INTERACTIVE PUBLISHERS HANDBOOK by
PAUL PALUMBO
t Masters of Media" INITRACTWE PI'BUSHENS IIANDBOOK Sporuored by AppleComputer's'f,lASIlRS OFMEDItrprogram (A[rP) andtheAPPI.E MEDIAPROGRAM
InteractlvePubllshergHandbook O 1996PaulPalumbo All rightsreserved,includingthe right of reproductionin wholeor in part in any form. ISBN#:1-885452-07l Printedandboundin the United Statesof America CoverDesignby Tim Neil Rlited by ClancyFort andJon Samsel Publishedby The CarronadeGroup An Imprint of Liquid Mercury,Inc. 2355FranciscoStreet,Suite6, SanFrancisco,CA 94123 (800) 529-350r,(415) n4-3500 htp ://www.carronade.com Acknowledgement is madeto the following for permissionto reproducethe materialindicated: ThomasJ. Cervantezof the law firm Pillsbury,Madison & Sutro,LLP for two samplecontracts- "software Developerand PublishingAgreement"and "Affiliated LabelAgreement,"@1996;Allen S. MelserandBecky L. Troutmanof the law firm Popham,Haik, Schnobrich& Kaufrnanfor the work- "IntellecrualPropertyRights Affecting Multimedia Projects,"@1996,Allen S. Melser for the work- "Patentsand CorporateLitigation: PracticalObservations," Ol 996. A specialthanksto MultimediaDaily, for grantingpermissionto re-purposeportionsof author'spreviouslypublishedmarketanalysusand data. Limits of Liability andDisclaimerof Warranty:The authorandpublisherof this book haveusedtheir bestefforts in preparingthis book andthe programscontainedin it. Theseeffortsincludethe development, research,andtesting of the theoriesandproceduresto determinetheir effectiveness. THE AUTHOR AND PUBLISHERMAKE NO WARRANTY OFANY KIND, EXPRESSEDOR MPLIED, WITH REGARDTO THESEPROGRAMSOR TI{E DOCUMENTATIONCONIAINED IN TI{IS BOOK. THE AUTHOR AND PUBLISHERSPECIFICALLYDISCLAM ANY WARRA}ITIF,SOF MERCHANIABILITY OR FITNESSFORA PARTICULARPURPOSE.TI{E AUTHOR A}.ID PUBLISHER SHALL NOT BE LIABLE IN A}.IY EVENT FOR INCIDENTAL OR CONSE. QUENTIAL DAIVIAGESIN CONNECTIONWITI{, OR ARISING OUT OF, THE FURNISHING,PERFOR. MANCE, OR USE OF THESEPROGRAMS.
TABLE OF CONTENTS
M Dckctlba Ahaullk A+,tka /l+d4alr*liaa
'Chapter1 - TheMarket 19 4hapter 2 - TheCustomers37 -fihapter3 - Financing53 tthapter 4 - TheProduct 69 Chapter 5 - Marketing andPublicRelations111 Chapter 6 - Distribution 149 ChapterTOnline Network Franchise179 'i)t..nt*,/, z}halter8 - Merchandising /,,,4r" 199 ,, -t,t..L, y ASSc^lt* ,/CaseStudies206 ,/Patents andCorporate Litigation: Practical Considerations 215 Software Development andPublishing Agreement 225 lntellectual Property Rights Affecting Multimedia Projects249 Affiliated Label Agreement 269 Distributor Directory283 LawFirmDlrectory295 Venture Capital Directory301 Replication & Packaging Directory 307
DEDICATION
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In 1994, Stevellollis enteredourlives like ajolt of adrenaline.As a sales rep for Computer Cunents magazine,we watched a positive, charismatic showman work a convention crowd like no other. We were in awe. Over time (and a few beers,lobster tails & good cheer) we learned that Steve was also a good person.Someonewhose suaveEnglish charm never failed to light up a room. As a courageousentrepreneur- Steve was always planting the seedsfor somenew businessendeavor.His greatest triumph was perhapsMultimedia Live!, & multimedia conferenceand expo which broke new ground as a showcasefor state-of-the-artmultimedia product. In January I996,just a few days after his 40th birthday, Steve Hollis left our lives forever. His death was a tragic loss to those who knew and loved him. In our grief, we are comforted by the thought that great men don't leave this world quietly. On foggy nights, we sometimeshear distant voices drifting in off the Bay, encouraging us to go on- to work harder- to dig in. We swearit's Steve. We're still working hard to achieve our dreams in an industry that doesn't always pauselong enough to applaudits own accomplishments. We'd like to pauselong enoughto saluteour friend, SteveHollis. You're dreamslive on in all of us. We will never forget you.
