Just got back from Casual Connect Europe, which is the annual 3-day European casual games gathering in February, historically in Amsterdam, and this year in Hamburg, Germany. My general thought is that there were no huge trends dominating the show, as there have been in the past.
However, my 5 key takeaways were:
1. Amazon - is causing large initial controversy by launching a downloadable game program (here) through its purchase of casual game pioneer Reflexive Entertainment. The issue is that front line casual titles were traditionally priced at $20, even though there were numerous ways to buy them for as low as $10 through club memberships, and other periodic discounts. What Amazon (NASDAQ:AMZN) has done is price titles out of the gate at $10, with even lower prices for older games. Their argument is that it will drive a much higher level of sales, especially through the power of Amazon's system. Some of the publishers are vigorously resisting this approach since it has the potential to drive all pricing below $10, with club prices now being even lower, so some of them are pulling their games from the system. However, participating publishers like iWin, Hipsoft and Last Day of Work seem to be dominating the sales charts, so there is a good supply of content at this point. No one has received Amazon sales reports yet, so it's too early to tell, but my guess is that Amazon will eventually win over almost all of the game publishers since it will become such a large distributor of games, but it points to lower prices in the medium term.
2. Virtual Goods - obviously near and dear to my heart (see Loki Partners), the larger portals and publishers are all finally looking to expand their community efforts to become more than just commerce engines. Then in order to monetize it, they wish to sell virtual goods to that audience, either in the game itself, or around the game, as Pogo has successfully done for some time now. As SuperRewards and TrialPay pointed out in their panel, this approach can drive a lot of additional revenue, especially as last year's Holy Grail, in-game advertising, is dropping off quickly in the slow economy. We will finally see numerous players launch big virtual goods programs this year, and as developers integrate those API's, we'll see in-game virtual items become more common, which is a big win for back-end virtual goods providers like TwoFish, where I'm a board member.
3. IPhone - everyone is pouring on to the Apple iPhone (NASDAQ:AAPL) platform, hoping its yet again another platform to sell the same classic content such as Bejeweled or Diner Dash. The early signs are good, with games taking just a few months to port to the device, and some publishers seeing good sales. However, with 15,000 applications already on the platform, marketing is becoming a big issue, which has never been a strength of casual game publishers. who have mostly relied on game portals. In addition, pricing compression is taking place, with initial attempts to hold pricing at $7.99 or $9.99 quickly dropping to $4.99, and then moving lower to $2.99 or even worse, making it impossible to generate substantial revenue.
4. Growing Eastern European Publishers - the first wave of games from the Eastern European and Russian game publishers were generally of lower quality and were often just straight clones of popular Western games. In the last 12 months, Playrix, Alawar, Realore and other similar players have made huge strides in game quality and creativity, and the pipeline for 2009 looks really strong, making them important players in the casual game ecosystem, especially as they build up their portals and begin to distribute more games for other developers and publishers.
5. Need for Consolidation - what's becoming increasingly clear is that the casual game industry is finally hitting the level where the larger companies such as Big Fish Games, Wild Tangent, and Real Games (NASDAQ:RNWK) are separating themselves from the smaller players, which wasn't as true 2 years ago. There are numerous smaller publishers in the $5-25M revenue range that simply aren't big enough or sophisticated enough to increase revenue in a rapidly evolving system. When it was just creating and publishing downloadable games, a lot of companies could be legitimate players. Now that it's increasingly about publishing on multiple platforms, adding multi-player, community and virtual goods functionality, attracting well known brands to certain games, and most importantly, getting big enough to not get squeezed by larger distributors, it's time for the smaller players to decide if they want to be lifestyle companies, or they wish to be part of a bigger play. We know the casual games business is big enough to support multiple public companies, but they must have $100M+ in revenue, plus a lot of growth in order to do that, and that will require consolidation, and at far lower valuation multiples than seen in the past.
Big Congrats to Jessica Tams from Casual Connect for again pulling off another great show. As for Hamburg vs Amsterdam, I can see the practical reasons why the show moved to Germany, but I still feel we left a little bit of soul behind in Holland.