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How Licensing is impacting the Virtual Goods Economy

By on July 3, 2012

This is a guest post from Ze’ev Rozov, CEO and Co-Founder of Iconicfuture, a marketplace for licensing of IP for use in computer games.

Rights and brands have always played an important part in the business of making games. Many of us have played EA FIFA, The New Republic or just in time for the Olympics, one of the official Olympic Games.

Yet as the business of making games has moved beyond console games to micro transactions, the world of licensing has yet to adapt to take full advantage of the opportunities in this growing market.

How licensing is changing

In the past, there were two ways to monetize users with brands: annoying banner ads and interstitials. Neither was directly related to the user, and both detracted from the game experience. Three new methods have appeared in recent years that positively leverage players’ affinity to brands: in-game brand sponsorships, incentivized brand offers and branded virtual items for sale. Done well, leveraging brands increases user satisfaction, ARPUs and engagement.

Licensing is often a complicated, time-consuming and resource-intensive process. Betable has a great presentation about licensing rights in games. Many rightsholders do not have the infrastructure or the know how to support the needs of modern, agile game developers that are focused on the mobile and social space.

In my post, I will point out some of the main challenges when looking at licensing, highlight the advantages rights can offer a game, and present several ways to use rights as premium virtual items.

Why licensing is worth the spend

First let’s focus on the advantages. Why should you spend any resources on licensing? The answer is simple; many users respond positively to the use of rights. EA has built a successful golf franchise with Tiger Woods PGA. If you are a Tolkien fan, then Lord of the Rings offers a great MMORPG experience to express and immerse yourself in a narrative with which you are familiar.
Rights provide credibility for the game, an instant connection with a target audience and a significant marketing edge.

In the world of virtual items, we have also found that users are willing to spend a lot more money on a premium item based on rights they recognize than on a generic item. For the popular mobile app Talking Tom 2, users can buy many items including the kit of their favourite football team. The official kit is sold at 10 times the price of non-branded items. (Disclosure: Outfit7 is a customer of iconicfuture).

The drawbacks to incorporating rights is the amount of resources required to identify the best rights to negotiate a licensing deal. Few game companies have the in house rescores to manage this process. In most cases, rightsholders expect a significant upfront payment and long term financial commitments both of which clash with the rapid development cycle of online and mobile games.

When integrating rights, consider:

  • how they are presented in your game and what restrictions will the right holder place on the use of premium virtual items in the game.
  • The rightsholders also expect a level of reporting and account management that could be beyond the resources of a small game company.
  • And most of all, the unknown; how the game will perform….will it monetize well? For every successful Smurf game launched there can be a dozen games based on rights that fail.

A new way to use rights

As the business model behind creating games has changed, we are seeing a new way of using rights in games. Instead of developing games that are built around a specific rights, game companies are looking at ways to integrate compelling rights into their existing game play.
Bigpoint has successfully launched branded games in the past. Yet with one of its most successful games, Farmerama, they chose to integrated Loony Tunes characters in the game monetized as virtual goods. Users could rent characters such as Bugs Bunny, Roadrunner and Tweety in the game.

goalunited2012, which is a successful football management game from Travian ran a campaign during the Euro 2012 tournament allowing the players in the game to test their management skills by challenging the German or the French Football teams for a match (in full disclosure this campaign was licensed through Iconicfuture).

What we are learning is that game companies can leverage the key value from rights by launching Premium Virtual Items while limiting some of the risks that has been associated with the use of rights in the past when a fully branded game is developed. For games where the sale of virtual items is a key part of your business model, there is an opportunity to analyze the game play and find ways that adding rights can enhance game play whilst improving monetization and providing a significant marketing push.

When considering the use of rights in a game, make sure to consider the following:

  • What value will the user get from the rights? The most successful premium virtual items are ones that offer a combination of self expression and in-game advantage.
  • Make sure to keep the balance between free and premium rights. A mission that can only be completed if the player hires Chuck Norris for help will cause a lot of negative feelings in the player base. Make sure that users can still play even if they don’t have the premium item (although they do get an advantage from it).
  • Think about leveraging the rights in your marketing, and make sure you can get as much support from the brand as possible. In some cases the rightsholders have an active community, such as on Facebook or a fansite…. When AC Milan posted a YouTube clip of Talking Tom singing the team song it reached over 100,000 views
  • Once you have successfully integrated the first Premium Virtual Items, make sure you have a longer term plan as to what kind of additional items will follow.

The challenges you will face include how to identify the most suitable rights for your game, negotiating the licensing deal and managing the relationship with the rightsholders.

We at Iconicfuture believe that a key part of the future monetization and marketing of games is with the clever integration of premium virtual items. We have created a service that enables game companies to easily discover and integrate rights into their games. In some cases, you might already know what you need for your game and have the ability to work directly with the rightsholders. I hope that the tips in this article have offered you a better understanding of how to leverage rights and increase the success of your game.

About Ze'ev Rozov