EEDAR - Jesse Divnich - Preview of DIG 2010 Presentation

Mr. Jesse Divnich will be speaking on November 19th at Digital Interactive Gaming 2010 (or “DIG 2010”) in London, Ontario (near where he grew up) to discuss the use, power, and influence of video games brands.

DIG 2010 is a regional conference and the typical mainstream media will not be in attendance. To help drive awareness of DIG 2010 and to ensure the entire video game community can get to the main takeaways, EEDAR has pulled together some of the interesting portions of his presentation and put together an analysis.
Citation Information

Name: Jesse Divnich
Company: EEDAR
Position: Vice President, Capital Research & Communications
Event: Digital Interactive Gaming 2010 or DIG 2010
Location: London, Ontario Canada
Time: November 18th - 19th, 2010

Key Takeaways

· October 2010 produced the highest aggregate review score in recorded history for October physical new releases (72).
· For core targeted titles, October 2010 produced the highest aggregate review score since 2005 for October physical new releases (72).
· October 2010 had fewer new releases than October 2009, ending a five year growth run on new physical releases.
· For the first time, October was without an 85+ core targeted title.
· Industry focusing less on budget titles and more on building brands.
· Strong brand equity among October releases drove positive growth for the month.

October’s Results

The average review score for October 2010 releases was 72 (median 76), the highest ever recorded for an October month. For core targeted titles (Mature & Teen rated within core genres), the aggregate average for October 2010 releases was 72, the highest since 2005.

With October 2010, software sales were up 6%. One could point to the strong quality of releases within the month as the causal factor; however, there is contrary information.
A Deceptive October

For the first time in modern gaming history, the month of October is absent of an 85+ rated core targeted physical release, with Fallout: New Vegas, scoring the highest at an 84.

Additionally, October 2010 produced the fewest amount of new physical releases then 2009, ending a five year run of positive release count growth.

Yet, despite these negative metrics October 2010 still managed to produce software growth.
Less Budget Titles

During the aggressive growth period brought on by the Nintendo Wii and DS in 2007 and 2008, retailers were barraged with low-budget titles (titles with a rushed development cycles that lack significant quality and substance).

These low-budget titles either produced a loss for the developers, or not enough profits to fund additional sequels.

As the industry progressed into 2010, consumers began to understand the power of brand equity, that certain brands delivered higher entertainment value, which gravitated consumers towards these established properties. As consumers gravitated towards the top 50 titles, less consumer wallet-share was available for titles without strong brand equity.

Additionally, retail shelf-space is mostly fixed, and as the industry progresses through a generation, the quality threshold needed by retailers to dedicate space for a title increases. This further increases the barrier to entry and increases the risk for developing one-off titles with a low consumer promise and low brand equity.
The Power of Brand Equity

Even though Fallout: New Vegas, Fable III, Medal of Honor, and Star Wars: Forced Unleashed 2 (top October 2010 releases) produced quality scores below their predecessors, the strength of their brand equity was enough to overcome any shortfall in quality.

The truth is, once a high consumer promise is established for a brand, the equity built plays a persuasive role with consumers. As long as the slip on quality is not significant, sales are unlikely to be impacted as consumers are more forgiving.

It should be noted, however, that a decrease in quality for a brand rarely results in significant series growth, but rather producing sales in-line with its predecessor. For some publishers, this is perfectly acceptable.

After a high consumer promise and strong brand equity is established, publishers often use secondary developers for the next iteration. With the reuse of assets and lower development costs, publishers are able to generate greater profitability off the next iteration. The increase in profitability can then be used to fund the next-iteration that will again re-establish that original high consumer promise, and grow the series.

Consumers tend to forget the enormous amount of resources, risk, and difficulty of achieving a 90+ rated title (less than 1% of titles achieve this). Often, publishers are willing to sacrifice significant profits in order to establish a high consumer promise and strong brand equity, so that future titles may focus on recovering those costs in order to continue to maintain a brand’s strong equity.

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