The next billion-dollar opportunity in gaming
Keynote address at game investor conference suggests the industry is due for a major overhaul.
SAN FRANCISCO--Normally when analysts and investors spout off about the gaming industry, actual gamers are prone to tune them out. But when Stewart Alsop and Gilman Louie, head partners of venture-capital firm Alsop Louie, say the gaming industry is in need of fundamental change, their point of view is a lot harder to ignore.
After all, Louie founded Spectrum Holobyte, designed the hardcore flight simulator Falcon 4.0, and was among the first to bring Tetris to the West. And while Alsop admits he doesn't play games--much less design them--he has a history of notable investment success in the tech sector (riding the success of companies like Tivo, Glu Mobile, and Xfire).
In their keynote address at the Second Annual Game Investors today, Alsop and Louie discussed "The Next Billion Dollar Videogame Opportunity." The pair mentioned a number of sectors commonly seen as the "next big thing" in games, including mobile and casual gaming, massively multiplayer titles, immersive worlds, dedicated game devices (like Nokia's N-Gage), and games for girls.
"We don't think any of these have achieved the status of the next billion-dollar opportunity," Alsop said.
"So what is the real next billion-dollar opportunity?" Louie asked. "I say it's the Internet."
Louie said most publishers think gaming on the Internet boils down to three things in most publisher's minds: casual games, digital distribution, and massively multiplayer games. As far as casual games go, Louie and Alsop said casual games have worked because they've been tailored to the narrowband experience, but they think there's much more potential for Internet gaming with the ever-increasing rate of broadband penetration.
Cable companies have been trying the digital distribution of games for decades, Louie noted, but people haven't wanted to pay just to play 10-year-old games. As for MMOs, "incredibly, there's some traction in that marketplace, but the reality is these are really hardcore gamers who really own their worlds and any newbie that shows up gets killed in 15 seconds," Louie said. "So this has been kind of a bad experience for the general gaming public and the Internet is really not where it should be."
"The Internet is amazing today because of where it's going, not where it's been," Louie said, noting the advancements of voice and video streaming over the Internet, and some further technologies like a Net-based console platform proposed by Sony's Ken Kutaragi, where game processing is handled collectively by a network of consoles instead of exclusively by the player's machine.
"Nobody to this day has leveraged the power of the Net in the context of making the next great video game platform," Louie said.
But Louis and Alsop believe the current model of the game industry isn't ideal for fostering that. Between lengthy development cycles, escalating production costs, huge development teams, closed platforms where distributors control what's available to consumers, the industry's hit-driven nature, and a focus on computer graphics and special effects (the industry's "stars"), they peg the current model as being a lot like the movie industry.
"I contest that the movie model is the absolute worst model you can design your next-generation business on," Louie said. "Television's a very different model."
Creating for television costs less, builds episode by episode, incorporates feedback into future episodes more quickly, doesn't have the same distribution constraints, and features a much broader audience base.
"From the point of view of venture-capital investors, we believe the right way to think about things is in terms of TV, not movies," Alsop said.
"Content really does matter," Louie stressed, "and we have not found a group of developers to date that has said, 'I will start by making the very best Internet-based experience and build this new brand that is much more like a channel.'"
Alsop and Louie then introduced a number of concepts that proved popular in previous pop-culture trends, whether it be games that better incorporate the collection appeal of Pokemon in an online way, or a pen-and-paper Dungeons and Dragons-like experience, where players somehow run their own games, provide their own guidance, and tell their own stories.
"We basically believe the current video game business is sick," Alsop said. "We're definitively saying that we don't think we're in the next transition cycle; we actually are in a much more fundamental shift. What we're saying is there's a different way of thinking about games that shifts the logic of the game from the device to the network, and it includes all the devices… The process we're talking about still has some significant issues in terms of deployment, but from the point of view of venture-capital investors where we have our eye on the future, we believe that the right way to think about things is to start thinking in terms of television: episodes, large audiences, those audiences interacting with each other, and really looking for innovative and different ways of generating revenue."
"It fundamentally revolves around new gameplay," Louie said in closing. "Without new gameplay, shinier and shinier graphics will reduce and evaporate larger and larger amounts of shareholder value."
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