1. casuality: keeping the industry fun Round 2 Contracts & Royalties

2. casuality: keeping the industry fun Background “Contracts & Royalties” at Seattle Casual Game Conference –Panel discussion on contractual issues –Debate among developer, publisher, aggregator, portal –Received positive feedback for frank discussion of difficult subject

3. casuality: keeping the industry fun Industry Overview Industry growing / changing quickly Partners throughout value chain jockeying for position –Today’s partner = tomorrow’s competitor Issues affecting creation of value especially contentious Prisoner’s Dilemma: can we find solutions that increase value for all parties?

4. casuality: keeping the industry fun Vision for “Round 2” Create forum to promote frank discussion –Try to actually find some solutions! Present variety of difficult topics Split into groups; each group picks a topic Groups debate / discuss overnight Groups present results tomorrow

5. casuality: keeping the industry fun Discussion Topics How can community games go to market on major portals? How should advertising revenue be shared across partners? How should software bundling revenue be shared? How valuable are brands in the casual space? Is exclusivity worth fighting for? Do we need industry standards? And if so, where? Is the market ready for a broader range of price points? Value of market development funds? How should royalty shares shift over the next 12-24 months? Do subscription programs generate more value than try-and-buy? Why haven’t we seen more specialization in the value chain? Is developing & promoting “clones” good for our market?

6. casuality: keeping the industry fun Community / Multiplayer Games Games with multiplayer or “community” features could be very popular –But depend on having a large community to be successful Portals are best way to promote casual games –But reluctant to risk “losing” customers to developer-hosted communities Are communities valuable enough for us to solve this? How can we solve it? –Pay “bounties” to portals from subscription revenue? –Limit all interactions to within the game?

7. casuality: keeping the industry fun Advertising Revenue Shares Free web games monetize poorly –10% of players download trial versions –1.5% of trial players purchase game –= $0.03 per player –Majority are “lifetime free players” -> never download trials Advertising is ideal way to monetize free plays –10 plays * 2 ads = 20 ads / player –$10 CPM = $0.20 per player = 6.6x greater Should sites refocus around ads instead of sales? Should ad revenue shares be standard part of deals?

8. casuality: keeping the industry fun Software Bundling Revenue Free trials monetize poorly as well –$0.30 – $0.60 per player Google will pay $1.80 per toolbar install –Other companies will pay even more –Toolbar is bundled along with game download How should this revenue be shared?

9. casuality: keeping the industry fun Value of Brands in Casual Games? Lots of types of brands: –Movie / TV brands (e.g., Law & Order, Family Feud) –Classic game brands (e.g., Scrabble, Monopoly) –Successful game brands (e.g., Bejeweled, Diner Dash) –Developer brands (e.g., iWin, GameHouse) Which brands are important for casual games? Better to license a successful brand or clone it? Should developer brands be promoted? –Or invitation to lose customers to developer’s web site?

10. casuality: keeping the industry fun Exclusivity How important is exclusivity? –Sites often want it –Does it help or hurt sales? –Do customers shop around?

11. casuality: keeping the industry fun Industry Standards Where would standards help our industry? –DRM interface standards –Sales data reporting standards Electronic data formats Standards for what information is shared –Web-game advertising standards –Community interface standards –Revenue sharing guidelines –Standard boiler-plate contracts –Etc…

12. casuality: keeping the industry fun Broader Price Points $19.95 often seems fixed in stone Should we reconsider? –Is price elastic or inelastic? Different games worth different prices? –See Xbox Live Arcade… Different trial lengths?

13. casuality: keeping the industry fun Market Development Funds Promotion is key tool to drive traffic –“Free” promotion: top 10 lists –“Paid” promotion: house ads MDF provide some transparency to promotions Publishers pay for promotion by tying MDF to % of revenue –Promotion is thus tied to success / popularity of game Requires increased transparency in sales reporting –Revenue shares based on gross not net –Allows “apples-to-apples” site comparisons

14. casuality: keeping the industry fun Specialization Most companies ultimately specialize We are all still trying to be all things –Developers as retailers, retailers as publishers, etc Source of most contractual friction –Portals worry about developers cannibalizing sales –Developers worry about resellers developing clones Would we generate more value by specializing? –Would non-competitive developers earn higher royalties? –Would non-developer portals get closer cooperation?

15. casuality: keeping the industry fun Clones Many great games inspired by other games –“We stand on shoulders of giants” “Clones” do not attempt to innovate –Same game-play, different art/theme/music –Sometimes it’s a fine line… Are clones good for the market? –Giving customers more of what they want? Or will a flood of look-alike games turn off customers? –Dilute the incentive to create original games?