Master’s Thesis Research
Platform distribution choices of the Independent video game developers in a
two- sided video game market, considering the competition between different
platforms (traditional consoles and mobile game applications)
MSc. In Business Administration,
Entrepreneurship and Management in the Creative Industries track
Supervisor: Dr. F.B.I. Frederik Situmeang
Student: Petya Krasimirova Ilieva, St. No: 11374497 Date: 25.01.2018
Statement of originality
This document is written by Student Petya Ilieva who declares to take full
responsibility for the contents of this
document.
I declare that the text and the work presented in this document is original
and that no sources other than those mentioned in the text and its references
have been used in creating it.
The Faculty of Economics and Business is responsible solely for the
supervision of completion of the work, not for the contents.
Abstract
This study focuses on the distribution platform choices of Independent video game developers operating on an essentially risky and uncertain market, such as the video game market. Over the past couple of years, the video game industry has been evolving quickly as a result of the dynamic technological development nowadays. Therefore, innovative approaches are necessary in order for content creators to keep their place on the market. However, the case of the small and medium-sized creative teams (indie developers) is different, as they initially lack resources and specialized complementary assets unlike the major participants on the market. Thus, it is more difficult and risky decision for Indie developers to embark on a risk-taking marketing strategy, such as entering a new market segment- new distribution platform. In order to contribute to the behavioral theory literature, this study is based on the prospect theory and decision theory and, therefore, suggests that creative organizations in the video game industry respond to more to past market performance than to future possibilities. The study also examines the effect of expert and consumer evaluations on the decisions of indie developers whether to engage in a multi-platform distribution marketing strategy or not. Related to that, a binary logistic regression analysis and multi-level mixed models analysis are estimated. The study is using a sample of 522 independent video game developers who released overall about 1980 video game titles for the research time period 2000-2016. The results from the study support the predicted relationships between the trend of past market performance and the likelihood on a new platform entry, as well as the predicted relationships between both the expert and consumer reviews trends and the likelihood of a new platform entry. The study also confirms the effect of valence of expert reviews on the likelihood of a new platform entry, moderated by the volume of expert reviews, whereas the effect of both valence and volume of consumer reviews proves to be insignificant. Finally, the moderating effect of volume of consumer reviews proves to be insignificant for the relationship between the past performance trend and the new platform entry.
Table of Content
1. Introduction ………4
2. Literature Review………....8
2.1. Trend in past performance of Indie video games ………8
2.2. Trend in expert and consumer reviews of Indie video games………11
3. Method………..23
3.1. Data and Sample……….23
3.2. Variables……….25
3.2.1. Dependent variable………...25
3.2.2. Independent variables………...26
3.2.3. Trend in past performance………....26
3.2.4. Consumer and expert evaluations trends………..27
3.2.5. Interactions………27
3.2.6. Control variables………..28
3.3. Model Specification………30
4. Results………...31
4.1. Descriptive statistics and correlations………31
4.2. Determinants of entering a new distribution platform………...33
5. Discussion and conclusion………41
5.1. Discussion………..41
5.2. Theoretical implementations……….…43
5.3. Managerial implementations……….44
5.4. Limitations and suggestions for future research………...44
5.5. Conclusion………45
6. Appendix A……….47
1. Introduction
Over the past couple of decades the gaming industry has been evolving from physically to digitally distributed content. Nowadays, there are various platform options for experiencing a creative good such as the video game. Only several years ago though, Indie games started to gain more popularity, as the fast-growing mobile game industry gave reasons for independent game developers to believe that it is possible to produce and distribute an independent game content on the market at lower costs, which can allow even small budget productions to become successful. That is how producers are able to strengthen their relationship with the consumers (e.g. individual players) and go the long way from indirect network to direct network relationship between producers and customers (Marchand & Hennig-Thurau, 2013). Therefore, distribution platforms and channels may have an important role in the whole process of creating and releasing a video game on the market.
As it has already been mentioned Indie Games have become more and more popular throughout the past decade, and therefore have become an interesting subject to discuss and investigate. High profile visionaries believe that whoever manages to catch the Indie crowd will be the one to win the ongoing platform wars. (Perry, 2013) That is why the focus of this research will be especially on the independent production of video games. Using the prospect theory and the decision theory this paper will investigate the independent developer’s platform distribution choices based on the expert and consumer reviews of the video game distributed. Based on the conceptual framework of the game environment that “reflects the emerging roles of highly dynamic video game industry and features both key players and products”, the possible relationships between different factors that interact with each other throughout the whole process of development and distribution of these creative goods on the market will be discussed in the following research. (Marchand & Hennig-Thurau, 2013)
Although in 2015 Marchand continues his research on the video games industry by investigating more thoroughly the communication channels part of this conceptual framework of the video game environment, there is still lack of narrow research on the distribution channels, part of the horizontal path of his conceptual framework. Furthermore, games depend on a console, and controlling for other hardware (e.g., motion-sensing input devices, virtual reality headsets) that may help extend the product-specific boundary conditions of platforms and network effects. (Marchand, 2016) Similarly to the paper by Situmeang et al (2016), the following research aims to expand the knowledge of the video game industry risk-taking behavior. However, this research will be focusing on the factors influencing the developers’ decisions on entering a new distribution platform by exploiting a multi-platform release strategy in the Indie video game industry. In this sense, its aim is to expand and complement the research by Situmeang at al. (2016) on risk-taking behavior related to the decisions whether to enter a new genre in the video game industry or not. This opens room for further discussion and investigation of the factors that may have an effect on the likelihood that an independent game developer firm enters a new distribution platform channel. This research will give better insight and be beneficial to the management of the small and medium independent game development companies in order to find the best way to distribute their creative product. It will contribute to the identification of the main distribution business models and relationships among players by investigating a topic that is “exciting and fruitful for managers, academics and consumers interested in the video game industry”. (Marchand, 2013) As there is still no clear platform for the small and medium independent developers to target, the continuous search for the “promised land” is not easy. (Perry, 2013) Therefore, the following research will be especially focusing on Indie Games, as this evolving industry still lacks thorough knowledge and understanding.
