The Value of Gaming Intellectual Property | In Practise

The Value of Gaming Intellectual Property

Former Senior Director at NCSOFT and Take-Two Interactive Software

Learning outcomes

  • Why mobile-first companies like Zynga have an advantage in a free-to-play world
  • How the traditional publishers can adapt intellectual property for mobile free-to-play
  • How the barriers to entry are lower but barriers to success higher for free-to-play games
  • The comparison of Fortnite and PUBG intellectual property versus traditional publishers
  • How the Chinese work with Western publishers and risks of West losing power in the gaming industry
Print

Executive Bio

Chong Ahn

Former Senior Director at NCSOFT and Take-Two Interactive Software

Chong has 20 years of experience in building and publishing free-to-play games across all platforms. He is the Former Senior Director of Mobile at NCSOFT, one of the largest gaming publishers in Korea. Chong previously worked as an Executive Producer at Scopely, a leading mobile game publisher, and Ubisoft where he was responsible for bringing AAA free-to-play games to market. Read more

View Profile Page

Chong, maybe a good place to start would be to take a step back and just provide some context as to how you’ve been looking at this shift to free-to-play games?

What’s really interesting about the shift to free-to-play is the explosive growth and adoption of this business model. The reason it’s super interesting is because, if you were to go on Reddit or any gaming forum and you hear this group of people talking about free-to-play, it almost sounds as if it’s a negative thing. But in reality, the data and the numbers don’t lie and the majority of products that are now coming out from the gaming side, particularly for mobile – and you are now seeing a lot more of this on HD and PC products as well – is that there is some form of microtransaction or free-to-play business model, built in.

If you take a look back at the introduction of free-to-play or microtransaction based products, to where it’s at now, gaming is taking up anywhere from 60% to almost 70% of total revenue in the app stores today, whether it’s iOS or Android. That is eclipsing social media, lifestyle, entertainment and all these different categories. The data doesn’t lie. It just shows that, while there might be a vocal minority complaining about the woes of free-to-play, users have adopted it because there’s a key distinction. Unlike standard boxed products or any consumer products, free-to-play allows you to download and engage with that content, with no upfront commitment. It’s totally up to you to decide whether you want to stick with it or not and whether you want to provide that product with a revenue. I think that opened it up, which allowed for so many different people to come in and become gamers. To me, that’s really the key distinction that I see.

How would you describe the differences in the monetization features, between a mobile and PC free-to-play game?

If you look at a traditional PC or HD product, there is a set price point. You go to your local retailer, you pay your £60 and you have an expectation of what that experience is going to be, for your platform. While there’s a variety of different vehicles to showcase the product before you buy it, through various trailers, marketing assets, in addition to short demos, if it’s available, the consumer doesn’t really know what they’re getting, until they actually make that purchase. Assuming a purchase has been made, over time, the studio, usually on a quarterly basis, will release additional, downloadable content, what we call DLC, to supplement that initial purchase of the product. That allows that particular game to have added revenue streams and continue the longevity of that product.

For free-to-play products, because of the inherent nature of being free to download, free to acquire, their revenue model is completely nuanced, is very different and the velocity of that new content is changing at a rapid pace, with daily, weekly and monthly injections of new content, promos and events. By doing all of that, it affords the studios, within the mobile free-to-play or PC free-to-play side, to have more shots on goal, to potentially get users to convert, to generate revenue.

If you compare boxed products, on one side, with free-to-play products, on the other, both in terms of longevity and the revenue generated, the free-to-play side, whether it’s PC or mobile, it wins. The data shows that, across the board. I think that’s the key difference, in monetization.

How have you seen the development process evolve, for free-to-play games, versus the boxed products?

For boxed products or standard, traditional development, a lot of that was really driven through vision and creative aspirations. You have your producers, creative directors and these creative think tanks, coming up with ideas. They would take that creative vision and it gets distilled into all these different facets that build the production pipeline. At the end of the day, they’re focused more on providing the user with a very engaging experience. Typically, in your living room, on your big screen TV, they want that immersion. They’re almost asking you to play a movie or get so involved in creating that journey. A lot of effort in the development process is built on that total immersion.

For free-to-play games, whether it’s PC or mobile, it’s a little different. The appetite and the duration of play is different. If I were to take a look at a mobile product, you’re not on your mobile device for two, three, four hours at a time, playing some really deep, immersive product. You’re probably playing for five, 10, 15 minutes at a time. You can’t really get super immersed when you’re playing these snack-sized games. That’s where the development process has to change, because now, mentally, as well as team composition, you have to figure out how to get players to come back to a free-to-play product and play multiple sessions, throughout the day, while also inserting ways that I can get these users to, potentially, monetize my product.

