Game Matters

Going once... going twice... sold!

A few weeks ago Gamasutra put up an article by Dan Lee Rogers, "The End Game: How Top Developers Sold Their Studios." I have a few comments:

o Rogers writes, "For many developers, selling their studio is the final prize for a race well run." Although I understand that many studios believe that selling is a great goal, I do not understand why. Independence, if maintainable (and that's the key, of course), is a much more rewarding goal. Once you sell your company to a publisher, despite good intentions by both sides, it's difficult to resist digestion by the bigger fish.

As the article shows, there have been many dozens of developer studios bought-out in the last 15 years, and hardly any of them remain intact. A few like Raven and Blizzard are notable longer term exceptions (and even with Blizzard a significant number of key people and founders have left). Most, like Origin, Bullfrog, Westwood, Maxis, Iguana, Papyrus and Legend has been swallowed and digested by their predators, and are all but lost to the industry, with any remaining remnants not resembling the pre-purchased version.

This blog entry was triggered because 3D Realms received a very serious buy-out opportunity yesterday, but as with all offers that come our way, we quickly pointed out how much we prefer 100% independence and the creative control it affords us -- even if at great personal cost. It's just not worth it to us to lose even an ounce of control over our destiny, and we're fortunate to have a choice to remain as we are in this respect.

Most independent studios don't have much of a choice, though. And growing financial pressures force them to sell-out and push their company within the black event horizon of obscurity.

o I'm not against all buy-outs, as there's always a price that can't be turned down. I hold no fault for Rare, for example. The owners of that company would have been crazy to turn down Microsoft's desperately overblown offer of $375 million. Present us with a stupefying offer and I'll happily sign the dotted line.

o Another problem that I see is that too many dev studios are concerned with growth, and building multiple internal teams. The idea is that it's safer to spread risk among multiple projects, and avoid having all the eggs in one basket. Makes sense, except it doesn't.

It's friggin' hard enough to make one hit game. Who in their right mind thinks they should try to make two or three hit games! And take my word for it, hit games are all that matters, assuming you run a studio that wants to become financially self-sufficient, and pry yourself away from the always pressing publisher thumb.

The bottom-line is that it's MUCH easier to focus the entire company on one game, and make that one game a hit. Once you begin to divide internal company resources between two of more projects, the chances of any of them being a hit drops proportionally. Just as the best way to strike it big in Vegas is to place all of your money on a single bet, the best way to make a hit game is to play a single bet with everything you have, financially and people-wise.

When we began working with Remedy Entertainment on their second project, after Death Rally (published by our Apogee label), they presented us with three games that they wanted to create simultaneously: One a game set in space, something like Freespace, the second a racing game, and the third a top-down, Loaded-style, detective game. My partner, George Broussard, and I did our best to convince Remedy's leaders to drop two of the games and focus the entire company on the one game we liked the best, the detective game. They resisted strongly at first, but within a year they dropped the other two and later claimed it was one of the best company decisions they ever made. And with the entire company focused on a single project, the resulting game worked out quite well, earning over $70 million for us and them combined. The power of focus.

Another prime example of focus can be seen with Id Software, one of the world's most financially successful indie studios, and always a one-game-at-a-time company. When your entire company focuses on a single game, your chances of doing it right skyrocket.

To wrap up, I hate to see studios sell-out. It usually means a sure end to that studio's identity, and it represents another small power shift toward publishers, and things are already shifted too far in that direction. I still believe that the independents, if given a reasonable amount of financial and creative freedom, have a better chance of of paving new ground than publishers. For example, GTA was created by DMA while they were still independent. Will Wright created The Sims as a internal indie project, within EA (and often against EA's desire to publish the game while it was still an experimental concept). Peter Molyneux's indie studio, Lionhead, is working on a potentially groundbreaking game, Fable. And look what independent developer Remedy did with Max Payne, and Valve with Half-Life. Publishers, although they have more money, seem to think they have more to lose by taking risks. That's why I think our industry needs healthy indies, who are more willing to innovate. And each indie that's sold to a publisher is another one that you can strike off the list as potentially creating a break-though game. Anyone think we'll see another revolutionary original game from Warren Spector's Ion Storm (owned by Eidos) or Bungie (owned by Microsoft) again? Don't hold your breath.

Warning Warner

Between my family's yearly spring break vacation (skiing at Tahoe) and catching up after the trip, it's been tough to find time to write an entry here, so just a quick one for now while longer articles continue to brew while I find the time.

