Licensing versus self-publishing

As growth in the European online games market attracts American and Asian publishers to release their games in Europe, the first and most pressing question to address is whether to license to a local operator, or establish a corporate presence in Europe to handle local service operations.

It is useful to think about an international release plan for your game long before actually implementing it. Adding territories may impact the way that your service is structured for the domestic market, especially if this original version is in English (and can thus easily become a de facto “global English version”.)

There is no objectively superior way of establishing a European presence; both licensing and self-publishing have pros and cons, depending on the situation. Here are a few criteria to take into account as you evaluate whether to license your game in Europe, or to self-publish:

• Revenue, costs and risk :

Let’s start with the cost/revenue model: from a financial perspective, licensing a game is less risky than self-publishing it. License fees immediately bring in revenue (depending on the game and the developer’s reputation, this can go from zero to several million euros); then, generally after the initial licensing fee has been recouped by the licensee, royalties kick in (generally 10-40% of net revenue).

On the other hand, self-publishing in Europe requires investing money upfront to structure the business: opening a local office (or setting up remotely), building in-house and outsourced resources and determining the size of the marketing budget. There is always an initial investment involved, instead of an immediate license fee revenue stream. The rewards are proportionally bigger, with the whole revenue being kept instead of a percentage of royalties, but if the game flops that’s not much of a consolation. Generally, it takes strong belief in the long-term success of your game to self-publish.

These elements are dependent upon the developer’s cash flow situation, appetite for risk, and belief in the success of their game.

• Brand development:

When the game is licensed to a third party local operator, it is generally branded as part of their portal or offering, using their name. The developer’s name is generally present, but for most players it is difficult to understand the role of each party. Since operators have the closest contact with players, they are generally the ones associated with the game in the players’ minds.

This has a double implication for the developer: first, the quality of the operator’s work will greatly impact the game’s brand image, so it’s essential to pick a good licensee. Secondly, if the game is successful, its success will build the operator’s brand in the territory more than theirs, so if they decide to change licensees later, or to self-publish in Europe, they will have to rebuild the brand mostly from scratch, while competitors’ games licensed by the original licensee are likely to benefit from their success.

So, the main factors influencing this element are the game’s long-term plan beyond brand-building, and any plans that the developer has for further games to be licensed in Europe.

• Local market expertise

Europe is similar to a collection of fragmented markets, and launching a game there requires a good knowledge of local trends. The advantage in going with a licensee is that you can expect the good ones to know their market very well, not just offering localized parts of the service such as means of payment, but also acting as valuable advisers: supervising the localisation or the proofreading, spotting cultural differences, suggesting local content, or organizing regional events (for instance, both MapleStory and Flyff have Oktoberfest events coming up)… without mentioning the need to have multilingual staff. With a licensee, you don’t necessarily need that knowledge internally, and you can get access to it very quickly.

The downside is that while the licensee develops an even deeper understanding of their local market, the developer doesn’t necessarily learn much. And again, if the studio has long-term plans to settle in the region, a lot of this expertise will stay at the licensee, and the developer will have to start a lot from scratch.

The main factors for this element are the amount of EU market expertise readily available at the developer (for instance K2 Networks, a US-based publisher who had some staff originally from Turkey, gained a lot of ground on the Turkish game market thanks to their knowledge of the country), the time and resources available, and the decision to build long-term internal expertise. Of course, if the developer is brand new to publishing, it will be all the more difficult to take on board all the various processes, plus a new territory, all at the same time.

• Territory development

When a developer decides to license a game for Europe, they generally give licenses based on languages that can be exploited in Europe. Many licensees will negotiate a few primary languages to begin with, and offer an option on additional languages. Even if they don’t, it can damage the game to split language responsibility between different licensees (more processes to juggle, differing qualities of service, tedious IP blocks etc.), so unless the developer is very dissatisfied with their work, additional languages are usually licensed to the same licensee. Changing licensees is also difficult and complicated, making it very painful for developers if something goes wrong, players get upset and revenue is lost. So in a lot of cases, picking a licensee for one or several EU languages almost implies licensing to them for the whole of Europe. The lesson here: chhose your licensee carefully!

Developers choosing to self-publish have the advantage of being able to take their time in developing territories. Of course, it only works as long as there isn’t a competitor ready to copy your game, localize it and take market share before the developer has time to develop enough to localize, the way it happened with StudiVZ or Panfu.

• Development feedback loop:

One of the most important and complex tasks when working on an online game is designing the process for managing player/customer feedback from all channels (community, metrics, customer support, web), making sure that they’re deeply integrated with the development process. This can be tricky when working with a third party publisher — even when working with a geographical subsidiary of the same company it can be challenging, so each of the entities will need very good processes to pull it off. Self-publishing, if the integration of the service is done well, can give a huge advantage to developers by giving them a level of awareness and a reactivity that is very rare in third party relationships.

• Time to set up

Licensing is a process that is better set up a long time in advance, but when working with experienced publishers it is often possible to set up a service relatively quickly, due to their experience and existing infrastructures. On the other hand, self publishing in a foreign territory for the first time requires some setup time that can’t be compressed easily, and the newcomer by definition lacks the experience that could speed things up.

The consideration here is whether the developer can materially take the time to set things up.

Conclusion

To summarize, licensing is generally the best solution when resources and time are too scarce or the developer too inexperienced, and can offer a relatively safe bet provided the partner is well chosen and the processes are well designed from the beginning. It is also a prudent solution when the developer has doubt about the long-term potential of the game, specifically within the European market.

Rewards are bigger with self-publishing, but risks are higher too. On the long term and if the game is a success, it is generally a better option, but there are risks that shouldn’t be ignored. Hiring local experts or working with local partners for all service activities is essential. In all cases, it is very important to think about these issues early enough, especially if the game will be initially published in English, as this will condition how the future international service will be designed, and can reduce the negotiating power of the developer if they choose to license, for instance.

Tags: licensing, self-publishing

(4 votes, average: 5.00 out of 5)