(fig.1 Conceptual framework , Marchand, A. & Hennig-Thurau,T., 2013))
In this sense, trying to create better understanding of the relationship between the game content and distribution, it is suggested that consumers’ preferences play an important role, as a part of the online Word-of-Mouth, for they are the ones that are connected to both constituents. Being a creative experience good, a game’s quality can be evaluated only by experiencing the good. This is the only way to examine if a certain game creates any value to certain customers and as a result will have a positive or negative influence on their decision whether to purchase the game or not. Based on these decisions, then, game distributors are able to establish the best strategy for distributing the game on the market.
As video games now take a great part of many gamers’ daily life, especially teenagers’, they are buying games available on a variety of platforms, such as mobile phones, consoles, PCs, tablets, etc. Furthermore, the number of online players (via Internet, digital platforms) is rising drastically and more people are even willing to pay for the privilege to do so. (Babb & Terry, 2013) Looking at the contemporary video game industry, the production values may
easily rival many of the television and film programs with their content (storyline, design, characters, and mechanics). In this sense, the fast growing segments of the mobile game industry, free-to-play games and the free-to-try (Laughlin, 2012), put pressure on the developers to develop new ways of thinking and come up with new business models in order to keep up with the changes on the market. (Hofacker et al, 2015) Even though games evolved during the last decades on specific devices, such as consoles, designed for a single function, nowadays game experience is more immersive and exciting because of the variety of platforms on the market (PC, mobile, digital/online). However, this convenience of the multi-functional devices, such as smartphones or tablets, affects consumers’ purchasing behavior and causes them to slowly move away from the traditional consoles. (Hofacker et al, 2015) Furthermore, with the rise of the new technology and the great proliferation of the use of mobile devices across individuals, customers have greater expectations when it comes to consistency and continuity in the content, design and mechanics of the video games. Therefore, cross-platform playability of the video games has recently become an interesting topic for discussion.
In the era of the never-ending technological advancements, there are more options for content providing entrepreneurs in the creative industries to distribute and commercialize their creative products, even directly to the end-user without relying on any intermediaries such as the main publishers and developers on the market, as well as the platform owners. However, there are still many factors to be considered when establishing a market distribution strategy, especially as a small content creator, in order to position oneself on the market. Although some of those distribution strategies are considered by some researchers and experts in the field as revolutionary and “game-changing” for the small (Indie) developers on the market, others are concerned that these will even strengthen the position of the major publishers and
developers on the marketplace, making the nascent content creators even more dependent on them. (Broekhuizen, Lampel & Rietveld, 2013)
Furthermore, mobile game applications are slowly becoming a dominant platform and source of video games on the market. Looking at the current status and future prospects of the mobile gaming platform is of importance for this research since mobile gaming has become a competitive platform for game distribution in the recent years. With the fast evolution of the mobile game applications, new challenges to the market occur, as it is expected to become a dominant game platform, which may itself bring disruptions to the market, such as cross-media usage of social networks and leverage of context. (Feijoo, Barroso, Aguado & Ramos, 2012). Social groups are proven to have a significant influence on innovation and organizational activities of the small to medium content creators on the market. Considering the highly innovative and fast-growing nature of the mobile application game platform, it requires more innovative approaches. (Waller, 2015)
2. Literature Review
2.1. Trend in past performance of Indie video games
This research is based on the conceptual framework of the video game environment, focusing on the platform distribution channels of the Indie video games. (Marchand & Hennig-Thurau, 2013) The authors believe that there is a vertical and a horizontal path representing the gaming environment by creating various relationships between the different constituents based on their interactions with each other. However, this research will be focusing on the left part of the horizontal path, and that is the distribution platform part of the conceptual framework. Throughout their research, the authors examine and explain the relationships between game content, platforms and consumers on one hand, and on the other hand, the ones of the different distribution and communication channels to the vertical path’s
constituents in order to examine the value creation process in the video game industry. However, their research doesn’t pay much attention on the distribution platform choices of the video game developers. In order to contribute further to the managerial strategy decisions in the fast-growing and developing video game industry, a further elaboration of this topic is needed, especially considering the two-sided nature of this platform-dependent market, which ultimately leads to the basic idea of this academic research.
As a nascent and constantly evolving part of the video game market sector, the Indie game industry is still full of risks and uncertainties when it comes to developing a market strategy, therefore it requires further and more fulfilling research. The choice of a good business model in the video game industry, especially in the Indie game industry, is the key to the success of a certain platform. (Rochet & Tirole, 2003; 2006) Furthermore, it allows developers to benefit from the social networks by using those models for crowd funding through platforms like Kickstarter or Indiegogo (Lipkin, 2013, p. 12, 20). A further research on the competition or collaboration between the different distribution platforms and how it may affect in positive or negative way the distribution of indie games on the market may be beneficial for elaborating this topic and bringing better insight of the constantly changing situation in the gaming environment. Developers’ decision-making is regarded as a complex process as there are a lot of factors to be considered when seeking success, especially in the Indie games industry. Related to that, this paper will be using the prospect theory (Kahneman and Tversky, 1979) and decision theory (Lehmann, 1950) in order to be able to examine this risk-taking behavior of the Indie game developers throughout their decision-making. Inspired by the Situmeang, F. (2016) paper that used the prospect theory to examine the risk-taking behavior of the technology firms through performance feedback, this research paper will exploit the prospect theory in a similar sense, seeking for managerial solutions to the problem of finding the right distribution strategy in the Indie game industry. In the prior paper mentioned, it is
hypothesized that game genre popularity affects positively organizational decisions whether to enter or leave a certain genre. A risk-taking behavior of the Indie developers is based on the expected positive/negative outcome that triggers the need to take a decision to expand or stay where you are. Similarly, this research aims to examine the factors affecting Indie game developers’ decision ,for instance, whether to go for a multi-platform release by entering a new distribution platform or not. In this paper, the topic will be expanded further to the discussion on the developers’/ publishers’ decisions on distribution strategies for the Indie games, based on the distribution platforms and the distribution channels they choose in order to present their creative product to the consumers on the market. Based on the theoretical concepts presented above, here prospect theory and decision theory will be applied in order to be examined the relationship between market performance and distribution platforms, especially for the Indie games industry where the level of risk is even higher because of the lack of specialized complementary assets (Broekhuizen, Lampel & Rietveld, 2013; Situmeang, F., 2016; Voss, Sirdeshmukh, & Voss, 2008). These assets are scarce, costly to create and maintain tangible (e.g., financial capital) and intangible (e.g., marketing skills and proprietary distribution channels) resources that usually possess limited strategic importance on the market (Broekhuizen, Lampel & Rietveld, 2013; Barney, 1991; Rothaermel and Hill, 2005; Voss, Sirdeshmukh, & Voss, 2008). On that account, the effect of the positive/negative outcome is expected to have even stronger influence on the developers’ distribution platform choices. Market performance is one of the most important factors influencing the risk-taking behavior in the video game industry. Past performance of oneself and other parties on the market may affect and shift the target performance level, which consequently may stimulate a risk-taking behavior for parties performing below this performance level, as well as suppress the willingness to take risks for parties performing above this exact level. (Situmeang, 2016; Ebbers & Wijnberg, 2012) Thus, the first hypothesis is based on the assumption that with the
higher performance of a certain video game platform on the market, the less stimulus developers have to explore new opportunities and seek new means of achieving success, similar to the exploration/exploitation paper by March (1991).
