CEO & Co-Founder, G5 Entertainment AB (publ)
How Eastern European Developers Can Achieve Success Worldwide: Market Overview | Vlad SUGLOBOV
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New mobile platforms provide easy access to new customers all over the world and, therefore, many smaller developers can successfully compete on global level. However, companies looking to grow their audience into Tier 1 markets like the US or Western Europe, or high growth markets like South America or Asia quickly find these markets demand knowledge, investment and skills different from those required to succeed at home. Join Vlad Suglobov, Co-founder and CEO of G5 as he exposes G5's thinking and research about the opportunities, and...
About Vlad Suglobov
Vlad Suglobov, CEO and co-founder of G5 Entertainment AB, has stated that the company plans to spend between 17 and 22 percent of its revenue on user acquisition in any given quarter, with a goal of not exceeding 22 percent. He noted that G5's development capacity continues to grow, citing a "very strong base in Eastern Europe" that allows the company to hire developers at a "fraction of the cost" compared to some developed countries, which he described as a "tremendous advantage." Suglobov also said that the company capitalizes development costs on its balance sheet and writes them off evenly over two years after a game's release, adding that G5's games typically generate revenue "well beyond even three years." Suglobov has described the company's strategy as continuing to release four to six new games per year, testing ideas in the market to eventually produce larger successes. He characterized the success rate among new releases as "very healthy," noting that over the last 10 years, only about five games lost money, while a similar number generated "amazing returns" of hundreds of millions of dollars in revenue. He also stated that the company's target audience is women aged 35 and older, a demographic he described as "quite untypical" for a gaming company.
Transcript (42 segments)
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Vlad Suglobov0:12
Good afternoon. Our topic today is achieving success on a global level, and I added free-to-play at the last moment since we'll be talking about that too. Everyone else had free-to-play in their title today; I didn't.
What is success? Success is obviously determined by hitting market demand. This presentation contains a lot of obvious common sense, so please forgive me in advance if it seems like I'm stating the obvious.
To achieve success, especially on the global stage, you need to understand how people want to play, where they want to play, what they're willing to pay for, and how much they're willing to pay. Then you need to understand whether you, as a developer, can adapt to the changes currently happening in the market.
What's happening in the market? Here's a graph of expected growth in global mobile gaming revenue. It's not 100% per year, not even 50% — the average growth is about 22% expected through 2016. But it's still a large, substantial market, and most interestingly, it's the fastest-growing segment of the overall gaming market across platforms.
Everything else is growing more slowly — consoles, PC, online. Mobile platforms have the biggest growth. Simplifying for the majority of the audience here: the mobile market will grow, the PC market will obviously stagnate in the medium term, personal computer sales have been declining for a couple of quarters, and iOS with Android are the main platforms and operating systems for developers.
If you look at the top grossing charts on these platforms, you can notice that free-to-play games occupy the main positions. That's what people want to pay for — free-to-play games on iPads, iPhones, Android phones, Android tablets, and so on.
What's NOT happening in the market: streaming of casual games isn't happening. We can officially declare it dead, as we warned a year ago. PC portals seem to be in their final days — we removed all our PC games from portals to prevent them from stealing our search results, because users searching for our games in mobile browsers would stumble upon PC portal links. If you have mobile game revenues and don't want users drifting to PC portals where you earn less, it makes sense to remove your games from PC portals entirely.
Windows 8 doesn't appear to be any replacement for PC portals and will be the third mobile platform, which is great. But it's nowhere near the first. What do people want to play? They want to play on their tablets, pads, iPhones — the same premium games with the same mechanics they've always played. In that sense nothing has changed, but monetization has changed, the format has changed. People pay in free-to-play games, and you need to account for that if you want global success.
Premium games still make money, but it's increasingly clear that revenue per game isn't growing. You need to decide whether you just want to run a business that doesn't grow much, or try to join the race for growth. In premium games, quality is becoming increasingly important. If the gap between a super game and a medium-good game used to be small, now that gap is widening every month. You really need to make a super premium game to significantly outperform in sales — if the quality bar isn't met, revenue per game becomes quite uninteresting.
