What lifetime value do I need to have a top grossing game?

What does it take – in terms of lifetime value (LTV) – to have a top grossing game? It’s a topic of interest to game developers and publishers. It helps them benchmark their newest games against the current crop of winners, understand the competitive landscape for marketing spend, and forecast payback on marketing spend.

Since Think Gaming provides LTV and retention estimates on thousands of games, we looked at the distribution of LTV on the top grossing charts (US/iPhone). We looked at ~300 games that were in the top grossing charts in January, where we had LTV estimates [Some details on methodology at the bottom of the post for the wonky]. We divided those games into deciles and published the mean LTV for each decile in the chart below.

 

 

LTV distribution for Top Grossing Games

Lifetime value by decile

 

A few things stood out:
1) As in everything app store related, the rich are really rich. The top 10-20 games make a ton of money per user. Interestingly, though, these aren’t necessarily the top games on the charts. Some of the best monetizing games are in niche categories where the average revenue per user (ARPU) is very high but the market for new users is fairly small.
2) There are a surprising number of games succeeding with LTVs that don’t support buying users via paid advertising. Some of these are games that were once huge and are in decline, but others have managed to acquire an audience without having to compete with the Supercell’s and Machine Zone’s of the world. These tend to either be viral “gimmicky” apps or licensed IP with built-in audiences.

Hope you find this interesting!

Updated: We’ve added a graph showing the percentage of revenue earned by games in each decile. ~75% of revenue is earned by games in the top 50%.

Perc_Rev_by_Decile

A few notes on methodology:
1) This is gross revenue, prior to the app store’s 30% cut, and it is in-app purchase revenue only. We recently started estimating ad revenue, but it’s not included in our LTV calculations yet.
2) We estimate LTV as the revenue earned by an “average” player over the course of 1-year.
3) These lifetime values are much higher than “average games”, as these are top grossing games, even more so because this analysis focused solely on US/iPhone, one of the richest markets.
4) Generally we need to know the game’s genre and have 90 days of data to make accurate estimates.

Talking the business of mobile apps

The business of mobile games and apps is changing fast, so we’re always looking for smart folks who are on top of smart trends. If you’re interested in publishing mobile apps, you’ll want to check out App Business Podcast.

Think Gaming co-founder Tim Ogilvie recently talked with ABP about game publishing, how to know whether your game is ready for external investment, and some ideas on how to place some smart development bets in the mobile gaming space.

Listen to the episode here!

 

 

Mobile Acquisition Unlocked

Mobile Acquisition Unlocked is an upcoming conference focused on – you guessed it: mobile acquisition. If you’re a game developer or publisher interested in acquiring lots of players profitably, you should pay attention and get to Las Vegas on June 10 & 11.

The days where getting featured by Apple could make your game a hit are gone. Today’s top grossing games are almost entirely driven through paid installs. Mobile Acquisition Unlocked is assembling some of the smartest folks in the business to reveal how they drive profitable growth for their companies.

Jay Weintraub previously founded LeadsCon and puts on one of the best shows in the business. Most conference blather through the same basics – Jay creates programming that is insightful and relevant.

Even better: we have a special offer to get game developers to the conference for free! MAU has agreed to sponsor 5 game developers to attend the conference for free. Reach out to us with your details and we’ll make it happen.

We are also looking to find publishers, game media buyers, or similarly situated folks that will agree to do a “media mentoring session” for game developers at the conference. Please reach out and we’ll share details on the opportunity.

How can I fund my mobile game after it’s launched?

In our last post, we outlined the two types of deals generally available for pre-launch games: equity financing and publisher deals. In this post, we talk about two additional deal types that become available once your game is complete and ready for launch.

Distribution deals:

A distribution deal is when a publisher takes a game that is complete, (or very close) and provides marketing and distribution support.  They will provide all of the post-launch services from a traditional publishing deal, but didn’t make a commitment on the funding required to build the game. This allows them to see a game that’s fully built and assess it’s chances for success.

