SharkJumping

Zimmerman's Game Developer Bill of Rights

Eric Zimmerman, the CEO of casual game developer Gamelab, recently published on Gamasutra what he referred to as the Game Developer Bill of Rights.  Gamelab is known primarily as the developer behind PlayFirst's recent smash hit Diner Dash, but Zimmerman has been in the game business for years and is well respected for his creativity and experience.  As a business person, I find the GDBoR to be mostly a blue sky wish list typical in most creative industries, but it's a thought-provoking document which summarizes common issues between developers and publishers/distributors, so it's worth a read for those interested in the casual game sector.

Nokia N-Gage is Officially Dead

To no ones surprise, Nokia announced the death of the N-Gage mobile game platform this week.  In spite of repeated denials about its impending demise over the past couple of years, Nokia decided to focus on music and camera-focused phones, while attempting to integrate better game technology into their advanced Series 60 phones vs having specific game-focused phones. 

The company spent an estimated $1B+ on the effort and sold about 2M units, which was way below their goal - it was marked by a misguided initial product (remember sidetalking?) effort which violated practically every known rule about how to launch a console, mostly becuase Nokia didn't employ anyone with previous console experience.  By the time the much improved NGage QD shipped, with better pricing, unique content and an improved feature set, the market had already moved on to either simpler games in standard mobile phones, or more compelling games in handheld platforms such as GBA and PSP.  It's unfortunate since Nokia gave it a valiant effort, producing some of the most interesting mobile online content in gaming (NGage arena) as well as groundbreaking games such as Mile High Pinball and Pathway to Glory.  However, as I have repeatedly mentioned, the console business is a graveyard full of broken dreams with a seemingly never ending flow of new entrants, the latest being Korean player Gamepark with their GP2X. 

About the only winner in these types of platform failures seems to be Electronic Arts - Nokia was rumored to have paid millions of dollars (as high as $15M) to EA to incent them to port their sports games to N-Gage.  Given that Gizmondo revealed in their public filings that they commited to pay (they'll never pay it all) EA $6M for similar rights, I'd say EA still comes out ahead in these situations.

Claiming Feedster Post - there must be a better way - Ignore

<p><a href="http://feedster.com/claimfeed.php?key=1e7ec1063fd06fc79092c9b0e834b428">No Need to Click Here - I'm just claiming my feed at Feedster feedster:1e7ec1063fd06fc79092c9b0e834b428</a></p>

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XBox 360: Single Threaded Media Downloads?

GIven that everyone and their mother is discussing the XBox 360 gameplay experience (which is good, but not mind bending), I'll focus on its utility as a media player since I think it's actually going to be a seminal device in the category.  The premium box comes with what appears to be 8G of video and other downloads pre-installed on the 20G hard drive, particularly a stunning 6 minute Warren Miller HD trailer, as well as some other HD video content such as a Secrets of the XBox and some Titanic thing which we immediately deleted.  You can currently download additional movie trailers (in both 480 and 720) such as Hong Kong and Aeon Flux, game demos, and other video content such as a music video from Audioslave from their Live from Cuba CD.  If you haven't consumed music videos in HD with Dolby 5.1, you are missing something fierce - from my side, it beats HD sports.  How long until a music video service (with the obligatory preview ads) emerges on this system?   Again, I realize you can do all of this on your PC, but it's amazing how different it is when you can easiiy display it in full HD on your TV/home theater system, which is where most people wnat to be entertained.

The only issue we had was that it took almost 30 minutes to download the 6 minute, 300MB, HD music video, which points to some problems with the MS delivery system since our internal network has much more bandwidth than that (has anybody heard of Bit Torrent?  Or is this a potential Brightcove play as well?)  I have seen mixed signals on the XBox 360 forums about this issue, so I assume it's a regional or temporary issue.  But the main issue we had with the media download  (trailers, game demos, video, etc.) process was that it appears to be totally single threaded, meaning that you can't switch away from the download screen to do anything else while it downloads, even if it's taking 30 minutes while your LCD screen burns in...  It may be that I just missed the secret code to do this in my multiple attempts, but I'd be shocked if a multi-core, XNA-based, mini-supercomputer system can't actually multi-thread or multi-task enough to let you go do other things while media downloads take place in the background.  However, as I mentioned earlier, the long tail (had to mention it - go Chris Anderson) possibilities here are endless in the video realm if Microsoft opens it up.

