Q&A: Paradox's Wester On Digital Distribution Consolidation, DRM, F2P

For over a decade, Swedish publisher and developer Paradox Interactive has steadily grown with its portfolio of hardcore PC strategy game series like Hearts of Iron and Europa Universalis. Now, Paradox is broadening its reach more than ever, reaching into the console market and exploring free-to-play territory on PC. The company's traditional hardcore focus has left it with a strong understanding of how to listen to and satisfy its dedicated base, and that's reflected in Paradox's attitude to controversial topics like DRM, and in the company's digital success -- it expects to see a majority of its business come from download sales in the next year. Gamasutra sat down with Paradox CEO Fredrik Wester to discuss his company's upcoming plans, its relationship with digital distribution groups like Steam and GamersGate, expected consolidation in online sales, and why DRM isn't the best answer. Plus, Wester provides an update on his infamous head-shaving bet about the company's upcoming Victoria 2. What's the state of Paradox these days? What's in your immediate future? Fredrik Wester: We're continuing to grow as a company. We grew almost 40 percent in gross revenue last year and we're continuing the trend with almost 40 percent this year, and we meet all the budget goals. Mount & Blade: Warband did phenomenally well, especially in online sales, and was very well received by the audience. Out first really hardcore simulator, Ship Simulator Extremes, is releasing in August, and it's exciting for us to move into a new genre. We did our first console release with Lead & Gold, a team-based cowboy shooter, on PSN and PC so far, and we're working on what we'll call "other consoles" as well. We can't mention them [by name], but we hope to have it out on a few more platforms by the end of the year. And we're looking at some free-to-play games. That's not really revolutionary in any way, but we found some great stuff at E3, and previously as well, so we'll release our first free to play game in January of next year. When you say it's not revolutionary, you mean in the sense that it's been around a while and it's new to you guys? FW: It's been used in China and Korea for several years; we just haven't had any good games to try with that model. It's good, because people who want to play a little can buy their way into happiness, and people who like to grind and grind can do that. We're looking to attract a few million people, hopefully, by the end of next year, we'll see. I'm guessing it's mainly Asian developers and European developers you've been talking to? FW: It's a mix. We're talking to one Asian developer and three different European developers, both Eastern European and Western European. It's a wide range of developers and a wide range of game types as well. We're looking for a mix to see what works for us, and we can use a universal currency all over the games. Free-to-play games seem to really emphasize geographical or cultural differences. The Western European ones tend to be these fairly in-depth strategy or management games, then the Asian ones are often more like traditional MMOs. FW: More RPG-like, yeah. Ours are mostly strategy games, not surprisingly, but we're looking at some RPGs as well. We did a survey on our forums, where we have 210,000 registered members, and it turns out 85 percent of the people there are RPG gamers as well, which is kind of surprising -- 99 percent are strategy gamers, of course, but 25 percent owned the Wii as well. That's a big surprise for us. Maybe WiiWare is something to do as well. As a company, you seem to put a lot of stock into your customers' direct feedback, particularly through your forums. That seems unusual. FW: That's correct. We get a lot of feedback on our games and on our DLC, and every now and then we take some ideas from the users as well, because the users know a lot about our games -- sometimes more than we do ourselves. Collectively, they definitely know a lot more about our games than we do. Taking advantage of that is really good, I think. We're not afraid to discuss with our forum people and our fans. Speaking of your forums, you had your infamous Victoria 2 bet. How's that game coming along? FW: The game is coming along very well, so I'm actually fulfilling my part of the bet later today, at one o'clock. Just to show my support for the team after playing the game, I said, "You know what? This is a lost cause. I might just as well do it now when it's warm and it's still summer." So, it's kind of my way to support the team, show them I'm on their side, and that I don't have a separate agenda when we release the game. So, you're actually shaving your head today? FW: That's actually what this apron is for, this yellow apron with the "I Love Paradox" symbol on it. Later on, I'm actually giving this to Jason Holtman at Steam. It's my gift to Valve for selling a lot of games for us. What's your relationship like with companies like Valve? I know you're no longer the same company, but you have a historic relationship with [digital distributor] GamersGate. FW: When I started GamersGate, I went through the process of signing different publishers and travelling throughout the world to reach people. I think, initially, it was