From a developer's perspective, the choice is simple: either you continue competing in the premium format, or you go into free-to-play. We started advising our partners a year ago to begin developing free-to-play games. We work with dozens of developers, mostly in Eastern Europe, and we're glad most of our partners listened.
If you continue making premium games — releasing several per year, constantly pushing the quality bar upward, staying two steps ahead of competitors — you'll have a chance. But scaling such a business is very difficult, and you'll likely face competition for talent from free-to-play studios that can afford to pay more. Attracting new users will also be harder because free-to-play monetization extracts more value per user, making user acquisition costs more favorable for free-to-play games.
For premium games, running advertising campaigns on mobile platforms in today's situation is very difficult. If you work as a publisher creating premium games, understand that the content rush of the last two to three years is over, and advances per game are substantially declining — a certain cooling in the market toward premium games.
On the other hand, you have the opportunity to go into free-to-play. It's not necessarily easier — probably harder. You have two options: do it yourself or do it as a creator working with a publisher. We'll discuss how to choose a publisher later.
If you do free-to-play independently, you'll need several things. First, you should know how it's done — the approach to game design and game creation is different. The free-to-play ideology permeates the entire game design; it's not just about placing monetization points in a casual game. You need a clear understanding of what kind of game you're designing.
Second, from our experience, free-to-play game development costs significantly more. The content volume needs to be much larger — you need to engage the player for months of play. Free-to-play games are even more quality-sensitive than premium games. Our quality standards for free-to-play are even higher. It's crucial that players aren't frustrated — the stakes are much higher when people spend hundreds of dollars on your game.
If you do it independently, you'll need to handle the full cycle of quality assurance, localization, and testing yourself. Localization quality must be high — people won't pay much in a game they can barely understand with errors in their language. The game must look worth the money you want people to spend. This is a huge volume of uncreative but necessary work.
You'll need to make significant changes to your development process. We have a talk tomorrow by Alisher Ankudava, our producer, who will discuss development process changes when transitioning to free-to-play — please come listen.
You'll need to set aside money for marketing. In premium games, you spent money developing the game, released it, and moved on. In free-to-play, after release you still need to spend on marketing and continue developing. Marketing is expensive — you can easily spend up to half a million dollars a day, and it's your problem to earn that money back. You'll need analytics you can trust.
Since there are so many risks, be prepared to lose that money. Many people unfortunately do. If you have all of this — the understanding of how to do it — you can do it yourself.
How does the development process change when transitioning from premium to free-to-play? Unlike premium content, development essentially begins when you release the game — it doesn't end, it starts. The most nervous and difficult period begins because you need to release updates monthly or biweekly. Each month you'll go through the full development cycle: design, development, quality assurance, localization — all under very tight deadlines. This is psychologically difficult for the team.
From our experience, the polishing period before free-to-play launch takes even more time than for premium, for the reasons I explained. The game must look and feel worth the money you want users to spend. Before going solo, ask yourself: is your team ready for these process changes, and does your bank account have enough money?
I've heard different opinions about whether a publishing model is possible in free-to-play. My opinion is that it is, and we proved it with Secret Society, developed by Malton studio with us as publisher. The game launched about a year ago and for most of that year was in the top ten grossing games in the US, reaching as high as 15th place. It's the only free-to-play game I know of that reached such heights in the top grossing charts through an independent publisher releasing an independent developer's game.
There are certainly more successful free-to-play games, but I haven't heard of such games being created by an independent studio and published by a publisher. Usually those games are essentially created and published by the same publisher. G5 in this case created a precedent — releasing and promoting a free-to-play game to the top charts using the same model as premium games: an independent developer creates the game, a publisher releases it, and the developer makes good money.
How do you choose a publisher? I deliberately listed terms in order of importance. The most important is that the publisher can effectively promote your game and understands what you're doing. Look for experience in your specific genre — a publisher with a great casino game doesn't automatically understand free-to-play hidden object games, because casino monetization is quite unique and doesn't transfer easily.
The second important point is the publisher's interest and motivation to achieve success specifically with your game. Even if a publisher works well in your genre but has their own competing game, they may not be motivated to push yours. Make sure the publisher is motivated to succeed with your game specifically.