Distribution deals usually revolve around the marketing commitment that the publisher will provide. While PR and advice are important, it’s often impossible to distinguish publisher’s quality in these areas before launch. In our experience, the critical factors in a distribution deal come down to:

  1. App store relationships: In the US, this is a question of whether the game will be featured by Apple or Google, in which relationships play a big role. Internationally, payment relationships with the various app stores becomes critical.
  2. Owned-distribution: Some publishers have unique distribution that they can offer. Tango, for example, touts its ability to distribute games to users of the Tango messenger app. For the right type of app, this can be a major distribution plus, eliminating the marketing costs in #3 that play a huge role in today’s gaming environment.
  3. Marketing commitment: Almost all of the top grossing games are supported by massive marketing budgets, so the publisher’s marketing commitment will play a critical role in the success of your game. Publishers will typically evaluate whether the expected lifetime value of the game exceeds the cost of acquiring a new player through marketing. This is one reason that Scouting Reports are helpful to both developers and publishers, as they can provide insight into whether the game can be marketed successfully.

Marketing financing

Marking financing deals, or royalty-based financing deals, are designed for post-launch games that are looking to grow quickly through paid marketing. This growth tends to be expensive, because the cost to acquire a new player is high, and getting near the top of the top grossing games chart requires millions of players. Marketing financing provides funding that is designed to help the company fund this growth without diluting themselves via equity or committing to a publishing deal.

Marketing financing deals typically see the funding partner paying for acquisition marketing. They are then entitled to all revenue until they have been paid back for their marketing outlay. After that has been recouped, the parties split revenue. Typically developers receive a higher percentage of the revenue than in a publishing deal, and the developer remains responsible for marketing, launch, customer service, et al.

This can be highly attractive growth financing, but is only available to launched games that can profitably acquire new users. Scouting Reports can be very helpful in determining whether your game qualifies and we can connect you to appropriate partners.

How can I fund my pre-launch mobile game?

We talk to lots of mobile game developers who want to grow their games. More often that not, these developers need some combination of money and expertise to help take their game to the next level. But it’s not always clear what type of deals available and on what terms.

We also talk to lots of people that want to finance great games, so we get a good sense for what types of deals are common. In this post, we’ll lay out the types of deals that we see and the type of developer / game that’s a good fit. We’ll start with two posts: this post is for games that haven’t yet launched and need money to complete the game. A second post focuses on games that are largely complete and need money to help them grow.

There are generally two types of deals available for pre-launch games:

Publishing deals:

In the “traditional” definition of a publishing deal, the publisher provides funding that allows the developer to complete their game (“completion funding”) and the testing and tuning to ensure the the freemium strategy is successful. Payments are typically doled out after the completion of specific milestones, like the completion of a playable demo, soft-launch of the product for testing and tuning, or major market launches. The publisher will launch and market the game, often with a commitment on the marketing budget they will commit. Sometimes they will provide operational support for customer service and community, and other times they will help to localize the game for large international markets. The game developer will be paid a revenue share for additional receipts, after the completion funding and marketing spend have been recouped.

Equity financing

Equity financing involves selling a portion of the business (typically 15-35%) to venture capitalists or angel investors, in return for $300k – $2 million, though terms will vary wildly. Many VCs and investors shy away from games, due to a feeling that it’s a hits-driven business. So focus on investors that are known to invest in games or strategic investors.

Kristian Segerstrale from Initial Capital has a good summary of the funding options available to build games, focused on “standard” publishing deals versus equity financing. It’s worth noting that while this is a good summary of a standard publishing deal, there are lots of newer publishers in the ecosystem who aren’t requiring sequel rights, or forcing developers to give up IP. That said, if you can get a great equity investor to help you build your game, it may well be worth the dilution.

How much activity is there?

There isn’t a ton of money available pre-launch, for a few reasons:

  1. It costs a lot of money to bring out a new mobile game. Count on $500k before any marketing spend to develop a game that can challenge the top grossing charts. This raises the bar on success and makes it easier to say no.
  2. Many publishers prefer to wait for a finished product that has at least completed a playable demo, removing some of the risk that the finished product won’t match the pretty vision they were sold. They’ve also found that the freemium market is unpredictable, making games that look great in concept phase unprofitable in the market.

Increasing your chances of getting a deal

So how do you get either an equity or publishing deal? Build a great team.

Yes, you’ll need great art, distinctive game play, and a fun game. But the biggest success factor for either a publishing deal or equity financing is a great team that has built a freemium game in the past. This drastically increases the chances that the funder will get a finished product that is likely to succeed, and is generally required to get a deal done.

