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Last week, I attended an event coordinated by the MIT Alumni Association titled “It’s a Small World: How Virtual Communities Are Changing the Ways We Relate”. The event included lectures and a Q&A discussion conducted by Professor Henry Jenkins and Professor Beth Coleman of the MIT Comparative Media Studies Program. There were several interesting threads of discussion including how virtual worlds act as a social laboratory and how avatars act as interpretations of our ideals and fantasies.
I wrote a guest post for Virtual World News about the event. The full story is available here.
According to the New York Times, Chinese experimental artist Cao Fei, known in Second Life as China Tracy, is creating the world’s first virtual art installation. RMB City is a virtual city in Second Life that is meant to be an artistic commentary on the rapid industrialization of China. The virtual city will incorporate elements of famous Chinese landmarks such as the Forbidden City, the Great Wall, and Tianamen Square.
Lombard-Freid Projects, a New York art gallery, is currently exhibiting RMB City. The exhibit is part art showcase and part real estate sales office. Cao Fei is offering art collectors and virtual real estate investors a chance to sponsor individual structures in the city for prices as high as $120,000. Sponsors get two years access to their structure in RMB City and a commemorative artwork at the end of their “lease”.
If Cao Fei is able to get those prices, she may just find herself in the 2009 Guinness Book of World Records for “Most Expensive Virtual Object”. She would be dethroning Jon “NEVERDIE” Jacobs, the current recordholder, who purchased an asteroid space resort in Entropia for $100,000.
Now that Trent is free from the vices of his traditional record label, he’s able to shed some light on how music should be sold in the digital age. The 4 volume, 36 song album will be available in several prices and forms:
For Free. The first volume of the album (9 songs) is being released under a Creative Commons license and are available via the album’s website (which, as of this writing, has fallen over due to demand) and BitTorrent (Trent personally uploaded the album to key BitTorrent sites such as The Pirate Bay).
For $10. Get a two-disc set packed with a 16-page booklet shipped on April 8th. Also includes immediate digital download.
For $75. The deluxe edition comes in a hardcover fabric slipcase with two audio CDs, one data DVD (multi-track), and a Blu-Ray disc. Also includes immediate download.
For $300. This limited edition version comes with four LPs on 180 gram vinyl, fabric slipcase, and two Giclee prints. The set is limited to 2,500 copies and is personally signed and numbered by Trent.
Fans, Collectors, and Followers
A couple months ago I conducted in-home focus groups with trendsetting 18-24 year old music consumers in NYC and LA. The music industry’s revenues may be crumbling, but I found that this generation of music consumers is more engaged with their music than any previous generation. They consume music and knowledge about music voraciously through iTunes, BitTorrent, Pandora, Wikipedia, Google, and others.
These avid consumers support their bands by buying t-shirts and going to concerts. They even claim that they prefer to purchase music to support the bands they love. So both Radiohead and Trent experimented with volunteer business models where consumers could download an album for free and then decide whether to pay for it (and in the Radiohead case, how much they wished to pay). Both experiments resulted in mediocre revenue (Trent, in particular, was disappointed by the results).
So if music consumers are more engaged then ever, why didn’t these experiments in voluntary commerce generate more revenue? Because they only appealed to one very specific segment of a band’s listeners – avid fans that are willing to jump the penny gap to support their favorite artists, and the product available to those consumers was drastically underpriced and underpositioned.
During our focus groups, we found that there are three distinct segments of consumers for a given band’s music:
Fans. Fans are the band’s most engaged listeners. They’ll consume all the band’s music and go to lengths to learn about the band’s members, history, and influences. They are also eager to support the band financially – and willing to spend a significant amount of money on concerts and limited edition product. These are the guys that will buy the $75 and $300 limited edition versions of Ghosts I-IV.
Collectors. Collectors love discovering music. They have an ear for the avant-garde and can rattle off 20 sub-genres of indie rock at a moment’s notice. They spend their time trolling Pandora and Pitchfork, and they make the best DJs. Even if they aren’t avid fans of a particular band, they’ll be willing to spend $5-10 to get a high-quality version of an album that’s important to their collection. These are the guys that will buy the $5 and $10 digital and physical box set of Ghosts I-IV.