H1: The positive (negative) market performance trend of indie developers on the platform they presently occupy is negatively (positively) associated with the likelihood of entering a
new distribution platform in the video game industry by releasing a multi-platform game.
2.2. Trend in expert and consumer reviews of Indie video games
In addition, there may be a sufficient effect of expert and consumer reviews on the risk-taking behavior of the small developers on the video game market. Expert evaluations are a very effective way to gain recognition in order to be able to position oneself on the market. As discussed in the Situmeang et al. paper on risk-taking behavior, expert reviews may affect organization’s decisions to innovate- if a negative trend of expert reviews is present, a signal that experts are less satisfied with the organization’s outcomes, it is more likely that the organization is willing to explore and take risk-taking marketing decisions. (Situmeang, 2016; Cui, Lui, & Guo, 2012) Experts, based on their sufficient knowledge of the field, are the one who provide relevant and legit information to the end users about the market positioning and guide them through the process of making the final choice. (Kwon and Easton, 2010; Wijnberg and Gemser, 2000; Cui, Lui, & Guo, 2012). This kind of third party endorsement plays an important role in the positioning on the market of the small-sized, technology-based organizations that still lack specialized complementary assets. That is why, with all the technological advancements, such as online distribution channels, Indie developers presently experience great struggle creating new strategies for facing the strong incumbents on the
major developers or platform owners) under tight economic constraints or to bypass those intermediaries altogether and distribute one’s creative product directly to the end user. (Broekhuizen, Lampel & Rietveld, 2013)
Furthermore, professional critics’ reviews assess the product value of the creative good by specific market standards that make them a credible source of information for the end user. Therefore, these expert evaluations signal reputation and legitimacy, and show the other parties in the value system that the small-sized organization (Indie developer) is trustworthy and its product meets the quality standards established by the major industry actors. (Meyer et al., 1997; DiMaggio, 1988; Stuart et al., 1999; Ebbers & Wijnberg, 2012) In the Indie video game industry reputation is an important factor of positioning on the market. Having a reputation allows organizations to establish more innovative approaches and may stimulate more risk-taking behavior- for instance, to diversify their work/field, invest in more innovative product or switch to a new distribution platform. (Dubois, 2012; Wijnberg, 2004) On the contrary, consumer reviews are driven mainly by entertainment value. They are focused more on the direct satisfaction of experiencing the product itself rather than analyzing its characteristics in a social and economical context. (Situmeang et al, 2016) Consumers are viewed by Keller as brand ambassadors that have a driving force on the marketing of the product, although there is no significant evidence of a brand resonance as such since the video game industry is rapidly growing and changing industry. (Keller, 2001; Waller, 2015) Consumer evaluation is proven to be quite significant especially in the case of mobile game application platforms, as online consumer ratings (Word-of-Mouth) may be the ones that affect the survival of mobile applications. Furthermore, the effect of online consumer WOM (consumer reviews and ratings) is stronger for mobile games than for the traditional consoles. Additionally, because of the constantly evolving nature of the mobile application platform, it is essential for mobile game developers to innovate, and therefore, they are usually more likely to innovate and engage a risk-taking behavior than other platform game developers. (Waller, 2015)
The aspect of Playability of the video game is strongly connected to the consumer
expectation and satisfaction. The conceptual model of the video game helps specify and further analyze the Playability characteristics of the game so that they create the optimum consumer satisfaction compatibility of the end-product. (Sánchez et al., 2009) Therefore,
consumer satisfaction, measured by the consumer reviews, plays an important role in the risk-taking decision-making of the Indie game developers. The term “Playability” refers to the perceptions and feelings that the video game evokes in a player during the process of playing, therefore it creates product value based on the game elements and the way they are executed in the certain game. (Sánchez et al., 2009) Factors reflecting consumer satisfaction are measured by the following elements: fun, disappointment and attractiveness. As it is in the film industry, reviewer judgments are linked to the financial movie success. Furthermore, there are additional reviewer-related variables, such as number of reviews and dissent, which also have an effect on the market performance of an Indie video game title. (Marchand & Hennig-Turau, 2012) Furthermore, their research empirically distinguishes expert from consumer quality perceptions in order to examine the effect they both cause on the market performance of the creative good (movies, video games, etc.), as there is an overlap of reviewer and consumer judgments. (Basuroy et al, 2003;2006; Boatwright et al, 2007) Prior researches reveals that there is a positive correlation between reviews and box office success (Litman, 1983), which logically leads to increasing demand for a movie, whereas negative correlation decreases it. (Prag and Casavant, 1994; Sochay 1994) However, the case seems to be different for the house movies compared to the mainstream ones. In the case of art-house movies negative reviews seem to have stronger effect on demand than positive ones. (Gemser,Van OOstrom and Leenders, 2007) Indie video games are similar to art-house movies in the sense that both creative products are a result of the hard work of small-sized independent development organizations, which positions them on a similar place in the certain industries they are a part of. On that account, it can be assumed that the demand of Indie video games, similarly to art-house movies, is affected more from the negatives reviews rather than from the positive ones. Therefore, this paper aims to examine whether the case is the same in the video game industry as in the movie industry. As mentioned by Marchand et al
(2016), consumer reviews do affect the new product success, where both volume and valence of these reviews influence demand of video games. Consequently, it is of great importance to examine the role of the expert and consumer reviews-whether they can be influencers in respect to the concept of entering a new platform in the Indie video game industry. As influencers, they will serve as opinion leaders, valued for the expertise and consultancy skills they have, therefore their reviews will most likely influence the market success of the Indie titles and the developer’s decision whether to expand to a new platform or not. (Marchand & Hennig-Turau, 2012; Eliashberg & Shugan, 1997) Therefore, the reviews (consumer and expert) provide salient information that may help consumers approximate a new movie’s quality, which information is easily accessible for mainstream movies with their big advertising budgets and branded ingredients (Lampel & Shamsie, 2000; Marchand & Hennig-Turau, 2012; Gemser,Van OOstrom and Leenders, 2007). On the contrary, for Indie games, similarly to the art-house movies, consumers must largely rely on the information they get from these reviews in order to make the right choice. (Marchand & Hennig-Thurau, 2012). What is relevant for the emerging two-sided and platform-based markets, as the video game industry, is that producers and consumers tend to engage in more collaborative and cooperative relationships. As the video game industry by nature is very creative and innovative, this “co-creation of value” (Prahalad and Ramaswamy, 2004) helps the two-sided market adjust and evolve very quickly. Considering the dynamic nature of the video game industry and the large effect of digitalization nowadays, the traditional concept of company-centric value creation on the market is replaced by the concept of this “co-creation of value”, in which consumers are now a driving force that producers can extract significant information about the product value creation. (2004 Wiley Periodicals, Inc. and Direct Marketing Educational Foundation, Inc.) This lead to the emerging importance of the consumer-to-consumer communication about the products on the market as it is now. For example,
