Games giants hunt for licence to thrill

With price cuts slashing the value of the computer games console market, the real money is made from the games themselves. And licensing deals – normally linked to sports or movies – are driving growth.

The news that computer software company Eidos has bought the licence to develop games associated with Premier League football (MW June 26) shows how far the games industry has matured.

“This is an important sector and it is growing,” says Peter Craven, who is marketing manager at software house Psygnosis – one of the top-five games companies in the UK with sales of about 20m. “There are more of these deals about and these properties are becoming more coveted – it will inevitably drive up prices.”

Psygnosis will take things further by signing a deal with clothing company Diesel to use its branded goods in an action game called G-Police, to be released in October.

The phrase “content is king” is one constantly bandied around in television. It holds true for this industry as well. Premium games console prices have been slashed from about 300 in 1995, to as little as 99 today. Nintendo launched its N64 in the UK on March 1 at 249, and two months later it cut the price by 100. According to Mintel, the console industry was worth 132m last year.

By contrast, software has largely maintained its price, with only much older games being discounted. Mintel says the combined computer games and video games market was worth 244m in 1996. This compares with the US, where the video software market is worth 3.6bn, according to Euromonitor.

And because the big three console manufacturers – Sony, Sega, and Nintendo – have slashed their hardware prices, software sales are paramount to profits.

Both Sony and Sega have their own game manufacturing operations, so all profits from any best-selling games go directly to the company. However, the big three impose a levy on the software houses which make games compatible for their machines. The amount varies, but typically it rests at about 25 per cent of the game’s price. It is this large slice of the software market that keeps the big three, and Sony in particular, in comfortable profit.

The licensed game, usually film or sport-based, has become key to the market. Companies are at-tracted to these games because they lend what is essentially a young industry an air of authority.

“This type of game has instant brand values,” says one senior figure in the industry.

“A licence adds credibility to the game. In sports games consumers like to feel that they are as close to the action as they can get without actually playing it,” adds Andrew Corcoran, European marketing director of Electronic Arts, the largest player in the UK and worldwide with global sales of 625m. “A licence gives you access to the expertise of the rights body which can advise on how to make the game more realistic and help construct accurate replica arenas.”

But these licences do not come cheap. Most of the major sports bodies in Europe and the US sell their licences for 1m a year – and they should not be viewed as a licence to print money.

Craven says: “The game stands or falls on its quality. Some companies have been guilty of spending a lot of money acquiring the rights for a property and then not developing the game properly. You can only get away with putting out a bad game once.”

UK-based Psygnosis holds the rights to this year’s F1 game. And Electronic Arts currently holds the rights to a range of games on both sides of the Atlantic, including Mario Andretti racing cars, American football, NBA basketball, American Ice Hockey and FIFA football.

And FIFA 97, the best selling football computer game to date, is a good example of how a licence can work for the holder. Many critics say the game is by no means the most sophisticated on the market but the power of the FIFA name and the opportunity to use national teams have enabled the game to sell over 500,000 copies on all formats in the UK. Electronic Arts has held this licence for the past four years.

New companies aiming to get a foot-hold in the market see buying big licences as a way in. This is the strategy adopted by Eidos, which last year had a hit with Tomb Raider, featuring fictional character Lara Croft. Eidos’ acquisition of Premier League football for 3m over three years is a way of strengthening its position in the market.

Some observers say the company has paid over the odds for a licence that potentially has limited foreign appeal. And privately, the Premier League’s sponsorship and licensing department was a little surprised at how much Eidos offered.

Yet there is another way in to the market, but it carries a greater risk. Some companies have launched games based on sports personalities; Ryan Giggs and Jonah Lomu have both had games devised around them. But many in the industry say this is dangerous.

The first drawback is that these games can take about a year to develop, and if the player’s form dips or he has a personal crisis, the appeal of the game can be dented.

Also, as Corcoran adds: “Unless the star has a very specific and strong appeal they usually do not add anything to the way the game is played. So then you have paid a lot of money just to use the personality as a badge on the box.”

Film titles can suffer from the same problem. Unless a film is signed well in advance, software houses tend to rush the development of the game to coincide with the release of the movie. That can often lead to a poorly devised game. These deals range from 200,000 to close to 1m for mega movies like Batman or the forthcoming Jurassic Park sequel, The Lost World.

Software has become the means to drive sales for the industry, and licensing is a way to guarantee that titles stand out from the hundreds released every year.

The Psygnosis/Diesel tie-up shows that licensing deals will not just be restricted to the worlds of sport and film, but that fashion, soft drinks, fast-food and cars could be the next areas to target.

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