IainMcNeil
Posts: 2804
Joined: 10/26/2004
From: London
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We have been reading some comments in our own forum and others with a great deal of interest and it strikes us that there are some misconceptions about our business model and where we stand on a number of issues. So, we thought it might be informative and interesting for you if we shared some of our thoughts. First thing we will say is that our policies and practices are constantly evolving, so the health warning here is that our current thinking can change at any time dependant on circumstances. For example, will the initial success that we are experiencing on the new tablet platforms be sustained? This and many other factors are constantly under review, especially where they relate to our very specific market sector.
We accept that inevitably we are regarded as part of the video games industry; however we believe that our business is quite different. Our audience is entirely focused on a particular category and style of game, so we totally accept that we are a hybrid, or niche business. We don’t mind the label, in fact in many ways we welcome this as we very much want to be linked or associated with our audience and the strategy wargaming world in all its varied categories, such as board gaming, miniatures, historical associations, re-enactors, fantasy, science fiction etc. etc. and significantly for us, keeping our games relevant to these diverse groups of gamers. What we have come to understand is that those who play these games generally look for a different, deeper, more realistic/accurate gaming experience; indeed as you are aware some of our games can take an entire evening to play a turn and some only 10 minutes. So we believe that both we and our audience are quite clearly different from the main stream video games industry and most certainly the mass market.
A factor that we think relevant to this debate is, do the rules that apply to sales of more mass market games, for example Call of Duty apply to us? Similarly do the rules that apply to hugely successful titles like Angry Birds apply? You might like us think we would have more chance of winning the lottery than building a business model on these particular examples. The sad truth is that middle sized and even larger Video Games Publishers that have not adapted to the new realities are now as rare as the Dodo. Think about it, other than major Publishers and the remaining few like us there are not many mid-sized Publishers left and certainly very few catering for our specific audience. A knock on effect of this is the closure of development studios. All of this is a direct consequence of the total melt down of video games sales at retail. It is now almost impossible to sell a stand-alone PC title at retail anywhere in the world, yes there are exceptions and in fact Germany is still a major retail territory for us, but unless you have a console sku, the PC market is now pretty well entirely digital. So drawing parallels or reference to past experience and what used to work in a retail environment may no longer be reliable or relevant. Fortunately, through Matrix we have been in the digital business for over 13 years and have accumulated a wealth of experience, data and records which certainly helps when building a business plan. In this brave new world many different business models are being tried, so it’s not surprising that deep discounting seems to be the flavour of the month to attract market share. Whilst this might be relevant to the mass market sector we do not think that this is a one size fits all solution and only time will tell if this is sustainable and who has got it right.
So where does that leave us? The size of our “niche” is substantial and is growing year on year, so niche does not mean declining or dying as some sceptics would have you believe. In fact volume sales for digital downloads increased 44% last year and we are still trying to take on board our astonishing success on the tablets. Every indication is showing that these numbers will be exceeded in the current year. Our customers are becoming ever more discerning, but are divided into various special interest groups. Other factors in this complex mix are that subsequently dropping prices penalizes early adopters and encourages a ‘wait for the sale’ attitude. Again, possibly fine for the mass market, but we will never punish our loyal fans in this way. So we have been experimenting with an early adopters discount on iPad sales, and then reverting to full price after an initial sale period. The exact reverse of the received wisdom. We also believe that when you sell someone an enormous game like Pride of Nations for next to nothing, they may have purchased for the wrong reason, are less engaged, or willing to invest the time it takes to understand and enjoy the game. The result is negative feedback or a lost customer as they would have been better directed to one of our lighter games to get started.
Now for the technical bit, we don’t accept that because an individual is not willing to pay a sustainable price for a game, it is necessarily a loss to revenue, we believe there is a flaw with that logic. In essence the number of units sold does not matter! What counts is the revenue achieved. For example selling 10,000 copies to our core audience will create a dedicated community, selling 100,000 copies to people who don’t get this niche, but bought “cause it’s cheap” will get us negative reviews and bad word of mouth. In this scenario real fans get shouted down as they are outnumbered. Our approach is different and aimed at growing our player base steadily. This approach is working and in fact sales of our back catalogue (games over 3 years old) are a significant part of this strategy, as often player’s start on the lighter games before digging in deeper.
