5. What is free-to-play?
• Free-to-play is not a genre ...
• Free-to-play is not a business model ...
• Free-to-play is a MARKETING STRATEGY
• Free-to-play is also a value creation strategy
6. Part of Trend to Un-bundle Media
Bundle Disruptor Result
Album Napster/iTunes Song/MP3
TV Prime Time DVR/Netflix/Hulu Show/Episode
Newspaper Internet/Twitter Story/Link
40 hour/$50
F2P/virtual goods Game as Service
Video Game
7. F2P & The Activity Chain
Market
Distribute
Develop
t
Develop
Beta Distribute
Analyze & Market
19. Player’s Willingness to Spend
Packaged Goods
Single point of demand/
pricing optimization
$50
$
# of Players
20. Free-to-Play
“whales”
Player’s Willingness to Spend
Elastic pricing scales
with demand
$ non-payers
# of Players
21. Strategic Rationale for Free
• Rather than pay millions for conventional
marketing, use power of free to create reach,
build brand, and generate virality and community
• Transform AAA games into services that can
command a share of customers day with
engagement that transcends social game churn
• Generate revenue and earnings by capturing
elastic demand and pricing with virtual goods
• Allow valuable, long-lived franchise properties,
which have always been the drivers of publisher
economics, to arise organically through
continuous development rather than sequels
24. From 2005 to 2009, core F2P was
primarily an Asian phenomenon
25. Plenty of evidence from social gaming and
mobile gaming that casual consumer in
West would embrace F2P / Virtual Goods
26. For core gaming, high production costs, uncertain
monetization, and “innovators dilemma” led
traditional publishers to favor hybrid models
27.
28. Investment Thesis (c. 2007)
• Free-to-play removed issues of brand and
entry barrier for new core publisher
• Core gamers would be willing to pay for
virtual goods in context of a free title with
high production values and great game play
• DotA audience was large, passionate, under-
served, and accessible online
• Had to go “all in” with pure free-to-play
model; not hedge like traditional publishers
29. Risks
• Core gamers might perceive F2P as code
for crappy Facebook games
• Higher production costs required higher
conversion & monetization to break even
• Had to build next gen e-commerce
business on top of great game
• To attract desired audience, had to be
authentic and legitimate heir to DotA; not
opportunist but “for players, by players”
30. ... it worked.
32.5 million installs
11.5 million MAU
4.2 million DAU
1.3 million PCU
Source: Riot Games public release; November 2011
44. The internet has leveled the
publishing playing field and
de-centered incumbents
45. The Value of Scale
• Amortize e-commerce platform and cloud
infrastructure across multiple titles
• Customer acquisition made more efficient
and less costly by audience aggregation
• Decreased risk and dependence on single
hit title / title longevity
• Potential access to public markets for
capital, currency
47. Who are the contenders?
Company + −
Huge hit with LoL
Single title
Riot/Tencent Great, focused team
No platform approach
Resources of Tencent
Steam user base
Packaged-goods mentality
Valve/Steam Online scale & experience
Distribution-focused
Great brands for F2P
Experience in Asia, BF3
Legacy business
EA/Origin Nucleus user base
Execution risk
Financial resources
Huge Asian base
Limited success outside Asia
Nexon Experts in F2P
Lack of relevant content
Financial resources
Great brands for F2P
Packaged-goods mentality
Activision/Blizzard Financial resources
“Have cake and eat it too”
MMO experience
Huge reach
Rep with core gamers
Zynga Great analytics
Core development assets
Managers with core experience
48. Opportunity exists to create a
new, multi-billion dollar
publishing business as packaged
goods and console erode