consumers can easily make their purchase decisions based on other consumers’ evaluations of the product’s value. Therefore, nowadays not only expert reviews, but also consumer reviews are highly significant for producers (in this case- video game developers) in order to receive relevant information about their creative goods and the way they can improve in order to succeed on the market. Furthermore, producers are largely relying on consumers for product development and innovation, as content-creators form focus groups, open discussion forums and organize widespread public beta testing. (Arakji & Lang, 2007; Babb and Terry, 2012) This helps developers not only gain significant information about the quality of their creative product but also build a long-term communicative relationship which strengthens the two-sided market as it allows it to adjust very quickly to the constant changes due to the dynamic nature of the video game industry. (Gallagher & Park, 2002; Jones, Svejenova, & Srandgaard, 2011)
Considering the already discussed importance of both expert and consumer reviews for the strategic marketing decisions of video game developers, it is hypothesized that there is a disproportionate relationship between both expert and consumer reviews, and the likelihood of entering a new distribution platform.
H2a: Positive (negative) expert reviews trend of the platform presently occupied by the indie developer are negatively (positively) associated with the likelihood of entering a new distribution platform in the video game industry by releasing a multi-platform game.
H2b: Positive (negative) consumer reviews trend of the platform presently occupied by the indie developer are negatively (positively) associated with the likelihood of entering a new distribution platform in the video game industry by releasing a multi-platform game.
According to Zhu, F. and Zhang, X. (2006), it is expected that with the diffusion of online evaluation systems, online reviews could be a good proxy for the overall WOM and, therefore, may significantly influence the demand for creative goods. As online reviews are more of a substitute and are complementary for offline WOM in the communication about product quality, they may not have that strong effect on the demand of popular video games, since these games are usually featured in game magazines or in-store demos. However, online expert and consumer evaluations are of great importance when it comes to Indie games, for there is usually lack of sufficient offline evaluation information available for consumers to rely on for their purchase decisions. (Chen and Xie, 2005) Additionally, there are two factors to consider when it comes to expert or consumer reviews, and these are: volume and valence. Volume of reviews is essentially the number of reviews about a certain experience good, whereas, valence represents the essence of the evaluation (positive, negative, neutral attitude). A number of prior researches on this topic prove that negative reviews possess a stronger influencing power on demand than the positive ones, since negative evaluation usually signals dissatisfaction with the organization’s outcomes and leads to more risk-taking behavior of the organization. Furthermore, online reviews have a larger impact and play more influential role for the less popular games (Zhu and Zhang, 2006). Considering the exceptional nature of the Indie video games, the number of evaluations of a certain experience good is more important for a customer’s purchase decisions. (Cui, Lui & Geo, 2012) When it comes to experience goods, it is more influential for a potential customer to know how many people already experienced the good, as this signals popularity and respectively quality characteristics. Similarly, the number of downloads of a mobile game is way more influential than media information.
As mentioned earlier in this research, expert evaluations with negative reviewer judgments (negative expert review trend) are more likely to stimulate a risk-taking behavior of a video game developer related to the strategic marketing decisions. (Situmeang, 2016) Furthermore, the number of expert reviews can moderate the effect of reviewer judgments, as this indicates the overall attitude among experts which is similar to the popular buzz anticipated among consumers. Therefore, initially, a higher number of reviews leads to less significant effect of the reviews’ valence, all things being equal. (Marchand & Hennig-Turau, 2012) With respect to that, the same thing can be hypothesized about the Indie video games. Going back to the discussion of the importance of consumer reviews for the video game developer, it can be assumed that volume and valence of consumer reviews also affect developer’s product marketing decisions. During the last couple of decades producers have found a way to gain benefits from the joint (producers and consumers) process of product value creation. Consumers now have greater influence on the value creation than in the traditional value creation concept, in which producers used to decide by implication what is of value to the consumers when producing a new product. (2004 Wiley Periodicals, Inc. and Direct Marketing Educational Foundation, Inc.) However, nowadays, producers relate a lot more on consumers’ view of the product quality. Thus, in the video game industry it is very common that developers seek consumers’ opinion about their creative good even before it is released in order to make sure consumers’ needs and expectations will be satisfied. That is why, for instance, developers tend to organize focus groups, open forum discussions and even public beta testing periods (Arakji & Lang, 2007; Babb and Terry, 2012) of their creative good before its release on the market, in order to stimulate an exchange of significant feedback information about their product. And the higher level of interaction between producers and consumers, the more relevant feedback information that is extracted. This suggests that, in a random population of consumers, a higher number of reviews gives more
credible information to the developers about the consumers’ needs and expectations of their creative product.
Similar to the prior discussion, the effect of volume and valence of both expert and consumer reviews on the developers’ product marketing decisions will be examined. Furthermore, the number of reviews of both experts and consumers strengthens the credibility effect of valence in time, so basically the more positive feedback received for a product, the higher significance of the feedback and the clearer knowledge producers gain about the needs and expectations of the consumers.