So our argument is that losing a sale in volume terms is only relevant if it affects overall revenue. By dropping the price to what an individual is willing to pay, you lose the revenue from others who would have bought in any event as they value the product on its merits. The price drop is only sensible if there are enough purchasers tempted by the lower price to make up for the lost revenue. So the perception of an individual customer that this is a binary event is in our view flawed; some money at a low price vs. no money at the current price. The reality is that all this is far from binary and is a very complex big picture calculation, taking into account the buying patterns of millions of sales. Using our knowledge and experience, drawn substantially from our sales data we set the prices at sustainable and realistic levels taking all these factors into account and also factoring in our additional responsibility of making sure our developers get a reasonable return. We know with some certainty that there are not enough people just waiting till the price is dropped to make a purchase. Sure some will, but are they enough to make a difference, we believe not. So taking all of this into account you will see that our prices cover a huge range from $2.99 up to $79.99. In short we are a fairly unique business, with all the problems that entails. In essence our own records and data are our only reliable source of available information, but as we are entirely self funded it’s important to get it right and good advice is gratefully received wherever it comes from, so keep it coming we do listen and your comments often spark a good idea.
Another factor in this debate is the comparisons that are being drawn between us and the myriad of distribution companies like Impulse, GamersGate, GOG and Steam etc. It is certainly true that the revival in the PC market place has been phenomenal and in large part due to the success of Steam. However, we are not a Distribution Company. We are an honest to goodness Publisher with a very focused games line-up and target audience. Additionally, both Slitherine and Ageod are still heavily involved in Development of “our” sort of games and our knowledge and experience is freely shared with our Developer partners. PBMM++ and iPad development are examples of this.
Importantly though, we do have some firsthand knowledge of the Distribution business, but this is a very different business model from our own. Apart from Steam and making some sweeping generalisations most Distribution Companies will grab just about any title that comes their way, irrespective of who else is selling it. Developers provide the games as finished articles, ready for sale. For Distributors it’s then all about maximizing the size of the store by ramming in as many diverse genres and types of game as you can. It’s very much about grabbing market share and generally this is done by discounted sales promotions of one sort or another to attract customers into their stores, why else would you choose their particular point of sale to buy a game you can pick up anywhere. In this model it matters little which products sell and which don’t so long as you have enough of them to maintain sales levels. For Developers this can work for the right sort of product, generally where the game has mass market appeal, as here the more points of sale the better and the price is less important than the volume of sales in achieving sustainable revenue. In more specialist games however we believe that this model reverses.
In the past we did do a few distribution deals, but these are gradually being phased out as we focus all our efforts on our Developer partners. What this means in practise is that we work with our Developers from the earliest stage of development, often years in advance of release and seldom less than many months. We encourage new developers to sign up as early in the development cycle as possible, as our experience is that if we can provide advice at an early stage it can cut months from a project. Our role at this stage is therefore to work with Developers, giving feedback and the benefit of our experience to make their game as attractive to our audience as we can. Its heart breaking if the game has already gone too far to make these changes, often leaving a choice between delaying release for many months, or soldering on with a less than perfect solution. A Developers financial position rather than game issues can often dictate what happens next.
In addition we also provide or fund various assets or services as they are required such as, promotional activities, PR, marketing and advertising campaigns on a range of media, research, mission design and balancing, music and sound effects, manual writing, localisation, demo movies, artwork, web site forums and exposure, tech support, management and payment of third party suppliers, box art, movies or TV clips, age ratings, beta testing, Brand Licensing and porting services to other platforms such as the new Tablets, manufacture and sales. We also provide completely free of charge our “PBEM++©” and or Routing Server Services. Once a year we also invite our developers, who are close to release, to meet the Press at our annual Press Conference. The agenda allows for presentations, interviews and plenty of opportunity for our developers to chat informally to the press, each other and have face to face contact with our marketing and production staff. Usually we try to concentrate on members of the specialist press, who actually “get” these games, as there is little point asking for feedback or relevant review comment from the more mass market press. An amusing example of why comes from our press archives. In this particular review the reviewer simply did not understand the appeal of turn based strategy games, he felt the entire genre was dated and past its sell by date. The review headline was, “This Game is ****!” The remark was part of our learning curve. Suffice to say the game went on to become one of our top five all time best grossing games and the magazine is no longer in business.
