[MUSIC] All right, it might seem like an obvious question. Where do people buy games from? Where are games sold? Well, the truth is, it's actually a really important question because it's changed a lot in the last few years and it's important to recognize that, really, the stakes have changed in how games get sold. So historically retail, right, so brick and mortar kinds of places, right, like Target or Best Buy, or maybe your favorite corner game store, right? Those were critically important for game developers for many years that retail is where games were sold forever. And it's actually had a major impact on the kind of games that get sold because certain stores, like take Walmart here in the United States for example, cares about the kinds of content that get put in front of people and so they actually had a stake in the kinds of games being made. Increasingly, retail is a complicated space. You had to worry about things like store shelf space, right?. This hurt games like Guitar Hero, or Rock Band, because they came in these giant boxes, and places like Best Buy, were use to things like this big on a shelf. And they could stack lots of them together, and so that was different. Store shelf space mattered. Nobody really wants to leave a game on the shelf forever. They cycle off the shelf. You can't have everything there. That's the difference between maybe your local game store and the big box store. And so those games cycled off and the amount of time that a game spent on the shelf was really important, right. How many of you have ever shopped in the game bargain bin? The bargain bin exists precisely because games fall off the shelf. And so as a developer you had to worry about those things. And so one of the things that this resulted in is that game developers and game publishers had to really generate a lot of demand before a game ever shipped, because the moment it hit that shelf, suddenly its time was limited, and it had to sell off that shelf really quickly. So you had to coordinate this roll out, and if you missed your ship date, that was horrendous. Especially if you're talking about really big games and maybe you're gonna hit right about, right before Thanksgiving so that you're there for, here in the United States it's like maybe Christmas or the winter holidays. Right. Those were important times. And if the developer missed their date, it could kill a product. That started to change a little bit, right? So in here you can kinda think about, okay? So game cost $60 every retail. Let's pay attention to the money that gets subtracted from that, right? So a customer pays their money, the retailer takes that. But there's a difference between how much the retailer paid for something and how much they got it from the distributor. The distributor takes some of that money and then there's a difference between they paid for the product and what the manufacturer paid for it. And, what the publisher's expecting. And so money sort of disappears, all over the place, in that model. Which is why, I'm gonna talk about it just in a second, digital distribution became so popular so rapidly amongst game developers. Because it sort of changed this equation. Right? And ultimately, the developer saw not that much of that money. And what happens when you talk about used game sales and all sorts of other things like that? Following the money is really important. So let's talk about those brick and mortar stores, particularly our chain stores, things like Best Buy, Walmart, Game Stop, Often times they have a direct relationship with the publishers which is often times why people partner with them. Its those relationships with the stores that make the retail space possible. So you can't just go to your local Walmart and say hey I've got this game I would like to put on your shelf. They're not gonna know what to do with that. And so that relationship exists because the goal to move product, to pay for the fact that those things are on the shelf right. The retailer has to pay for their lights and electricity right, and so every space on the shelf matters to them. And they honestly prefer large publishers because those games are the games that are going to sell and that's gonna be what helps pay for their shelf space, right? And so your big games are the ones that go to the chain stores. And the challenge of the independent publisher becomes that really in that space you only get a few titles a year that are gonna make you the majority of your money, right. And you have this limited budget for marketing and if your game is too risky, a retailer won't carry it. Because they're worried that there's not a chance to get money back. And if you can't get it on the shelf, and have it move off the shelf, you're not going to get any money either. And so, what happens is, that's one of the reasons why you see the same kinds of games every year. Or you see franchises. because that's how publishers and retail stores manage risk. They are interested in ensuring that they are able to pay their employees and make profit as well. So let's talk about rentals and resale for a second because I think this is really an important thing to keep in mind. So some publishers create a rental version of the game. Wich is sold differently. Because renting a game is quite different than selling a game. And re selling a game is different than buying it in the first place. So, something like Game Stop. If you have a local game store tha sells used games. The truth is that, developers don't see any money off of that. Unless the game somehow asks people to buy downloadable content. That's where that comes from. And so it's important for you to think about. If you wanna be a game developer and you wanna make money off