- Jon Samsel& ClancyFort Publishers
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ABOUT THE AUTHOR
Paul A. Palumbo is an entertainment analyst and writer based in Seaside, California. Mr. Palumbo began his career with Paul Kagan Associates, Carmel, CA., in early L99I, as an M & A writer and analyst covering global media and multimedia deal making. In 1994 Mr. Palumbo joined Adams Media Research as an analyst, and worked closely with Tom Adams, one of the entertainment industry's premiere consultants and senior analysts.In L995, Mr. Palumbo began working as a freelance analyst and writer, and regularly contributes to such newsletters as Variety Deal Memo, New Media Stragegist, Multimedia Daily and Electronic Gaming News. Mr. Palumbo has also written two emerging media special reports: BroadbandTelevision Strategies:Content and Distribution Paradigmsfor the Digital Era for Simba Information, Wilton, CT., and New Media 100 for Baskerville Communications, Thousand Oaks, CA.o which is an indepth finanacial analysis of the top 100 media, multimedia, distribution and telecommunicationscompaniesin the United States.
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sPoNsoRs 3: Apple The APPLEMEDIA PROGMM (AMP) is the Online media infomation sourcefor technology,tools, resourcesand the new media developercommunity. Designedfor content developersand the creativecommuniry AIvIPoffers a breadth of resourcesand information to keep new media developersup-todate on Apple's offerings for authoring and pla$ack. AIIP givesyou accessto some of the best minds and most successfulmembersof the InteractiveMedia Community. Programfearuresinclude the AllP Veb Site and Memben Only fuea, Market ResearchRepons & Guidebooks, Apple Multimedia Information Mailing, Comarketing Oppornrnities, Development Hardware Purchasinghiviliges, Multimedia Eventsand Training Discounts,and Apple's Interactive Musiclhack. Apple Media Program Apple Computer,Inc.
Voice: WIIW:
40e9744897 http:/itrutw. com amp.apple.
One Infinite Loop Cupertino,CA95014
Apple Computer's "I|{ASTERSOf MEDIff prognm educatescustomerson how to make and sarrcmoney by lercraging their investmentin their intellectud property, and by managingthe technologyto more effectivelycommunicatetheir ideas.For the creative or publisher, the equity is their contenq for the production or pre-presscompany,color production and color fidelity, and for the corporation the equity is their brand. "Maste$ of Media' is a comprehensiveprogram for artists,designers,musicians,pub lishers,webmasrcrs,advertisingagencies,enrcrtainmentcompanies,and corporate communicators,providing the meansto move and orpand their content from one media to dl media.Communicationsno longer haveto be media-specific,but can now become media univend. Macintoshtechnologiesallow everl'onethe power to visualDetheir ideasmore easily,wtrether theywant to communicate acrossmultiple media, in multiple languages,with consistentcolor, in 3D, on the Internet, in virual reality, or to auto. mate the repetitirc tash of media creation. "MasterThe Media" "Mastersof Media" Apple Computer,Inc.
L8N.n6n33 40&996.1010
One Infinite loop Cupenino, C,A95014
http:/Arww.masters.media.apple.com http:/trurw.apple.com
INTRODUCTION
Interactive title developmentis a fascinatinggrowth and innovation-driven industry. As a result, it has also attractedsome of the brightest entrepreneurial minds in the world, oswell someof the most creative talent drawn from the entertainmentbusiness.The purpose of this book is to tap into that existing information and knowledge base and to present new and establisheddevelopersa real-world view of the interactivebusinessfrom an insider'sperspective. The executivesand analyststhat chose to sharetheir interactive insight with the CarronadeGroup during the researchphase of this book not only have yearsof hands-onexperiencein interactive entertainment, but the battle scarsto prove it. Nowadays,interactivetitle developmentis very similar to any other entertainment genre, including film, TV production, made-for-video or publishing: It's very difficult to predict what the "hits" are going to be, and wrong development decisions are very expensive. Enter the Interactive PublishersHandbook. This book is designedas a one-stopeasyreferencemanual.It's lacedwith dozensof examplesand models cut from today's market that will help developersmake better business decisions about where and when to invest scare capital, and how to avoid costly mistakes.This book will provide readerswith the valuable, hard-won, accumulatedknowledge of some of the most recognizable and successfulplayers in the businesstoday, augmentedand enhancedwith key analysisprovided by the CarronadeGroup. In addition, this handbook contains views, opinions and numerous specific interactive title developmentcasestudiesdrawn from a broad arrayof successful publishers.