Another and hugely important area of support is that we frequently support developers financially by way of interest free advances to support them till their royalties start coming in. This allows them to work on the game and draw a wage and or pay for artwork, music etc that they would otherwise not be able to afford. We currently have literally several hundred thousand dollars invested in this way. Obviously we are very careful about who and when this level of support is given, but without this many of their games would not see the light of day, but probably the biggest advantage that we offer is our community and Web Stores. It is without a shadow of doubt true that sales of “our” sorts of games are magnified significantly when sold through our stores. Our audience is pretty savvy, they know what they like and where to find it. From time to time we conduct research, like selling specific titles on other distribution channels, but to date this has been without exception disappointing. In addition we recently put Panzer Corps, one of our current best-selling titles, on Greenlight as we listened to comment in these and other forums and we were curious to see if it would improve sales. We are sceptical that it will improve sales, but we will be happy if we are proved wrong. We have received an enormous number of votes, but disappointingly more than half the votes cast have been to reject the game. Further evidence that we are not really part of the traditional video games industry.
So in the last analysis it’s important for us all to remember that if a Development team cannot make a decent return for literally thousands of man hours of work they will stop making these games. Then I guess the same people demanding deep discounts will complain that strategy games are dying. Someone in the forums mentioned it, but where on earth do you get hundreds of hours of entertainment for $30 and we figure it’s an important part of our job to make sure that the Developers gets a fair deal.
In summary, we are very much a niche business, part of the strategy wargames world selling products that are exclusive to us, with links to the Video Games industry. This unique combination of factors makes our business model indecipherable to many. What I will say is that the company continues to grow exponentially, with growth approaching 70% last year and on track for a similar pattern this year. As you have probably noticed we have been recruiting further specialist staff, not easy in any niche business, and there are now 25 of us running this business. We have offices in Vermont USA, Edmonton Canada, Milan Italy, Grenoble France and our head office in Epsom UK. So, just maybe despite all of the advice that we have been offered, it could be that we have stumbled along the right path.
Finally, an idea regarding sales of back catalogue from Tim Stone a reporter at RPS has a certain resonance, as coincidentally we have been looking at doing something along the lines he suggests. Firstly we have to hear back from our developer partners, as we don’t cut their prices without consultation and they may not be interested. So how about this for an idea, as Tim seems keen to help us. We host a promotion, sale of the week and run it in conjunction with RPS.
Thanks for reading and listening and keep the feedback coming, as I say we do listen and to confirm this we give you a list of responses to some of the points that have been made, don’t expect this every time but as I have said we do listen.
Regards and Best Wishes
Iain McNeil
Slitherine Group
Re Pride of Nations, Ageod and other postings; Our general response
• Control of where Pride of Nations and some other Ageod titles is being sold has unfortunately spun out of Control. The problem is that certain distribution channels will sometimes sublicense games to other distribution outlets without the knowledge of the Developer. It appears that this is in fact what happened to Pride of Nations. Consequently the game has been totally devalued and sold at ludicrous price points. Even worse, sales have not been reported or paid to Ageod from these sites. As you might well imagine we are tracking these down one by one to remove our products and end this practise. You can help here and if you see any of our products especially Ageod titles on sale, other than through our own sites or a Plimus affiliate, we would be very grateful if you would let us know.
• The game was release 1 year 9 months ago, not 3 years as has been suggested, which in our world is a fairly recent release. The fact is that these games have a much longer life span than the mass market.
• We did not increase the price, but matched the current price on the AGEOD site, which is the official RSP and typical for games of this type, any difference is due to currency conversions.
• We were not aware that the game was being sold at $1.50. This was certainly never permitted by AGEOD.
• AGEOD chose to leave Paradox of their own free will. Subsequently and mainly for the reasons outlined in this mail they decided to join us. They better than most understand the very specific differences that apply to this sector of the market.
Re Response to some of the other Posts
• A demo or not? It’s certainly true we don’t make a demo for every game and there are varied and complex reasons for that. As a general rule for games that you can pick up and get into quickly, such as Battle Academy or Panzer Corps we do make demos. For games that require an investment in time we generally don’t. Here we believe demos are counterproductive as more time, effort and exploration is needed by the player to get into the game than is generally allowed in a demo.
• We did not suggest Paradox have done anything illegal. Paradox has cooperated fully with us in the Ageod transition and has informed all of their distributors to remove Ageod games from their sites and or transfer reporting and royalties to us. We are aware however that certain Distributors have sublicensed the games to others and it is those who may be continuing to sell our games without permission. Anyone who legally continues to sell our games will be required to price match our sites.
< Message edited by Iain McNeil -- 4/29/2013 1:35:14 PM >
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Iain McNeil
Director
Matrix Games
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