your games. Well, how do you deal with used games cuz as I said, you're not gonna see any money from that. And what does rental mean for you anyway, right? Some games that works, right? Maybe it's a subscription model so you didn't really actually need to make that money in the first place. And so this has been a real contentious thing because in something like film. Movies were licensed differently, and so when you rented a movie that was different, but doesn't get rid of that secondary market either or the fact that you can go to a library and take out a DVD on loan. Which is why you see things like interactive content or restrictions on increasingly new formats of video too. So more recently, digital distribution has become one of the biggest areas of game sales, right? And it's complicated right?. So you have certain channels on platforms. What do I mean by that. Well, on the XBox 360 On the XBox One, on your PlayStation 3, PlayStation 4, any of these things, or the Wii or WiiWare, right? Those are the channels through which games get sold on those platforms, right, so each one has their own. So maybe you have XBox Live Arcade, you have the Playstation Network We wear, right? And so suddenly the platform acts like a digital distribution platform in addition to being this thing that you can go buy games, and a break and mortar store, becomes able to download games or buy games directly Over the network. Again here, there's lower barrier to entry in terms of like, it's not quite the same as trying to get your game in a brick and mortar store, but you still have a lot of barriers to entry, right And increasingly it's getting easier and easier for independent developers or people like you to make it on to these networks. It's still not trivial though because you do have to deal with sort of the technological part of this. Dev kits. So that's still complicated. But you also have things like Steam which is a digital distribution platform for PC, Mac and Linux and Valve serves as the publisher and the distributor of those games. And so each game developer is offered a unique contract and a revenue split for their game. And you can probably even do this now too because Valve has their Greenlight system. If you can get enough people to say, hey this game looks pretty cool, you might be able to get your game greenlit. It's how you can wind up on that digital distribution platform. Digital distribution removes the retailer, right? It removes that brick and mortar store, but it doesn't really change the relationship that you're gonna have with the publisher. So you also have things like iOS, right? And it's possible for things like the App Store, right? So Google Play or Apple's iOS App Store, right? Where you're actually removing the retailer and the publisher altogether. All right? And so, as I said, it was popularized by Apple in iOS App Store, And typical revenue splits are something like 70% of the money goes to you the developer, and 30% to someone like Apple or Google for the service of running that network, of having those libraries, of making that storefront. But it becomes really complicated because what does marketing look like? Apple's not going to do anything to market you. They might feature your game, but that's a different kind of thing. So, you also have these things happening now on other platforms. Right. So the Amazon app store, right. You have the Microsoft Windows store, right? You have apps stores in your computer. Right. So, a lot of these were really sort of pioneered in the game industry, but Apple sort of blew off the doors of getting rid of the fact that you might need a publisher. So you also have the idea of being able to sell your game off your own website. People can buy and sell directly through your website if you wanted to. Something like Minecraft. That's where that game got started. They made it very easy to buy the version of the game off the website. And they made it cheaper earlier on in the development cycle and the longer the game got worked on, the price went up and up. And so it sort of incentivized people to buy early. You also have things like Kongregate right. That's one of the reasons why we've partnered with them. Because, you can make revenue off ads, you can have in-app purchases. And some of what you're also doing there is just building an audience. And so those are really important things. Digital distribution has also sort of changed the face of marketing for games. Games, because previously it was the enthusiast press, print marketing, all these other places where you had to get attention. And increasingly things like social media, so Twitter, Facebook are perhaps more important, or at least just as important as traditional marketing methods. How many of you have actually seen a Clash of Clans ad on TV? The first time I saw it, it was pretty strange for me cuz I wasn't accustomed to something like that, but social marketing is just as important. You also have models like subscription models. Think about your favorite massively multiplayer online world, so maybe like World of Warcraft or maybe you're an Eve Online player, right? Or maybe you have a kid who played or plays Club Penguin. Right? These are games that have subscriptions, you pay a monthly fee to keep playing a game. That's a model that you can think about. You also have things like subscription services, right? So though it's now closed. An example of this is on live, which was a game services platform, that allowed you to play a wide variety of games, just by subscribing to their system. So you pay your monthly few, and you could play any game on the system. With that, I'll be back, and we'll talk about some other ways to make money in games. See you next time.