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These publishers and executiveshave chosento sharetheir years of interactive experiencewith a broader audience.That decision was made in an effort to better educatetitle developersabout the realities of today's businessmodel and also to shed light on the entire enrichment chainfrom documentdesign to retail distribution- of the interactive software industry. The Interactive Publishers Handbook was createdto assistall interestedparties in making soundbusinessand developmentdecisions. Reality
Gheck
The problem for developerschasingprofits in the interactive businessis that publishing markets for CD-ROM and other packagedmedia products have beenextremely volatile over the past four years.It's afactthat very few interactive publishersand developersare making money today. Most analysts and industry observersbelieve there will be substantial markets and revenueupside as the hardwarebase of advancedplatform machinesgrows and network (i.e. Internet) distribution and product exploitation become commonplace,sometimearound the year 2000. In other words, developmentof an interactive product is not a shortterm, get-rich- quick investmentplay. While today's market is uncertain and chaotic, there are plenty of opportunities.Platform and delivery transition, particularly those driven by innovation and the finicky tastesof consumers,at once provide interactive title developers and publishers with extraordinary latitude to find success,as well as an inverse level of failure. Both those outcomesare a function of adept (or not) businessdecisions, intelligent alliance building, successfuland affordable accessto marketabledevelopmentconceptsand steadyaccessto cash.In fact, the decisionsnecessary to producea successfulinteractivetitle are typically exquisite in detail and are made long in advance (nine months to two years) of any particular title's debut at retail.
The lnteractive Players A developer, os defined in this book, is a company which producesinteractive content through third-party, affiliated label or co-publishing deals.
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P*ul Dtlunl,o
Its key people assetsinclude artists,authors,computer programmersand management.Examples of developersinclude Cyan (producer of Myst), Vortex Media Arts (producer of Madeline and the Magnificent Puppet Show), ffid Mondo Media (producerof the DaedalusEncounter). A publisher, as defined in this book, is a company which finances, markets, promotes and distributes interactive media into any market. At this time, most interactive publishers Ne also developers.Examples of publishers include Broderbund, Electronic Arts, Virgin Interactive, Davidson & Associatesand Mindscape. The two groups are brought together by means of a development deal, a formal businessrelationshipcreatedto bring a proposednew product to market. A typical developmentdeal will guaranteethe developer a fee for the cost of producing a marketable title, but can also include a minimum backend(or royulty) participationoncecertainretail salesmilestonesare met. Publisherstypically collect anywherefrom 30Voto 35Voof wholesale price in return for assumingthe risk of upfront development costs. Those can range from $250,000to $500,000 at the lower end of the development scale (education,reference,strategy/simulationfare), all the way up to $750,000to $1,500,000(and far beyond) for superhigh-tech action titles with ghtzy Hollywood production values. Wholesaleprice is definedasthe price at which a product is sold into the distribution channel.Wholesale prices range from 457o to 55Voof retail price. The Decision
Sets
There are many requirementsthat go into a production decision. In order to even have a chanceat achievingmarket success,product decision sets require sound knowledge of the publishing business,the packagedmedia business,technology,talentevaluation,managinglacquiringresources, pre-planning,planning,post-production,storytelling insight, distribution, tight-fisted fiscal control and creative vision.
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The scopeand mission of your businessplan and the positioning of a particular title involves questionssuch as: Are you a developer?A publisher? Are you both? Do you license franchisesthat have already found an audience,like EA s huge pro-football sportsfranchisewith John Madden, and if so, how? These are fundamental questionsthat must be answeredeverydayby every interactive entity in order to build a successful and sustainablebusiness. Market
Intelligence
The interactive publishing industry is just now coming to grips with the reasonsconsumersmake product purchasedecisions,not to mention the length of channelselling cycles and depth of buy-ins at retail. That information provides publishers a means to develop models and scenarios that can help to accuratelypredict profitability. Those types of cost/revenueanalysescan then be used to justify "green-lighting" an in-houseproject,or to convincean outsidepublisher(s) to risk an upfront developmentinvestmentthat moves the processto the next level. Every businessis basically concernedwith where the cash (i.e. investment capital) is, and where the influx of money (return on investment-or ROI) comes from. For the most part, the publishing community controls the purse stringsin interactivenowadays,and in many cases the content as well. Thus, many of the winners in the this businessare going to be allied with publishing companiesor largeentertainmentcombines(like Disney/ ABC, Viacom and Time Warner) somewherein the enrichment chain becausethey alreadyhave ready accessto cash (at least $300 million to $500 million per year in grossrevenue)and an abundanceof marketable properties(a.k.a.content). Two years &Bo,every developer'sdream was to becomea publisher. Today, developersare smarter and have discovered that the interactive publishing businessis extremely capital intensive. That implies a corresponding-some say "crushing"-level of company specific risk aspub-
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Paul Palunl,o
lishers roll the investment dice on what consumerswill ultimately pay for. In addition, large publishing housesare not immune from bad businessdecisionseither, nor can they necessarilywithstand the consolidation forces now rippling through the industry as major Hollywood studios and softwarecompanies(Microsoft, Disney and DreamWorksSKG) strike for greater market share. While the ultimate goal of any developmentventure or partnershipis to get compelling contentto the consumer,the processby which publishers and developersaccomplishthat feat is what this book is all about. Furtherrnore,the purpose of this book is to focus on two major development strategies:1) Finding ways of generatingsufficient royalties to keep creative staff employed and working while building a library of titles; and 2) Migrating the businesstoward a "creation model," where proprietary interactiveassetscan becomefranchiseproperties.Thosetype of properties pay off like annuities, and can include ancillary merchandising windows that Hollywood studiosare so fond of exploiting. This book provides timely information about how, and where to access financial support to create in-house franchise as well as contract titles. In the case of contract titles, alliances with larger publishers will permit a new developerto setup andbenefit from royalty income streams. On the other hand, franchise property creation will allow the developer to exploit those marketable goods through multiple entertainment and merchandisingwindows. In both cases,that is where the long-tenn flow of cash is going to come from. Developer
Longevity
From a businessstandpoint,the aim of any developershould be to: I
Securea good deal from the publisher
t
Get a better product to the consumerfaster than competitors
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Make the publisher happy in the process Ensurethere is sufficient information factored into the development mix upfront , so everybody makes money. In today's crowded and increasingly competitive marketplace, developersneed to control severalkey aspectsof their business: I
Story-telling talent. A strong stand-alonetechnical team Critical mass as a publisher ($5OOmillion in yearly revenues),or a partnershipwith such an entity operating capital (from venture capitalists or poker partners). An ability (somesay "sixth sense")to anticipateconsumer tastes. Accessto retail shelf space. An understandingof alternative(i.e. online) sourcesof distribution to maximrze the value of franchise properties.