On the free-to-play development side, now you have consumer psychologists, you have product managers, you have lifecycle managers that are part of the development team because you have to think through all these different ways to potentially develop value within the product that you’re making, because you’re giving it away for free. To me, that’s a really key distinction because if you look at the traditional team, versus the free-to-play team, the kind of people, the kind of stakeholders that are surrounding the free-to-play side are quite different, because of the needs of that product.

So the studio, effectively, becomes much closer to the players, on an ongoing basis, versus the old boxed games?

Yes, to some degree. Let’s take an example of a big franchise, like Call of Duty or Battlefield, on the boxed product side, they do do a good job of trying to cultivate their community, because they have the big brands and IPs, they try to create that dialogue with their players, on an ongoing basis. But if you look at the touchpoints, it’s probably infrequent. Going back to what we were talking about earlier, if a boxed product comes out and there’s this fervor of activity in the first month, there will probably be a lot of ongoing engagement between the publisher and the community. But that then dies down until three months later, they drop their first downloadable content and then you have a spike in engagement and you see that pattern repeating.

For free-to-play products, you’re engaging all the time on a daily, weekly, monthly basis. You’re absolutely right in your inference of, are they closer to their community. To some degree, yes, because you have to be talking to your players on a much more frequent cadence, that you probably are closer to your community, you probably are listening to them a lot more and you have to be involved so that you know what’s happening and how to pivot your product.

Do you think we’re going to see an explosion of free-to-play content with maybe less capex or less capital investment, up front, to develop the game and then more iteration on ongoing development, when you get feedback from the customer? Or is there still this high capex up front, because the games are more complex? How do you look at the unit economics, from the developer side, in terms of the cost up front and the ongoing costs of producing these free-to-play games?

What’s really interesting is that the development of free-to-play products is not quite there, in terms of rivalling your HD, PC counterparts, but it’s not like it was five to 10 years ago. Mobile free-to-play products command a large team, in order to be successful, and that up front capital investment that you’re describing, which is pretty normal in traditional gaming, is now also happening on the mobile free-to-play side, because you only get a few shots on goal, when you take a free-to-play product and you put it out there. That’s unlike a traditional product where, let’s say, you’ve made a huge capital investment, you can project out what the sell-through is going to be at a standard retailer chain, because you have that historical data. Without consumers really knowing what that product is, you can say, we’re going to price this at £60 and it’s going to go out; you can do that.

With free-to-play, you’re making all this investment up front and then when you launch the product, you don’t get revenue right away; it’s a free product. The recoup windows are completely different. In terms of capital investment, I don’t think that’s going to change that much. If anything, I think bigger and smarter publishers are going to focus a lot more on up front capital investment but then set up the pipeline so that they have a better chance of success, so they can have a product, in the long run, that won’t be dead in the water after one year. On the free-to-play side, they want products that can last two, three, five years because that’s really how you recoup costs. If you build a product once and it’s able to sustain revenue for five years, the ROI on that is tremendous, versus a boxed product, like Call of Duty, where you have to come out with a new Call of Duty every single year, to remain relevant in the marketplace. A free-to-play product can launch once, constantly iterate on it, with reduced development costs, but the amount of revenue acquisition is going to be constantly going up. That’s a key difference, as well.

Do you think the large, traditional publishers have an advantage in producing these free-to-play games, versus indie studios, for example?

Let’s put them at the opposite ends of the spectrum. If we have big, large, traditional publishers, such as Activision Blizzard, the EAs of the world, the Netmarbles, the Tencents and then you have indie developers over here, I would say the advantage actually goes to mobile-first publishers; publishers who have got into the gaming industry, but they’ve only focused on mobile, as their first, primary platform. The names that come to mind are the Kabams, the Zyngas, the Scopelys, the Netmarbles. These are the companies that came out and said, hey, we are going to dominate within the mobile space. Because they did that, they don’t have any of this legacy or baggage that comes with having been in the traditional side, developing those pipelines for HD or PC.

The way that they think about products and the way they calibrate and adjust and develop content, is very different. I think they have the advantage. Indie developers have somewhat of an advantage, as well. Their cost centers are not the same as a traditional publisher. They have a propensity to, potentially, come up with really successful hits, with very low cost, so their ROI matrix will be a lot higher. That said, the traditional publishers are catching up, either through their own investment, over time, through strategic partnerships or through M&A. They have been able to, essentially, acquire knowledge to make up that delta. I think, in the future, the mobile-first free-to-play or the PC-first free-to-play studios will continue to evolve their skill set, but the traditional publishers are catching up really quickly.

Sign up to read the full interview and hundreds more. No credit card details required.
Sign up to read

Audio

The Value of Gaming Intellectual Property

July 3, 2020

00:00
00:00
Sign up to listen to the full interview and hundreds more. No credit card details required.
Sign up to listen