Thursday, April 27, 2006


Turbine Entertainment goes to the Next Level

Turbine Entertainment is one of the few independent studios in the business of Massively Multiplayer Games (MMOGs), and bills itself as "the largest privately-held online game studio in North America." Even with substantial licenses such as Dungeons & Dragons and Lord of the Rings, Turbine faces deep-pocketed competition from companies such as Sony Online Entertainment, Korean juggernaut NCSoft, and 800-lb gorilla Blizzard Entertainment (a subsidiary of Vivendi Universal).

Turbine is part of an emerging industry that lives and breathes the network economy; how else do you value virtual goods? In order to succeed, however, this company will need not only profitable products and business fundamentals, but also a deep understanding of the industry structure and emerging trends that will shape their business.

Video gaming is a "blockbuster" industry, driven by the remarkable sales of a few hits and the break-even sales (or losses) of the vast majority. With this in mind, it is no wonder that a basic network stack shows deep vertical structures in the industry. Much like the movie industry, publishers assemble portfolios of products to reduce risk while hoping for a hit. (Note that Atari is Turbine's publisher for Dungeons & Dragons Online.) Blizzard is the notable exception to this rule, as World of Warcraft has climbed to over 5 Million subscribers this year.

In order to compete against the heavy hitters, there are three trends that Turbine should invest in:

1. Be a publisher; build a portfolio. One-hit wonders are the lifeblood of studio, but they often mean that a company survives project to project. A portfolio of products distributes that risk, and the publishers role adds another few percentage points of revenue in the deal. In the last few years NCSoft has invested heavily heavily in acquisitions, resulting in City of Heroes, Guild Wars and Auto Assault. SOE has launched a bundled package of MMOGs. The right range of products will provide the flexibility to deliver a new generation; the right platform will keep players with one network.

2. Start porting; be device-friendly. Trends in music and video consumption clearly show that consumers are doing more to shift where and when they are entertained. While MMOGs often require heavy computing power, high resolution and streamlined UI for player communication, the latest generation of consoles is signaling that viable multiplayer environments are here -- complete with voice chat. NCSoft has shown the way with Final Fantasy XI, a game which has been compatible with the PC, PS2, and now XBox360. Flexibility in devices and interfaces will prepare Turbine for the next level of consumer demand.

3. Leverage external resources; use APIs and Open Source. Fans of gaming have consistently shown a deep technical grasp and passion for the industry. The results of this have ranged from independent first-person shooter modding projects to content development for games like Neverwinter Nights or Morrowind. Blizzard took this one step further when they established APIs so that fans could deeply modify their user interface, in effect building new client programs to interact with World of Warcraft; hundreds of these clients are now available. Mod development is only the beginning of a larger trend in user-created code and content.

The opportunity for a company like Turbine is to find products (especially infrastructure) that need to scale, and open those to a community of developers. Community members get to contribute to their favorite game platforms and showcase their skills; the company gets to leverage rapid (and inexpensive) development while focusing on core products. APIs and open source provide a doorway to resources that are not described in the industry stack today.

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