As most of the United States struggles with record heat waves, the summer of 2011 may also be recorded as one of the hottest in the brief history of casual games. As the mercury continues to reach its highest heights, so are the valuations on casual games companies—witness Zygna’s upcoming $1 billion IPO and EA’s $750 million+ purchase of PopCap. Yet, Nintendo’s staggering loss of approximately $300 million in Q1 shows a marketplace struggling with balance.
Overheated, interglacial or ice age? Where is casual gaming going? An examination of key indicators provides some insights to this changing climate.
Demographics and Psychographics
First, video gaming is more popular than ever. Gaming is a universal past time for today’s youth. (Almost all girls and boys ages 5-10 are playing video games.) As such, the percentage of Americans playing video games has been increasing for the last ten years. According to a recent 2011 study by the ESA, 72% of Americans play video games. The median age of gamers has increased to 37, and the percentage of female gamers has increased two percentage points to 42%.
Many of these gains have come from older women, who have always been the key demographic of casual games, regardless of platform (online, mobile, or social). Historically, whether it’s through PC downloadables, subscriptions, or micro-transactions, women tend to monetize at much higher levels than their male counterparts. They’re also more likely to enjoy and approve of casual games content. As such, they hold the purse strings of casual gaming—whether for themselves or their families.
Yet for anyone who has had to endure a FarmVille request from their mom, or been on a bus and watched a dad hand his restless child an iPhone to quiet her down, the fundamental dynamics of casual gaming has changed. No longer is it portal driven, with gamers visiting sites such as Yahoo!, Pogo, Big Fish, Real Networks or Addicting Games. While these sites still exist, traffic is down on average 25% from their highs in the mid naughts.
Social and mobile platforms have democratized gaming by reducing the friction points around access and ease of use. You no longer have to be tethered to a PC or game console to play video games. Social networks are de rigueur for anyone ages 11 to 60. Smartphone penetration is at about 30% and half of all new phones are smartphones. The iPad is now at the top of every kid’s wish list, and receiving their own iTouch is the new coming of age ritual for the tween audience, just as it was a DS for their older brethren.
The game mechanics have remained simple or have become increasingly appealing through the touchscreen. Anyone from a fussy toddler to a senior citizen can learn how to recognize patterns of three or “pull” on slingshot to shoot some pigs or click some buttons to harvest some crops.
Finally, purchasing has been simplified through apps stores and Facebook credits. No longer does Mom (or Dad) have to shlep to Target, scan the racks at Best Buy, or endure the relative wilderness of a GameStop to purchase games. Through the ease of online services or app stores, content is available in three clicks or taps. Consumers can chose from thousands of casual games on all platforms via online, connected console, mobile, social and tablet platforms. Most games are free to play. For those that want to purchase, players can try before they buy and even paid games or micro-transactions are relatively inexpensive, providing cost efficiencies in these post recessionary times.
Content and IP
In mobile, the top of the charts is predominated by well-known franchises (e.g., Bejeweled, NBA Jam), licensed content (e.g., Smurfs’ Village, Family Feud), game classics (Scrabble, Monopoly), seasonal cross promotions (e.g., Cars 2, Captain America) or independent breakthrough hits (e.g., Angry Birds, Words with Friends). This provides a rich and varied ecosystem for a wide audience.
While the lineup and genres within social games is more limited, you’re able to play with friends, thus potentially increasing your motivation, stickiness and overall enjoyment. These benefits are slowly moving to mobile, as mobile game publishers try and integrate the power of community.
Compared to these innovations in online, mobile and social, the DS is no longer a competitive game platform. Its 3D capabilities were also hobbled by an aging lineup of titles. A similar problem exists in the console arena, where 90% of all titles at this year’s E3 were installments of entrenched franchises. (Alas, software drives sales– Microsoft understood this years ago with the launch of Halo and the subsequent success of the Xbox.) Nintendo’s launch lineup for the 3DS was weak, filled with few new IP and innovative content. Unfortunately, even the most loyal fanboys can get tired of Zelda, etal.
Do the new games have the longevity, depth or creativity of a Pokemon, Zelda or Scribblenauts? Perhaps not, but today’s audience #1 motivation for playing casual games is quelling boredom. Most casual gamers don’t need or want the immersive and long session engagement promised by DS and PSP play and certainly not by console play. Instead, they want something that provides the “hit” of a virtual cigarette break (or at least some amusement until their now reduced calorie Happy Meal arrives).
