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Game Veteran Puts Tier One Operators on the Level
 Radiance Digital Entertainment CEO Monte Singman has been in the business for 23 years. He was the lead programmer for Electronics Arts' (EA) (Nasdaq:ERTS) John Madden Football and served before and after at Sony, Capcom and Accolade in positions including technical director, producer and studio director. Singman founded his first start-up, Zona, in 2000 and sold the company to Shanda (Nasdaq:SNDA) in 2003. Though his company's products are still in beta testing, Singman places Radiance (www.radiance.cn) in the top two in terms of export licenses. JLM recently caught up with Singman to talk Radiance and the China-U.S. connection on online games.
JLM: How do you decide what kind of games to create when you are dealing with both foreign and domestic markets?
Monte Singman: It's of the utmost importance for us not to make Chinese-only content. That's why we don't make games based on Journey to the West or the Three Kingdoms. We try to make games that are universal, but, even with that in mind, not every idea will work everywhere. For example, our original IP Beach Volleyball Online is too racy for Thailand and may be too racy for Vietnam. Now, Taiwan and Russia, two regions that we have licensed agreements with already, they want it to be even racier.
JLM: How many employees work for Radiance and what games are you working on now?
Singman: We have about 97 to 102 people, and two original IPs that are completed and we will maintain. One is Beach Volleyball Online, and the other is Go!Go!, a 3D off-road racing game. We are in the process of creating our third project, which is a 3D card game that uses the Beach Volleyball Online community and avatars. The attractiveness of the game is your ability to express your emotions. In all of the traditional card games in the market today, your ability to express your emotions is really lacking. All you can do is say, 'I am pissed off,' in text. If you look at Tencent's (700.HK) QQ games, the characters are all just standing there, emotionless. The card games that we are doing now are Chinese. After that, we are going to add Texas Hold 'em, Gin Rummy, that kind of stuff. Then we are probably going to do a dancing game.
Eventually, the Beach Volleyball Online chat lobby will be the center piece with a lot of games surrounding it -- not mini games, but full-fledged online causal games.
JLM: How big is the community right now?
Singman: It's nothing. We are still in closed beta, which started in October of last year. We are a month away from either a very big scale of closed beta or open beta.
JLM: Having worked in both domestic and overseas game companies, how do you think the two compare?
Singman: None of the top-tier publishers in the U.S. gets online gaming. Most U.S. companies do not understand free-to-play, item sales. It's because they have been very successful doing what they have been doing for the past 20 years. I think that's why a lot of Chinese companies are going to the U.S just like Snailgame, NetDragon (777.HK) and Perfect World (Nasdaq:PWRD) already have. That is going to pose a threat to a lot of U.S. companies and eat into their market share.
During a recession, game companies should do really well, and sales should go up. Sales have gone up for Chinese companies, so why are EA (Nasdaq:ERTS), THQ (Nasdaq:THQI) and Midway suffering? Everyone agrees to the same answer: the economy is an excuse for bad products. So far, I have not seen them do anything meaningful to join the online movement.
Another core value-system difference is, in the U.S., if you do something that breaks the game balance, it's a crime. The core gamers will be very angry with you. In China, it's your time versus my money; that's the balance.
JLM: What about Blizzard Entertainment with World of Warcraft (WoW); they get it don't they?
Singman: I think they have a few advantages. Warcraft [the original PC network real-time strategy game], from day one, was online, was networked. So it wasn't much of a stretch to go from LAN to Internet. Secondly, that company has always been focused on quality, and they copied the hell out of EverQuest. Everybody knows that.
Right now, if you talk to a lot of Asian operators they know what features have to be in games, and they understand that graphics aren't everything. I have a lot of admiration for NetDragon because they get it. I spent RMB 200 a day on Zero Online for two months straight. A friend of mine, the CEO of Ourgame, said that is not addiction. That's controlled behavior. He said addiction is several 1,000 yuan a day. There are mechanisms for that kind of impulse buying in Chinese-made games, but that's not existent in WoW.