All of thosecompetitive elementsneedto be built into one business plan and fortressedunder a corporatebanner,or bridged via partnerships, alliances or straight output dealswith larger entities. In that regard, what works in favor of developersis that content creation is a sharedexperience, and that is difficult for larger publishersto emulate. In sum, that leavesconsiderableroom for smallerdevelopersto carve out a place at the interactive market share table. With rapid improvements in authoring suitesand hardw aredevelopmentplatforrns, the skill setsneededto createquality work still reside in a relatively small talent pool. And those types of assetsare typically found in small developer shops,where valuablepeople "assets"walk home eachand every night, and the overheadis modest. This book contains material derived from dozens of conversations
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with venture capitalists,publishers,developers,businessanalysts,marketing specialists,distribution experts, advertising agenciesand major entertainment companies. To help the readerunderstandthe basis of the content developedfor this book, here is a listing of the executivesinterviewed and quoted frequently. This is not a comprehensivelist, but it will provide someinsight as to who theseexecutivesare and what they do. Ken Goldstein:ExecutivePublisher,Broderbund Software Executive publishers are responsiblefor setting out and executing broad company strategiesand acquiring the assetsto complete that vision. Executive publishers ire also responsiblefor setting up budgets, running profitability models and making a case for the successof any one project under consideration. Michael Pole: ExecutiveProducer,ElectronicArts Executive producers shepherdinteractive projects from concept to the so-called "gold master."They are responsiblefor delivering product on budget and on time to the publisher. A typical executive producer picks projects,analyzesdevelopmentcompanies,setsmilestonesand managesthe overall processin conjunction with internal and external developers. Broderbund Software MasonWoodbury:VPof MarketingServices, VPs of marketing become involved in the processat the conceptual stage,along with the executiveproducer.They typically define the product genre,user market, market potential (i.e. sales),product sell-through cycles, technical support costs, marketing resourcesnecessary for the product to reach payback and beyond that, profitability. It's at this very early stagethat the marketing strategybeginsto take shape.Titles ure not produced in a vacuum. Kelly Conway: VP of Marketing, Multicom Publishing Gary Hane:Presidentand CEO, Fathom Pictures
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Executivesand CEOs for developmentcompaniesare in charge of settingstrategicimperatives. That can include relationship management with publishers,managlng company assetsand acting as the company's chief evangelist. CEOs of publishing companies also set strategic imperatives, but typically presideover a much broadertapestryof assetsthan developers. Brian Famell: Presidentand CEO, T*He Andrew Maltin: President,Insights software Kip Konwiser: vP of Entertainment, Graphix zone VPs of entertainmentand businessdevelopmentare usually responsible for developing relationships with content providers and for securing the rights to that content.Examplesinclude securinginteractive rights to a major motion picture suchas Batman Forever,or licensing the rights into a theatrical window (i.e. Mortal Kombat).
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GHAPTER I tl,tM
Developershave a strategicand developmentalimperative to understand their particular markets becausethat information is crucial to making profitable publishing decisions and contract deals.The first step in that processis for developersto stick very close to their core audience and know it better than anybody else. That "bottom-up" relationship with users(via Web sites,online forums, consumersurveys,beta testing, focus groups, previous publishedtitles, etc.) yields data that can be profiled into consumerwants, needsand desires-and therefore,more marketable titles. Creating a successfultitle at retail in today's tough marketplace is the nexus of four key elements: I
Profiling consumerneedsthat provide developerswith upfront market intelligence
I
Finding ways of exploiting content that already exists (i.e. re-purposing-whether a motion picture (Batman), comic book (Spidetman,X-Men, etc.), animatedTV character(Bugs Bunrry),TV show (Star Trek,Monty Python, etc.) or somethingfrom the magazinerack (Better Homes & Gardens,Skiing, Cycling, etc.) and has already found a "communityof interest" ot "aLtdience"
I
Building allianceswith publishersthat have accessto shelf spaceand developmentcapital
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Allocating creative resourcesto begin building a library of proprietary media assets.
