As I noted in my earlier post, you need to find the right product with the right costs for the right market. Even if you have a cheap product, it will not matter if the market does not exist.
Evaluating the market can be easy or can be very difficult. As many people say, if everyone knows about it. It is probably already too late. The market is probably near saturation and there are tons of other players trying to enter the market. If your a big player, you can afford to take these gambles but if your small you really can not.
I have worked for 2 publishers. When I worked for one of the top 2 publishers, the strategy was to maintain its lead and grow by adding what it lacked which was innovation. Too that effect, it would wait till markets matured and bought IP and studios that were at the top of that market. A small publisher cannot do that. The other publisher I worked for was a top 10 publisher but as you know, the top 2 publishers dominate all other publishers below them. Some publishers such as THQ find a niche such as PC RTS games, Children's Titles, and the WWE/WWF and UFC licenses. Ubisoft got lucky betting on the Wii and was able to grow they were also very fortunate in tying up the Tom Clancy Franchise.
The publisher I was working with decided to try to gain market share by trying to enter two, at that time, dormant markets, XBLA/PSN and F2P games. I am going to focus on the XBLA/PSN market for the purpose of this write-up.
When we first entered the XBLA/PSN market, no other publishers were making games for it except for Microsoft, Sony, and small independent studios. We quickly discovered that the we could make small games that quickly made a few million dollars of profit. That type of ROI is not something any of the big publishers cared for, but it was good for our small publisher. After publishing over 5 games and getting data from some of our competitors who were in talks with us, I was able to develop an accurate forecast model. When compared to the sales of games today, the model is still proven to be sound. Based on this, we knew what we could make assuming we had a hit title. This helped narrow our market opportunity down. If we knew what the costs to enter the market was, we would know the opposite.
We were very successful in the beginning but then everyone started entering the market and the cost of doing business started increasing. Eventually developers wanted to spend millions of dollars to develop titles that would only sell a max of 1M units. With platform fees and other costs included in development, these titles, though being top 10 titles, would actual lose money. One title that is a top 10 title, that I will not name, costs 2x more than it made. It was hailed as a success but the developer as they were able to make a profit but the publisher did not make any. They, in fact, lost money. It is important to understand the market to make the right title to fit it. Just because a title is perfect for a segment does not mean it will make money.
Just remember that the license and costs need to fit the market. You can create a new market but that is rare and reserved for players with first mover advantages or who can revolutionize a genre to make it mass market. Just because you are smart does not mean you can do it. I always say the best example of a good entrepreneur is someone with strong self-belief, a strong team, an unbend-able will, and a good exit strategy.
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