Want to connect with top tier publishers and investors? A great first step is to create a great-looking profile page at Think Gaming, outlining your team, concept, art style, and game play videos.

 

Blogging about mobile freemium

With the launch of Scouting Reports, we’ve seen a ton of new traffic coming to the site from game developers and publishers. When we talk to them, almost all of them are looking for ways to make better games, get recommendations on analytical tools that can help them make more money, or best practices from fellow game developers. So we’re going to be ramping up our blog activity.

We’re also looking to cover these topics from different perspectives, so are talking to a select group of guest bloggers. If you’re an analytics provider, game publisher, ad network, or industry consultant, let us know the topics you’d like to cover for our audience, and we’ll consider a guest post. We’ve got tens of thousands of game developers who are interested in real insights about how they can make better games and/or more money.

Contact us here if you’ve got ideas for a topic you’d like to cover. If you’ve got suggestions on what you’d like to see, leave us a comment!

 

 

 

Is Candy Crush Cheating? Will it matter?

We heard an unsubstantiated rumor this week about how King.com maximizes revenue for Candy Crush Sage. It’s juicy enough to be a great idea for monetization but we’re not sure how we feel as gamers.

Our source – who is not a King.com employee – claimed that the Random Number Generator (RNG) that determines how candies are distributed within Candy Crush Saga is non-random and is, in fact, rigged to promote better monetization. This either leave the player “just shy” of completing a level, or makes it harder to win when you’re running low on energy.

How does this work? Our source didn’t know, but if we were designing the game, we’d think about one of two strategies:

  1. Re-use the seeds of levels that led to monetization. The seed for a RNG determines how candy will be distributed on the board. By choosing seeds that had preceded monetization in the past, you’d be likely to find levels that left the player with no energy, but only one more move to complete the level. This would juice monetization significantly.
  2. Re-use seeds of levels that are impossible to complete, draining players of energy. This is a similar strategy, but this technique ensures that players will run out of energy faster. It’s unclear whether this would be more or less effective than strategy #1, but easy enough to test.

This wouldn’t be unheard of. Many RNGs are rigged, sometimes in favor of the player. Tetris, for example, uses a semi-random process to ensure the distribution of pieces is more even than chance would allow. Many in-game coin flips are actually rigged in favor of the player, because people complained too loudly about the “bugs” that must exist because the coin would never land on heads 10 time in a row. Slots are similarly programmed to dish out small wins at a frequency that encourages long-time play.

Freemium games are a new animal, with lots of experimentation happening. While we’re not lawyers, this appears a totally legal approach to game design. So if it’s true that this is part of the Candy Crush monetization magic, we expect we’ll see the tactic spread.  The real question will be whether gamers revolt.

Secrets to Game of War: Fire Age’s monetization

Game of War: Fire Age is a relatively new game from Machine Zone that is quickly moving up the top grossing charts. We’re not in the forecasting business but wouldn’t be surprised if we saw Game of War as a challenger to the #1 top grossing game in the coming months.

So what are the secrets to Game of War’s monetization success? Almost nothing about Game of War is brand new. It borrows heavily from MMOs like Kabam’s Kingdoms of Camelot, but takes that winning formula to new heights. Iterating on a formula ensures a big target audience and reduces the risk that ARPU won’t support support paid user acquisition.

That said, we think there are three things worth noting:

  1. Depth for big spenders. For many freemium games, the largest spenders represent more than 50% of total revenue.  It’s not enough to secure a one-time purchase. Top grossing games need to create demand for larger virtual coin purchases ($99+) and the best of them create demand that continues over time. The two best ways to do this are lots of strategic depth and great multiplayer. Game of War: Fire Age has created a ton of strategic depth that will allow for months of gameplay. This tends to be expensive to develop, but will pay off in spades for Machine Zone.
  2. Great multiplayer. Everyone loves playing games with friends and competing with them. Game of War’s multiplayer is native to the game, and promotes both cooperation and competition. You are placed directly into an alliance, where you’ll cooperate will up to 100 other players to take on the rest of the world. Lone wolves who try to play alone are fat targets, and my alliance has been stuck in a week-long war against another one from the UK. Wars create lots of spending.
  3. Great in-game messaging: Game of War does a great job promoting their in-game currency – see one sample screenshot. They run limited-time sales on their in-game currency, creating a sense of urgency.  And they add lots of small bonuses to their bundles to increase the perceived value.  We’d expect this makes them 25-30% more effective than simply making their currency available for sale.

image

Only time will tell how Game of War trends, but we expect the best game developers are taking notes and we’ll see new iterations on a great formula. We’re excited to see what it brings.