Market data and accessto licensed or proprietary content are valuable culrenciesfor developersbecauseit's pt.rirely thosetype of assets that compel publishers to make third-party deals. Publishers are interested in working with developersfor any number of reasons,but two good ones are to undertakea viable project that can't be done more cost effectively by an in-house creative staff, and to leverage assetsinto a market that is well-known and understoodby the develoler. Understandinga particular market allows developersto better exirmine the risk/reward matrix of interactivetitle developmlnt (insert gr1 here). For example, the risk for high-end game titles like Wing Commander IV is much more acutefor an averagedeveloperthan investing in an educational title like Davidson'sMath Blaster setiesor a business-related project such as Insights Software'spure Motivation. On the other hand, a high-end game has multiple opportunities (in the form of multiple exploitation windows) to rack up Uig sales in the marketplace. Consider LucasArts Rebel Assault franchise,a family of titles that averageswell over $ 1 million in salesper title iteration.
DistributionChannelsvs. productGenre Matching distribution with end-useror target market is a decision that must be made early in the developmentprocess.For example, it would not be appropriateto distribute WhereIn The World Is CarmenSandiego in an arcade venue. Similarly, Mortal Kombat I, II, and III wogld not typically be found in schoolbook fairs or Home Depot (seetable 1). While there is often someoverlap in thesediscreteareasof the retail and wholesalechannels,it is important to emphasizethat a title must find its way onto a store shelf or other retail environment where a particular community of interest can not only find it, but once observed,leel compelled to make a purchase.
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CHANNELS TITLEDISTRIBUTION Genre
Title Types
Retail outlet Tlpes
PersonalGrowth
Cookbooks Home/Garden Wealth building Personalgrowth
Home Depot Direct Catalog
www Book Stores
Kids
ComputerStores MassMerchants Toy Stores BookStores BookFairs Teachers'
Education Entertainment Edutainment
Associations
Direct Catalog Games
Strategy Action/adventure Adrenaline Multiplayer Exploration Role-Playing
Arcades SpecialtyVideo SpecialtySoftware Toy Stores MassMerchants Catalog Direct
www Source: Carronade Group, Inc.
Al*ltco 1
InteractiveDevelopment and"TheHollywoodModel" Hollywood and interactiveentertainmentare "hits" driven businesses that often require production and distribution to be fortressedunder one brand to maxrmrzethe most efficient use of capital and to generatethe greatest return on that investment(ROI). Nevertheless,comparedto the film business' which has the benefit of 75 more years worth of hindsight (i.e. mistakesand market and businessexperience),or television,which was conrmetcralizedback in the early 1950s,interactive title developmentis a relatively new form of entertainmentthat has not yet found its final form, let alone formula. At present,close to 70 cents of each dollar generatedby a Hollywood studio comes from aftermarket windows lviOeo, ppv; premium cable TV' basic cable TV and broadcast).fn addition, international markets now make up closeto 50Voof the grossrevenueof a typical theatrical release. Interactive has, at this juncture, very limited exploitation windows and consistsprimarily of retail salesthrough establishedmassmerchants for specialty software stores,catalogs and limited online opportunities. In the caseof megahit titles like SuperMario Bros. or Mortal Kombat, a film deal could get cut, or characterlicensing going back up the entertainment chain might be an option. Beyond that, interactive title publishing, unlike the motion picture industry television or traditional pulp-basedmedia, is a two-way entertainment experiencewhose developmentprocessactually begins where the end-user is engaged.The more sensesthat are courted-auditory, visual, tactile-the more compelling the overall entertainment experience.And that drives sales. The real hook for interactive as a medium is it satisfies a cuhure which has a demand for highly stimulated entertainment.Witness the fact that 20 yearsago, three channelsof television were consideredsufficient, and nobody thought viewers would actually pay for more. In the 1990s,that benchmarkhas grown to over L75channelswith the advent of DirecTv.