I just got my copy of MCV, an industry weekly written in the UK. (Strangely, in the much bigger US market, I'm not aware of an trade weekly.) The lead story for the March 5th issue is headlined, "Warner draws its sword." It's about Warner's new games division, and how it plans to successfully produce games. What we have here is another mega media monster peering hungrily at the games market. Even though many multi-media studios like Universal, 20th Century Fox & Dreamworks, have come before, this one is more interesting for two reasons:

[1] Warner has been here before. In fact they were the first major media studio to recognize the growing importance of the game industry. In 1976 they paid $28 million for one of the industry's crown jewels: Atari. It should have been easy to predict failure, though, because rarely do company mergers succeed, unless they involved two very similar businesses. When two unique businesses merge, management focus strains, budgets compete, strategies conflict, and the overall company suffers. (And yet, not having learned this lesson, Warner later merged with AOL, which was an obvious blunder from day one.)

Well, looks like Warner has a short memory and wants to give it another shot. The end result will be no different, despite point number two...

[2] Warner hired an honest-to-goodness developer to run the show. Jason Hall founded, and was CEO of Monolith Productions (Blood, No One Lives Forever, Tron 2.0) for several years. I've known him almost the entire time and I know he's smart, and he's a true gamer -- how many execs can you say that about? Warner did the right thing by hiring Jason, but still, it won't be enough.

The two insurmountable problems Warner faces:

o Focused publishers will always lead us in making the best games. EA, Activision, Take-Two (a.k.a. Rockstar), THQ, Konomi, Capcom, Nintendo, etc. are our future. The reason specialized companies will lead us is that they have everything to lose by failing. We rarely see an non-industry specialist, like Warner, succeed in the games industry, because if they fail in the games industry, they still succeed in their primary industries (movies and TV). It's just not as important for a company like Warner to really try hard in a area that, in the end, doesn't mean life or death to their company.

o Mega-media companies like Warner rely too much on their non-interactive born IP. In the MCV article, for example, there's a sidebar box that lists Warner Bros' stable of "impressive" franchises. See if you think these have hit potential as games: Eight Legged Freaks, Ocean's 11, The Last Samurai, Troy, Friends, ER, and Smallville? My opinion is that you can make 100 games with these IPs, and maybe five will be hits. If you're lucky.

Other Warner brands include Batman, Superman, Terminator, and The Matrix. All of these have been made as games, and with generally dismal results. Enter the Matrix was the most successful of these, despite the game being strongly panned by critics. Yet it sold well because it was released at the same time as the super-anticipated second movie, a tactic that can save a horrible game.

Jason says he knows the track-record of previous media studios turned game developer, and has ideas on how to fix the problems. But, I think the inherent problems are beyond repair. Jason also plans to create original brands within Warner, which I think is the best approach to succeed, but I doubt Warner will give him much of a chance, because it only takes 2-3 non-hits to become highly risk-adverse to making original games.

Most of us remember when LucasArts used to make original games, but all they do nowadays is make Star Wars and Indiana Jones games. Like Warner, LucasArts has a company focus problem, being part of a much larger company. In fact, LucasArts now outsources most of their projects, letting specialized companies handle development. But they've all but given up on original brands.

Warner will give up, too. And I bet they eventually regret their second attempt to play in our industry.

Disengaging

I'll make clear right away that I do not and cannot follow all facets of the game industry, and two segments that I barely pay attention to are hand-helds and cell phones. That said, I do have a few comments on the first big-market device to slam these these two segments together, resulting in a Frankenstein-like device that absolutely fails in both areas it tried to combine: Of course, I'm talking about the N-Gage, by Nokia.

Many of my comments deal with branding and positioning theory, so you'll just need to bear with me as I prattle on about stuff that may bore a lot of people, but, hey, it's what I do! Also, keep in mind that while a great many other developers have expressed to me similar befuddlement about the N-Gage's many blunders, most will not say so in public. It's a dangerous game slapping the hand that one day might feed you.

o Nokia is the wrong company to make portable gaming devices.

Nokia needs to ask themselves, "What does our brand mean to customers?"

Often, companies run into big problems when they answer this question in a different way than their customers do. I'm certain the average Nokia customer thinks of Nokia as a leader in the cell phone market. And that's about it. In a nutshell, Nokia means cell phones to consumers. So, when Nokia jumps into the games market, it doesn't make sense to people. It doesn't ring true. People naturally ask themselves, "What the heck does Nokia know about games and game platforms?!" Oh sure, Nokia has simplistic little cell phone games on their phones already, but those are seen as a side feature. Every cell phone has these games. And these minor games do not negatively impact the meaning of a company's brand.

So, when Nokia last year released a dedicated portable gaming device, consumers subconsciously realized it was a mismatch for the Nokia brand. It's a positioning blunder, pure and simple. In fact, it can damage their brand by giving it a split personality.

