The gaming industry is a changin'. Companies are flooding the market with extra, paid downloadable content, forcing used buyers to fork over more money to play online, and other tactics. PopCap on the other hand, well, they don't do any of that. It doesn't even seem like they need to. So, I had a chance to chat with PopCap's Ron Powers over the phone about the market, the shift into digital, and how they survive in a gaming land ruled by Gamestop.
Who are you and what do you do?
My name is Ron Powers, and I'm vice president of product management and business development at PopCap. I'm responsible for setting our launch and marketing strategies around the globe including our Shanghai office, Dublin office, and respective regions as well as our Seattle office and North America.
How is a price determined for a specific version of a game, in this case say Plants vs. Zombies? It's interesting that I just got a DSi, and Plants vs. Zombies to download is 800 points, which comes out to $10, but if I wanted the retail copy for the DS, that's $20. Some app store versions are a dollar, sometimes four. How do you say "this version needs a jump"?
There's a couple of different answers there. At a high level, PopCap always focuses on delivering the highest value possible for a given price point. We don't always have the ability to choose what price our games are sold for, we can only control the cost of our games. That's particularly important in the digital arena where, historically speaking, there wasn't a cost model or a traditional retail model. The unit would cost $10, so you could sell it for $20.
Digitally distributed products have been revenue shares, so our games will fit into a particular category as determined by the distributor or the manufacturer, and we either accept those terms and that pricing criteria or we don't, so no, it's not always up to us.
That makes sense, but one of the more interesting comparisons I've found was on Steam, where Plants vs. Zombies was $10, on your own digital store it was $20. How does that work, because wouldn't there be some type of fee to be on Valve's digital distribution service in the first place?
That's a really interesting example, and probably one of the most controversial over the last two years. When Plants vs. Zombies launched, we were in the middle of what I would consider a real “pricing chasm,” as it relates to PC downloadable products. The majority of the portals were in this battle where a $20 product was being put into these club programs, discount programs, led largely by Big Fish. If you signed up for a month-to-month subscription service, you could buy any game you wanted for $5 or $6.
We were trying to combat that when we were launching Plants vs. Zombies, and we were establishing a wholesale price point. So, a $20 game, which we believe the game was, carried a $13 wholesale price, or a $10 wholesale price, whatever the perceived value of that product was.
In the case of Steam, they were willing to pay our wholesale price, and sell it at a price they felt was best for their consumers regardless of what their margin was. So, we launched it on PopCap.com at $20, Steam chose to launch it at $10, and they were ultimately responsible for their own profitability.
Oh yeah, by all means. Even though we don't like that pricing disparity, the bottom line is if more of our partners were willing to take the appropriate risks based on their particular pricing strategy, the more harmonious we would be. Steam has done a ton of research on what their customers want and what price point they'll respond too and they deliver one of the best customer service experiences I think that's available in digital distribution.
Is there a saturation point for any game? Off the top of my head, DS, DSi, Xbox Live, PSN, Android, iPhone, iPad, various tablets... there's literally, what, 20, 25 different versions of Plants vs. Zombies? Do those later versions really sell that well after your main PC versions have come out?
[laughs] Your first question is, 'is there a saturation point,' and I'll respond to that by saying 'lord I hope not.' You know, we've been really fortunate and I think what PopCap has been successful at has been, much like managing your investment portfolio, is a broad degree of diversification. We started out early on by going into these various platforms because we were asked to participate.
I go back to Xbox Live Arcade and we were asked to join in that early platform. Today, it's a very meaningful and successful platform for us. We did that because it was opportunistic. Today we've found that our games are enjoyed by a much broader demographic than we ever expected. Five years ago, if you asked me who our players were, I would have said 80% of them were women over the age of 35. Today, it's literally all ages. It ranges from four or five years old to 80 years old and as evident in that demographic diversification, is the success of these various platforms.
We know that the DS is being played by a much different demographic than our PC download games. So, while that's not a direct answer to that question, I think that our view is that we have a much better definition than we gave ourselves credit for, and each one of these platforms,including digital versus physical distribution, have a slightly different audience. So, we were very fortunate to figure that out early enough and tap into that success.