Followers. Followers are, by far, the majority of music consumers. They find new music through their Fan and Collector friends or from the radio. They’ll happily grab their music off BitTorrent. Maybe they’ll drop 99 cents for a song they love or a ringtone they have to have, but they’ll be hard pressed to buy a full album. These are the guys that will download Ghosts I for free. If they like it, $5 isn’t too much to pay for another 27 songs. If they love it, they might be on their way to becoming full-fledged Fans.
Why will this save the music industry?
For years, the recording industry got away with a one-size-fits-all strategy. They got away with over-charging the majority of Followers and under-serving each band’s most avid Fans. Now that technology has marginalized the distribution power of the recording industry and the recording industry as demonstrated an unwillingness to respond to that transformation, its up to pioneering artists like Radiohead and Nine Inch Nails to come up with merchandising strategies that appeal directly to their consumers. Trent’s strategy provides a well-priced, well-positioned product to each of the three consumer segments: fans, collectors, and followers.
With Ghosts I-IV, Trent may just have hit the nail on the head.
Update: Nine Inch Nails made $1.6 million during the first week of album sales. Clearly, the rest of music industry is leaving a lot of revenue on the table by sticking to an out of date business model.
With all the focus on the electronic entertainment industry, its easy to forget that the video game industry has a long lineage that extends back to tabletop games. Tabletop games consist of traditional board games (e.g., Monopoly), pen-and-paper role-playing games (e.g., Dungeons and Dragons), collectible card games (e.g., Magic: The Gathering), and miniature wargames (e.g., Warhammer).
Of course technical advances have thrust electronic entertainment, including video games and virtual worlds, to the forefront of the broader games industry, but the tabletop games segment still attracts both a large casual audience and a smaller, but highly dedicated hobbyist audience. The tabletop gaming industry’s largest trade show organization, Gen Con, draws an audience of over 27,000 consumers to its U.S. Gen Con event.
The collectible card packs and miniatures that form the nucleus of many hobbyist tabletop games is the closest real world analog to the in-game virtual items that are driving the growth of the virtual goods economy. We can gain a new perspective on how to create engaging virtual goods experiences by looking to the example set by collectible card games and miniature wargaming.
Tabletop game manufacturers take significant steps to enhance the collectibility of their trading cards and miniatures:
High Production Value. Each trading card or miniature is designed to have high production value and adhere to an overall artistic theme. This focus on design enhances collectibility by making each piece an “art object” that can be admired and collected based solely on its aesthetic value.
Collectible Sets. Trading cards and miniatures are often grouped into sets of varying size. At the highest level, Magic: The Gathering groups cards into categories based on five different colors. At a more granular level, Magic: The Gathering cards belong to dozens of different sets ranging from 92 cards to 422 cards. By grouping cards or miniatures into sets, tabletop manufacturers take advantage of the natural tendency for people to collect and complete groups of things.
Booster Packs. Collectible card games and collectible miniatures are often purchased as part of booster packs. Booster packs are sealed packages of cards or figurines that contain a small, random assortment of items (5-15 cards or 3-10 figurines). Purchasers of booster packs can generally expect to get at least one rare item per pack. As a result, these packs appeal to the same “lottery mentality” that makes slot machines so compelling.
Uncommon and Rare Items. The supply of trading cards and collectible miniatures is constrained by manufacturers in order to introduce scarcity into the market for their collectibles. Items are typically categorized as common, uncommon, or rare. Scarce items typically have a unique look and higher functionality than their more common counterparts which further increases their value. For example, there are less than 10 copies of the most rare Pokemon cards and these cards trade for thousands of dollars.
Deck Construction. The rulesets of many collectible card games and miniature wargames require players to construct a deck or army by selecting a limited set of items from the player’s full collection. Oftentimes players construct a gameplay deck of fifty to sixty cards from their collection of hundreds or thousands of cards. Players construct decks based on what they know about their opponent, the strategy they wish to employ, and any variants to the game’s rulesets that are in place. This dynamic encourages players to amass as large a collection of cards as possible so that they have the most strategic options when they go to play the game.