Some 60 - 70 years ago, for example, everyone thought of Heinz as the king of pickles. In fact, 57 juicy varieties. Heinz ruled the pickle category. No one else was close. Then Heinz management heard about a new upstart category that had good potential for growth. Hey, we're a big, wealthy company, thought Heinz, let's take over a second category. And boy did they. They went after the ketchup market like a force of nature, advertising for years that Heinz made the best ketchup, eventually crushing all comers in this red-sauced category. They had done their job well, no doubt about it. By the time they won the ketchup category, the average person on the street thought of Heinz first and foremost when they thought of ketchup. Unlike waiting for Heinz's slow pouring ketchup, management did not anticipate what happened next...

In their fervor of red, Heinz lost green. Pickle green. No one thought about Heinz as a pickle brand anymore -- Heinz clearly meant ketchup. This is one of the very rare times in corporate history that a brand so thoroughly and successfully changed identities. Usually, when a brand tries to change, it fails in both categories -- witness this happening with Kodak right now, as it tries to change from a film brand to a digital image brand. Ain't gonna happen, if history is any indication. The end of the Heinz story is still happy, though. They still rule in ketchup, but they've gone sour in pickles, overtaken by better focused (single meaning) brands, like Vlasic, Mt. Olive and Claussen.

The lesson Nokia should learn is that when you give a brand two meanings, you place a high risk on devaluing the brand's value in both categories. You create a weaker brand. Is this really what Nokia wants to see happen with their brand?! You can bet that many of Nokia's competitors are giggling with glee to see Nokia distract themselves away from their core cell phone market, because when the leader gets distracted, it gives the guys lower on the ladder a chance to climb over top of them.

What Nokia has overlooked is that they're only successful within a well defined market, and they'd be better off staying 100% focused on it, maintaining their precious lead. But, only the smartest, best-run companies can resist the of-so-tempting urge to expand into new product categories that are outside their perceived area of expertise.

Is the cell phone market too small for Nokia? Do they believe that branching into other markets is the only way to grow revenues? Is growth in cell phones coming to an end? Gimme a break.

o N-Gage is a tricked up brand name.

This point is rather self-explanatory. What if Microsoft called themselves Micro-Soft? Oh wait, they once did! Smart of them to drop that silly hyphen. What if Xerox called themselves X-rocs? Pretty lame, eh. Well, N-Gage is no less lame. Bottom-line, if you want to establish a new brand, use a name that's easy to say, and easy to write correctly. I've seen N-Gage as Ngage, N-gage, NGage, n-Gage, N-Game, iN-Gage, eNGage and a few other ways. If they liked the sound of "engage," then use "Engage" as the name. Keep it simple, otherwise expect people to screw it up at every chance. Wal*Mart is about the only top brand I know of with a tricked up name (and I too often see it as Wal-Mart, or Walmart, or several other derivations). Most brands that started out messy, like Micro-Soft's, eventually became de-tricked as smarter people within the company figured out that simplicity rules.

o Nokia does not know how to speak to gamers.

First and foremost, it's inherently difficult to advertise a product that is poorly positioned, like the N-Gage. But, Nokia's marketing for the N-Gage truly shows that they do not understand what the gamer cares about. I'm not the only one with this opinion -- I've heard it from a good many other developers in this industry, who agree with me in thinking that all of those two-page advertisements for the N-Gage were ineffective, unappealing, and failed to deliver a convincing message to get people to buy one of these devices. Their ads typically showed a scene with no people, such as a locker room, or a wet street, with a tagline like, "This is where I spun out of control." Okay, and why is that inherently interesting to me as a game player? What sets the N-Gage apart from the GBA? Why should I care? Grade F on the ads.

o Nokia lacks the know-how and experience to design a decent game device.

This is one of the least important problems, because no matter how well the N-Gage could have been designed, it was still a positioning mismatch for the Nokia brand, and therefore it's naturally hard for people to trust them to make a product that's outside their area of expertise. Would people buy a Nokia DVD player? Or a Nokia computer? But you quickly counter, "Scott, cell phone are hand-held devices and so are portable game systems." True, but would it therefore make sense for the Nokia to also get into PDA's, and portable GPS devices -- both of which can use wireless technology like a cell phone.

Likewise, why don't the PDA and Pocket PC companies, like Palm, come out with a dedicated portable gaming device? It makes just as much sense for them, no? And what about the other cell phone companies, like Samsung, Motorola, Ericsson, Sanyo, Qualcomm -- if Nokia thinks they can do it, why not their competitors? Or, do their competitors have a better grasp of their brand's limits. Again, a smart company knows its boundaries, and rather than stretching beyond them, they instead focus on winning the war within their stronghold. Nokia stepped outside its boundary, and sales show that Nokia got slaughtered.

