Wednesday, April 23, 2008

Serious Games Large Scale Buy-In Requires New Revenue Models

Sources: Serious Games Source - NASA Learning Technologies Cuts Educational MMO Budget
Keynote Speech by Adam Singer at The London Games Festival: on Tuesday 23 October 2007 - The Changing Economics Of Mass Media

Good Cash Flows – At the Early Stages…

At the early stages of the movement, Serious Games development, sponsored almost exclusively by the military and other government agencies, tended to have good cash flows: the government pays up front and easy DRM (Digital Rights Management), as the government usually lets the developer keep all rights.

NASA announcement this week has made me revisit this assumption.

After issuing a Request for Information (RFI) in January to evaluate development for a well-funded educational MMO (please find my previous post
MMOGs: Serious Games Creating A Model For Collaborative Learning Worldwide), NASA Learning Technologies has now sent out a Request for Proposals (RFP) indicating that partnering developers will not be paid for their efforts.

NASA Learning Technologies originally budgeted "$1 million a year for fiscal years 2007, 2008 and 2009" for the project, an MMO aiming to teach science, technology, engineering, and mathematics (STEM) to students in middle school through college. This latest RFP, however, now reveals that the group seeks to establish "a non-reimbursable Space Act Agreement."

Exploring New Revenue Models

Essentially asking developers to create and maintain the proposed MMO for free, NASA Learning Technologies is considering alternative forms of compensation: "In exchange for a collaborator's investment to create and manage a NASA-based MMO game for fun and to enhance STEM, NASA will consider negotiating brand placement, limited exclusivity and other opportunities."

Futuring The Impact Of Discontinuity In the Education System On Serious Games Revenue Models

As Clark Aldrich states on his today’s post
Serious Games vs. the Industrial Education Complex: “Serious Games can transform the entire education system, aligning it with the rest of the world.”

To effect this sort of discontinuous change, we need massive buy-in and the potential of Massively Multiplayer Online Game space for the proliferation of advanced learning communities is exponential.

As MMOs may be largely affected by the changing economics of mass media, we're all going to have to deal with this. People who benefit from the current model will need to embrace a new revenue model, or wait for others to disrupt.

The below extracts from the Keynote Speech by Adam Singer at the TIGA conference as part of The London Games Festival, on 23 October 2007, anticipate some of the upcoming challenges.

The Changing Economics Of Mass Media

The economics of mass media are changing: CD sales have fallen, DVD sales have plateaued. Hits are smaller than they were; individual music albums and TV shows are consumed by fewer people. Digital audiences are fragmented by hundreds of TV channels and the top viewed shows, top selling records, and top box office movies all happened twenty years ago.

The price of music is no longer set by record companies and record stores, but by iTunes, and piracy is nature's way of saying your pricing model is wrong. The hope is that the countervailing volumes of the Internet will make up for a fall in price, but the increased volume of the Internet merely fragments audiences and spreads the revenues over a much wider base of material. The dark truth at the heart of the digital revolution is that cheap distribution and low cost storage means 'there is no scarcity in a recording'.

No scarcity means no value. All those things that made a recording scarce and maintained values, i.e. the cost of retail space, the frictions of the distribution chain, the imperfections of copying, manufacturing costs, rationed bandwidth, have gone. Recordings are a commodity.

As the value of recordings falls, so does the value of those dependants on it. This will not happen instantly, as television and radio will have value for a long time: old media never dies it just loses is primacy.

I love frippery and escapism but where is the 'serious' in games? Now I know full well there is a large, important, Serious Games movement, and there may well be Serious Games that are on the shelves that have mass appeal, but I am not aware of them. That is partially to do with my ignorance, and partially with the fact that if they exist they have failed to attract broad awareness.

In my view, the destiny of games is to be a medium capable of doing anything; the destiny of games should be to eclipse current forms of story-telling. The lack of redemptive seriousness detracts from what games could be, and that is a serious medium, and a serious medium touches everybody.

The joy of games is that they can teach, pass knowledge, without the dictatorial pedagogy of the literati. In plain English they allow all of us - be it the young, unengaged male at odds with school, or the dyslexic - who get thrown out, tossed aside by traditional academic curricula back into the game! Games challenge old ideas about literacy: they allow us to absorb ideas in a non-literate manner and that is a good thing.

