relationship

CD-ROM developers, publishers, distributors

There are as many ways to bring digital entertainment products to market as there are players in the game. Producers and even small publishers hold hands with bigger publishers as the conventional wisdom has it that the biggest sales come from throwing your lot in with (putting your product in) the big-league boxes.

Playback wanted to see how Canadians are faring in the struggle for shelf space, and get a sense of how strategy is evolving in the battle of the boxes. Are Canadians able to be masters of their new-media destiny? We asked a cross-section of them how they collaborate with their most important partnersÉ

According to one attendee at E3, last month’s Electronic Entertainment Expo in Los Angeles, more new cd-rom titles were introduced at that one show than even existed in 1994. In a business as full of hype as cd-rom entertainment, you have to ponder statistics carefully, but it’s not farfetched; after all, the business today serves the owners of 20 million multimedia computers in North America.

Indeed, the growth of cd-rom is exceeded only by the remaining growth potential of this medium. The people who are successfully bringing cd-rom entertainment titles to market are using different approaches, but everybody agrees a cornerstone of the business is the relationship between the people who create the product and the people who bring it to market – the developer, the publisher and the distributor.

Readysoft’s wide focus: a chance to grow exponentially

Readysoft’s first title, Dragon’s Lair, appeared as a disc-based game for Amiga in 1987. Since then, the Markham, Ont.-based company has steadily added to its stable of entertainment titles, distinctive for their blend of classical and computer animation.

When the company switched media, from floppy disc to cd-rom a few years ago, Readysoft’s growth accelerated. Today, more than 75 people are crowded into Readysoft’s digs in Markham, just north of Toronto, developing for all major platforms.

While three-quarters of the staff are classical animators, the company is not just a developer; it also handles all aspects of publishing and distribution. For Readysoft’s founder and ceo David Foster, it’s the same approach he took when he published Dragon’s Lair.

With eight major titles, each published on most major platforms, and a new release imminent, it’s easy to understand why Readysoft made Profit magazine’s list of Canada’s 100 fastest-growing companies in 1994.

‘We’re not the norm, doing everything in-house,’ Foster says. ‘A lot of publishers are really just marketing organizations that farm out all development. There are advantages to having everything in-house – the control that we have, the ability to solve the problems we encounter along the way. ‘Other publishers are at the mercy of their developers to meet a deadline.

‘A lot of people get into the business from the development side, and they’ll have a publisher actually fund the projects they do. They’re basically work-for-hire. They don’t have a chance to grow exponentially. It’s basically a question of risk/reward; we’re putting our money on the line on the risk side, and potentially we could reap the reward on the sales side.

‘The margins are a lot greater in our position because we take our concept from initial conception to product on the shelves; a developer typically will only take it to the point where they hand it off to a distributor, who will reap the markup.’

Foster says the demands of marketing and distribution are not as hard as most people in the business think.

‘It’s not a question of manpower. If you’ve got consistently good product, you can get yourselves on the shelves. That’s what it comes down to. It certainly isn’t something that happens overnight, but we have history and that gets us into a lot of doors.’

There is no argument that the promotion end of the business must be well capitalized. Readysoft’s newest product, Brain Dead 13, will launch this month with a $500,000 North American advertising and promotion budget. ‘That’s lower than what some of the major studios might do,’ Foster says. ‘But we’re being creative with the way we’ve spent it, so we’ll get a little more mileage than most.’

Discis Knowledge Research: merchandising, advertising, and PR

John Lowry, president of Discis Knowledge Research, made his first cd-rom 11 years ago. The company he leads has been producing, publishing and distributing cd-rom-based interactive multimedia titles for education and entertainment since 1988. With more than 40 titles produced to date, shipping to 35 countries, and strong reseller relationships with mass merchants, computer and consumer electronics retailers, Discis is one of the larger players in the market.

Discis’ cd-rom sales success stories include The Tale of Peter Rabbit, The Paper Bag Princess and its Science & Nature titles produced in conjunction with National Geographic Society. It looks like the biggest success may be a homegrown one: Discis is the publisher of Jewels of the Oracle, currently the fourth-best selling cd-rom title in North America, according to Videostore magazine’s April 15 ratings and distributor sell-through figures. This performance places it ahead of cd-rom titles like Myst and Encarta.

Jewels initially was released in 5,000 stores, which was increased to 7,000 at the end of May. Discis plans to eventually stock the title in 10,000 retail locations.

Lowry describes marketing budgets as being ‘a multiple’ of production budgets. While he won’t give a figure on Jewels, he says it is certainly in the millions, ‘with an emphasis on the `s’. ‘

Lowry says the key to working successfully with developers ‘is easy.’

‘It’s a matter of putting together a deal where we’re both fundamentally on the same side, where we will both be successful.

