The Mixed Blessing of Unlimited Distribution or Does the Appstore Need a Make-Over?

Gamescom is the world’s biggest games show. It brings 400 000 gamers to the Cologne Fair every August where they spend hours in line to get a 15-20 minute sample of upcoming game hits like Star Wars: Battlefront or the next Just Dance. I go every year (you can too, it’s fun and tickets are cheap!).

Besides the AAA-blockbusters, the big success story in games in the last decade are mobile games – just like web users, gamers move to mobile. It’s a trajectory that sets the global games market value to an expected 83 billion US$ next year. The Iphone and the Appstore set that ball in motion in 2008, when it not only provided game developers with a simple and powerful target platform, but also a delivery service with integrated payment – solving most of the mobile games industry’s problems in one move. Some game developers I know used to talk about the Iphone as “the Jesus phone”. But the Messianic image is being challenged by the Iphone’s own success.

At Gamescom this year, I met an industry veteran who now makes his living coaching game startups in the UK on business strategy. He had done the numbers on the Appstore’s games business. Last year, 95 000 games were released on the Appstore. That is more than ten new titles per hour, 24-7. The average production budget was $25 000 per game, but the average revenue only $5000. That means that mobile game developers lost a total of 1,9 billion US$ last year, only on the Appstore. Remember, this is the industry that was supposed to bring jobs and growth back to Europe. These numbers suggest that European app developers rather subsidise Apple’s profits and promote its hardware with their content.* The reality is probably worse, because the income distribution follows a long tail-graph rather than a Bell curve, so the median revenue for a game on the Appstore is very likely zero. There are lots of winners of course, some app games make lots of money for its developers, investors and Apple. Many of these titles are likely more ambitious so the media production budget may be lower than the 25KUS$. And there are for sure cheaper games that become surprise hits (looking at you, Flappy Bird!). But combined, the financial impact is destructive. Who knew?

My friend, the startup business coach, raised the idea that Apple should limit the number of titles on the Appstore. In a way, that would be similar to the old systems of entertainment content distribution, where the distributors where gatekeepers to the market. Except the old system of record labels and games publishers also invested money in the production and marketing of content. To some extent, Apple can promote titles on its system, contributing to the marketing and thereby picking the winners. But it doesn’t put any money into it. So what if the number of titles would be limited? If you’re a startup coach like my industry veteran friend, it makes sense to assume that the startups don’t know what’s good for them. But there may be others who would prefer to take their chances and try to beat the odds. Should Apple stop them from that? Would that be better? Maybe the answer is in Apple being a more active publisher, sharing risk with its suppliers, being transparent about promotion policies. Maybe the answer is in wiser startups. Maybe more startup coaches are needed. Whichever answer you prefer, the promise of unlimited distribution is a mixed blessing.

*) That is assuming the Apple customers like Euro app games, of course. Maybe they don’t. Maybe they could care less. I also understand that not all app game developers are European.