DeNA: 'We can get at least $5M out of a game developed by seven people'

Social games are a big business worldwide, and the social mobile space has been exploding with games that are free-to-play, in which you pay for items. DeNA is one of the biggest players in the space, acquiring game companies like Ngmoco (for $400 million), Punch Entertainment Vietnam and Akatama in Chile. We've also heard time and time again how social and mobile games can be made by small teams, while being massively profitable. I recently spoke with former Capcom head of R&D Keiji Inafune, and here's what he had to say about pay and incentive structures in Japan versus the West, specifically in social. "In social games, you have outfits like Zynga that blew it out of the park from the very beginning," he said. "They have that hunger, they want to be the heroes, and it's something the management recognizes and nurtures. "In Japan, meanwhile, even if you take the hero role, what it gets you is interviews like this one -- it's not like your salary goes up or anything. You don't get much reward for your effort. You get massive amounts of responsibility -- the responsibility to take this game and make it sell X copies -- but not much in terms of respect. That's why we can't give birth to heroes." To hear about this from the perspective of someone who's actually making this money and using this structure, I spoke with DeNA director Kenji Kobayashi first about the pay-for-play aspect of some free to play mobile apps, and second about the compensation for the company's employees. The interview was unfortunately cut short soon after the latter discussion began, but you still get an interesting sense of the climate of social game development in Japan, and indeed, in free-to-play worldwide, now that companies like DeNA own so many others. In fairness to Kobayashi, his answers were honest and frank, without pretense or marketing speak. And that is probably why his handlers wanted him to leave as soon as possible. At a talk you gave recently, you mentioned the importance of showing heavy non-paying users that it's easier to play a game if you buy items. Some users have a negative reaction to that "pay-for-EXP" sort of thing. How do you view that? Kenji Kobayashi: I think the aim here is for the user to directly feel the effects of what he's paying for. If the user doesn't understand what this payment does for him, or what it lets him accomplish in the game, then he's not going to go through with it. So it's important to have the user think about the possibilities that become available. Users aren't going to immediately place money on the game the moment they start playing, so one thing you have to do is introduce something cheap at the start which will demonstrably make the gameplay experience easier. That way, even people who've always been dead-set against spending money might think "Well, this is at a big discount; maybe I'll give it a try." Then, if they feel afterwards that making that purchase has made things demonstrably easier for them, they'll be more open to that in the future. Western gamers generally don't like systems where you pay money in order to become stronger, or at least they say they don't. Is Japan and China different in that respect? Well, in the case of Japan, it can make things easier, but I don't think it's that sort of thing so much as that it's important to make people feel like they got something real and good out of it. That's the case with FarmVille - it's important that you gain something palpable from it, and that palpable thing is something that's advantageous to you. In that respect, I think it's the same as how U.S.-made games work. Perhaps, but Western games try to hide it to some degree, so it's not obvious that you're paying to win or get stronger. That may certainly be the case, but I think the sort of people who are actively trying to avoid the payment system no matter what are not the sort of people who'd be interested in playing these sorts of games in the first place. The audience is more people who are there in order to play games that are still playable for free - there's nothing inherently negative about not going into the payment system, in other words. The idea is to get people like that to maybe try out payments and then think "That made things really convenient." That opens up the possibility that they'll be heavier for-pay users in the future. Not everyone's going to be there, but I think this approach has the effect of getting more people there than usual. DeNA's social games are making a lot of money these days. How much does it cost to run the business versus what you're taking in? Well, with most social games we develop, there are two programmers, three engineers, and one art designer. That, and one database engineer. So about seven people overall, and it takes maybe four or five months to develop a game. These products have the potential to gross at least $1 million a year, and the revenue can continue for upward of five years. So we can get at least $5 million out of a game developed by seven people. Do those seven people share in the profit? What do you do with the rest of that money? Well, there is profit-sharing model with the third parties we work with, but as far as in-house staff goes, that is more regular compensation. The revenue of the title is related to the compensation of each employee, but not directly. Does that mean DeNA is sitting on a huge mountain of cash? What will you do with it? I don't know if I'd call it a huge mountain, especially compared to our competitors like Zynga or EA. Those are huge companies with much more equity power, and that's what we're competing with, so we need a lot of money as well to keep up. So I think our cash position is not enough, if anything. At this point Kobayashi was told by his handlers that he had to get up to go to another interview.