In the Wake Of Free-To-Play, What's Next For Traditional Models?

richpenguins.jpg While the virtual asset/microtransaction/free-to-play models are met with suspicion and derision in some quarters, Free To Play has an interesting analysis up of the challenges facing more traditional channels in the face of declining profit margins and an up-and-coming generation of gamers raised on the Club Penguin and MapleStorys of the world. "North American game companies are taking the same "partner and acquire" approach that they've used to achieve growth and purchase innovation for the last two decades," a model that doesn't work when dealing with some of the Asian companies have theoretical purchase prices that are astronomical.

Shanda's market cap today is $US2 billion. It's not far-fetched to assume their purchase price might be close to $US3 billion. The only companies with that kind of cash on hand are EA and Microsoft .... Netease (NTES) has a market cap of $US2.06 bilion. The9's (NCTY) market cap is $US1.14 billion. Nexon is privately held, but with $US235 million in revenue two years ago, they won't be cheap either. The point is, there aren't many deals left among the virtual goods establishment.

The billion dollar question is: Where will these numbers be next year? Or in 2-3 years?

My gut says that in two years, North American companies will be "priced out" of acquiring a leadership position in the global virtual goods market.

To avoid this fate, big American publishers need internally developed/wholly owned virtual goods projects or partnerships with newer, smaller virtual goods companies ....

Of course, there are plenty of games that are ridiculously popular in Asia that will never be able to make the leap to Western markets, and there are plenty of poorly-designed, cheaply produced games that aren't going to provide years of revenue for their creators, but there is something to be said for 'keeping up with the times.' More traditional channels are never going to go by the wayside, but those free-to-play models around the margins are providing a challenge to the more standard fare.

US Publishers Can't Buy Asia's Virtual Goods Lead


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