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There itre huge differences,however, betweenmovies, TV and CDROM entertainment.As opposedto massaudiencesnecessaryto support theatricalreleasesandTv, CD-ROM is adelivery platformbasically aimed at an "audience" of one. But, similar to other forms of packagedmedia (i.e. films, video tapesand TV shows),CD-ROM successis defined by cumulative salesdesignedto reach common communities of interest. But, despite the difficulty in reaching profitability on title development, interactive publishing is fast becoming a massmarket medium as the installed baseof ROM drives surges,ffid more householdspurchase gameboxes or PCs.That fact offers developershuge revenueopportuniii6 if they can align the necessaryassetsto correctly produce, promote and position a particular title. Consider Hollywood's main aftermarket,home video. In the caseof home video, Hollywood releasesabout400 films per year,andthosetitles (as well as catalog product) are shippedto a specialty retail universe of about 26,000 storefronts.That doesnot include massmerchants,grocery stores,direct mail operationsand discount clubs like Costco. Even with that level of distribution sophistication, many independently produced titles still can't find shelf space,and many that do are not profitable. Considering the crush of interactive titles out there (seedetailed section below) and the scarcity of shelf space-not to mention channel immaturity, it's not surprisingthat many publishersand title developersaren't making money in today's marketplace. And lastly, the comparison of Hollywood and interactive models comes down to the revenue splits relative to eachparticipant in each industry and to how talent is paid. Given that Hollywood and the record industry have detailed accounting proceduresto track SKU dollars and usageof products,the royalty structureis in place to pay artists and producersbasedon a real- world evaluation of contributioll. Due to the relative infancy of the interactive business,theseroyalty mechanismsare not yet fully developed,and the lack of reporting product usage further complicates the relationship between publishers and developers.
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InteractiveMarketStats Softwaresalesarein directcorrelationto the installedbaseof a particular platform,whetherdedicatedgameconsolesor PCboxes.From lgg31995,the marketexpandedat about140Voperyear,accordingto a market researchstudyconductedby Infotech. Thosemillions of installedunits arethe playbackplatform against whichinteractivetitle developers mustleverageinvestments, with returns predicatedon capturinga forecastshareof thathardwarebase.The total size of a developeror publisher'smarketis alwaysgoing to equalthe installedbasefor the particularhardwareplatfor- r,ipported.An analogy wouldbe the salesof videotapesagainsta VCR uninerseof 80 million TV households.
WORLDWIDE SALESOF CD.ROM DRIVES Year
Units Sold
r994
1995
1996E,
(Mil.)
(Mil.)
(Mil.)
16.I
39.7
40.6
Source: Infotech and industrt' estimates. Infotech estimatesthe total worldwide installed base of CD-ROM drives at the end of 1995 was 65 million units, and it has beenforecasted to grow to more than 100 million units by the end of 1996. The PC was the single greatestcontributor to that growth rate, with Original Equipment Manufacturers (or OEM optical disk drive suppliers like Plextor, NEC, Hewlett Packard and Creative Labs) salesaccounting for almostT}Vo of total CD ROM units shipped in tggl. By contrast, CD- ROM basedinteractive set-topboxestotaled about 5.9 million units in 1995,saysInfotech.
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WORLDWIDE SHIPMENTS OF CD.ROM SOFTWARE Year
1993
1994
19958
(Mil.)
(Mil.)
(Mil.)
53.9
70.L
UnitsShipped 16.5 3'E' = estimates.
INSTALI^ED BA,SEOF INTERACTT\M, PCS LJ.S.FiguresOnly-In Millions of Units Year
1993
1994
1995
1996
lW7
InstalledBase
4.3
9.0
14.2
21.0
30.5
INSTATLED BASE OF N)VA}ICED GAI\'IEBOXES u.S. FiguresOnly-In Millions of Units Year
1993
1994
1995
1996
1997
InstalledBase
0.2
1.0
2.0
6,9
14'0
Source:Forrester Research,Inc. CambridgerMass.
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CD.ROMSOFTWARE UNITSALESANP 6P9YY11 ComparisonOf First Halt l994And 199s By Category Category
199s (000)
GamesAnd HomeCreativity HomeEducation Content Business All OtherProducts
4,140 r,430 3,629 1,402 3,336 1,555 413 81 2,616 614
lggSvo gvo 15g. lr{.Svo }g9vo 326.lVo
Totals:
L4,I34 5,092
LTg.LVo
1994 (000)
VoChange
source: software PubtishersAssociation.
A LimitedInstalledBase According to The CD-ROM Directory, thenumber of CD-ROM titles in the global marketplacerosefrom 5,379 in 1gg4, to 9,691 in lgg5. While that is close to lNVo growth, it more soberstatisticto considerfor Igg4 (and beyond) is that even though 53.9 million units were shipped, the per-title averagewas still a relatively modest L2,500units. That puts a lot of pressureon developerswho don't have the financial staying power to build a library of product (or media assets)that can begin to pay offlong-terTn.Larger companiessuchasMicrosoft and Electronic Arts can amortize development costs (and losses) over a much larger revenuebase,offer retailers greaterincentives to carry their product, and strike alliances with new sourcesof distribution to create additional market positions for product. A word of caution about statisticsand numbers. Weare presenting numbersfor the purpo,sesof comparison,basedon the best information available fro* the most reliable researchfinns in the country. A usefut formulafor calculating market estimatesis to take available data, throw
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out the highest and lowest numbers, then add and divide the remaining setsoffiSures. The CarronadeGroup does not, however, believe there is one set of accuratenumbers, except those from the publishers themselves.Those numbers should be referencedas "net" sales,which is units shipped minus any returns.This is particularly tough now with so much 16-bit product flowing back up the channel as that market segment continues to atrophy. Until artists with "gross royalty deals" and developersbegin to demand accurateweekly (or monthly) SKU reports, all reported numbers will tend to be approximations,and in somecases,not necessarilyvalid ones.The book channel,for example,requires ISBN coding on each product to accuratelytrack retail sales,and a similar system for interactive titles would end a lot of "numbers-related" confusion.