Essentially, creative goods can be classified differently by different actors, and this has an effect on the appeal of the product. (Hsu, 2006) In the movie industry, for instance, films targeting broader niche attract larger audience at professional critic and consumer level. However there is a lack of appeal among the audience members. (Hsu, 2006) In relation to this genre spanning theory of Hsu, the same can be assumed for the multi-platform games. As Hsu’s principle states that films targeting more than one genre simultaneously attract larger audience, the multi-platform release distribution strategy in the video game industry relies on the same idea. A game release on multiple platforms at the same time benefits from expanding its customer reach. However, creative products like that tend to be less appealing to the audience members. (Hsu, 2006) Nevertheless, nowadays, publishers do not see the cross-platform development as an additional feature update for later. Rather, they push developers to release games on all three major console platforms simultaneously. As now developers are able to program a game in a single language and still have it run on a few different platforms. (e.g. Criterion’s Renderware 3D development platform), it has become a quite common practice in the video game industry. (Zhu and Zhang, 2006; Reimer, 2005) Moreover, publishers tend to gain significant network externalities when publishing on multiple platforms. (Rochet and Tirole, 2003; Babb and Terry, 2012)
Therefore, it would be interesting to investigate whether the case in the video game industry is the similar to the one in the movie industry presented by Hsu, 2006. This investigation will further benefit in testing the independent developers’ platform distribution choices. In this sense, a moderating effect on the relationship between valence of both expert and consumer reviews and the likelihood of entering and new platform is examined.
H3: The higher the number (volume) of the reviews, the less significant the effect of reviewer judgments (valence) on the likelihood of entering a new distribution platform in the video game industry by releasing a multi-platform game.
As expert reviews, consumer reviews also play an important role for the purchasing behaviour of the consumers. Thus, they are viewed as a performance indicator of the risk-taking behaviour of consumers and developers of video games. (Situmeang, 2013) Similar to all creative products, video games’ value and quality are difficult to evaluate prior to purchase. Therefore, consumer, as expert, reviews have an effect on the market performance, as well as on the managerial marketing and distribution strategies of the video game developers. Furthermore, volume of consumer reviews and micro-blogs are primary sales drivers. (Marchand, Hennig-Thurau &Wiertz, 2016), and valence of consumer reviews gains some significance at the end of the process but does not have the influential effect of volume.
The number of consumer reviews may be influential when it comes to purchase decisions. The online Word-of-mouth shared among the consumers themselves is usually of greater importance as creative goods are best evaluated when they are experienced. Thus, the higher number of consumers who experienced the good and shared that experience with others, the higher level of trust that potential consumers of the good will have. Initially, when a potential consumer of a good is looking for credible information online about that good, it is more
influential to see that 50 people who experienced the good consider it as worth buying than only 1 person stating that it is worth buying. On a latter stage, potential consumers also look at the actual description of the other consumers’ experience of the good but the first, more influential information is gained by the number of those experiences.
Consumers usually base their decisions more on the buzz of a new game, rather than on the quality ratings when the game is first released. Moreover, the volume of consumer reviews also tends to strengthen the effect of valence later on -the number of evaluations may increase the credibility of the essence of these evaluations. (Marchand, Hennig-Thurau &Wiertz, 2016) Evaluating experience goods as video games, consumer reviews gain influential effect on sales with time (after others already experienced the product and shared that experience). (Marchand, Hennig-Thurau &Wiertz, 2016) Thus, in the beginning of the marketing campaign of a certain video game, volume of the online WOM is more significant to customers. Additionally, consistent and positive consumer reviews influence not only current but also future market performance. (Situmeang et al, 2014a) However, this is the case when there is a positive market performance trend. When the market trend tends to be negative, on the other hand, expert reviews have significantly greater effect on the risk-taking behavior of content-creators. (Situmeang, Gemser, Wijnberg & Leenders, 2016)A more constant negative market performance signals to the producers of the good that along the way of producing and distributing the product something went very wrong. The product doesn’t seem to be aligned with the value consumers are looking for in order for them to make the purchase. As consumers tend to have a less scientific and analytical approach in evaluating the creative product, it is more significant for developers to rely on expert reviews when there is a negative market performance rather than to rely on consumer reviews. Considering their analytical and detailed characteristics, expert reviews give clearer image on what might be wrong in the whole process of creating and distributing the product. On the contrary, a
constant positive market performance makes it easier for developers to take a risk and focus more on consumer evaluations for improvement tips, as consumers are the ones who purchase and experience the creative good.
As already discussed in this research, the number of evaluations is more significant than the evaluation itself when it comes to experience goods, such as video games. Therefore, it tends to have greater moderating effect on the relationship between market performance trend and the likelihood of entering a new distribution platform.
Related to the preceding discussion, the following relationship is hypothesized:
H4: Theeffect of market performance of the presently occupied platform on the likelihood
of entering a new distribution platform in the video game industry by releasing a multi-platform game is moderated by the number (volume) of expert/consumer reviews. The effect is more significant for Indie video games when there is higher number of expert/consumer
evaluations.
Additionally, the following figure is presented to draw the hypothesized relationships between the chosen variables and it is further explained in the Method section that follows.
H3 (-) H4 (+) H1(-) H2b (-) H2a (-) (influence of the reviewer judgements )
Fig.2 Conceptual model for entering a new distribution platform Trend of market performance (sales) on the presently occupied platform Trend of expert reviews on the presently occupied platform Likelihood of entering a new distribution platform by releasing a multi-platform game (multi-platform distribution strategy) Number of expert/consumer of reviews Expert/Consumer reviewer judgments Trend of consumer reviews on the presently occupied platform
3. Method
3.1. Data and Sample
The main study category of this research is Indie video games. This study uses data from video game developers of Indie games for mobile applications and traditional consoles. In this sense, the relevant information will be gathered, analyzing specific variables that will help examine the relationships established/ drawn between the certain constituents. Some causal relationship are strengthened or weakened by moderating variables. In this case the trend of consumer reviews (consumer satisfaction) is representing the moderating variable, as an external factor influencing the relationship between the market performance of the presently occupied platform and the likelihood of entering a new platform.