 

Jelly Splash vs Candy Crush: it’s all about virality

Jelly Splash is a very fun new puzzle game from Wooga that’s rocketing up the charts. It’s a cross between Candy Crush Saga and Dots, both known for their insanely addictive gameplay, and Jelly Splash doesn’t disappoint on that front. You’ll be hooked – we promise!

jellysplash

Michail Katkoff has a good post highlighting the monetization improvements Jelly Splash implemented vs Candy Crush’s implementation. Michail highlights Jelly Splash’s use of virtual currency as a major reason they’ll see better monetization. This is spot-on, and explains why 85% of the top grossing games use virtual currency to monetize, and you should too.

But monetization isn’t the full story, which is what will make the Jelly Splash / Candy Crush battle (Skirmish of Sweets? Clash of Confections?) worth watching. Freemium success is a combination of Retention, Monetization, and Virality, and there’s a very complex balance.

Candy Crush doesn’t monetize particularly well on a per user basis. It has a below average ARPU index, Think Gaming’s measure of how well the game retains & monetizes players versus an average top grossing game. There’s lots of opportunity for improvement, and they wouldn’t dominate the top grossing games without something else.

Their success comes from the fact that they are a regular chart topper on the top free games list, which we estimate as 150,000-200,000 new installs daily (US/iOS). While some of this paid user acquisition, we think the more distinctive factor is the strong virality built into the game.

Candy Crush has smartly baked viral engagement into the core of their game, allowing non-paying gamers to avoid paying by sharing the game with their friends. Put differently, viral sharing and monetization are fungible. So while King takes a monetization hit, they are able to get tons of new users through viral means. In a world with steadily rising user acquisition costs, that can be a very smart formula.

Note that there’s lots of speculation here, and Jelly Splash has some great virality baked in too, which is what will make the Skirmish of Sweets so interesting. The results should provide some good data on the right balance of monetization and virality. Stay tuned….we’ll post updates as data flows through.

The myth of mobile gaming consolidation

Talk to smart people about mobile games for long enough, and a common refrain is that the days of the small mobile game developer are numbered. Gameplay standards are rising, which means it costs more to develop artwork, sound, and game play. Discoverability is a crapshoot, which means most games need to buy distribution.  And there is a long-list of post-launch tasks to tune retention and monetization that require both technology and in-house experts.

All of this is true, and logic would tell you that giant publishers with big budgets and armies of analysts should be steam-rollering the market. Cue evil laughs in fancy glass skyscrapers.

The problem with all this smart logic? It’s not happening.

The 300 top grossing games are made by 161 different publishers, and only one of them has more than 10% share. Supercell has ~11% of US daily revenue between Hay Day and Clash of Clans. King.com has 9% with Candy Crush Saga. EA has lots of titles that add up to a measly 5% share of revenue. 158 publishers split the remainder. Not only is that a ton of fragmentation, but it’s fast turnover: the top two players weren’t around 2 years ago.

So what’s really happening? Our guess is that it’s a combination of a few things:

1) Google & Apple promote fragmentation. The app store providers have a big economic incentive to ensure that no one publisher gains too much leverage. We’d expect that there’s some bias towards promoting diversity in both publishers and game play styles. As gamers, we like this too. Keeps everybody honest.

2) Authoring & monetization tools are cheap and improving fast. Unity provides authoring tools to build high-fidelity games in less time. Think Gaming provides a monetization platform to turn that can quickly turn developers into sophisticated self-publishers. As e-commerce platforms and web frameworks drastically lowered the cost of building a website, so too these tools will allow great games to get built faster & cheaper.

3) The freemium and mobile waves are changing the publisher playbook faster than anyone expected. Everything is happening fast, with 82% of the top grossing games using virtual currency to monetize, and 93% using a freemium model

Our prediction: none of these factors are going to change fast. Instead of the relentless consolidation of the giant publisher, we’ll see several years where smaller development shops look like web startups, deploying great new games at a breakneck pace. A new publishing model may emerge, but it will happen over time.

Long live the indie developer! Cue a nerdy giggle in someone’s garage…