But, more to the point, the N-Gage is a design flop. EA president and COO John Riccitiello recently slammed the N-Gage, saying, "When I picked that thing up I knew it was a dog -- it just feels stupid." He pretty much sums it up. As a cell phone you hold it like a taco, and as a gaming device the screen is oriented wrong, and the game card can only be changed after you go through the inconceivable hassle of removing the N-Gage's battery. Yeesh!

o Should Nokia try to rescue the N-Gage?

Bottom-line: They shouldn't. It's a positioning mistake for the Nokia brand, and a dead-end distraction for Nokia management. But, we all know that Nokia will try to save face and at least give the Nokia another try. Here's what they should do:

-- Fix the design. This is a no-brainer. Screen orientation should be landscape, like the GBA's. Allow players to change game cards without dissecting the device. Re-orient the phone's ear-piece and microphone so that you don't look like an utter idiot talking into the device.

-- Ditch the N-Gage name. It has no value. In fact, it has negative value. To most game players, the name N-Gage is a warning to stay away ...far away. Best to start over with a new name and a clean slate. Admit that the N-Gage was a mistake, and introduce a newly named device. Will Nokia do this? Not a chance -- they'll stick with the sullied N-Gage name because to change names is like admitting failure, and companies with egos hate to admit failure.

-- They need a revolutionary game that's not already available on the PC or on another platform. Getting games that are better played on stronger platforms is a weak strategy for any platform. The also need a game that truly exploits the Bluetooth and/or wireless advantage of the device. Otherwise, they'll never have a compelling reason for someone to buy their more expensive device over the GBA or coming Sony PSP. (The fact that Nokia has combined a cell phone with a portable game device adds very little value to most people. If the games aren't compelling, NO ONE cares that this device doubles as a phone. No one.)

-- Nokia needs to create a separate company to handle the N-Gage. The "Nokia" name should never be associated with this device, much like the Toyota name is not associated with Lexus. Don't agree? Neither did all-powerful IBM when it came out with the revolutionary IBM PC. IBM had very bright people who developed the PC. But the IBM PC team was saddled with the crushing weight of IBM's slow-to-react management structure, and the fact that IBM management saw the PC group as a side line (add-ons to their mainframes and mini's), rather than a potential gold mine unto itself. It didn't take long for fast-acting competitors to out-pace, out-price, and out-brand the IBM PC. Had IBM's PC had it's own company (funded/owned by IBM in the beginning), then things could have been different -- at least this new company, with it's own separately branded image, would have had a fighting chance. Nokia can learn from this example.

But, the bottom-line is they won't. Therefore, my advice for Nokia is to disengage completely from the game market and remain focused on their core business. The N-Gage is a money pit. It has cost them $100 million plus so far and they have zip to show for it. Why throw good money after bad?

UPDATE (March 4, '04):

Nokia has tried before to expand the reach of its brand. Back in the late 80's they bought a failed computer division from Ericsson (whom previously purchased Datasaab, a computer maker at the time). So, after Ericsson figured out that they couldn't jump into the exploding computer market, Nokia thought they'd give it a go by creating a new division, Nokia Data. Three years later they realized their mistake and I think ended up selling their computer division to someone else, but either way they wisely got out of computers.

Actually, this move was the start of Nokia's critical turning point and rise to dominance. Nokia's management sold off most of its many side businesses and shifted nearly all focus to the cell phone market. By 1995 or so, over 90% of Nokia's business came from cell phone, and they had shed their conglomerate identity problem. What's neat is that by shedding all of these side businesses, they became a LOT more successful -- the lesson is that it's better to be the big fish in one pond than have small, easily eaten fish in many ponds.

Nokia basically shot to the top because they remade their brand to mean one single thing: cell phones. And by the time most of the world heard about Nokia, it was a cell phone company, and so it started off with the proper branding image.

Think about this...

What's a Nokia? (Most people will quickly answer "a cell phone" or "a cell phone company.")

However, how will people answer the same question about Nokia's competitors:

What's a Motorola?
What's a Sanyo?
What's a Samsung?
What's a Handspring?
What's a Panasonic?
What's a Kyocera?
What's a Siemens?
What's a Mitsubishi?

Nokia's wins because most of their competitors have brands that lack a laser-focused meaning. And since consumers innately trust a specialist over a generalist, when it comes to cell phone people naturally believe Nokia makes the better cell phone because they are a specialist.

This is why Nokia's N-Gage is damaging their brand, by painting it as a game platform maker. They're lucky that they're failing, because the more success they achieve, the weaker they become in the cell phone market (because they become more and more unfocused and meaningless, brand-wise, like their competitors above).

The two brands that seem to be well focused in Nokia's market are Nextel and Ericsson. These are the two biggest reasons Nokia needs to keep its eye on the cell phone market and not let itself get distracted down dead-end side alleys.