kind of an interesting process, because Valve sent this NDA to me saying, "You can't say this and that to our competitors," so I had to email back and say, "You know, I'm still at the board of directors at GamersGate." But for the past year I've been moving away completely from GamersGate. I'm still a minority owner of 20 percent or so, but I'm not operationally involved at all. GamersGate is doing well on its own, so they don't need me anymore either, so that's good. The relationship with Valve, from our point of view, is excellent. And the other download portals as well. We work with 17 different portals I think, big and small. Do you think that there's going to be further consolidation there? Seventeen seems like a lot. FW: Yeah, absolutely. You're going to see a lot these portals closing in the coming two years. And I just got myself an iPad. That's going to take a part of the download market as well. You're going to see the download market separated into different platforms. We're doing game for PSN and XBLA, and it's not very visionary to say that the future is downloadable games -- of course it is -- but the way it will shape up is basically being decided right now. Within two years, we'll see who's staying in the business and who's not, and the smaller ones will probably be bought by the bigger ones. You're going to see some mergers, you're going to see maybe some media companies going in to buy some of them to create synergy effects, you're seeing Amazon starting its own service. So, it's interesting times. For us, of course, it's excellent, because all these want to be aggressive, they all want to sell a lot of games, and they want to show us they can really place your titles to sell a lot of them. It's the content holder's market at the moment, so we're just enjoying the ride. What's the breakdown between retail and online for Paradox right now? FW: Last year was 60/40 in retail's favor. This year, it's going to be the opposite. That's basically 50 percent growth in market share for online in one year. That's huge. FW: Yeah. It's a big shift. It's quick, it's big. Then you have a few titles, like Lead & Gold, that are only sold online -- that's going to add to it for us as well. In terms of units, it was basically 60/40 in retail's favor, but online is quickly gaining ground on the number of units sold, and I think a lot of pirates have been converted into paying customers as well by services like Steam. Do you think Paradox benefits from that particularly by being a hardcore-oriented publisher? Do you think your audience flocks to online faster than some others? FW: I think we have a lot of early adopters in our audience, and that helps us with digital change faster than say, EA. I don't compare our company to EA though. In terms of size, there's a huge difference, obviously, but their audience is also typically a different kind. There are a lot of family gamers and casual gamers, while we have these geeks who are really into the game. So it has worked in our favor so far; we'll see if it continues that way, but so far we're really enjoying it. It sounds like you're diversifying your portfolio a lot, going into consoles and free-to-play and so on, but how is the market for that hardcore strategy gamer you're known for? Is that market growing, is it stable, is it shrinking? FW: It's quite stable, actually. We're selling the same number of units for every release. We're like the heavy metal band Slayer. They were never really huge, but they've been there for 30 years releasing an album every three years, and they sell 600,000 records of each album. We're the Slayer of the games industry. We're also releasing a service for our gamers. The working name is Paradox Connect. I can't say too much about it because we're going to announce it later, but it's going to allow extra services for the people who actually buy our games. We're not really a pro-DRM company. We skip DRM for almost all of our titles, so instead we're giving something extra to the people who can prove they actually bought the game. I think that's the best way of fighting piracy. We can speak more about it next time we meet. Are you planning that for this year? FW: We hope to launch it in August, but you know how it is with development. It might be Q1 next year. When we have the beta running, we'll announce that something is coming up. But before then…you know. What's your internal development team size at this point? FW: It's 12 at this point. We're adding three or four more this fall. It's a small, tight team, but we outsource a lot. We outsource some graphics, music, and sound. Doing a lot of stuff externally means we can keep the team lean and mean, and that's how we like to keep things overall at Paradox. The publishing team is publishing eight titles this year -- really, six titles plus a lot of DLC -- and that's basically six people, but we have 20 different consultants working with us in different ways. Is Victoria 2 the main internal title right now? FW: It is the main internal title, and we've started the game coming after Victoria 2, but we haven't announced anything on that yet. It's going to be thrilling and kind of scary to announce the new title, because you never know how people are going to react. Most of the time, it's exciting in a positive way.