I believe that games are pretty much where Hollywood was in about 1915 and the great age of games is about to come. The reason why I believe this is not because of the games industry but because of a tectonic shift in media economics. We are moving from the era of transmit to the triumph of the return path - something that games were born to exploit.

So if the values are not in traditional recorded media, where are they? They are moving from recorded to live. In television ITV has outbid Sky and the BBC to get rights to the scarcity that is live football. On the net, mammoth multi-player role-playing games like World of War Craft, with its 8 million plus paying subscribers does well because it is non-recordable: if you were not online when you and your companions raided the 'Molten Core' then you missed it.

But what is the difference between new media and old media? Traditionally new media has been defined by the latest platform - TV, cable, satellite, Internet - but now the split between old and new media is not platform defined but that old media is that which is recorded and transmitted and the audience makes no difference to it; and new media is about the return path, where the audience is an integral part of the program. Where their reactions and responses create the moment, and the values are in scarce experience, or in the immediacy of community, and games are naturally poised to take advantage of this.

In an on-demand world, 'pay us what you think it's worth' becomes the rallying cry. As transistors become free, all that rides upon them becomes free, but games will do just fine, as you are selling the scarcity of unrepeatable moments, but none the less, 'pay us what you think it's worth' will also become a subversive cry in gaming.

Wednesday, April 16, 2008

Serious Games Drive Down Simulation Costs Within Traditional Markets

Serious Games to ease pressure on budgets

Via: Ottawa Business Journal Acron a Start-up to Watch in 2008
"The legacy training and simulation market is ripe for a disruptive influence; one that brings simulation learning to a much broader market and drives down the cost of simulators within traditional markets."

Year founded: 2004 Employees: 22
Venture capital to date: None
Product: Software — CEO John Nicol

With the training and simulation market ripe for a disruptive change,
Acron wants to lead the charge. And its technology, which produces high quality three-dimensional models for simulations, is already pushing the envelope.

Released in November 2007, its integrated 3D modeling technology for graphics and simulators targets the modeling, simulation and gaming (MSG) industry.

It is also the first 3D tool designed to work with Microsoft's recently launched visual-simulation platform ESP. The company also released a high-level architecture interface for ESP.

November was a busy month for the company, which also opened a new office in Gatineau to house its simulation lab and development staff, as well as a knowledge management centre in Fredericton.

The company hopes to build a network of offices across the country and bring desktop simulators to military bases across Canada. Police forces have also shown interest in the technology.

With its relative low cost, Acron's technology promises to ease pressure on budgets and increase the speed at which soldiers get essential training.

But until the armed forces change the way training is supplied and move to the easy-to-use platforms that connect seamlessly, there will be a market for the company's Info X product, which helps facilitate communication between the mishmash of simulators already in use.

So, far Acron has gotten its products to market without the help of any venture capital. With the response continuing to be positive, the company expects to increase its workforce by one third in the next eight to 12 months, to about 36 staff.

Acron 3D Modeler

The Acron 3D Modeler application is a powerful integrated 3D modeling tool for real time graphics, which allows users to create and optimize 3D Models for their simulation environment.

This application has been specifically engineered for the Modeling, Simulation and Gaming (MS&G) industry with support for industry standard 3D formats and modeling formats used in the entertainment industry such as Microsoft Flight Simulator ™.

Its easy to learn environment enables artists and modelers to quickly produce stunning quality models and environments in less time.

The Acron 3D Modeler is the first content development tool to support the new Microsoft® ESP simulation platform and incorporates many advanced features that allow the easy reuse of content from legacy systems.

About Acron

Acron Capability Engineering is a growing, dynamic company that specializes in Information Exchange applications for Command and Control systems and develops Modeling, Simulation and Games technology in Canada and overseas.

The Acron InfoX Information Exchange Architecture allows government and non-Government organizations to communicate and exchange information collaboratively. The company provides a full range of services in the three main areas of Live, Virtual and Constructive Simulation and Serious Games.

Acron has technical staff that constructs stand-alone or distributed modeling and simulation assets using its own tools, or other commercial tools and can also provide management staff for projects at many different levels.

The company has facilities in Ottawa (Ontario), Gatineau (Quebec) and Fredericton, (New Brunswick.)

