AGDC: Flagship, Nexon Talk Worldwide MMO Licensing

At the 2007 Austin Game Developers Conference, a roundtable discussion called 'Licensing MMOs Worldwide' was moderated by Corey Bridges, an executive producer and marketer for Multiverse. The panelists included Calvin Yoo, in charge of international business development for Nexon Corporation, Jeff Anderson, CEO of Turbine Entertainment, which is currently starting to license out MMOs, Steve Goldstein, general council for Flagship Studios, who is also president of Flagship’s joint venture with Handbitsoft, and Joshua Hong, CEO and founder of K2 Network, which is licensing Korean titles to the West. Corey opened with an open query as to the state of thinking on licensing MMOs. Jeff Anderson: “I think both problems (licensing in, licensing out) are very different problems. Our solution has been to find the best partners in the right regions. Very differently than licensing projects in. We’re trying to do both those things -- obviously Nexon does that as well. You have to segment it by what you’re looking for; the European taste is very different from the U.S. and from Asian tastes. We feel that North American story content often exports less well than more action-oriented games, more PvP.” Steve Goldstein: “The guys at this table have the easy job when it comes to licensing out. Once the ink is dry, that’s when it becomes challenging, because then you have to execute, and the more publishers you sign on, the more you have to work on. If you plan to do simultaneous ship, you will have to staff up. If you’re not planning accordingly, you’ll be surprised at how much you’ll have to catch up to. We have 6 publishers – if you’re a small developer that thinks you’re going to make big money in Asia, that’s really difficult. I recommend making your MMO work well in the U.S. first. Here’s a good problem I heard about last night – we’re two weeks from ship, and turns out you can’t get your game out in France if there’s any English language in it. That’s all fine, but we have Nvidia’s logo in it, and we had to translate the logos for Nvidia and Intel in order to let it go out there, because they kicked that back to us. You think that you’ve got Europe locked and then something weird will happen that’ll have everybody scratching their heads.” Licensing Into the US? Joshua Hong: “At K2 network we build our whole business on bringing Korean titles. And we really, at the beginning of our company, we didn’t know how to do a proper licensing structure, because Korean games do things differently. They typically ask for much larger licensing payments, and non-recoupable up-front fees. They do that in multiple territories by licensing with multiple publishers. It’s something they’d perfected, and we couldn’t get out of that model. There might be an English server running out of, say, Malaysia, but we also have one out of Orange County – now somebody in Canada can access both. Korean companies often don’t want to IP-block that. We had a contract that was translated from Korean into English, so there were a lot of gray areas in the contracts. We’re running into all kinds of situations like that. We’re now doing a business where we’re just trying to do the best with what we’ve got. Localization was also a big challenge. People often approach this in a very academic fashion. But there’s only so much we can localize; you can only go so far before you’re rewriting the whole thing. We wanted to change a lot sometimes, but the developers didn’t have the resources, or said it wasn’t compatible with their philosophies. Now, as a company, we’re trying to stop fighting a model that we can’t beat. We’re trying out more item payment models, and Korean companies tend to go with more community building, and tuning the game as it’s released, rather than coming out with a ‘finished’ game.” Calvin Yoo: “Publishers in North America really need to look at which development companies they’re licensing from. Nexon is a developer, but we also publish games in the US and Europe and Japan – from a publishing standpoint, I think it’s important to look at the developer’s ability to support multiple territories and versions, and it takes a lot of staff and resources to support all of that.” Jeff Anderson: “I think a lot of this cross-cultural problem is that the fundamental relationships, these contracts are not working. The incentives often aren’t aligned, and the money paid up front to the developers winds up getting used for something else, and not to perfect the product you’re getting. There doesn’t seem to be a strong relationship with the publishers and the developers there.” Steve Goldstein: “I don’t think it’s the contracts so much as the medium itself. When they released the movie Spider-Man 3, they just translated it, they didn’t culturalize or localize it particularly. With games, every territory is going to want something. I’ve found that through our process you say 'no' a lot – because if you can’t, you can’t fix the game. But you can say yes sometimes, too.” Jeff Anderson: “Right, well, everything interactive, like a car or a laptop, has to be customized for the location -- like what side of the car is the steering wheel on, is it kilometers per hour or miles per hour, et cetera.” Joshua Hong: “It’s interesting for me being on this panel, because with Steve’s case, they own their IP, and they have their own games. I’m the publisher, and the publishers need to understand the service of this business. From a publisher standpoint, we’re stuck. When we launch a game, and give incremental updates, if we’re selling that as one of our core competences, we have to deliver on the promise. The issue is that a lot of developers don’t have the right setup to support that kind of business. For example, a typical mid-size Korean company, which has maybe 8 different local partners into 6 different languages – in a way, every version is in its own right a different game. It may have the same title, but