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Getting Beyond Licensed Content’s Bad Rap

By on June 5, 2013

This is part of a series of guest posts by David Garth, President of brand licensing consultancy The Parallax Corporation. You can read the full white paper at the Parallax Corporation website.

Part 2: The Impact of Content Licensing

One way that mobile developers and publishers can get their games noticed and potentially lower their customer acquisition costs is through content licensing, using well-known and recognizable intellectual property – characters, stories and brands from movies, TV, comics etc. – which can provide a valuable marketing edge and can bring immediate attention, differentiation and credibility.

Frankly speaking though, licensed games have a pretty bad rap. Gamers and industry insiders are keenly aware of the vast numbers of inferior games that have been launched using popular licenses, where the use of the licensed content has been little more than an attempt to cash in on the value of the brand, or where game development has been severely impaired by a licensor’s excessively burdensome approval process, or where the licensing budget has been allowed to decimate the development budget, and the end result has been a third-rate product. Or where the game has been thrown together to meet a movie launch deadline, to be used as just another piece of merchandising by a movie studio (on somebody else’s dime).

For every  CSR Racing, Arkham Asylum, and Goldeneye 007 – games that have successfully leveraged licensed properties (or even enhanced the license and added to brand’s value), there’s are probably ten or more of the likes of Family Guy: Back To The Multiverse and Enter The Matrix.

In short, popular licensed content must not be an excuse for a bad game. And it doesn’t have to be. If you’ve got a good game, which is fun and also converts well, retains players well, and monetizes well, then there are a number of ways in which licensed content can provide the marketing edge that’s needed to have a major impact on the discovery problem.

Getting Noticed And More

Popular licensed content brings with it a host of benefits. It can bring with it a built-in audience of fans and followers, including non-gamers, and a massively enhanced viral appeal. It can allow the use of logos and keywords that are instantly recognizable to people browsing the app stores.

PR is also definitely easier to generate around already-popular licensed content, especially if the licensor is helping via its established marketing channels. (If the licensor is a movie studio or a TV company, these established channels will be the best there are).

Game publishers know, however, that even good PR often does little to help acquire actual players. Most of the target market for mobile or casual games probably doesn’t read The Guardian or Game Informer. You can be sure, however, that the folks at Google Play, the Apple App Store and Amazon do, and getting feature placement in those places is considered the ‘holy grail’ of app discovery (generating around 100,000 free users per day, according to Tapjoy). Certainly, they are more likely to notice a game that’s built around a popular brand they already know and like. And according to Tapjoy, well-known IP is one of the top factors in getting featured.

Licensed content can also help with player retention and monetization. If a licensed game is well designed, story lines and characters that are already familiar and meaningful to players can make the game more rewarding and fun, and make players more emotionally committed to the game and more likely to return. Rewards and in-app purchases of virtual objects are also more appealing if the items are based on a brand the player recognizes. According to Ze’ev Rozov of Iconicfuture, “users are willing to spend a lot more money on a premium item based on rights they recognize than on a generic item.” Nick Bogovich of GSN states that their Wheel of Fortune Slots game sees higher click-through rates and prolonged engagement as a result of the use of the licensed brand.

Managing Customer Acquisition Costs

It’s often mistakenly assumed that the cost of licensing popular content for use in a game is prohibitively high, whether for building an entire game around the content or for the use of pieces (for example, selling branded virtual goods).

Typically, licensing agreements involve the payment of royalties on sales, or some sort of revenue-sharing agreement, with a minimum guarantee of a certain dollar figure in royalties to be paid over the lifetime of the agreement, part of which is payable upfront. Different licensors may demand larger or smaller minimum guarantees and upfront payments, depending upon the property involved.

The bottom line, however, is that the most important things are whether the licensor likes what the prospective licensee proposes to build, and trusts that they will do a good job (and they don’t have someone much bigger competing for the license). Under these circumstances, even small developers or publishers can license some very popular brands and content. Currently, developers are helped by the fact that, relative to the vast number of properties available and already licensed for products in the broader market (toys, novelties etc.), very few have been licensed for mobile apps. (This situation is likely to change quite fast).

Another key advantage with licensing is that royalties are paid on the backend (on actual sales revenue), rather than upfront for impressions, clicks or unpaid installs. This can have a major impact on customer acquisition costs, especially when combined with the value of popular licensed content in attracting consumer attention.

Let’s take a look at the math:

  • Using the same scenario as before, let’s say that with a Cost Per Install (CPI) of $1, a publisher is able to spend $200,000 and thereby obtain 200,000 installs. (Note: Cost Per Install (CPI) includes customers acquired virally, not only those paid for directly via, for example, clicks on Google Adwords).
  • With a good conversion rate of 5%, that will result in 10,000 paying users and an Acquisition Cost Per Paying User (ACPPU) of $20.
  • Let’s imagine that the net Average Revenue Per Paying User (ARPPU) is a healthy $30, so that the spend of $200,000 generates $300,000 in net revenue and a gross profit of $100,000.
  • Instead of paying $200,000 (most of it in advance) to generate $300,000, let’s imagine that the cost of generating that $300,000 was a royalty of 12.5%. Not only would the total cost be only $37,500, but perhaps as little as $10,000 of it would be payable in advance.

Of course, it’s not reasonable to assume that using licensed content could replace the entire marketing budget, or even most of it. But let’s say that instead of 10,000 paying users, the spend of $200,000 resulted in 15,000 paying users, which is not an unreasonable expectation. There’s little doubt that utilizing a popular brand, characters, stories and other content most certainly would result in much more effective marketing and customer acquisition, whether it’s bigger and better PR, getting featured in the app stores, or exponentially more powerful organic, word-of-mouth.

Other things being equal, the net revenue generated would then be $450,000, against the combined cost of $200,000 and $56,250 in royalties. The gross profit would then be $193,750, almost double.

Here’s another way to look at it, to see how the licensed content can reduce marketing expenses: To generate that $300,000 in net revenue, assuming the same degree of impact of the licensed content, the new cost would be $133,333 in advertising plus $37,500 in royalties, for a total cost of $170,833. This is a saving in customer acquisition costs of $29,167, or almost 15%

About David Garth

David Garth is the President of The Parallax Corporation, a boutique licensing and consulting firm focused on brand licensing for mobile games and consumer products