Business Model Activity #1: Sponsoring and Licensing

As promised a couple of days ago, I’ll address several activities from a business model point of view. This first activity is well known to most flash game developers, or at least the ones that (try to) monetize their games. The revenue streams are also well known and well documented in many sites and blogs.

And that is the main problem… the activity is documented, but usually on the upper end of it. Meaning that what developers find when they look around is the success stories, from slight success to major success. I wonder what is the success percentage in the whole Sponsoring and Licensing activity. I’m betting, lowish… developers get information from these sites and blogs and until they face the hard truth and get themselves into the statistics.

Flash Game License has promoted a lot of data sharing about their system. The data FGL provides is a very important tool but it needs to be put into context. For instance, we can look at a $2000 average sponsoring value and everyone jumps into the idea of making a game in a week and getting those $2000 average. By doing so most developers neglect several facts:

1. A small percentage of games sell for much more than the average
2. A high percentage of games sell for much less than the average

What percentages are we talking about? I don’t have enough data to know that, I do know that (again looking at FGL data) the 100th most successful developer at FGL (and that has paid commission) is now Market Level 4, so that developer made something between $5000 and $10000 and paid commissions for it.

That’s the 100th most successful… there are thousands of developers registered there. I spoke with many developers that say they don’t do what they expected from Sponsoring and Licensing. Most developers also say they slack and that they are not good enough and that they don’t care about improving.

So?… What is our take on it? What does our experience say? I’ve said many times that from the revenue point of view, sponsoring and licensing is potentially the highest paid type of activity we have. Like I also say keyword is “potentially”. The risk, as showed before, is huge, so some factors must be met:

1. All games must sell. We hope that all games are profitable but to lower the risk, all games must at least sell.
2. All games must have the highest possible quality for its cost. This is the hard part.
3. All games must be a step forward in terms of partnerships, visibility and IP value.

By doing this we try to position ourselves in the upper tier of developers. Until now we have been able to do that, except when we are not actively selling licenses. Right now… it’s been a year or more since the last one and I bet we are still in the mid-top tier in terms of revenue. So it’s not that bad as it seems. It’s a matter of understanding risk and cost.

What do we know about the revenue streams? Some stuff that boils down to this… the better the game, the higher the revenue! We need some indication about how good the game will be.

The higher offer is usually a good indication of how good the game will do. Our decisions are usually based on that and a lot of number crunching. For instance, we if we get a $100 bid on a game, we don’t expect much from it, so what’s the point in forcing a discussion around using advertising or not? If you have a $150 offer with no ads, it will probably be better to take it even if no ads are allowed.

On the other hand if a game is having $1000 offers, that usually means we will get at least 3 million plays. After that, it depends on the eCPM of the countries the game gets played the most.

So you can say that our business model activity based on Sponsorship and Licensing is all about:

1. Creating value for us (through our IPs) and for portals (through entertainment).
2. Creating strong relationships by being available to do everything that doesn’t mean loosing money.
3. Be consistent in our offer. All our games have sold, all our games have beat the 1 million mark by far. This is sort of our seal of quality.
4. Be visible, through our blog, our Twitter, our engine, our games, our contacts and so on.
5. Make every game the best game possible, make every game a stepping stone in terms of development, market and networking.

The weird part is that we learnt all this by not doing games to license. Talk to you all soon.