Newzoo on the State of MMOs

Newzoo released new data showing revenues from MMO games on the upswing in the US, Europe, Russia and Brazil. Along with Turkey and Australia, these markets now represent $6.5 billion in money spent on MMOs, both in subscriptions and transactions in free-to-play games. Europe is experiencing the fastest growth among these territories, at a rate where it could soon overtake the U.S.

Peter Warman, CEO of Newzoo, spoke to [a]list daily to offer insight into his firm’s new findings, including what makes MMOs so appealing to European gamers and a look ahead at where the category is headed.

[a]list: Your data shows Europe has the biggest appetite for MMOs among these regions, nearly as big as the U.S. but growing twice as fast. What’s driving growth there for these types of games?

Peter Warman: There are some cultural, social and economic factors at play here. I will try to explain.

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Asia will remain to be the biggest market for MMOs for a long time. One of the reasons why Asia will continue to grow at an enormous pace is the fact that the internet population has a lot of room to grow. On a smaller scale this is also the case in Europe. Internet penetration in Europe is on average 63%, still growing every year. In North America it is 78%. The whole of Europe has some countries that you could consider being emerging markets. And, do not forget that Europe is about three times larger than the US in terms of population with 820 million inhabitants. Something that we tend to overlook.

Another general reason is that Europeans are and always have been more geared towards PC gaming as opposed to consoles, if you compare with the US. Except for the UK, whose gamers show a profile that is closer to the US than mainland Europe. The PC has been popular because Europeans do not have second and third TV sets in the house like Americans. It is not common [in Europe] to give a kid or even a teenager their own TV in their room, let alone a console. It is related to the simple fact that houses are smaller in Europe.

Germany, Poland and Russia are examples of countries where PC gaming is culturally seen as the ultimate form of gaming. Consoles and their controllers can be seen by fanatic PC gamers as gadgets more suitable for families and kids.

There’s also buying behavior. In Europe, taxes are high and income is spread more evenly than in the US. The current recession impacts a broader group of people in Europe than in the US, including the people that would regularly buy $60 boxed games. The free-to-play business model offering triple A quality MMO games provides a welcome alternative. Even before the recession, this has played an important role. Americans simply consume more products, they buy more. Europeans tend to have a more “try before I buy” attitude. They do not want everything cheap but they want to be sure they have value for money.

And Europeans explore. European countries are small so everyone speaks multiple languages, has friends in various countries and often travels through different cultures. Playing together and communicating with people across the globe in MMO games fits in nicely. The current MMO ecosphere with more than a 1,000 pretty good quality free-to-play MMO games is heaven for them.

It’s too bad that marketing towards the whole of Europe is impossible. You need to localize your game in certain territories, not localize in others, take local payment behavior into account, and find local marketing partners and channels. One of the things that we help our MMO clients with is connecting them with the local independent champions in each individual EU country that have the highest traffic amongst paying F2P MMO gamers. Again, in an attempt to lower the overall cost of acquisition of players now affiliate network prices have gone through the roof.

[a]list: There’s growing competition and some pretty dominant games in the MMO category, examples being League of Legends and World of Tanks. What do you think it now takes to launch a big successful MMO?

Peter Warman: First of all you need to have the “of”-factor. World of Warcraft, Clash of Clans, League of Legends, World of Tanks…what do they have in common? But seriously, I believe game companies should pay more attention to the name of their game. Secret World as a title, however cool the game may be, does not appeal to any niche or give any insight into gameplay or theme. Picking out a specific part of your game and enlarging that in combination with your brand is something that I do not see a lot. The Battle of Butterflies would, for instance, appeal to everyone who (slightly) likes butterflies, and it would be the only game out there with that theme. Of course I realize this is never as important as the game itself but the impact of targeting a niche and having a brand is underestimated enormously.

The second point is a more obvious one. League of Legends had a beta period of nine months. SWTOR [Star Wars: The Old Republic] took 6 days for beta. You need at least a year of getting your gamers involved in your game before you can commercially launch. And even then you need to have convinced investors that this is a service that you’re are launching, and the big bucks might take another year to build up as you learn from your community. Not many developers, publishers or investors have that patience. An example of build-up – we are now helping a Korean MMO developer seed trailers into consumer game portals across Europe as part of their launch strategy, [which is] somewhere in 2014. The game hasn’t even launched in Korea but anticipation there is enormous. Anticipation built without big press conferences and marketing budgets, but rather by building respect from gamers. Respect for the game, the brand, and even its developers.

[a]list: In our conversation, you made an interesting statement about digital games going “from ARPU back to IP.” Can you elaborate on what this means?

Peter Warman: One of the reasons why some MMO companies are struggling to maintain healthy profitability and revenue growth is the extreme rise in cost of acquisition per registered player. Free-to-play MMO companies are driven to a large extent by metrics from ARPPU to churn and conversion rate, especially Asian MMO companies. To put the current prices of “buying” players on a CPA [cost per acquisition] basis, ranging from $1 to $6 depending on region, they are having a hard time making their spreadsheets turn out positive figures. This is forcing publishers to take new approaches to marketing that are closer to traditional marketing strategies that have built game IP as brands.

This requires a different way of thinking, and it’s not a guaranteed result. It puts more pressure on the quality of your game and your marketing content. Often, companies that cover both approaches perform best. League of Legends and World of Tanks’ marketing consists in large part of events, unique content and impressive presence at game events, providing entertainment and engagement with the game experience before people have even played the game. This way of marketing is also becoming more important because of the fact that consumers are spreading their time and games budget across multiple screens. Since the uptake of tablets and smartphones, the number of engaging screens has doubled. IP, brands and marketing content travels across screens. Even if your business model is only on one screen, your marketing should be on every screen. I always advised Western companies about the power of metrics required for games-as-a-service, and now I spend more time advising my Asian and some European clients on how to manage their game as IP.

[a]list: Your data shows that money spent on f2p in these regions has a slight advantage over paid MMOs – 53% to 47%. How has this gap changed since last year, and any forecast of where it’s headed?

Peter Warman: Last year it was about 50/50 for the countries that are listed in the infographic, all taken together. Combined with the overall rise, that means a big leap forward for total F2P spending. I remember that in 2009 the percentage of F2P MMO games was about 39 percent in the US, now it’s 50 percent.

Where is it headed? In two or three years we will not be able to tell the difference. Games offering free gameplay and subscriptions and one-off fees will be options that gamers will have to contribute to the revenues and growth of their game. We always have researched all business models behind F2P and P2P, so I hope we are prepared for the time the divide can no longer be made. In that respect the end of free-to-play might be near, as a term that is.

[a]list: What MMO games do you see on the horizon that have potential to be bona fide hits?

Peter Warman: Personally I am following WarFace by Crytek and Hawken by Adhesive Games. Lots of triple-A F2P Shooters have just been released or will be soon…. DOTA2 vs LoL [League of Legends] will be fun to watch as well. I am also quite confident that Kabam will get things right with The Hobbit. Their experience from their early days combined with learnings from their mobile success Kingdoms of Camelot should give us a good game with a well balanced business model. And I respect The Settlers Online from BlueByte and Ubisoft a lot for their ongoing growth and specific niche. Curious to see the upcoming MMO titles that Ubisoft has planned.

[a]list: Thanks, Peter.

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