I think that's what happens when, as everyone says, your games are 'digital crack.'
That's your wide audience, because when someone picks up one of your games, they can't stop and think, "What else do they have?"
The game industry is at a point now where pricing is a real issue. You see companies battling with online passes and “Project $10,” while still charging $60 at retail. You guys spit them out, you don't have a single product over $20, and you've become a major player, especially in the casual market. How do you survive and the rest of these companies struggle?
That's a difficult question to answer. I think that at the core we believe that we are building fun. We believe that our brands have become about fun and they mean something to the consumers today. We have a responsibility to provide that to the consumer out of the box whether it's physical or digital; that's first and foremost.
Secondly, we know the difference between our PopCap brand and Mortal Kombat or some major core brand. We know our consumers, we know what our consumers are willing to pay for a given game on a given platform and our egos are not part of that assessment. That's probably where I give us the most credit and we rely on that and our relationship with the consumer in how we press our product.
Do you think now that you've been established more as a casual developer, could PopCap with their customer base push a AAA first-person shooter like Call of Service out the door or even enter that market somehow?
No, we would never try it. We know what our genetics are and we know what our consumers expect from us and that simply isn't it. You can see that to some extent with the advent of the 4th and Battery Studio project. That studio and that website is designed allow certain creative forces within PopCap to exploit creativity that wouldn't be acceptable to the PopCap consumer. Unpleasant Horse was an example of that where it wouldn't fit in a PopCap label but by having a secondary label with a bit edgier content we can expand that experience that PopCap brings to consumers without destroying the brand itself.
It sounds like sort of a Disney/Touchstone relationship where movies are concerned, like animated movies come out under Disney, but PG-13 things come out under Touchstone.
Yeah, very similar.
Obviously we're moving into the realm of digital, but are you seeing that divide between retail and digital? Because, you always walk into a Wal-Mart and there's a copy of Plants vs. Zombies in the PC corner for like $10 as opposed to a digital version, so do you see that divide slowly shifting or is retail still where it's at?
Well, if you look at our PC business for example it's about a 50/50 mix between digital and retail. We've been fortunate in that we control our retail channels directly. In other words, we're a self publisher, we don't rely on a third-party to get us into the market. We've been very consistent in the quality that we've delivered so we've enjoyed better than average shelf share. In a number of these retail channels, our share of shelf space has actually increased in the last couple of years even though the PC market has decreased by 20, or 25%.
Would you say you still notice that as far as the DS, like the DSi vs. the DS cartridge version? Is that still a 50-50 split on consoles too?
Oh, no, no. In the DS market a disproportionate amount of our revenue is still in our digital goods. Remember though, those price distinctions on that particular platform, as with the Xbox 360 and XBLA platforms, there is an explicit difference in the amount of content that you get on a physical product versus the digital product. DSi has fewer features and oftentimes fewer levels then what you get in the full boxed product.
With Xbox, we always bring out a compilation for our retail product. XBLA, you can buy Plants vs. Zombies, but if you buy it retail, it has two additional titles. I believe it's Zuma and, uh...
I think it's Bejeweled. [note: It's actually Peggle. Oops.]
Finishing up here, the used and rental market seems to be a sour spot for the industry. A lot of CEO's are coming out and demeaning Gamestop. Since we talked about physical sales still being what they are for the DS and maybe some of the console versions, is that an issue? Does PopCap see a problem or is just just a case of letting the market decide what it wants to do?
Well, for me personally, I believe in letting the market, or consumers really, do what they want because the supply/demand will work itself out. We have not seen any meaningful change with the advent of used product [at Gamestop], or nothing that's measurable anyway.
Obviously there's an issue with it, so why would you say companies are complaining that Gamestop is a major player? In your terms, you're not even seeing those numbers. Why is that with PopCap as opposed to say major first-party titles from Sony or Microsoft?
Well, we pay attention to industry data, we can only measure our business against our own performance. In the case of the DS, we've had exponentially higher quarters in 2010 than we did in 2009, and 2011 over 2010. It's our conjecture that within our environment that used copies are having very little impact, if any, on our sales.
Now, is there a point where that might change? Yeah, I suppose. But, we don't see our product hitting the used space and then affecting our revenue directly.