As experience goods video games, such as movies and music, are not being easily evaluated from the consumers before consumption. (Marchand & Hennig-Thurau, 2013) Furthermore, this creative product is characterized by having the highest demand at the moment of release (Marchand & Hennig-Thurau, 2016). Therefore, choosing the right distribution platform is a crucial decision, especially considering the independent developers’ games.
Video game development essentially requires great amount of resources, thus it is usually managed by both publishers and developers (Edwards, 2006; Gaston, 2016). Video game publishers set up all the licenses for the creative product and distribute the game to the consumers, whereas, the developers are responsible only for the creative process of inventing and developing the game through different software (Flew & Humphreys, 2005). However, in the Indie game industry, things are much different. Developers usually work in small teams without the financial support of the publisher, taking responsibility for both the creation and distribution of the video game. Indie games often seek innovation and rely on digital
distribution in order to minimize the distribution costs. Therefore, this paper focuses on the distribution platform choice strategies of the independent developers.
The data for this research includes video games from independent video game developers released for both mobile and console platforms between the years 2000-2014, as Indie games’ popularity rose dramatically in the latter quarter of the 2000s due to new online distribution methods( Xbox Live Arcade, Steam, OnLive) and development tools (Adobe Flash Anime). Considering the traditional console platforms, this study will be looking at some of the most popular ones, such as PS3, Wii or Xbox 360 (physical distribution channel), having the greatest software sales for the years 2011-2012, as well as digital platforms such as Steam and Xbox Live Arcade, with the idea to compare their performance with the mobile ones (Android & iOS).
As most major video game development companies usually do their releases during the second and fourth quarter of the calendar year, coinciding some big holidays and events, the best time for the Indie game release is during the third quarter (mid July- early August) when the major developers are not that active in releasing new video games. (Galito, 2016, gamedonia.com) However, the usual financial reporting year of the major game developers is during the period April-March, when they are most active in releasing creative products on the market, therefore this period represents best their annual performance. (Situmeang et al, 2016). The study will be looking at Indie games for the testing period mentioned (2000-2014), using data from VGChartz.com, Metacritic.com, npd.com, GameSpot.com, XboxLiveArcade, etc.
The likelihood of entering a new distribution platform was operationalized by examining independent developers releasing a video game on a certain platform under certain genre categorization and the reasons for entering to a new distribution platform by releasing a game on multiple platforms simultaneously. In the video game industry as a whole, genre is an
important driver of game sales (Marchand & Hennig-Thurau, 2013; Situmeang et al, 2016; Cox, 2013). This paper aims to expand the research in order to examine if the risk-taking behavior of video game developers to enter a new distribution platform is similar to the one to enter a new genre market segment, as previously researched in the paper by Situmeang et al. The games part of the same content category share the same basic features, such as plot and visual design, thus the unique to each genre basis of consumer expectations is formed (Situmeang et al, 2016; Hsu, 2006). The same should apply for the distribution platforms- consumers have certain expectations of the creative product due to the platform it was released on, based on categorization. Similar to entering a new genre, expanding to a new platform brings risks of having to satisfy the needs and preferences of a new customer group. (Greenberg et al, 2010)
3.2. Variables
3.2.1. Dependent variable
The likelihood of entering a new distribution platform (multi-platform distribution strategy) is measured by the testing whether or not independent developers expanded to a new platform to release their creative product on. (1= at least one video game release on a new platform, 0= there are no video game releases on a new platform)
The time frame for the dependent variable (t1) is the period of the financial years 2014-2016. In addition, this is different from the time frame (t) for the independent variables which represents the period of past performance between the years 2000-2014. As the study uses consumer reviews as a way to evaluate the past performance of the Indie games and considering the fact that the video game development is not an instant process, an expansion of the time frame is needed, so that the study could provide appropriate data results,
minimizing the effect of the difference in the development time among different video games. Therefore, two consequent time slots are used. For the ease of the statistical analysis, the dependent variable is named MP in the analysis (multi-platform).
3.2.2. Independent variables
The independent variables relate to the trends of Indie game market, as well as expert and consumer reviews trends of past performance of platforms that the developers are operating on. The study is focusing on the financial period from years 2000 to 2014.
To measure the Indie video game performance, the study uses market performance (sales), expert and consumer reviews (volume and valence of the evaluations) measures at a developer level. Market performance is measured by using sales. Unit sales are the best measures to use indicating the market performance as retail prices for video games are relatively similar ( Wesley & Barczak, 2010; Situmeang et al, 2013). Thus, the data was collected from the online database VGChartz.com, Metacritic.com, npd.com, GameSpot.com, XboxLiveArcade, etc. Furthermore, the online databases Metacritic.com and GameJolt.com are used to collect data about expert and consumer reviews (volume and valence). Here, trend of consumer reviews (consumer satisfaction) is presented as a moderator of the relationship between the trend of market performance and the likelihood of entering a new distribution platform.
3.2.3. Trend in past performance
As already mentioned in the prior section, past performance trend (TrendSales) is measured at a developer level. A trend is calculated based on the past performance of indie video games released on the market from 2000 to 2014. The results then are based on three main coefficients: annual sales, consumer and expert reviews. A regression method of analysis is used to estimate the trend lines based on those three coefficients in order for trend of past
performance to be measured. The coefficients may be positive or negative, such as a positive value shows an increasing performance from one game release to the other (by the same developer) for the time period from 2000 to 2014, whereas a negative value shows a decreasing performance.
3.2.4. Consumer and expert evaluations trends
Consumer and expert evaluations (TrendConsRev & TrendExpRev) are also measured at a developer level. A trend is calculated on the evaluations of video games based on their content features, design, mechanics, and past performance of the developer. The research period is based on indie video games released on the market from 2000 to 2014. The evaluations are initially divided into two coefficients: number of evaluations for a particular indie game by a developer (volume: VolExpRev,VolConsRev) and the essence of those evaluations, which can be positive, negative or neutral (valence: ValExpRev,ValConsRev). A positive trend over time means that the experts or consumers are content with the developer’s work, whereas a negative value means they are not satisfied with the developer’s creative products, which signals to the developer that a certain change is needed and most likely leads to explorative risk-taking behavior. In this way, the reasons behind the developer’s marketing decisions may be examined.
