Development, Games as services, Publishing, video games

Do we still need publishers in an online world?

April 2010

Scratch the surface of almost every independent developer (and many an ex-publisher turned indie) and you’ll find the old vein of discontent about publishers. Rather than repeat a familiar stream of invective about publishers’ shortcomings, perhaps we should ask whether, in a market where network games revenues will soon outweigh retail, you actually need a publisher any more? To answer this, let’s look at the roles publishers perform today and ask whether they are relevant in network gaming.

Offline, most games would not get developed without publishers who are the primary and, often, the only source of finance for traditional games platforms. In contrast, network games developers are more independent in their financing. They either grow organically by self-funding development to reach launch, or win private finance. This week, these businesses are winning funding by shining up their business plans, adding the word Facebook (or, less frequently, iPhone) and mapping out business models with nice predictable, sustainable revenue flow from a portfolio of games and services. A few MMOG developer/publishers license or build and then operate games based on 3rd party licenses and some newer online publishers fund a little 3rd party development but most online studios self-finance development. There is work for hire on XBLA, PSN and Wiiware, and DLC on AAA titles are still publisher-financed but the smaller platforms’ lower development budgets allow more studios to self-fund and get to market through Microsoft, Sony and Nintendo. In total, most online games companies are sidestepping publishers to boot-strap or find new finance sources and launch online product.

You might think publishers’ role managing distribution is redundant online, because it’s all ‘direct to consumer’. Dead wrong. This is one of the great canards of ‘going direct’ – no-one actually does. Even network retail platforms like iPhone or XBLA, which allow studios to keeping betting on individual hits, have intermediaries taking their cut. Yes, the console manufacturers, Apple, Steam, Direct2Drive etc take smaller shares than publishers, distributors and retail on traditional platforms, but there’s nothing truly ‘direct’ about casual console or iPhone games. The most ‘direct’ routes of all are via games companies’ own sites and on social networks such as Facebook, which, miraculously, demands no mandatory revenue share – yet. Many MMOGs rely heavily on big traffic sites with which they share revenue to reach critical mass. Perhaps the most complex value chain is that for downloadable casual PC games where distributors and aggregators are used by developers and publishers alike. These new distribution partners are essential for getting many online games to market.

Some offline publishers’ marketing skills have little relevance in the online world but on platforms such as iPhone and casual console where the retail experience is simply duplicated online, some of these skills are still useful. Wherever you find games charts, PR is still useful to generate press interest and consumer awareness. Online advertising campaigns are standard operating procedure for many online games, particularly on social networks. However, most online marketing techniques for customer acquisition (affiliate deals, viral customer acquisition, live betas to name a few) will be alien to traditional sales and marketing teams. And the many sophisticated upselling techniques are a completely new discipline in its own right, one vital to success and profitability. Indeed, virality, data-mining and, perhaps most importantly, self-perpetuating games community building are marketing disciplines almost unique to network gaming. These roles are nurtured in-house by online games companies, partly because they are so intrinsically tied into design.

The business of setting pricing and retrieving revenue is firmly in the hands of online companies, mostly because of its complexity. Many games have hundreds of price points to set, as well as discounting, promotions and tricky decisions about what is free and premium. Subsequently, revenue retrieval is a highly specialised area because taking payment for most online products beyond iPhone and casual console titles requires multiple transaction partners per territory. More new skills for online developers to learn.

Publishers’ responsibility for first line support on traditional platforms transfers almost completely to the online studio. Most technical support is handled in-house by online games companies, but some outsource support to specialists in non-core languages and territories. These components can grow to substantial scale and being responsive to customers takes on a more critical role for online companies than their offline peers.

Traditional publishers will remain relevant through financial and brand power, and because they are transitioning both organically (by getting offline products online and elongating development and marketing cycles) and inorganically (by acquiring online businesses). The last decade’s decline in overall market share for most traditional publishers will continue as online competitors grow new markets. These online competitors, no longer easily defined as independents or publishers, are evolving some of the responsibilities of traditional publishers, but more importantly they have to learn a new range of commercial and service-driven disciplines to grow, and will need almost as many partners as the offline world. So, do you need publishers in an online world? Yes, but many independents will become publishers themselves.

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