The collectible nature of trading cards and miniatures is a significant revenue driver for the tabletop games industry. As a result, tabletop game manufacturers can afford to give their rulesets away for free while generating a lot more revenue per customer by selling collectible content. Virtual world and MMO operators in Asia have already figured this out and now that model is beginning to be adopted outside of Asia.
Personalization of miniature figures is an entire cottage industry unto itself. Miniatures are typical sold as cast metal figures that must be painted before they are ready for the tabletop battlefield. For some players, figure painting is an integral part of the hobby, and for others its a job best left to professional figure painters. For the most serious hobbyists, there are even miniature painting competitions.
Personalization goes beyond mere painting. Some hobbyists alter the appearance of their miniatures by swapping parts of their figures, such as heads and arms, with parts from other miniatures or part collections purchased as “conversion kits”. Many wargamers also spend considerable time designing and constructing the battlefield scenery on which the miniature wargames are played.
For many hobbyists, personalizing miniatures and battlefields is actually more fun than playing miniature wargames. Tabletop game manufactures figured out a long time ago that personalization adds an entirely new dimension of enjoyment to the gaming experience.
At their heart, trading cards and miniature figures are simply game pieces like a rook in chess. They aren’t just decorative, they are functional. Trading cards in particular have detailed functionality that is described on the card itself – for example, a particular Pokemon card might be able to steal a card from the other player’s deck. Many virtual items, such as a sword in World of Warcraft, are also functional, but there are still lessons to be learned from tabletop games.
For example, scarce items are generally more powerful in both tabletop and video games. However, game balance issues are much more acute for tabletop games due to the need to support fair competition. In other words, a player with the most rare cards should never be the defacto winner in a Magic: The Gathering tournament. How then do collectible card games tackle this issue? Rare cards have more powerful and unique functionality, but they require significantly more resources to deploy (i.e., they are only an advantage if the player has the tactical wherewithal to find the right time to deploy the item).
This alludes to a second lesson from the collectible cards industry. Oftentimes, the functionality of different cards can be used in concert to get a greater combined effect. Players call these combo decks, and these combinations further enhance the collectible nature of trading cards.
So while MMOs have learned the basic lesson that functionality should be proportional to scarcity, there is fertile ground for innovation in thinking about how to balance the impact of rare items on the economy and how to leverage interactions between a player’s collection of virtual items.
In many respects, tradability is a knock on effect of the collectable and functional nature of trading cards and miniatures. However, tabletop game manufacturers also take deliberate steps to enhance the tradability of their products.
Firstly, tabletop games are designed to be highly social. When players gather into ad-hoc groups or at formal events, trading naturally occurs. Secondly, manufacturers deliberately create an economy where one man’s trash is another man’s treasure. They do this by creating clusters of items that work well together (so that a player with an existing collection is naturally inclined towards that cluster) and ensuring that booster packs contain a range of items, including rares, from several different clusters. As a result, every time a player buys a booster pack, he may get items that he doesn’t want but are valuable to his friends.
Tabletop game manufacturers know that a vibrant trading community may not directly generate revenue, but it does enhance engagement with the manufacturer’s product and indirectly drives booster pack sales. Instead of prohibiting aftermarkets, MMO operators should be following the lead of their tabletop brethren and doing everything they can to foster an active aftermarket.
Lessons for the Electronic Entertainment Industry
There is currently a raging debate about whether the MMO industry will move to a free-to-play model with virtual goods driving revenue or whether monthly subscriptions will continue to be the modus operandi outside of Asia. As today’s game designers envision the future of MMOs, they will be well served by looking to the past for inspiration on how to create a virtual goods economy that both enhances the game experience and maximizes the revenue opportunity.
Update (3/2/2008): Take a look at Saga which bills itself as “world’s first collectible online real-time strategy game”. Instead of charging a monthly subscription fee, they generate revenue by selling booster packs of troops for $2.95.