EducationalSegment Educational publishersare the beneficiariesof two strong macro-market fundamentals working on their col ,ective behalf: 1) They reside in a high-growth market ($6OOmillion in wholesale revenue forecast for tigS_.and projected to grow annually at a35%oclip through the turn of the century); and 2) Their businessmodel more closely resemblesthe classic book (pulp/prinO model, where titles have a much longer shelflife, and development costs are relatively low when compared to their game counterparts. Educational title developerslist seven competitive basesthat they contendmust be coveredin order to have a chanceat retail success,both as a company and in seedingan individual product into the marketplace: I
Quality content.
I
Accessto key influencer groups (teachers,school districts and parents).
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SubstantialupfrontR & D investment.
t
Brandedportfolio of titles.
I
Strongdistribution(proprietaryor partners).
I
Brandequitybuilt with in-housetalent.
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Strongcreativestudio.
While educationalpublishersiue plowing big bucks into R & D (The Learning Companyhasinvested2T%o of revenueinto new productdevelopment for the L995 fiscal year, and Davidson & Associates,about $20 milion in 1995 R & D). Per-title costsare averagingabout $300,000for the industry as a whole. That's far below the "technology-driven"gamebusinesswhere production costscan rangefrom $500,000to $ 1.5 million per title, Edmark CFO Paul Bialek says the chief difference betwern ihe two software categoriesis technology.He notes,"Educationalpublishersare technology-enabledbut don't celebrateit." Longer shelf-life for educationaltitles translateinto lesscritical payback windows and allows productsto perform more "like annuities,' according to Bialek. While a game title is subject to being "pulled" by a retailer if it doesn't "pop" right away,ffiffiy educationaltitlei are on store shelvesfor years.At the sametime, many titles and brandsenjoy support from key influencer groups like teachersand educators. Product life cycles can be further extendedand enhancedby updates or modifications, while maintaining the focus of the product: core curriculum enhancementand home education.Neverthrir*r, industry data suggests25Voof the top educationaltitles still generateabout 80Voof the revenue' with the remaining 7SVoleft to scratch out positive payback from 20Voof the market. Many educationalsoftwarepublishers(witnessDavidson)havebeen releasingtitles sincethe '80s and have built up strongrelationshipswith distributors and retailers. One of the reasonsthat both BroderbunOand Electronic Ans have been so successfulis they have virtually "owned,,
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retail relationships (with firms like Software Etc., Babbagesand Egghead) becausethe two businesssegmentsgrew up together. The real concernfor small-to-medium-sizedpublishersnowadays is that establishedretail relationshipsmay changenow that huge conglomerates,like Disney and Microsoft, are getting into the market--two giants that could theoretically throw a lot of cash and product into the channel. Educational publishers maintain that the corner stone of their longterm strategy to maintain viability+ven in a crowded marketplace-is to emphasizedevelopment of products that have unique charactersand tell good stories.
