LA Games Conference 2016: Game business on Silicon Beach

LA Games Conference 2016 was held last week in Los Angeles. In this report I highlight the key findings of the conference.

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Silicon Valley in Northern California has been the home for a plethora of tech innovations and startups. Now the Los Angeles area with its media and entertainment legacy is flourishing as a place where media and tech come together and create new businesses, earning nickname ”Silicon Beach”.

From convergence to portability: consoles, Apple TV and other platforms enter free-to-play

5-10 years ago it was commonly thought that devices will converge into one, which would also have meant the demise of game consoles. On the contrary it now seems that different device categories will remain, but much of the content will be portable, working on different platforms. As a part of this development we will see free-to-play model grow also on the console side: Microsoft and Sony have started to support free-to-play on their consoles, with some success. Also new categories such as app enabled TV devices will enter the gaming market.

Similarly, consoles are being used for non-game content as well. With PS4, about 15% of use time is from other content than games, according to Playstation’s John Koller.

Game content creation moving from one-off projects to ongoing development

Content is moving from one-off projects to ongoing development. This has big implications for business models as revenue is generated during gamers playing the game rather than solely in one-off purchases. To succeed in the new models, the developers need to invest in continuous development and marketing. More of fresh content means more engagement, which leads to more revenues.

User engagement can be started already in game development phase by interacting with players during development. As Fredrik Loving, head of Dice’s LA studio put it, ”your game development team isn’t complete without players”. According to Loving, this leads to better content, fresh ideas and direct developer to player engagement.

Media is going directly after consumers

”Hollywood is going to go after consumers directly in the next few years”, said Andrew Stalbow, Seriously. Knowing your customers and having them engaged is a valuable asset. Such asset enables offering new games – and other media content as well – for existing user base. Game companies that have developed good user base and user engagement are attractive partners to all media companies.

Is Angry Birds movie a good case study here? Partially yes, but ”Angry Birds movie strategy differs from other game-to-movie projects in that that they are going to do a good movie”, said Peter Levin, Lionsgate

Disney looks for focus and partnerships

Chris Heatherly, SVP and GM of Disney Interactive Games, Disney Consumer Products and Interactive Media discussed Disney’s learnings and strategies in games. He emphasized quality over quantity: too many games will affect quality. He named Supercell as a benchmark that has ”killed most of the ideas” and ”launched four zillion-dollar hits”.

Disney is strongly in favor of partnering with external developers. Heatherly notes that the drop in startup valuations has increased developer interest towards co-operation.

E-sports is on a growth path

E-sports, watching players play games, has become a hot topic. Yes, people do watch players playing golf on TV, so why not League of Legends? Two factors are supporting this development: first, the business model shift from one-off game purchases to ongoing monetization means that e-sports tournaments are no longer regarded as a cost but rather a way of supporting consumer engagement. Secondly the development of video streaming tools and services has enabled cost-efficient ”broadcasting” of e-sports events.

Most of the e-sports viewing takes place on Twitch, the service Amazon acquired in 2014 in a $1bn deal. YouTube is starting to challenge Twitch’s market leadership. Tournament video streams are not the only form of add-on game business: e.g. there is a market for training material how to enhance gaming skills.

As a business model e-sports usually differs from ”traditional” sports in the sense that e-sport tournament organizers do not own the rights for the actual sports. Today e-sports is heavily concentrated, with games like League of Legends, Counter-Strike, Dota and Hearthstone taking the most share of worldwide viewing.

Virtual reality is coming, but takes time to be a business for content developers

“[The talk about] virtual reality is like mobile games in 2004”, Steven Schkolne, 3dSunshine summarized the discussion. While there is a strong belief of the future of VR, business for game developers is not yet there. But of course, if you’re a game developer you have to prepared for a change”, Schkolne continued.

“First things [on which] people experience VR, [are] not expensive devices and powerful computers, it is mobile devices and cardboards”, said Disney’s Heatherly.

Timo Argillander

Timo toimii sijoitusyhtiö IPR.VC:n managing partnerina ja Digital Media Finlandissa neuvonantajana. Timolla on pitkä kokemus strategiatyöstä ja muutoshankkeiden läpivienneistä yrittäjän, ammattijohtajan, konsultin ja sijoittajan rooleissa. Timon erikoisalaa ovat muuttuvien liiketoimintaympäristöjen ansaintamallit ja teknologiamuutosten tulkinta.

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