‘I also have to be comfortable with the human relationship; there must be a level of co-operative spirit. I look at their creativity, their product, but above all I ask, is there the potential of another product? Is there going to be a sequel to this? You’ve got to build a relationship where that next one can happen. It’s very important that it not be a one-shot. You invest a lot in building a relationship.’

Toronto developers ELOI Productions, whose team includes Courtland Shakespeare and Paul Chato, approached Discis one year ago with a prototype of Jewels of the Oracle.

‘That prototype was sufficiently intriguing to us that we said, `There is a big winner.’ We went through the negotiating process with them to see the nature of the deal; we financed the completion of the product, which took until March of this year, and put one of our people on it as the Discis producer responsible for the liaison between the two companies,’ says Lowry.

While Lowry describes Discis as being in the business of merchandising, public relations and advertising, technical expertise is still part of the equation.

‘As the project developed, there became more and more technical involvement from our end. We have staff people familiar with cd-rom structures, how to do an installerÉ we can make it work better. At one point we had seven or eight engineers working on various aspects of getting this product out to market.

‘For example, we wrote the complete installer for Windows, and the amazing thing is that with a lot of copies of Jewels out there, the return rate is looking like .01%; it’s ridiculously low. This has been a phenomenal thing for us. We track returns, we talk to retailers a lot, and we are extremely proud of our record with the returns issue.’

Cinar: spreading the risk, and the return

Montreal’s Cinar has a reputation as a producer of quality children’s television. Its cd-rom experience includes versions of the tv series Are You Afraid Of The Dark? and Stop The Smoggies; in development are an original game title, and a series for television is being prepared with cd-rom in mind.

Like many people in the television industry, Cinar knows the economics of the business are not yet fully developed.

Louis Fournier, vp of sales and marketing for Cinar, says, ‘Despite all the hype, and the very positive vibes everybody’s getting from the industry, so far it hasn’t been proven that the economics of it make sense. It’s a hit-and-miss business. The people that hit, hit really high, with high margins; the people who miss, who are most of the people, miss by a lot.’

Fournier cites Cinar’s work with Viacom New Media on the cd-rom of Are You Afraid Of The Dark? as a product which received an excellent u.s. reception but has yet to make a profit for the players involved. The production, budgeted at approximately $1 million, has sold more than 15,000 units, which Fournier says is not close to recoupment, after six months on the shelf.

‘We’ve decided to go back to our basic ground rules,’ says Fournier. ‘When a product has undergone some development, we will go to our distributors and see what they have to say about it, see if they want to put some money towards it. We’re talking about a very limited club of seven or eight companies. They will take some of the rights. It means less net at the end of the day for us; it’s a conservative approach.

‘Our financing policies would be the same as the one we’ve applied all along, which is to have an 80% financed product before we go into production. And it’s been hard to get there.

‘In Quebec, there’s an 18% tax credit you can apply to the production of cd-roms. We’re still waiting to see how this will echo with the federal government, if they will follow suit. There’s pressure to do this, to encourage production. But even with a subsidy, it’s still pretty scary to go out there.

‘We’re talking retail product here,’ Fournier says. ‘The retail business is a riskier venture, unless you have a distributor who is willing (to invest) and knows what they’re doing, and they feel your product is good, then they will spend the money to acquire the rights. But we’re not there yet.’

FutureLine: content

and promotion

Television isn’t the only thing being adapted for cd-rom. This summer, Toronto’s FutureLine Entertainment will begin installations of its first product, Line Drive Baseball, an adult coin-operated game platform created for airports, sports bars and college campuses that combines live video, major league player statistics and ‘call the pitch’ input. A cd-rom version is expected to follow the coin-operated version in about a year.

The company is keeping development in-house, but will definitely seek an outside distributor.

Says Ernie McCullough, president of Line Drive Baseball: ‘A distributor knows his marketplace, does market research, attends shows, knows what the competition is doing, the trends in home pcs and family entertainment centers – whatever the marketplaces are.

‘You can get really bent out of shape doing this yourself; this is a set of skills and expertise. Even if you did think doing it yourself is the best way to go, how are you going to meet all the buyers for stores in Florida and California, buy the ads in the New York Times and the Chicago Tribune? Who’s got those resources?

‘We see ourselves in the roles of concept, fulfillment, and to some degree, the promotional role. We’ll be able to provide promotional support through our advisory board, which is rather unique. Most companies making software cannot add too much more to the party, but we can have Yogi Berra or Whitey Herzog appear on behalf of Line Drive Baseball, even though it may be a title being marketed by a major organization. So it would be to their benefit as well as ours. The human side of this is just as important as the software side.’

