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An archived Hellgate: London feature. See the Hellgate Archives for more.

Interview: Steve Goldstein, Flagship's Director of Business Development and General Counsel.
Date: April 18, 2007
Source: RPG Vault.

RPG Vault Interview

In case it wasn't already abundantly apparent that the persistent state world category is continuing to grow, this week will bring us another indicator in the form of a new conference. Slated to take place on Thursday in San Francisco, the event, which is called Mastering the Craft of Online Gaming Infrastructure, seems notable for a fair number of reasons. One that jumps out is the relatively narrow nature of the topic area. Not very many years ago, such a focus would have been unimaginable; a conclave of the leading practitioners could have been held around a dining room table, quite possibly with space for the audience as well. Also worth a mention is that three more are currently being planned, all between now and the end of the year, on service and support, community management and general management respectively.

Flagship Studios was formed in 2003 by five highly respected developers, David Brevik, Max Schaefer, Erich Schaefer, Bill Roper and Kenneth Williams. This very accomplished group's combined experience takes in some of the most popular game properties ever, including the Warcraft, StarCraft and Diablo series. The company is currently working on the eagerly awaited Hellgate: London and another project, Mythos. Steve Goldstein, its Director of Business Development and General Counsel, will be among the speakers tomorrow. In advance of his talk, he gave us some insights into his topic area, the business side of bringing an online title to market.

The Business of Marketing Online Games

How do you determine your pricing model? Micro-transactions? Subscriptions? Retail box? What factors go into making this decision?

Because we haven't announced any type of pricing model for the online components of our games - or if we will even have a pricing model - I can't comment about what Flagship is doing on this front. That said, there are a slew of issues that a developer or publisher faces, not only when determining what economic model to use (whether it's subscription or micro-transactions) but how to price that product so that it fits within the current market. For example, Arena.net has received accolades for making Guild Wars free to play online; however, if you buy each of their expansions when they come out, about one every six months, that's about the same as paying a $10 a month subscription. Turbine has chosen to maintain the traditional subscription for Lord of the Rings Online, but they are offering a $10 per month plan for pre-orders.

I think in the case of Arena.net, strong community response and good PR were big deciding factors for providing the free play model. In the Turbine case, I think that offering aggressive pricing to lure away World of Warcraft players was a deciding factor. Each game presents its own unique challenge when determining pricing, with issues ranging from the developer's past games, marketing, PR, how much the game costs, what's currently available in the market, what it's going to take to host it, even the underlying infrastructure of the game's network.

When you have a free with micro-transaction purchase model, how do you determine the items and features players will buy? How do you protect against too many people playing for free and not paying?

Again, because we haven't entered the market, or announced anything about handling micro-transactions, I can't comment on what Flagship and Ping0 are up to on this front. However, from what I have seen and discussed with other micro-transaction developers and publishers, you have to be extremely sensitive about encouraging people to make these small purchases, while at the same time not presenting a game that feels as if it's trying to grab money from users' pockets.

Aesthetic items are always an easy way to attract paying users because customizing characters' looks is extremely desirable, and such good won't throw off gameplay. Many Korean micro-transaction based games sell various types of one-time use power-ups in addition to longer-lasting items that will enhance a character's skills. The trick is making sure you don't turn off a lot of players by giving a tremendous advantage to a player for spending a ton of cash, while at the same time, providing a variety of cool items that will encourage the largest number of players to buy in. It's almost like you are taking on an additional level of balance when dealing with a micro-transaction game. First, you have to make sure the game itself is balanced; second, you have to make sure that the items you are selling don't completely throw off that balance.

Do you have a threshold of people you can handle playing for free before the company starts losing money?

Every game will have a profitability threshold. Again, this relates back to the type of game, its infrastructure, how it handles customer service, etc. A publisher can have a very good estimate of how many players it can handle for free; however, it is just an estimate. You won't know for certain until you launch, and even then, your pricing model will affect how many free players you can support. With online games, especially micro-transaction ones, you can constantly adjust your pricing to keep pace with the number of players you are supporting.

What do you say to people who feel that a free game gives the impression it's not high quality? How do you get people to play, stay AND pay?

I think that people who assume free or micro-transaction based games are not high quality often do so because they are only looking at graphics. Even if a game doesn't have tremendously compelling graphics, if it offers strong community components, it can become a huge hit. This is because people seeking out these games are looking for social interaction rather than triple-A level graphics. That said, there are plenty of micro-transaction based games that don't have very compelling gameplay, either because they did not receive enough "culturalization" when they were imported to the US or Europe, or because, simply, they aren't very good.

While I can't speak about the "pay" part, I think that Flagship and Ping0 are going to be bringing something very new to the free game market with Mythos, because not only are we going to provide a lot of the social elements that are currently found in free games, but we are going to wrap those up in beautiful graphics and extremely compelling action RPG gameplay.

A typical retail game is developed by a team that disbands, at least partially, once it has shipped. With an online game that continues to run, how do you plan for staffing and long-term expenses?

Fortunately, our core team has been together for over 12 years, so I don't see them leaving anytime soon! For an off-line game, aside from bug fixes, a developer's job is done once it ships. When you have a game with an online component, this just isn't the case. Online game developers will remain fully staffed so they can begin work on ongoing content.

Because of this, there isn't really any type of downtime. In that way, we plan our staffing based on what we think it takes to get a certain amount of ongoing content out within a certain period of time. Outside of the developers we need for this purpose, many of our long-term expenses, such as customer service, hosting and bandwidth, scale depending upon the number of users we have.

A typical retail console or a single-player PC game that doesn't sell very well ends up being marked down to promote sales. What happens if an online game doesn't perform as expected?

The really amazing thing about online games is that if one model doesn't work, maybe another will. When revenues for Shanda's games in China started to go down, they switched from a prepaid card model (where users pay for time to play) to a micro-transactions scheme. Although revenues initially went even lower for a period of time, this move has now paid off.

At the same time, there are many online games that did not perform as expected, but have not made a model switch. Some that stop performing well are just shut down. Others are sold off. However, as the online game market matures, I think you are going to start seeing many different publishers experiment with model switching before they shut down or sell off their games.

Online games are really one of the rare opportunities in our industry to have the equivalent of ancillary revenues that the film and TV businesses have. For example, if a movie under-performs at the box office, its losses can still eventually be offset through DVD sales, pay per view, cable, soundtrack sales, etc. The game industry has never had an equivalent because if a boxed game does poorly, it's basically dead. There aren't any other avenues to make more money from a failed offline release.

On the other hand, if an online game performs inadequately with one model, it can switch to offset initial losses or even become profitable in the long run. It can even add revenue streams to increase profitability over time. For example, Funcom added in-game advertisements to its free component of Anarchy Online to help support the costs of its free user base.

Steve Goldstein
Director of Business Development and General Counsel
Flagship Studios