009

Andrew Russell @ 1:17 pm:

I have always been astonished that developers don’t baulk 40%. To me, that would only be fair if the value of the marketing they provided was greater than that of the product I had made (specifically: 150%).

And perhaps it would be worth 150% of a (non-vapid) game if they actually provided you with decent marketing. When you have to plaster the portal’s brand all over your game, to the point where your average consumer thinks that the portal actually made the game, then all they’re really doing is marketing themselves.

Similarly, this price drop has nothing to do with helping developers.

The portals want to compete with each other on price. But because they have lots of developers locked-in, they can force the developers to absorb much of the cost of that competition. And developers who are non-exclusive are, in effect, being forced into competition with themselves.

I fully agree there. The requirement to replace your developer’s brand with the portals is the biggest bugbear I have with the portal model. The mainstream strink-wrap box publishers don’t demand that kind of favour. It’s a significant issue if you plan on building up a company brand.

And as you wrote, paying 60% to a portal wouldn’t be so bad if you just wanted to develop games and ignore the whole distribution and marketing side. But if the marketing is substandard and is more for the portal themselves, why bother?

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