Gray Matter’s tight focus: no creative limits, just practical ones

With a staff nudging 60 people and development capabilities embracing all major game and computer platforms, Gray Matter, located in the Toronto suburb of Oakville, is a major developer of game titles. In the company’s 10-year history, Gray Matter has sold more than three million games. New releases in its stable – Phoenix 3 developed for Studio 3D0; NHL All-Star Hockey for Sega of America; and Foes of Ali for Electronic Arts – are aimed at the high-end game platforms, Sega Saturn and 3D0.

Gray Matter has purposely avoided the distribution and publishing businesses.

‘We are strictly a developer, and we work on contract exclusively,’ says Gray Matter ceo Chris Gray. ‘We approach a publisher with an idea, which could be anything from a high concept to a game design, a concept on paper or a prototype on software. If we get them excited, the next step is to find out how much money we can extract in development advances.

‘In every case we have received royalties or royalty consideration for any project we’ve done. We don’t publish, we don’t manufacture, we don’t market, we don’t do sales. So it is strictly development.’

Gray says his company works most effectively with publishers that do not want to be involved in every creative decision related to the development of a project.

‘The goal is to find work which we find creatively challenging, and to find companies to work with that give us a certain amount of trust, and allow us to create really great software. The package we have to have is a great, highly marketable concept, something technically challenging and state-of-the-art, that is well-financed, and a great working relationship with a company.

‘Where this isn’t a fun industry is when you work with companies that are very stingy financially or extremely untrusting creatively, meaning they question your every decision or want to be involved in every creative decision that is made.

‘Sega, Electronic Arts and 3D0 are companies we like to work for because they let us do our job,’ says Gray. ‘They try to match projects with developers who have a track record in a certain area.’ And at Gray Matter, their track record is such that the company is turning away millions of dollars in business.

Filmed entertainment producers’ fit

Montreal-based Malofilm’s new media division under the Malofilm Distribution umbrella has a unique niche in the market. By manufacturing and distributing u.s. titles in Canada, in essence it has become the publisher locally for foreign titles.

While there are similarities with the video side of Malofilm’s biz – marketing clout and promotion – getting a foot in the cd distribution chain door as more than a pick-and-pack distributor has entailed learning the niceties of packaging and pricing in a fast-changing market.

Part of the value Malofilm adds for its u.s suppliers is knowing how to plot the math for the srp, gauge when to pull it out of the $40 box and onto the $20 rack, and when to resort to shrink wrapping and selling as part of a package – for this territory.

Malofilm recently bought Quebec City-based Megatoon as its new-media production arm. As to partnering/publishing strategy for its own titles, vp finance Stephen Takacsy says it’s very much judged on a case-by-case basis.

‘If you have a product that everyone wants, you can probably get away with just having your name on the box, but since the bulk of the market is in the States, it’s important to have an American publishing or distribution partner to cover the u.s. market,’ says Takacsy. ‘You’ll always try to have your name on the box; whether you have another name on the box beside yours is a question of the kind of deal you struck, whether or not you funded the entire product yourself.’

And for a public company the long-term recognition factor is a consideration. Whether it’s the Malofilm or Megatoon (depending on what market is being targeted) logo that appears on the packaging, Takacsy says it is important for a public company to have its name out there. ‘We’re going to try and develop the Megatoon brand more and more.’

Alliance Productions made deals with high-profile publishers/distributors of games for the Johnny Mnemonic (Propaganda code and Sony Imagesoft) and the ReBoot (Electronic Arts) cd-roms. When asked if doing a cd-rom on their own is something that they would look at down the road, president Steve DeNure says, ‘Possibly.’

‘For the foreseeable future, we would like to work with some strategic partners that have both game production and distribution expertise. For our purposes, it makes sense to go with one of the established market leaders who can pretty well ensure that we’ll get significant distribution,’ he says.

However, DeNure feels that as it’s a complicated and rapidly changing market, there may be opportunity for more players to slide in and stake out a claim in the cd-rom echelons.

While getting a product to market with the greatest quality, speed and efficiency is not an exact science, it’s clear that companies benefit from the skills of a seasoned publisher – the ability to package, advertise, promote and manage a product launch – as much as they need the skills of a development team.

And once it’s ready for market, the worth of a distributor becomes clear: retail and distribution companies speak a common language of just-in-time delivery, consolidated pos, co-op dollars, carrying of accounts receivable, and so forth. There’s no question that going through a distributor gets you to many more places than you could ever reach by yourself.

Says Discis’ Lowry: ‘A year ago the name of the game was getting it on the shelf. Today the name of the game is getting it off the shelf.’

The good news is, the game is worth playing: the amount of cd-rom product moving off the shelf is increasing. In the keynote address at E3, Tom Kalinske of Sega of America predicted the interactive-entertainment industry, including video games, will nearly double to us$9 billion by the end of the century.