Gaming’s future, as viewed by the $6 billion-dollar man (interview)

Above: Rick Thompson of Signia Venture Partners

Image Credit: VentureBeat

GamesBeat: I thought it was interesting that Super Evil Megacorp developed their own game engine. I’m curious about what that pitch was like, when they came to you and said, “We’re building something ourselves when Unity has invested a billion dollars in doing the same thing.” They’re almost boiling the ocean in order to get started.

Thompson: It’s a big decision to do your own engine, but the fact is that any standard platform or tool is built to be generalizable, to be used across lots of different applications. If you’re building something that requires high performance, and you want to stand out, there’s nothing short of having your own engine. At Playdom I think we had eight engines built for special purposes. Yes, Unity is terrific. It does an amazing job and lots of devs know how to use it. But you’re not going to break out of the pack building on the same engine everyone else is using.

GamesBeat: Do you think this mergers and acquisitions boom in games is going to continue?

Thompson: One thing that’s interesting on the M&A front is that acquirers are looking for companies that can have franchises that endure, that have large numbers of users in a game and a genre and a theme that they can continue to improve on. The companies with the same EBITDA, the same number of users spread across a dozen games are not nearly as attractive a proposition. So while there’s some benefit to diversification of the portfolio and being able to cross-promote, it’s a negative on the M&A front.

GamesBeat: If you look at Supercell, they have maybe $1.5 billion in revenue this year, 150 employees, and Clash of Clans has been number one for maybe two years. It seems like a winner-take-all environment.

Thompson: And it’s becoming even more so. That’s the nature of globalization. You have companies that are thinking from day one about building something that can be dominant across the world. They’re investing in IP that has legs. They’re investing in management systems that can be localized. Great games appeal to Ukrainians as well as South Koreans. There’s no reason that shouldn’t continue to be the case as the infrastructure and partnerships and trends toward localization increase. We’ve always been in the hits business, but it’s on steroids now.

GamesBeat: In this worldwide poker game, which regions would you bet on?

Thompson: That’s hard. One of the great things about the business is that a hit can come from anywhere. Talented teams are building great games and thinking about the business in the long term. They can revolutionize a genre, and it doesn’t take more than a dozen or two dozen people to get to the top of the charts. I hope we have some from San Francisco. I’m sure Finland will show us some more. Obviously China and South Korea will be there.

GamesBeat: What do you think about virtual reality?

Thompson: I like it. I was very fortunate to get a presentation of the new Oculus Rift, and it was amazing. I didn’t want to leave. A wonderful experience for entertainment. I can see education. I can see lots of apps. The first content to take over the internet will also be occupying virtual reality. But right now the tactile, the input, the sense of self in that environment is lacking. It’ll be great fun to play with and it’s fun to imagine, but it’ll probably be a few years before devs invest too much.

Above: Vainglory

Image Credit: Super Evil Megacorp

Question: You talked earlier about not being dependent on expensive CPI. Vainglory has done a great job of growing organically through the MOBA community. Can you talk about that strategy?

Thompson: One approach, like I said, is licensed IP. The other one is, when you design a game for an existing audience – it might be a game from the ‘90s that you’re reinventing, something that was done very successfully before – the question is, how do you reach that audience?

When Riot launched League of Legends, DOTA was a very popular game. Certainly nowhere near as popular as League of Legends became, but it had a fanatical following. It had professionals who made their living commenting on DOTA, making videos, and doing events. League was able to get those professionals, who DOTA did not control, co-opted into Riot’s offices to help them design the game and legitimize it and make it authentic. Then, when they launched it, they could bring in that audience, which was ready-made for League to contact.

The problem with games that were made maybe 15 years ago, nobody knows who they are. How do you reach them? Having an addressable audience is marketing 101. When you think about games, having an addressable audience that you can reach directly through PR and through influencers is critically important.

Question: You mentioned that predicting casual hits is almost impossible, whereas it’s easier with mid-core and core games. Can you elaborate on that?

Thompson: As an investor, there are so many casual games created and launched that for me, at least, it’s hard to sift through. Maybe there are people who can say, “Hey, this one is going to be a hit,” but I think it’s hard to have that level of insight. I don’t understand casual games well enough.

Question: You talked about the relevance of different social graphs and creating a gaming social graph. I was curious if you’ve seen different iterations of that in different social networks.

Thompson: League of Legends tapped into an interest graph when they tapped into the DOTA community. Super Evil Megacorp is making a MOBA and tapping into League of Legends influencers. They hired a guy who made his living as a League of Legends star, bringing him in house and giving him some decent equity. He now makes their videos and blogs and tweets and writes and helps evangelize.

That’s probably easier said than done. But it’s critical to look outside of the CPI. CPI isn’t something you can build a business on. You can’t predict or control it. The costs keep going up. Depending on the assumptions you make on your LTV and CPI costs, you could be out of business the next day. Suddenly the costs double. We’ve seen that happen several times in the last few years.

Above: Oculus Rift virtual reality goggles

Image Credit: Oculus VR