if you go into a bits and bytes level, it’s culturalized for those gamers. Then, the developer needs to have processes in place to control the versions, and have a separate team that supports each region – most Korean companies don’t have that, because it’s not economically feasible. And most companies in Korea started out with a real developer mentality – they don’t focus on the service level. I see that as a huge risk on the publisher side. When I look for a developer, one big thing I look for is, can a developer support us for the duration of the contract?” Jeff Anderson: “In China, the marketplace was artificially inflated because there was such huge demand, and so Korean companies got kind of used to getting these high licensing fees, and they expect that in the U.S. too. Eventually the Chinese market will cool off. There’s much less of a market in the U.S.” Joshua Hong: (addressing Chinese publishers) “I have to say this to you - stop destroying my economics! You throw so much money at Korean developers that their egos have gotten pumped up too much. We can’t even enter into discussions with these developers now, because they have unrealistic expectations. In order for a game to succeed in the West, somebody like me has to be able to make it work, and I can’t make those kinds of offers, and I think it’s bad for the whole industry.” Jeff Anderson: “These Korean companies are actually killing themselves in the US market. They’ve created a vacuum where they actually had a leadership position. They perfected light MMOs and item-based models, but since they’ve priced themselves out of the Western market, they’re not here, but they could’ve dominated that position. With the exception of Nexon, they haven’t really tapped into that. Eventually China is going to tap out, markets will slip, and they’ll be in trouble.” Calvin Yoo: “From a Korean developer standpoint, if we can license our products out, we have priorities and choices as to where we can go initially and secondarily. It seems that a lot of Korean developers nowadays are picking territories where they can get the best financial deals. For a lot of Korean developers licensing fees and initial financial terms are very important, especially in China and Taiwan, maybe just all of Southeast Asia. I think from a publisher standpoint it’s very understandable that a deal where only the licensors spend is something that should not happen continuously. I think, now, that with a lot of game developers in Asia, the publishers in North America now have a wide variety of games to choose from. I think as time goes on, this will decrease the burden that people have to shoulder.” Future Trends? Steve Goldstein: “I agree that China’s going to slow down a bit, and that has a lot to do with a lot of publishers signing on Western titles, so there’ll be less for them to work on. But at the same time I think we’ll see a lot more Korean companies and maybe even Chinese companies setting up in the U.S. I see that as a huge advantage, but maybe I’m wrong. I think you’ll see a situation where you’ll have fewer opportunities where you can license territory by territory, but you’ll have more publishers that you can deal with in those regions.” Joshua Hong: “I’m being more honest than I should be, but I’m a little bit confused, to a certain degree. I am a big proponent of a global publisher of online games. I bang my head against the wall to make it work, and it is working. But I study everywhere, and I see the local player dominating everything. China dominates the number 1, 2, 3. Same with Korea, Japan is in an infant stage. So my question is can we build a billion dollar business with this global publishing model. My impression is that you have to pick and choose…it’s really a social experience, these MMOs, gamers participate in that experience. As a publisher you have to honor that, and you have to build your organization to deal with those local needs. Publishers have a very difficult set of challenges – for me the market right now is just downright weird. There are a lot of moving parts, lots of inconsistencies, and so many things are happening, like the markets in Japan. In Japan, the Korean games are really dominating the free to play market, but I think within a few years, it’ll be Japanese titles, and I think the same thing will happen in the West. If you’re a publisher, you should really think about what you can do to fight those trends.” Jeff Anderson: “I think whether you’re licensing games into or out of America, the future is going to be bright. Everything’s drifting toward the light MMOs now. If Korea was too PVP, too much grinding, and the US was too story driven, everyone agrees on where the middle ground is.” Audience Participation When the floor opened up to an audience Q&A, one attendee asked, “Most games in the US are developed and operated in subscription model, whereas Asia is microtransactions. Have any of you operated a game in the US, then licensed it to Asia with a different business model? How does that affect your deal terms?” Jeff Anderson: “We’re in the process of doing that, and it’s incredibly difficult. It’d be nice if somebody had a piece of technology they could throw in there to switch models. I think the more realistic model is that the products you build will just be more transaction-based. But if you look at Runescape or Club Penguin with light subscription models, maybe transaction won’t take off as it should. Calvin Yoo: “To add a bit, it’s literally difficult for a game to transform itself from microtransaction to subscription, for example. A few years back, some publishers asked for one of the Nexon games, which was based on microtransactions, to be modified into a subscription-based game. We refused to do it, and just waited for a publisher who could deal with the microtransaction model. You’d have to completely redo the game design again in order to change the business model, so I don’t think it’s a good idea at all.”