3.2.5. Interactions
Along with the linear relationships between the independent variables and the dependent variable presented, the interactions among the independent variables are also taken into account and examined in the statistical analysis. Related to the following hypotheses presented in the prior chapter, the interactions between the trend of past market performance and both the volume of expert and consumer reviews are examined (TS*VolER and
TS*VolCR, respectively). Additionally, the interactions between the volume and valence for
both expert and consumer reviews are also examined (ValER*VolER and ValCR*VolCR, respectively). Thus, the predicted moderating effects in Hypothesis 3 and Hypothesis 4 can be tested.
3.2.6. Control variables
First of all, this research will be controlling for level of competition (Comp) in the video game industry. As mentioned in the paper by Situmeang et al (2016), a high degree of competition may result in lower performance due to competition for resources (Singh, 1986) and seeking for a way to reduce the costs (Matusik & Hill, 1998), which is crucial for the small indie developer teams. Usually in industries where there is an intense competition, there is a tendency that the firms will switch to explorative behavior. (Abebe & Angriawan, 2014). Therefore, an assumption may be made that the higher the competitive intensity in a certain segment (distribution platform), the higher the chances that the organization will seek for other segments to expand to. (Situmeang et al, 2016) Thus, this control variable will be measured by the number of all the video game titles released on a certain platform by competing developers minus the ones released on the same platform by the researched developers. The data will be collected from VGChartz.com, GameSpot.com, GameJolt.com and Metacritic.com for the research period of 2000-2014.
Another variable for which the study will be controlling is organizational size (OrgSize) since the indie developer teams are initially small and lack sufficient resources. This variable essentially represents the human resource capability of the organizational team as this capability can influence the organization’s exploration behavior, for larger organizations are proven to pursue higher-risk activities. (Calantone et al, 2003; Jansen et al, 2006; Uotila et al, 2009; Voss et al, 2008; Greve, 2011; Situmeang et al, 2016) The higher the size of the
organization, the higher the willingness of this organization to develop an explorative risk-taking behavior (in this case, the higher likelihood of releasing a game on a new platform). The organizational size is measured by the number of employees in the organization (developers, graphic designers, storyboard writers, etc.). The data is collected from
Metacritic.com, GameJolt.com and Steampowered.com for the years 2000-2014.
The third control variable that this study uses is the purchase price of a video game (Price). The change in price of the video games depends on the different game platforms, and therefore affecting the distributors’ choices of strategy to present their creative product to the customers on the market. (Marchand & Hennig-Thurau, 2013) The variability in the price of the creative good among the different platforms may be an important factor influencing the demand of video games, especially when it comes to multiplatform games. For instance, there is a significant difference between the price of a video game on a console platform and the price of the same game on mobile platform or on PC online distribution provider’s platform, such as Steam. With the high level of digitalization nowadays, the whole distribution process may be easier and cheaper, which means low production and distribution costs and this is crucial for the Indie games, as independent game developers usually are forced to work on their projects with a minimum budget. However, indie developers initially lack specialized complementary assets (specific marketing skills, large portfolio of content, reputation, recognition, etc.), therefore, it may be quite challenging for indie developers to avoid the major gatekeepers and to operate independently on the market.
Price variability has the tendency of affecting the consumer satisfaction levels (consumer reviews). Many consumers, for instance, are not happy with the fact that they have to pay a much higher price for a video game for that runs on console platform, whereas other consumers pay much less for the same game on mobile platform or on PC online distribution platforms such as Steam or GameJolt. This may have an effect on the demand for the game on
a certain platform and consequently an effect on the market performance of the developer for the certain game on a particular platform when it comes to multi-platform video games. Therefore, an effect on developer’s distribution decisions may occur. The data is collected from Steampowered.com, GameJolt.com and Amazon.com for the research period of 2000-2016.
All variables used in the conceptual model are presented in Table1, which gives information about the measures used to obtain them for the statistical analysis estimated.
3.3. Model specification
The dependent variable is a binary variable that represents the decisions of the independent developers whether to enter a new distribution platform channel or slipstream the popularity of a major video game developer. Therefore, a binary logistic estimation method is applied (Chang et al, 2012; Larimo, 2003.)
The function of the study is a function of the trend of market performance, the expert and consumer reviews.
Mathematically, the function has the following structure:
f (NMEi) = βo + β1 TrendExpRevi + β2 TrendConsRevi + β3 TrendSalesi +β4 VolExpRevi +β5 ValExpRevi + +β6 VolConsRevi + β7 ValConsRevi + β8 Compi + β9 OrgSizei + β10 Pricei + β11 TrendConsRevi * TrendExpRevi + β12 TrendExpRevi * TrendSalesi + β13 TrendConsRevi * TrendSalesi + β14 TrendConsRevi * VolExpRevi + β15 TrendSalesi * VolExpRevi + β16 TrendSalesi * VolConsRevi + β17 ValExpRevi * VolExpRevi + β18 ValConsRevi * VolConsRevi +ε (1)
p (Expansioni) = e f (NMEi) (2) 1+ef (NMEi)
Equation (2) is the binary logistic function that captures the main function of Equation (1), where p (NMEi) represents the likelihood that an independent developer switches the distribution channel to a new distribution platform.
