IndustryGamers - Informing the Games Industry

Games as Packaged Media Is Dead, says Venture Capitalist

Posted January 15, 2010 by James Brightman

Dean Takahashi at VentureBeat put together a very interesting roundtable with several notable venture capitalists. The group discussed the key trends in the game industry and what's attracting the most venture capital. Most agree that there is an increased focus on social gaming companies and virtual worlds. Traditional video game companies will have a hard time spinning together funds. 

"2007-to-2009 has mostly been about smaller swings and faster iteration against what users tell you," said Jeremy Liew of Lightspeed Venture Partners. "Call it the 'Web 2.0-ification' of the games industry – launch fast in beta, iterate based on user behavior.  This applies to both the folks importing Asian MMOs and the 'social gaming' companies.  In each case less than $1 million gets you a shot on goal and you get multiple shots on goal with a venture round.  Success is predicated on repeatedly putting out games that have a shot at making millions versus tens-of-millions (Zynga, Playdom, Playfish, Outspark, K2, etc)."

"What’s changed in our view is the shift away from retail publishing and development which has matured as a business and slowed in growth. The movement towards digital content and publishing models is creating investment opportunities," added Greg Richardson of Elevation Partners. "To Jeremy’s point, there is a further shift away from hardcore-focused companies and games which are capital intensive to more mass market content offerings with lower capital requirements."

Ultimately, it seems like the games industry will have to transition to a "games-as-a-service" model, which is something EA's been talking about for some time but has had trouble smoothly transitioning into. Social gaming and virtual worlds already represent a service model, as the games and worlds are updated all the time, but this is just the beginning. 

Tim Chang of Norwest Venture Partners commented, "Games as packaged media or 'fire and forget' downloadables is R.I.P.  Games-as-a-service (GaaS) and cloud gaming are the inevitable new paradigms. This is an early case study for the shift of media on the whole towards Media-as-a-service, meaning that content creators have to fundamentally rethink how they design their offerings to be ongoing relationships with their users…and often with only half or less of budgets spent on 'launch' and increasing portions used to 'operate' the ongoing service (community management, expansion packs/dynamic content updates, microtransactions, virtual goods refreshes, etc)

"The holy grail business model for media-as-a-service will be inspired by the gaming industry, and is neither purely ad-supported, all virtual goods, nor subscription-based, but rather a complementary blend of revenue streams for a hybrid business model: free-to-play (85% of users – show them ads, but how else can you 'put them to work' to create indirect value and enrich the community or offering as a whole?), microtransactions (15% of users) and tiered-subscriptions/premium memberships (1%-to-3% of users). Games-as-a-service will drive new needs at both the infrastructure and services (managed services, payments, loyalty, etc.) layers. Examples of enabling technologies and services here include OnLive, Gaikai, Otoy, Metaverse Mod Squad, Viximo, Vindicia, etc."

We definitely recommend checking out the full roundtable; it's a great read.

James Brightman has been covering the games industry since 2003 and has been an avid gamer ever since the days of Atari and Intellivision. He was previously the EIC of GameDaily Biz.