JLM: Does the Chinese model work in the States?
Singman: MMOs from China to the U.S., I think that's ok, but casual games are tricky. Our racing game is a calculated bet because the graphics and game play are better than Kart Rider's [developed by Korea's Nexon and operated by Shiji Tiancheng in China], and it's more feature-rich than Kart Rider, which is a five year old game. Beach Volleyball Online is a big bet.
IGG is doing great in the U.S. They have three Chinese guys there, and they have a team here in Fuzhou. They are operating seven or more MMOs. These guys speak okay English, and they are pulling in $1 million a month. They could go to $3 million easily. They do in the U.S. what they do here in China: Internet advertisements and banners, no conventional distribution channels, no retail. Outspark, Turbine, and many U.S. online game companies are not doing as well as IGG.
JLM: Is IGG's audience mostly overseas Chinese?
Singman: No, it's localized. I think they've got to have more Americans than overseas Chinese. NetDragon was going after overseas Chinese originally, but, initially, they were not big in the U.S.
JLM: Do you think it's a distraction for Chinese companies to go to the U.S.?
I would rather find a good U.S. partner, who knows how to operate online games, and have them do it than do it myself. The average revenue per user (ARPU) in the U.S. is not that much higher than in China. In the States, ARPU is still between $15 and $20 per month for advanced casual games. MMOs are about the same. In China, it's about RMB 80 [roughly $11.72], and you have a much bigger user base. Also, in the United States, there are a lot of bad credit card issues that take away about 10-15% of revenue.
JLM: Are companies sneaking into the U.S. because the China market is so crowded?
Singman: You can get MMORPGs almost for free in China because too many guys leave their employers thinking they are going to be the next Chen Tianqiao [the CEO of Shanda]. They form these little 10-15 person companies. They have a game that is 70-80% done, with source code stolen from their previous employers, but they don't know how to monetize. If you show up and offer them access to the U.S. and other overseas markets, they will give it to you for free. That's actually part of our business model.
JLM: Can you talk more about your model? What your value-add is?
Singman: We are also an operator, but we can't compete with Shanda or Perfect World, mostly because we don't have the capital. So, we looked at a co-publishing model. NetDragon did their IPO based on that model, and now the company is pretty strong on their own. We really like their model, but we would like to take it to the next level. So instead of working with 10 co-operators, we would like to have 50 or 200. To do that, we need a platform.
We break partners into two classes. One is established co-publishers like Ourgame, Baidu (Nasdaq:BIDU) and Thunder. We also try to convince companies to get into this business. We went to VeryCD, and now they are building a payment gateway as one of our partners. They are not tier one, but 600,000 unique daily IPs is pretty good. We have partnered with video site 56.com as well. We go after companies that have huge traffic but could use help to optimize income. We also go after websites that have decent traffic but no payment gateways, like dating sites or blogs. We want to have a platform where they can sign up and we will give them a registration page and revenue share. That's our domestic plan for the next two years.
JLM: What kind of coverage do you have right now?
We are in 25 countries outside of China including Russia and the surrounding Baltic countries, Hong Kong, Macau and Taiwan, Malaysia, Singapore, and the Philippines, the U.S. through K2, Turkey, Poland and Brazil.
JLM: So you have all these partnerships before the games are even live?
Singman: Right, these are all presales.
JLM: Last year, it looked a little bit like MMOs were on the decline, while casual game platforms like Tencent were doing very well. Are we in the middle of a big shift here in China, or are there just more companies piling in?
Singman: There are definitely more companies piling in. I think over the span of five years, you will see individual players getting burned out on certain MMOs because you can't play the same game for two hours a day for more than 3-5 years. It's also believed that most MMO players play a second game, which is usually a casual game. Two MMOs is too much. Most MMOs don't look that great and require repetitive actions, while casual games are more about social networks and looking pretty. MMOs are stickier, and casual games are trying to copy sticky aspects like leveling, experience and item crafting. On the other hand, MMOs are trying to add mini-games to be more fun like casual games. Because of this, the line between the two may be blurred at some point.
