MDD

Thursday, 13 September 2012

Kongregate Games (case)

This case is adapted from Nicholas Lovell’s game publishing guide (2010).

You run a small Flash Game company that releases its games to run on Kongregate’s game portal. The revenue model offered by being hosted on Kongregate’s portal is ad-funded based on how often the game is played online. The company development team has four people: 2 programmers, and 2 designers with responsibility for art assets, models, audio and video content. The Ad-funded revenue model is summarized in the table below.
Table: An Ad-funded revenue model on Kongregate for Flash games (Lovell, 2010)


Under this model, and assuming a minimum return from portal operator to the developer of just 25% of Ad revenue (best case may be up to 50%) – assumption of just two Ad impressions per game play yielding a CMP from advertisers of 1 euro – developer revenue ranges from €5 per month to €500 per month for each game as monthly plays vary and impressions range from 20,000 to 2,000,000 per month (Table below). CPM: A figure used to express the advertiser’s cost per thousand impressions. CPM=Gross impressions/1,000. In this case we assume Kongregate and advertisers have agreed a CPM ‘cost’ rate of €1. Note that Lovell’s figures are based on a CPM of £1 (GBP).
Table: Game Ad-revenue projections for three cases of plays (from Lovell, 2011)


Lovell suggests that the revenue figures for an Ad-funded Flash game served via a specialist game portal like Kongregate are not impressive.
“Even a widely successful game, getting 1 million plays a month, which would be a huge achievement, would only generate [€500] a month in revenue for the developer.” (Lovell, 2010)
Strategic Business Evaluation: To Integrate with the Portal API (or not)?
The development team are keen to increase the company’s revenue stream and have decided to consider the case for integrating their Flash game with Kongregate’s API for leaderboards and challenges (refer to the earlier statement for Ad-funded revenue on Kongregate). Integrating with Kongregate’s API offers the developers an additional 10% share of the Ad-revenue from Kongregate. How do they assess the business case for API integration with the current game (noting that it could become a part of all future games too)? The team estimates it will cost them 20 days of a developer’s time to code up, test, and roll out integration between the portal API and their own Flash template engine. Given that they have a programmer ‘day’ cost of €200/day the investment cost for portal integration, developed over 20 days comes to €4,000. The developers estimated best case investment cost and best-case additional cash flow as follows:
  • Development cost (initial investment) €4,000
  • Additional monthly revenue for 24 months (best Case III) €200
Questions:
  1. What is the simple ROI for each case?
  2. What is the simple Payback period for each case?
  3. Which business case holds up over 2 years with a short-term interest rate of i=5%? 
  4. Finally, should the development team invest in integration?

REFERENCES
Games Brief - The Business of Games (www.gamesbrief.com)
Lovell, N. (2010) How to Publish a Game, GAMESbrief.
www.kongregate.com: "Reach millions of real gamers with your MMO, Flash, or social game. Make more money."