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MARKET ANALYSIS THE STATE OF FREE-TO-PLAY Gamesbrief’s Nicholas Lovell discusses the attitude change towards freemium games

THE WORLD is changing. No, I don’t mean that free-to-play is coming. We all know that. What’s changing is attitudes.

I’ve given dozens of talks on how

to make money from social and free-to-play games.

Almost the first exercise I do is to get people to shout out the words that come to mind when thinking of a free-to-play game. Three years ago the words were: “evil”, “manipulative”, “shallow” and “not a game”. Today the words have changed. Similar audiences to the ones I addressed three years previously now shout “accessible”, “mass- market”, “collaborative” and “free”. There has been a step change in attitudes amongst developers and publishers. A large part of that is free-to-play no longer means FarmVille. It means League of Legendsand Pocket Planes. It means World of Tanksand Star Wars: The Old Republic. It means games on all genres, on all platforms, for all audiences. It is mainstream gaming. It’s also evolving. Free-to-play is morphing into paymium, where players pay for the game upfront and then pay for in-app purchases (IAP) on top. Infinity Bladecosts $5.99 but makes half of its revenue from IAP. EA has had success with FIFA Ultimate Team. Forza Horizon on the 360 is a paymium game. So in-app purchases are working on consoles, and freemium is coming to consoles too. I have to believe that the next generation of consoles will not only have the instant-on appeal of an iPad, but will have an infrastructure that supports and encourage in-app purchases and free game downloads. Free-to-play games make money. Bigpoint, a European publishers of

The recent woes suffered by Farmville developer Zynga are ‘growing pains’ for the global free-to-play games market, argues Lovell

free-to-play browser games, made €200m in revenue in 2010, the last time they released results. At least nine games generated over $30m in gross revenue on the App Store in 2011, of which seven were free. CSR Racinggenerated $12 million in its first month, while Finnish developer Supercell is generating $500,000 a day from two of its titles.

TROUBLE WITH ZYNGA Then, of course, there is Zynga. A $10bn IPO on the US raised $1.6 billion in cash. Since then, the shares have been in freefall, and its market value of $1.6bn is less than the value of its cash reserves, its marketable investments (which is where corporates store their money) and its San Francisco headquarters building. That means that if you were to buy Zynga today, its shareholders would, in effect, be paying you to take the business off their hands. All for a business with $1.6 billion,

that makes over $300 million in revenue and about $150 million in cash flow per quarter.

So on the one hand, free-to-play is getting wide acceptance. On the other, its posterchild is a stock market basket case. What is going on?

The industry is going through a seismic shift every bit as wrenching as the emergence of TV was for the movie sector.

The answer is simple. It’s growing pains. The industry is going through a seismic shift every bit as wrenching as the emergence of TV was for the movie industry. The free-to-play

24 November 2nd 2012

games we are currently seeing are the televised radio dramas of the early days of TV. We haven’t reached the documentaries and the sitcoms. We haven’t found the free-to-play equivalent of The Wire or Sherlockor Downton Abbey. We haven’t invented soap operas yet. All of this is coming. Free-to-play is in its infancy. We have an opportunity for low-cost distribution, for low cost development, for open marketplaces that allow the surprising to emerge. We have the opportunity for developers to take wild leaps and create whole new genres.

The games industry has always been an exciting place to work. And free-to-play is the most exciting opportunity to hit our industry. Nicholas Lovell is a self- confessed free-to-play fan and has been since he started Gamesbrief, a website and consultancy on the business of games, in 2008.

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