Casual games can be made for ten of thousands of dollars, though some may cost a few million. Nonetheless, this is a fraction of AAA console development. But the games seeming simplicity often belies their elegance and the efforts entailed. For example, Rovio developed over fifty mobile games and numerous prototypes before Angry Birds. Halfbrick did significant user testing with their hit, Fruit Ninja. Well-made casual games are the gaming equivalent of Pascal’s famous quote, “If I had more time, I would have written you a shorter letter.”
That is the dirty little secret of the video gaming industry. Anyone can make a game. But there are few developers that can make an EXCELLENT one. It’s mostly a human capital issue, not a financial one, as Disney has sadly realized. More money or more time does not always make a better game. The list of talented developers is short in the PC and console space (e.g., Blizzard, Valve, Infinity Ward, Bungie) and even smaller in the casual games space. Hence, it is often easier to buy talent than recruit internally, which is one of the reasons why Zynga has been on an acquisition spree and why EA bought PopCap.
Furthermore, if you’re making a casual game with persistent elements, which today’s market requires, you need talented game designers, deep back end analytics, as well as strong operations and management team, so that you can manage this new Gaming as a Service model. (There’s a reason why Zynga has hired many ex EA studio heads—they have the operations experience to manage these large-scale teams.)
Platforms & Distribution
Additionally, in this increasingly crossplatform marketplace, you need to be platform agnostic. Unfortunately, in the casual games space, many leading online games companies or feature phone mobile developers/publishers have failed making the transition to social or smartphone games. Yet, PopCap is a stunning example of a successful, well managed creative company, taking time to craft evergreen franchises on multiple platforms. (Amazingly, Bejeweled Blitz is based on a now ten year old IP.) Both PopCap and Zynga have millions of loyal users, another valuable benefit as discovery methods become more difficult and gamemakers are left with relying on cross promotion or expensive acquisition budgets.
Lastly, with approximately $600 million revenue in 2010, Zynga has proven that the free to play (F2P) model can be successful in North America, thus proving that this region is open to the business models that have proven so successful in Asia. As gaming begins to embrace the cloud and consumers become more accustomed to in game purchases and microtransactions, digital sales should continue to grow, as they are doing within other areas of gaming. This shift is already apparent as revenue from freemium mobile games in the top 100 now comprises 65%, up from 30% in January, according to mobile analytics firm Flurry.
Risks and Opportunities
Though EA has a reputation for problematic acquisitions and subsequent integration, many purchases have proven to be successful investments, such as Maxis, Pogo, and Bioware. If EA adheres to the “City/State” relationship that Mr. Riccitiello preaches, all may be well. Zynga will need to manage its growth, and it remains to be seen if they can conquer new markets and regions such as mobile and China.
Both companies are also reliant on monolithic platforms such as Apple and Facebook, and it remains to be seen if new competitors such as Google+, Android and Amazon, and those mobile platforms reinventing themselves such as BlackBerry and Nokia may provide new and significant revenue opportunities.
Finally, they will need to foster the development of new IP and master the newfound capabilities and constraints of these new platforms. Some consumers have expressed frustration and boredom with social games, and as in the case of Frontierville, which brought new context and innovation to the genre, consumers will demand more sophisticated gameplay. As witnessed with the success of Kabam’s Kingdoms of Camelot and Zynga’s Empires and Allies, there may even been room for the traditional hardcore male audience, thus creating new demographics and an even larger market.
Thus, the future of casual gaming is strong if game makers persist in developing quality experiences and experimenting with new monetization models on emerging platforms which consumers continue to embrace. As these new digital markets tend to provide its leaders with disproportionate rewards, these valuations for these stalwarts may prove to be prescient rather than overvalued.
Robin Boyar is the founder of thinktank, a market research and strategy consultancy focusing on gaming and the digital consumer. Typical projects include strategic analysis, surveys, focus groups, usability testing and game playability. She’s been working in video gaming since 2000 and previously led research efforts at EA and Pogo.com. More information can be found atthinktank8.com or @thinktanktweets.