Tuesday, April 8, 2008

Reconciling Serious Games Market Size Different Estimates

Serious Games Market Size ranging between $ 1 - 11 billion in 2008?

I've been receiving quite a few inquiries regarding the apparently conflicting figures for the Serious Games market size short term.

The recurring issues would be: a) Could you advise me on the components of this calculation? b) Do you know the criteria utilized for PricewaterhouseCoopers’ report? c) Even if I feel that the article on your website is the closer one to reality : $ 1 - 2 billion in 2008, recent reports circulating in US and Europe are talking about $ 9 -11 billion.

Here Are Some Background Presumptions

PricewaterhouseCoopers' report "Global Entertainment and Media Outlook: 2007-2011", in its Video Games segment, reflects consumer spending on console games (including handheld games), personal computer games, online games (including all games delivered over the Internet, including massive multiplayer online games [MMOGs]), downloadable games (whether to computers or to consoles), on-demand games streamed through a Web site, and wireless games played on mobile phones. In the United States, spending also includes advertising on video games. The category excludes spending on the hardware and accessories used to play the games.The PwC 2007 report sets the best estimate for the overall video game market and is a traditional one, but so far, no specific forecast for the Serious Games segment has been developed.

I did publish an update to my original post at Serious Games: A Sizeable Market - Update , in June 2007. At that point, I stated that my conservative estimate was $ 1.5 -2 billion for 2008.

My departing points for the above estimate were as follows:

a) Presentations at the SG Summit DC 2006

The market is 37B for modeling and sim, 10B in games, 10.3 billion corporate training, and 9.6B in healthcare. From this data they discerned that $ 150-200 million were moving to the Serious Games market.

b) Leveraging on collective intelligence

For the Serious Games segment, I have leveraged on collective intelligence to produce, what in my view, is still a conservative forecast. The reason for risking a higher figure was two-fold: 1) the incredible amount of Non-Disclosure Agreements imposed by the predominant "work-for-hire" business model for the segment, which artificially "downsizes" the market and 2) a possible step change introduced by the emergent supply chain for Corporate and Healthcare training games, with the following breakdown:

  • The Serious Games market would be around 400 million per year only in US, in 2007 (mostly Educational and Military)
  • There is now an emergent supply chain for Corporate Serious Games, with a number of corporations taking the first steps and commissioning Serious Games development, which could easily make available additional $ 600 million per year.
  • The same applies to Healthcare providers (e.g., training for surgery, for emergency medical response, and for managing surgical teams), bringing the overall figure for the Serious Games market close to $ 1.5 billion in 2008, in US only.
  • As Serious Games are Gaining Solid Traction in Europe and the video game industry is finding more and more business outside the entertainment sector, this figure could rise to $ 2 billion.
At that point the essence of my $ 1.5 - 2 billion dollar estimate for 2008, derived from the predominant "work-for-hire" business model for the segment, as opposed to a large scale distribution.

c) Reconciling The Above Figures

With regards to the different figures for the SG market size, the following considerations might be of help, aligned with Ben Sawyer's 2004 article Gaming Our Way to Our Better Future:

  • As most of the SG market has followed a work-for-hire model to-date, my conservative forecast of $ 1.5-2.0 billion in 2008 refers to the amount earned by the studios for SG development;
  • Moving away from the-work-for-hire model to a large-scale-distribution model, enabled by COTS harware and software, could lead to exponential growth for this segment;
  • Therefore, we should translate the SG development figures into sales revenues, as follows:

    $ 1.5 billion "earned" by studios for development
    $ 1.5 billion would be (at the high-end) 20% of $ $ 7.5 billion in publisher revenues
    $ 7.5 billion would be 65% of $ 11.5 billion in retail revenue
Dear all, please do not hesitate to challenge me back!Late December 2007, however, following my prior post Microsoft Shaping The Serious Games Movement Into A Multi-Billion Dollar Market, where I state that "by no means would Microsoft join either a current $ 150 million dollar market or a to-be $ 1 billion market only in 2011" (as projected by a few sources), BusinessWeek has published an article where David Boker, senior director of the Business Development Group at Microsoft's Aces Studio, one of Microsoft's game studios where ESP was developed, says Microsoft conservatively estimates this market at $9 billion.