The DeanBeat: The best nuggets from a summer of game leader interviews

Above: Michael Chen, CEO of iDreamSky

Image Credit: Dean Takahashi

In Shanghai, I interviewed Michael Chen, CEO of iDreamSky, the publicly traded mobile-first gaming company based in Shenzhen, China. His company has more than 800 employees, and it has published titles such as Fruit Ninja in China. He told me what he thought of China’s stock market fall and its impact on gaming companies.

Michael Chen: What’s happening to the Chinese stock market was kind of expected. No one knew when it was going to happen, but anyone who was realistic and rational anticipated it. With all the Chinese companies listed in the west, though, this probably won’t affect much of what they’re doing. None of the U.S.-listed companies were expecting, when they came back, for the market to still be that crazy, with companies around 100 times P.E. We don’t think that’s healthy anyway.

What’s happening right now is a good thing in the long run. In a crash like this, a lot of people do lose money. There’s bloodshed. But without a drop like this, the market won’t mature. Now public investors and fund investors will be more cautious. They’ll start really looking into a company’s vision. They won’t just buy into big talk. This will definitely mature the market.

Normally, the gaming market is kind of disconnected from the stock market. But when the stock market is so hot, it affects how publishers and other listed companies invest, because there’s so much more money there. Because money came so easily, they would invest in a way that’s less cautious. When people do that, what happens is, a lot of bad companies draw investment, and even a lot of good companies fall into bad habits. They think they can just talk a good game and make money, instead of going through a real process — doing the market research, creating a good prototype, and then looking for investment.

Above: Kevin Chou, CEO of Kabam, at ChinaJoy 2015.

Image Credit: Dean Takahashi

Kevin Chou, chief executive of mobile gaming company Kabam, talked to me about the challenge of beating the big three of mobile games: Supercell’s Clash of Clans, Machine Zone’s Game of War: Fire Age, and King’s Candy Crush Saga.

Kevin Chou: I think of it as a big opportunity. It’s a problem, in the entertainment industry, to have uncertainty about where your next hit will come from and how long that hit will last. Those two primary questions are the key challenges for the whole industry. When it comes to the second one, it used to be that the top-grossing charts changed every month. Even if you had a hit, one or two months later you weren’t nearly as relevant anymore. The economics weren’t compelling. It only cost half a million dollars to make a top-grossing game, but it didn’t last that long and only made a few million. That’s okay, but it’s not a great business.

Great businesses are what we’re starting to see today. It costs somewhere in the mid-seven figures to make a great game, but if you’re successful, that could be a $5 billion game. My personal prediction for Clash of Clans is $5 billion over its lifetime. Those are compelling economics. The fact that you can make a game last for years and years is incredible.

I do sympathize with some of the indies out there, when they look at the top of the charts and see nothing moving there. But if you really want to build a business to eventually stand toe to toe with EA or Activision, these great gaming companies, you have to have predictability when it comes to at least the duration of a hit, of a franchise.

The next question is, where is the next hit coming from? That has a little bit more predictability these days as well. We’ve been lucky as a company. Marvel is our fifth game to cross $100 million. We don’t have a $5 billion game, but I feel like we have an interesting model at this point.

Above: Kevin Bachus, senior vice president at Dave & Buster’s.

Image Credit: Kevin Bachus

Kevin Bachus, senior vice president of games at Dave & Buster’s, talked about why prize-based arcade games are still alive, and how his company is making mobile games based on the popular games in the company’s restaurants.

Kevin Bachus: I think it comes back, again, to the redemption thing. 10 or 15 years ago, after the revitalization of arcades that was brought on by fighting games like Street Fighter, the arcade businesses in Japan and the U.S. both started to decline. The U.S. pulled out of it by discovering redemption games. That changed everything. Right now, about 83 percent of our games revenue comes from redemption games. If you look at the time people spend, it’s more even, but the vast majority of the revenue comes from redemption.

The games are very easy. They have very broad appeal. It’s a unique proposition. I’m fond of saying that no matter how much you like playing your Xbox, you’re never going to win an iPad at it. That changes the complexion. We bring in a much more casual, much broader audience, but because they’re casual, they’re not very frequent visitors.

Japan is the exact opposite, because redemption games are illegal in Japan outside of pachinko and slot parlors. If you go to a typical arcade in Japan, it’s just for entertainment. As a result, the games over there are much more sophisticated, much more complex, and use a lot of network capabilities. They cater to a much smaller audience, but a much more dedicated one. It’s like the console business was 15 years ago. You have a small number of people, the core players.

It’s kind of six of one, half a dozen of the other. They have a small number of very frequent players. We have a much larger number of relatively casual players. That’s why networking is so important over there. But over here, although we represent something like a third of total industry revenues, for a game manufacturer, we’re lucky if we’re maybe five percent of their revenues. We have 77 locations, but there are something like 6,000 locations in the U.S. overall that have coin-op amusement games.