Whales, power laws and the future of media

Whales, power laws and the future of media
Nicholas Lovell
GAMESbrief

Nicholas Lovell, GAMESbrief
Author, How to Publish a Game
Director, GAMESbrief
Clients include Atari, Channel 4, Channelflip, Firefly, nDreams and Rebellion
@nicholaslovell / @gamesbrief

Mythbuster 1: Publishing is about content
10%
90%
Books
15%
85%
Newspapers
$200m
$50m
Games
Publishers add value through DISTRIBUTION

Publishers add value used to add value through distribution

The Internet has made distribution easy

Great news for content creators
Content distributors, not so much
Ballpark, I estimate 50% of people in content distribution will be out of work over the next decade
BUT many more content creators will be able to make a living from producing and distributing their own content

Mythbuster 2: All users are not created equal
Circulation
Units sold
Audience
Platinum disc

Users come in all shapes and sizes
Grazers
Buyers
Sneezers
Spenders
Browsers
Socialisers
Gawkers
Influencers
Recommenders
Passers-by

The price/demand curve
In an era of physical distribution, you need to set a single price
For games, around $40
PRICE
“It’s great
value, I’d have paid much more”
“That’s too expensive for me”
Demand

Now we let users set the price
Hypothesis: Allow users to choose how much they spend on your product, and your revenues will go up
PRICE
DDO revenues up 500%
LOTRO and Everquest II going soon
$3
$5
$5
$1
$5
$3
$10 MMO subscription
$3
$3
$3
$1
$5
Demand

WRONG!

Allowing users to choose how little to pay is not the secret
We all knew that 95% of users played for free
We now know that 80-90% of revenues come from 0.5% of users
PRICE
Spending $50 - $10,000 or more
Demand
Free: 95%
Paying: 5%
80-90% of revenue from 0.5% of users

Doh, we knew this all along
“90% of gamers don’t finish a game”
A forum community is typically <10% of purchasers
We knew it for time; we didn’t make the obvious leap to money

Darkwind – an indie example
Mean: 107 events
Median: 60 events
Mode: 1 event

Find the whales

So how do we make money from the power law
Loyal repeat users
LTV: $247
Hardcore users
LTV: $1,000
Lords
Kings
First month purchasers
LTV: $46
Knights
One time purchasers
LTV: $12
Commoners
Free players
LTV: $0
Peasants

Or as I put it, focus on the whales

Mythbuster 3: People pay for content

It’s deeper than that

People pay for status, for emotions, for feelings, for progress
People will pay to:
Fit in: “everyone else has got a Santa Hat, I want one too”
Stand out: “Look at me with my twin flaming swords of Poinsettia”
Fit in AND stand out: “Hey, we’re the guild where everyone wears purple”
Build friendships: “Here, let me give you some flowers as a sign of our friendship”
Flirt: “Here, let me give you some flowers as a sign of things to come...”

You promised you would talk about something other than games!

What happened to music?
Say 90% of users want to pay nothing
10% would happily pay $100
So 90% pirated and 10% paid $10 = revenues falling 90%
PRICE
There was no mechanism for the whales/high/rollers/true fans/kings
It didn’t have to be that way
$10 album price
Demand

Bands and managers are waking up
Nine Inch Nails
$300
First 2,500 only
OK Go
$25
Live recording of gig you’ve just been to!
U2 by U2
$30
Coffee table autobiography
Mos Def
$40
T-shirt with code to download The Ecstatic

One-size-fits-all pricing is dead
Revenue opportunity
PRICE
Marketing opportunity
Demand

Mythbuster 4: Free players are freeloaders
Free users are insanely important
They are:
Potential converts
Eyeballs for advertising
Leads for lead gen deals
Influencers through virality and word of mouth
Gawkers
Every single player has value

Morph – a though experiment
Business model 1
Make an iPhone App
Offer a Lite version and a 99¢ game
Business model 2
Make a free iPhone App
Incorporate ads for a limited edition, 1,000-only print of the original Morph, framed for your wall for $999
Conversion rate of 0.1% = same revenue (oh, no 30% to Apple)

Power laws are the future of media
The era of “all users are the same” is over
The music industry has suffered the tsunami and barely survived
Blockbuster games *may* survive, but nothing less than Quadruple-A will cut it
Other games will need to adapt to the power law or die
Television ...

My advice
If you don’t have a way for whales to spend unlimited amounts of cash, you’re in trouble
Look after the whales
Treat your freeloaders with love and respect; they never stop being valuable
All users are not equal. Tailor your products accordingly
Sales, marketing, revenue generation. These are all part of the creative process now. Have fun.

Thank younicholas@gamesbrief.comFollow my blogwww.gamesbrief.comBuy my book

Sources
Going Free Boosts Turbine's DDO Revenues 500 Percenthttp://www.gamasutra.com/view/news/27416/Going_Free_Boosts_Turbines_DDO_Revenues_500_Percent.php
What’s the lifetime value of a social game player?
http://www.gamesbrief.com/2010/06/whats-the-lifetime-value-of-a-social-game-player/

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Whales, power laws and the future of media

by Nicholas Lovell on Aug 26, 2010

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