Big Fish Games Bets on Freemium Games, Streaming Service

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channels so well over the years that, Thelen says, Big Fish can very closely predict the lifetime value of a game even before it starts selling.

You can see that methodical bent in Big Fish’s approach to investments: The company took on $83.3 million from venture capitalists in the fall of 2008 but has not touched the money, even for its recent headline-grabbing acquisition of Self Aware games, Thelen says. And although the company is often mentioned as a future IPO candidate, Big Fish seems to be in no rush to head to Wall Street.

“We are at scale and profitable, so that is an option. But at the end of the day, an IPO is a financing event,” Thelen says. “If you’re talking about strategic acquirer, that’s always an option. But there needs to be a business rationale to do so as well.”

One of the newest changes to emerge in the domestic video game industry is the rise of freemium business models, first on Facebook and then on mobile channels. The idea is that, by giving a game away, publishers can accumulate a huge user base. With a big enough base, the relatively small percentage of those players who will pay for game-enhancing add-ons is enough to make serious money. And the game ends up taking on a life of its own in many cases, continually evolving as a service that offers new data for developers to study for ways of finding more revenue.

That’s a lot different than how Big Fish has built its business. Dating to the original Web transition to downloadable games, Big Fish has always staked its finances on games that people pay to play—there may be a free trial, but the game itself requires forking over some money.

That’s changing soon. Thelen tells Xconomy that, starting mid-year, Big Fish will start rolling out freemium titles on its existing marketplace. This has the potential to add a large new set of players to the company’s existing base of “millions of paying customers,” as Thelen puts it. He says the reason it finally makes sense is summed up by one company: Apple.

“The real epiphany there was that originally for free-to-play, you had to be on a social network to scale big enough,” Thelen says. “Apple kind of proved that wrong with the iPad and the iPhone.” On those platforms, developers have seen success selling freemium game additions that help players get through levels faster or add special powers to their characters.

“We actively have a queue of games that we are lining up to roll out this summer,” Thelen says. “We’ve been building the technology for some time.” Now, the company has begun telling developers outside its very close partners that their freemium, virtual-item games are welcome on the Big Fish store as well—with all those paying customers at the ready.

Big Fish is also beefing up its staff in another new arena for gameplay, one that holds plenty of promise as the consumer markets inch ever closer to next-generation Internet-connected TVs: a cloud-based gaming service that will stream Big Fish’s games to players wherever they are.

The trick here is that a cloud gaming service keeps all the computing tasks on a remote computer somewhere else in the world—there’s no traditional game software running on the player’s device, just a streaming video feed delivered through a thin client and the interaction of mouse clicks or finger swipes.

If you’ve been near its Seattle headquarters, or on Interstate 90 connecting Seattle to the Microsoft-dominated suburbs, you might have seen on of Big Fish’s giant billboards advertising jobs for cloud-gaming engineers. The company has previously added some of those specialists, particularly at its offices in Ireland, but is looking to ramp up even more this year.

Big Fish has been quietly testing out its technology on this front, using the cloud streaming service to allow players to try games online before they buy them. But Thelen says the cloud streaming technology will start powering a standalone commercial service by midyear—with a compelling catalog of titles ready to roll.

“We have a huge catalog of content we are exclusive publishers or outright owners of, from developers all over the world, and those are PC games. But we’re actively virtualizing that entire catalog, over 1,000 games, into the cloud,” Thelen says. Those games can be delivered to basically any connected device, which helps solve headaches that can crop up with perfecting games for platforms like Android, which runs in several versions on a multitude of different handsets, all with different specs.

That opens up the possibility of totally different business models, as well, Think subscription-based gaming services, similar to how Netflix does streaming movies or Spotify and Rhapsody do streaming music, Thelen says.

“It’s a challenging technology. Because if you think about Netflix, one way they deliver video very consistently is they have a four- to five-second buffer where they have time to get the frames and packets down,” Thelen says. … Next Page »

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