XBox 360: Cable Bypass Threat & Opportunity

Just received our XBox 360 today at the office, which has not exactly increased productivity, but since the dev team just hit a large milestone, it's a good release for everyone.  Ignoring the obviously powerful game playing aspects of the machine (amazing graphics, fairly good games), what jumped out to me was that the 360 has made massive steps towards becoming the first legitimate cable bypass box.  This means that companies could create viable video distribution models by going through the Internet rather than over the broadcast, cable or satellite services. 

With a 20G replaceable hard drive, a powerful piece of hardware, HD capability, reasonable pricing, and tens of millions of sales guaranteed, it seems clear that the 360 will be an incredible destination device for online video.  Because you can download directly to the machine as well as connect through a PC, it offers the best of both worlds from a capacity and connectivity perspective. 

Unlike other digital media adapters which have not had either the horsepower, the volume, or the HD options, this box will begin to be a viable distribution opportunity for content providers by the end of 2006, especially if MS opens up the system to outside providers, as Ray Ozzie's memo forecasts.  Depending on what Sony does with PS3, these new devices will open up a new competitive threat to today's service providers, as well as provide distribution opportunities for smaller content providers locked out of traditional cable and satellite boxes, and it will be a huge accelerant to the HD marketplace.  It's going to be an exciting 2006.

Who Really Sets Digital Download Prices?

Record label EMI (EMI.L) turned in a good quarter yesterday and as part of the presentation, CEO Alain Levy indicated that he believed Apple would go to a multi-tier pricing scheme next year for its iTunes store, presumably with higher prices for well known artists and hopefully with lower prices for lesser known artists.  He also had the following quote  "We do not set the price, Apple sets the price".  Although technically and legally accurate, it's a misleading statement in the real world since it implies that Apple has looked at its business and has decided that it's better for iTunes to increase prices for better known artists - the question is Who Really Sets Digital Download Prices?

The fact remains is that music labels effectively set retail pricing by setting wholesale prices, with an eye toward expected retail price for rational distributors who wish to make some sort of profit.  Therefore, if a label wants to see a $.99 retail price point, they charge a $.75 wholesale price, giving the distributor a 20-25% margin, similar to what is seen at retail.  If they want to see a $1.49 retail price point for part of their catalog, they will charge a $1.10-$1.15 wholesale price for those tracks.  Now there is no question that iTunes or other distributors can continue to charge $.99 per track (or whatever price they want), but it begins to drive an already low margin business into negative margin territory, which makes it hard for distributors to survive, although you see this occur sometimes with loss leaders on new album releases in retail stores. 

What's interesting is that Apple is in the best position of any digital distributor to absorb potential losses on each music download due to its massive iPod business - therefore, one could map out a scenario where Apple refuses to change retail prices, which then forces all of its competitors (Napster, Real, Yahoo) to remain at $.99, but they can't absorb the losses through other profit centers, and eventually exit the business, which is exactly what the labels do NOT want, since they would prefer to see a lot of players in the market.  This would be more likely if Apple could significantly grow its video download sector, which is an area where it has relatively little competition, and that would offset the possible losses in the music unit due to increased wholesale pricing.

It certainly appears with all of the label signaling (since they theoretically can't conspire - see price fixing settlement) that we'll see different wholesale prices for digital downloads in 2006, with the probable resulting changes in retail prices by rational distributors like iTunes.  With the threat of piracy receding a bit in label executive minds due to a series of legal wins, they now appear focused on:

• Cranking up the focus on DRM - see continuing SonyBMG rootkit fiasco and EMI/Macrovision news
  
• Expanding the legal fight to other sectors - e.g. satellite radio rates and time shifting may be the next big battle
• Nudging download prices towards the higher mobile rates - e.g. see NYT review of Sprint Mobile Store at $2.50/track, even though I believe that the price elasticity of this market would dictate another path.

