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Monday, August 9, 2010

The 80:20 rule versus The Long Tail-in the video games industry

Starcraft, World of Warcraft, Call of Duty, Battle.net. These successful games(or franchises in industry jargon) are all published by one single company. Activision Blizzard(created by merger of Activision Inc and Vivendi's games division http://www.activisionblizzard.com/corp/index.html) is the world's most profitable video games company. While going through its Q2'10 investor relations transcript(http://seekingalpha.com/article/219068-activision-blizzard-q2-2010-earnings-call-transcript), I noticed some interesting things:-

1)Online push: Since Dec09, Amazon has sold more ebooks than hardcovers(present ratio is 1.43:1). Even considering the lower prices, this is more possible. For Activision also, this was the first time that their sales from online channels exceeded those from offline channels.

2)80:20 rule:- The CEO observed that the blockbuster/best selling games hog a disproportionate chunk of the market whereas Chris Anderson observed in his book "The Long Tail"(http://en.wikipedia.org/wiki/Long_Tail) that the back list music sales cumulatively equalled or surpassed recent music sales.

What does this imply? Is it that old music may still be in taste and that old games are not in vogue? Or does it mean that the trend will vanish once online distribution increases(since producers will find it easier to retail their old games online without incurring massive overheads).

Unlike the ebook industry however, server based('in the sky') games are more difficult to pirate. Thus, revenue leakage being lower, the business model of online games would still be more profitable

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