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13 Jul 2009

[Last week I discussed how pricing flexibility and responsiveness can lead to dramatic revenue increases for games. Today I’ll examine another effective business method that’s just beginning to take its first steps: video game syndication.]

The Long Tail

The "long tail" refers to the period of time during which a game continues to generate revenue after the initial interest in its release dies off; depending on the game, this might begin anywhere from a few weeks to a few months after the release date. Historically, games haven't had a very long tail. A typical game's life cycle begins with a two-to-three week rush of interest -- during which most of the game's revenue is realized -- followed by a couple months during which the price is reduced, marketing is all but ceased, and the revenue coming in is held at a mere trickle compared to launch. After that, the luckiest games are relegated to the bargain bin, and everything else is abandoned entirely.

Other media do it better. Movies have an incredibly long tail; it's not all that hard, for example, to purchase a new copy of a DVD from 1995. Finding a factory-sealed game from 1995, on the other hand, is all but impossible. And not only that, but movies also tap the market more frequently and more deeply than games.

When a movie comes out, you get:

  • Theatrical release (6-8 weeks)
  • DVD release (a few months later)
  • Pay-per-view release (e.g. premium TV providers)
  • TV syndication (ad-supported)
  • Rental contracts (e.g. Netflix, Blockbuster)
  • Other partnerships (e.g. airlines' in-flight movies, etc.)

When a game comes out, you get:

  • Initial release (2-3 weeks)
  • Price reduction/bargain bin (2-3 months)
  • Rental contracts (e.g. Gamefly)

Obviously there are some missed opportunities there. The big one I want to tackle today is syndication.

What Is Syndication?

From the Museum of Broadcast Communications, with respect to television syndication:

Syndication is the practice of selling rights to the presentation of television programs, especially to more than one customer such as a television station, a cable channel, or a programming service such as a national broadcasting system. The syndication of television programs is a fundamental financial component of television industries.

In other words, syndication is the selling of broadcast rights to service providers other than a program's original producer. This generates revenue for the content producer both directly (via the sale of rights) and indirectly (via access to the broadcasting partner's audience); meanwhile, the broadcasting partner makes money via ad sales whose value increases as a result of the acquisition of more desirable content.

There is evidence of gamers' desire for syndication in the abandonware community, on sites like Home of the Underdogs and Abandonia. As described by Home of the Underdogs:

The term abandonware was coined sometime in 1997 by classic game enthusiasts to refer to any game, regardless of age, that has been discontinued by its publishers. Due to the natural lack of organization in such fringe area of the law, the concept has, over time, been unfortunately misused to refer to any game that is 5 years or older (or 3, in some cases) regardless of whether or not it has in fact been discontinued. We believe that the definition of abandonware as it was first conceived is the only viable definition that draws a clear and only line between abandonware and "warez": abandonware has been discontinued by the developers, while warez have not. While both are illegal, the motives and principles behind each are miles apart.

Unfortunately, the exchange of abandonware is legally indistinguishable from out-and-out software piracy. According to the U.S. Copyright Office (PDF), copyrights on most video games -- insofar as most video games can be considered "work for hire" (the standard developer/publisher relationship) -- generally last 95 years from the date of first publication:

For works made for hire, and for anonymous and pseudonymous works (unless the author's identity is revealed in Copyright Office records), the duration of copyright will be 95 years from publication or 120 years from creation, whichever is shorter.

However, the abandonware community is distinct from the more general pirate community in that abandonware proponents aren't just cheap thieves; the community exists solely to provide access to games that are otherwise unavailable for purchase. (In fact, Home of the Underdogs hosts many game pages which, instead of linking to a free download of the game, link to a publisher's online store where that game can be purchased; sadly, such cases are rare because many publishers are unwilling to continue supporting decade-old titles.)

The abandonware community fills an obvious market need -- access to non-current, even vintage, games -- which could be addressed in a legal and profitable way with a syndication model adapted to the video game industry.

That said, we do have a few legitimate portals through which some old games -- a severe minority, but some nevertheless -- can be legally purchased. GOG.com (Good Old Games) is one of the most recent and prominent of these. Steam has also been picking up some older stuff of late (several entries in LucasArts' back catalog recently appeared, though sadly, Full Throttle remains absent...) In both cases, the portal is a different company than the original content producer/publisher; this looks quite a bit like a classic TV syndication model already, with the only problem being that only a very tiny percentage of old games are currently represented here.

Offsetting Production Risks

With portals like GOG.com and Steam starting to bring a form of syndication to the video game industry, it would seem like the problem's already been solved. And to a certain extent, aside from the sparseness of the available catalogs, it has. But there's another benefit to syndication that hasn't yet been exercised in our industry:

Historically, syndication, whether domestic or international, served to underwrite the risky process of producing for American network television. From the late 1960s through the mid-1990s special regulations (the Financial Interest and Syndication Rules) governed relations between television networks and independent production companies. Under these rules ownership of the rights to the programs reverted to the producer/production company after a specified number of network runs. Profits from any other sales, including syndication, generally benefited the production community. For this reason many production companies were willing to produce original programs at a loss, betting on the enormous income that might rise from successful syndication. Many "failed" programs could be created with the profits from one or two successfully syndicated shows.

And from Wikipedia:

Just as syndication is a source of profit for TV producers and radio producers, it also functions to maximize profit for Internet content producers. As the Internet has increased in size it has become increasingly difficult for content producers to aggregate a sufficiently large audience to support the creation of high-quality content. Syndication enables content creators to amortize the cost of producing content by licensing it across multiple publishers or by maximizing distribution of advertising-supported content.

One of the most common phrases associated with the video game industry in recent years seems to be "skyrocketing production costs". If it was a problem in the PS2/Xbox generation, it's a catastrophe now. There's been much talk of how we're a "hit driven" industry, and much lament of the associated "sequelitis". Long-time gamers complain that developers and publishers don't take creative risks any more, that games are becoming cookie-cutter and dumbed-down. We're stuck in a rut of risk-aversion... could a video game syndication model be the cure?

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