4.Results
4.1. Descriptive statistics and correlations
The correlations between all variables are tested. The descriptive statistics (Means, Standard Deviations) and the correlations are described in Table 1. The research is looking at 1980 indie video games released on 10 different platforms (PC, PS2, PS3, PS4, Wii, Xbox, XboxOne, Xbox360, iOS, Android) for the period 2000-2016. There are around 522 developers observed for the research time frame, and the majority of them released video games on different platforms. For the observed period between 2000 and 2016, each of the developers from the sample released about 10-15 video game titles on average, the majority of which were released on various platforms simultaneously. Only a few popular titles were released as exclusive for a specific major platform, such as PS3, PS4, XB360, etc. The observations show that about 78 percent of the total number of titles in the sample are released on multiple platforms and about 22 percent are released exclusively for a specific platform only, where 87.6% of the predicted cases are confirmed. Additionally, the organizational size of the developers, price of the video game titles and intensity of the competition on the 10 different platforms have been considered as factors that may also have an effect on the distribution decisions of the developers when releasing a new title or a sequel on the market. The findings show that for all major platforms observed in this research, only the organizational size and the level of competition on each platform are truly significant for the developers’ distribution platform decisions. (Table 2)
For the period 2000-2016, a strong negative relationship between the trend of past market performance of each developer and the likelihood of releasing a title on various platforms is observed. Furthermore, the same can be stated for both the relationship between the trend of expert reviews and the likelihood of releasing a title on various platforms, as well as the relationship between the trend of consumer reviews and the likelihood of releasing a title on
various platforms. Table 1 shows a negative correlation between the trend of sales and new platform entry (r= - . 633, p < .01). Furthermore, there is a negative correlation between both the trend of expert reviews and a new platform entry (r= - .606, p < .01), and the trend of consumer reviews and a new platform entry (r= - .620, p< .01). A positive and weak linear relationship between the valence of expert reviews and the likelihood of releasing a multiplatform video game (r= .020, p > .05) is observed. There is a negative and weak linear relationship between the volume of expert reviews and the likelihood of releasing a multiplatform video game on the market (r= - .036, p > .05). Looking at the trend of consumer reviews, the results show that there is a positive and insignificant relationship between the valence of consumer reviews and the likelihood of releasing a multiplatform title (r= .060, p= < .01). The relationship between the volume of consumer reviews and the likelihood of releasing a multiplatform title is positive but very weak, almost completely insignificant (r= .01, p > .05). This means that the variables of volume and valence for both expert and consumer review do not directly correlate with the dependent variable (likelihood of releasing a multiplatform video game). However, the results for the independent variables of sales trend, expert reviews trend and consumer reviews trend show that they form significantly strong linear relationships with the dependent variable of likelihood of entering a new distribution platform.
Table 2: Bivariate correlations and Descriptive Statistics (Means, Standard Deviations, Correlations)
Means, Standard Deviations, Correlations
Variables M SD 1 2 3 4 5 6 7 8 9 10 11 1. New Platform Entry ,7797 ,41452
2. Trend Sales - ,3909 ,92040 -.633**
3. Trend Exp. Rev. - ,3377 ,93879 -.606** .749**
4. Trend Cons. Rev. - ,3919 ,91222 -.620**.775** .850** 5. Val. Exp. Rev. 68,6759 21,19101 .020 .029 .008 .024
6. Val. Cons. Rev. 6,7590 1,87451 .060**-.028 -.044 -.018 .385**
7. Vol. Exp. Rev. 29,0567 21,43917 -.036 .102** .097** .108** .472** .257**
8. Vol. Cons. Rev. 266,7144 800,68119 .001 .027 .051* .050* .193** .119** .327**
9. Org. Size 155,0830 154,4517 .104** .034 .009 .006 .51* .008 .096** .220**
11. Comp. 6746,9280 5355,44806 .058* -.035 -.015 -.007 .006 .108** .066** .029 .037 .038
** Correlation is significant at the 0.01 level (2-tailed) * Correlation is significant at the 0.05 level (2-tailed)
Table 3: Estimates of Fixed Effects
Variables Estimates t Sig. 1. Trend Sales - .169038 - 10.905 .000
2. Trend Exp. Rev. - .064093 - 4.695 .000 3. Trend Cons. Rev. - .094624 - 6.372 .000 4. Val. Exp. Rev. .003295 9.222 .000 5. Val. Cons. Rev. .037483 10.713 .000 6. Vol. Exp. Rev. .008828 5.973 .000 7. Vol. Cons. Rev. 4.653747 1.245 .213 8. Trend Sales * Vol.ER .000794 2.297 .022 9. Trend Sales * Vol.CR - 1.126010 - 1.184 .237 10. Val.ER * Vol.ER - .000114 - 6.182 .000 11. Val.CR * Vol. CR - 6.705054 - 1.411 .159 12. Org. Size .000461 5.628 .000 13. Price 5.865226 .662 .508 14. Comp. 3.971313 1482.547 .001
4.2. Determinants of entering a new distribution platform
Two binary logit models are estimated in order to test the following relationships presented in the prior chapters. This means that the dependent variable measures are presented in the binary form of 1 and 0. Thus, whenever there is a positive outcome, it is reported in the results as 1, and in the cases when there is a negative outcome- it is reported as 0. Additionally, a multi-level analysis is estimated in order to be explained the occurrence of new platform entries at an organizational level. Model 1 is the basic model that contains all direct effects from the relationships between the independent variables and the dependent one, including the control variables. Model 2 is more complex and includes all the interactions. Model 1 predicts
a 55.8 percent possibility that a developer will release a new video game title or a sequel on a new platform (Nagelkerke R2= .558). hereas, the complete Model 2 predicts a 59.6 percent possibility of releasing a video game on a different platform (Nagelkerke R2= .59.6). The overall percentage of correctly predicted outcome is 78 percent. Furthermore, the decrease change of the – 2log-likelihood between Model 1 (-2log-likelihood= 1192.422) and Model 2(-2log-likelihood= 1112.123) shows improvement of the predictability of the new distribution platform entry. The results presented in Table 4 are used to test the hypothesized effects on the likelihood of a new platform entry, presented in Chapter 2 and 3. The results show that a positive sales trend, as well as positive expert and consumer review trends have a negative effect on the likelihood of expanding to a new distribution platform. (trend of sales: B= - .959, p < .01; expert reviews: B= - .687, p < .01; consumer reviews: B= - .654, p= < .01) The same effect is also confirmed in the multi-level mixed models analysis by the estimate values of the three independent variables. For the independent variable trend of sales the estimate value of fixed effects is - .169038; for the trend of expert reviews: - .064093; and for the trend of consumer reviews: - .094624. This means that the trend of past market performance is negatively associated with the likelihood of releasing a video game title on a different platform. The same can be concluded for the relationship between both the trends of expert and consumer reviews and likelihood of releasing a game on multiple platforms. Furthermore, there is a positive and significant relationship between the valence of expert reviews and the likelihood of releasing a multiplatform video game (B= .009, p < 01) On the contrary the relationship between the valence of consumer reviews and the likelihood of releasing a multiplatform video game is negative and not significant. Also, the volume of expert reviews has a negative effect on the likelihood of a new platform entry (B= - .008, p < .01) The results also show that from the control variables only organizational size and level of competition have significant effect on the likelihood of new platform entry. Price proves to be insignificant.
Table 4: Binary Logit Regression Analysis
Variables R2 B SE TrendSales .400 -.959 .109 TrendExpRev .367 -.687 .130 TrendConsRev .384 -.654 .130 ValConsRev .360 -.018 .048 ValExpRev .040 .009 .004