JLM: Do you have any plans to cooperate with big names here in the domestic market?
Singman: We found it difficult to work with Shanda's 18 Fund. They take gross revenue minus costs for channels, minus costs for marketing -- which is done on their own platforms, minus costs for IT. The rest is net revenue and then they give you 28% of that. You still have to do GM and call center yourself, or it will cost you more. Not to mention Shanda will own your IP. At that rate, I'd rather be a developer, who gets 25% or 20% of net revenue and not have to deal with operation issues.
Giant Interactive (NYSE:GA) more or less copied Shanda's model, and I don't think it's any more attractive than Shanda's. Tencent says it has a co-operation model, but I can't see what it is yet.
The real co-publishing model is: they do payment collection, marketing and promotion, and you split net revenue 50/50. Anything other than that is a bastardized version of screwing developers. I have also talked to NetEase (Nasdaq:NTES). They say they are doing co-operation, but I do not believe they are. I don't understand why first-tier publishers are inclined to say they do co-operation when they don't. Fundamentally, if first tier operators do co-publishing, it may eat into their already lucrative independent operator business. Why risk losing your higher-margin customers to the lower-margin co-publishing model?
JLM: So what kind of partnership do you have with your 25 global partners?
Singman: We get 22-28% revenue share.
JLM: With so many casual games and dancing games on the market, what do you see as your advantages?
Singman: We try not to use our own capital to make original IPs. We like to use other people's money, but it's very difficult to get money from VCs in a hit-driven business. So, what we do is go to Vietnam and say, 'Hey, how would you like to get a racing game for your region?' We tell them that it would cost about $1-2 million to get a game from Korea, whereas we are only asking for about $150,000. We use the money for development, get the worldwide IP rights, give them three years to run the game, and we still get royalties.
With the dancing game, there is a Korean company that is paying us money to license Beach Volleyball Online if we do a dancing game expansion. One of the challenges of dancing games is that music licenses are very expensive. We are not going to compete with Audition, [which is operated by Nineyou in the mainland]. We try not to go head-to-head with anybody. Some people say, 'Oh, it's a sports game.' But it's not a sports game, it's an excuse to see sexy players on the screen doing supernatural moves, it's a fighting game.
JLM: What do you see on the horizon for casual games?
I think sports casual games are going to be the most successful genre because in the U.S. sports games are number one by far with console games.
JLM: What do you think about The9's (Nasdaq:NCTY) FIFA Online (FO)?
Singman: I have asked EA this question, and they think FO is going to do well. I have heard from other people that it's a great game, concurrent users (CCU) are very high, but it's being challenged by a low conversion rate -- people aren't willing to pay. My information could be dated though. NeoWiz [the game's joint developer along with EA] has plenty of time to optimize monetization features.
JLM: Even though they are two different kind of games, do you think there is any chance for FO to surpass World of Warcraft to become the major revenue source of The9?
Singman: No. I think the percentage of female players will be even lower in FO. So, I won't go to FO to meet chicks because there won't be any. That's one reason why they won't have 1 million CCU. Konami's Winning Eleven is much more popular in China than the first FIFA because it's more arcade-like. I just don't think FO's addressable demographic is bigger than WoW's.
The only exception is if NeoWiz can monetize the hell out of players. If NeoWiz can be as creative as Giant Interactive, then they have a chance. But FO has a lot of limitations -- like they can't make players hair green or have an explosion on the field -- because of their licenses.
JLM: Can you talk a bit about the future of online gaming?
Singman: I think within the next 2-3 years, we will see a decline of more U.S. traditional publishers, if they don't catch on. Also, I actually think it is possible for online game companies to start buying companies that own IPs, maybe not in two years but in 3-5 years.
U.S. publishers move very slowly. They have great relationships with retailers, they have great names and huge followers, but they are not doing anything with it. They just keep pumping out the stuff they did last year. So, I am seeing a big shift in the U.S. gaming industry in the coming years, with China coming out as a big player.
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