And third, of course, the terms — you want terms that work for you. What should you expect and demand from a publisher? First, help with free-to-play design and balancing. Especially if you're transitioning from premium, you'll need the publisher to guide you at the level of working on design documents — their producers working with your managers and lead designers to explain how to apply free-to-play monetization to your specific game.
The publisher should also explain how you'll need to restructure your development processes. They should explain what to do with updates after launch — what to improve, how to retain the audience, what users expect. The publisher should handle quality assurance, localization into many languages, share financial risks with you, and be responsible for marketing.
It's very desirable that the publisher not only produces paid user acquisition but also does cross-selling with their existing game portfolio. In our case, a lot of traffic comes from our other games — we have a portfolio of over 80 games, which reduces marketing costs, benefiting the developer as well.
Ask for guarantees — this is a good way to ensure the publisher understands the potential of your game and is willing to commit to minimum success parameters. We're seeing more developers with publishing contracts getting carte blanche from their investors, and if the publisher is a public Swedish company, some investors warm up to additional financial injections.
When you've committed to free-to-play, try to leverage your advantages as a developer from Eastern Europe and address your disadvantages. The advantage is the talent of people in your studios — their creativity, their desire to make games purely for the joy of creation, and the fountain of creative energy that needs to be properly channeled. Development costs, while rising, are still low enough to give you an edge over developers from other countries.
The disadvantages: years of making identical HOG games for portals have left a certain imprint — people think in certain templates and need to break free from that. Play many other free-to-play games. We sometimes see studio management that's quite relaxed about participating in the development process, which doesn't align with our approach — even I, Oleg, and Alisher spend a lot of time playing games and providing feedback. We expect the same from our studios: management should be 100% immersed in the project.
And of course, the lack of extensive experience in free-to-play design — all of this is fixable. Play free-to-play games extensively, reach high levels, understand how they work. This will definitely help.
If you're a premium game developer with expertise in specific mechanics and great games, definitely bring them to the free-to-play monetization model. In our view, this makes enormous sense. Find an experienced publisher who will help you avoid major mistakes and financial losses. Be sure to talk to our team about it.
That concludes my presentation. If there are questions, please go ahead.
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Audience Member24:52
Good afternoon. I wanted to ask about guarantees — you mentioned guarantees. What kind of guarantees can one expect from a publisher?
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Vlad Suglobov25:04
That's a question for each specific publisher, of course. But if I were a developer, I'd ask for guarantees on installations. Monetary guarantees are harder because nobody knows how well your game will monetize — that depends on how you and the publisher do your jobs. But for installations, a good approach might be looking at it more globally: over the first year. If you discuss with our team and the project interests them, all the numbers will be laid out and can be discussed. Usually those numbers, considering average expected monetization, would more than satisfy the developer.
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Audience Member26:15
Thank you.
Hello. I wanted to ask whether you're observing any evolution of players toward mid-core? There were many simple games that were very popular — as a publisher, do you see the audience changing?
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Vlad Suglobov26:52
I wouldn't say our audience was initially oriented toward simple games. For a couple of years now, the games we release are quite complex. Even our advanced HOOPA games are mid-core. Users gradually find it more interesting to play increasingly complex games. There's a delicate balance between casual appeal — you don't want to scare off new players — but you need to provide enough depth to retain users who've been playing similar games for years.
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Audience Member28:09
Hello. I have two questions: what analytics systems do you use? You mentioned analytics. And second, from a marketing perspective, what should definitely be done and what shouldn't?
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Vlad Suglobov28:30
Thank you for the questions. First: we have our own analytics, so we trust it. On third-party solutions — there are various options at different price points, and it's unclear how much you can trust them, so I can't vouch for them specifically. On the second question about what marketing to do — the answer is complex because everything depends on the project. For each project you need to find the right marketing mix. Try things that worked on previous projects, try new things, and find user acquisition channels where you have positive ROI. If you buy a user for a dollar and get ten back, that's great. If you spend a dollar and get a dollar and five cents back after six months, that's obviously not the best marketing approach. You need to understand the mobile marketing ecosystem — it's young, developing fast, very different from internet marketing, and has its own specifics you need to learn.
Thank you.