The good news is that the digital market is starting to deliver rewards for music labels, with it now representing 5-6% of revenue, much of that at very high margins, but they still have a much larger declining CD market, so the scramble will continue to increase revenue from other sources.  I've always said, and will repeat, that the labels will end up making more money from digital than they ever made from physical, but it's going to be a rough transition in the next few years due to the different market sector sizes.

 

Dueling Casual Game Conferences

One way to measure the interest and money involved in a particular sector is to track the rise and fall of its trade show activity since it tends to follow the money.  At the peak of the bubble in 2001, it felt like there were more than five digital music conferences, while 2 years later, the sole remaining Jupiter Plug-In event had a grand total of 5 vendors showing their wares and the conference felt like a ghost town. 

In the casual game sector, the first ever conference was held a few months ago (which was quite successful and which pushed me to start blogging - see post), and now we already have two announced for 2006, cleverly located in the same city 1.5 months apart.  The organizer of this year's Casual Game Conference, Chris Sherman's Game Initiative, will do a repeat performance in Seattle July 13th and 14th.  And now we have a new entrant, Casuality, supported by the non-profit Casual Games Association, which has split with Game Initative in order to organize a show in Seattle at the end of August.  I'm sure there is some sort of back story involved and I don't have a position on either one, but right now it's just creating confusion among the pretty tight-knit casual games community.

The good news is that the sector now commands enough attention and revenue (will see a lot more investors this year) that it's worthy of this type of competition - but they should probably either merge the shows or separate them out more by time and location to provide enough value to the attendees, not all of whom in this business have large travel budgets.  However, it looks at this point like the game of chicken will continue.

Loudeye Q3 Report: Downward Spiral Continues

I've posted about the margin difficulties in the digital download business before, by using Loudeye (LOUD) as a public proxy.  Unfortunately, what can you really say about Loudeye's Q3 report that isn't covered in the 10Q?  To summarize it:

• Negative gross margin - yes it's actually negative
  
• Increasing loss from previous quarter
• Decreasing revenue from previous quarter
• 6 months of cash in the bank and a "going concern" doubt
• Market delisting battle continues
• Overpeer unit accelerating downward
• Resignation of Chairman
• Retention of Allen & Co to explore strategic options

The stock dropped 38% today, but still sports a $50M+ market cap.  Given that MusicNow was just sold last month to AOL by Circuit City for a rumored $15-20M, I assume a company will buy Loudeye for some amount between the MusicNow deal and the current market cap due to its European presence (OD2 acquisition) and its mobile deal with Nokia.

Pandora Goes to Free

Pandora, the new pesonalized subscription radio music service I previously discussed, announced this week that they are now offering a free version that has the identical feature set, but which will eventually be ad supported.  I say eventually, since it doesn't seem to currently have ads in it.  If it were me, I would decrease the feature set a bit in the free version, usually by offering a lower bit rate or limiting some of the features, and then add house ads to the equation right now to make clear the differences between the paid and free options, but I can understand this move in a competitive market. 

Given that it now was free, I went back to try the service again.  It's clear that Pandora is one of the best radio services in the marketplace, but I still struggle with the web page radio concept (vs a client) since my Amos Lee station was abruptly ended today when I clicked on an unlrelated AIM link from a colleague which took me away from the Pandora page, thus killing the stream.  In general, I'm still not entirely sure that Pandora is better than the "good enough" of free competitors such as AOL Radio, Yahoo Radio and MSN Radio, but they're making a great run at proving me wrong.

NTN Q3 - Refocus on Buzztime

Little known NTN Communcations (NTN on Amex) today announced their Q3 results, which included profits and a significant refocusing on its consumer-focused Buzztime subsidiary.  NTN is leader in out of home entertainment, known primarily for its games delivered to bars through those small wireless devices.

I am a small shareholder in NTN, having followed it for years, mostly with increasing frustration as it struggled with too many initiatives, executive turnover and declining stock price.  For a company with so many obvious options in the new digital universe, it wasn't executing on any of them.  But it feels like it's finally turning the corner, with a profitable quarter, a potential buyer for its BtoB Hospitality business, growing momentum behind its cable ITV and other Buzztime expansions, and a renewed focus on cost control.  Given that it's now profitable, growing, and well positioned in a couple of hot categories, I think that it will command a valuation higher than its current 1.7x revenues if it can nail a couple of additional quarters.