The GameSegment The real story behind bullish game developerexpectationsis the generally acceptednotion that software salestend to spike in correlation to the maturation (i.e. penetration)of its complimentary installed hardwarebase. In this case, however, the market has to factor in the additional likelihood that there could be multiple (fragmented)installed bases.This suggestsinvestors ire hedging their bets and are willing to ride along with a number of developers. Most analystsbelieve there is a substantial(latent) market demand for advancedgitme software, which should spike once an installed hardware basefinally makespenetrationinroads.According to Lee Isgur, interactive and game analyst with Jeffries & Co., the market is currently "focusedon the amountof businessthesecompaniesaredoing right now." And Isgur says in that regard "they are overvalued." But he goes on to say, "Based on the potential businessthey will probably do before the turn of the century, they are undervalued." As for the market's current hardwarepreferences,Sony was the hardware champ in the U.S. in 1995, md Segatook that honor in Japanlast year. As for the revenueprospectsfor multiplayer online games,Isgur says, "Despite all the market excitement, very few users are playing online
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games.Psychologically, it should be more attractive to play against another person (or persons)than againsta machine.On the other hand, it still meansthat you will have to find the appropriatelevel player to play with, at the time you want to play." It's beena rough ride for girmedeveloperswhosebusinessesgrew up around the 16-bit market and were slow to embrace CD-ROM as the next-generationdelivery medium. For example,Acclaim Entertainment is without question one of the premiere game developersin the world. Moreover, the company owns a huge proprietary distribution machire, state-of-the-artcreative studio facilities and has accessto capital. Nevertheless,it's reliance on 16-bit systems,and the fact that it's large revenuebasewill have to be replacedwith next generationsoftware sales,has hurt the company. Short-term,Acclaim is hoping to break with big budget titles coreleasedwith movies. fn the long-terrn,Acclaim has been on a content licensing binge and plans to releasemost of its new slate on titles for multiple platforms (Sega,Sony) as well as for the PC CD-ROM plarform. Activision is another example. It made a name for itself during the cartridge hey day but had to reorg anrzeafter that market matured. With Bobby Kotick at the helm, Activision is now exclusively focusedon PC CD-ROM. Game company "Profit & Loss" (P&L) will always be exposedto excessivemarket volatility as hardware adoption cycles ebb and flow. Many developershavehad to enduretwo-year's worth of inventory writedowns and declining salesas the 16-bit market decayed,and successor platfonns were slow to reach the marketplace. Despite strong salesfor Sony's PlayStation 32-bit platform (about 800,000 U.S. units sold-through),a clear "advancedplatform winner" probably won't emergefor another 18 months to two years.And markets in transition are ripe with opportunity, particularly for small firms. It's a chanceto break into the earnings"black" in a big way with one
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or two titles that"hit" on a hot platfonn.Thedownsideis thatdeveloping for multipleplatfonnsis expensiveandrisky.That'swhy manysoftware companieshavebeenwilling to hedgetheir upfront developmentbets that itt. PC is indeedgoing to capturea substantialshareof the marke which mostanalystsexpectto be huge. While the PC hasbeengenerallycriticized for its lack of "plug-nplay" capabilityandslow gitmeplay,theplatformis driving towardmarand of U.S.households), 307openetration ket criticalmass(approaching have nowadays channel consumer the into mostof thecomputersthatsell CD-ROM drivespre-installed. thatlike GraphixZone,Tthlevel,SpectmmHolobyte For companies that andBroderbund beganPC CD-ROM developmentearly,the market sendingpublictradingcomparables haslikewisegushedwith enthusiasm, into orbit.
Surviving PlatformEvolution Last year,The GamePCConsortium consideredintroducing its own specification standardsfor the desktop PC, which once again focused the debate about what playback platform dedicated CD-ROM game players will eventually migrate toward as the 16-bit market atrophies, and how long it might take for a clear "winnet''to emerge. The short-term view held by many industry analysts is that incumbent technology companieslike Segaand Nintendo (now joined by 3DO, and Sony) have the inside track on gathering the lion's shareof the hardware (not to mention software) markets. The theory supporting set-tops is that 1) There is a high degree of "brand" awarenessamong consumersalready; 2) Softwate developers are less spooked about making upfront production commitments to support those brands; and 3) Shelf space is already scarce.Retailers (i.e. mass merchants) ire sure to stock both the titles and hardware. At the presenttime, just about all developersand publishers support
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PC CD-ROM, but most of those products are often classified as "edutainment" or as specialinteresttitles, "which representlessthan 20Vo of the business,"accordingto Lee Isgur of San Francisco-basedJeffries & Co., and developershave yet to crack into the action genre. Isgur speculatesthat "the economics of the hardware businessappear to supportthe set-topbox through the end of the decade,"given that the all-important "cost/benefit" ratio of competing hardware platforms favors consoles. "For $500, game enthusiastscan get a terrific experiencefrom a20" TV set,and it takesfar lessof an investmentwhen compared to the computer counterpart," saysIsgur. Nevertheless,with Microsoft and a host of hardwareperipheral vendors (witnessAII Technologies)now working closely togetherto better guilantee the PC's overall performance (spelled PLUG-N-PLAY), it's still arace that's too close to call. The battle cry being heard from the PC group is that Windows '95 is solving many "driver-related"issues(even though somedon't ship with the operatingsystem,but only with upcoming software titles), and the introduction of PC 3-D add-on cards rn '96 that will bring desktop performanceup to the level of set-topboxes. The goal: Offer gameplayersan "arcade-like" experienceon the desktop. ATI Technologies(Toronto,Canada)collaboratedwith Microsoft on a new software interface called DirectDraw, which effectively reduces demandson the CPU by permitting "block transfersof data" and therefore dramatically acceleratesgraphics display. DirectDraw technology reportedly yields the mind-breaking action that gamers have come to expect and demand. In addition, despite the much-publicized problems at Apple Computer,the MAC operatingsystemhas always beena favorite in the development community becauseof its easeof use, its unencumbered"Plugand-Play" capacityand its extremely loyal baseof users. According to Ken Nicholson of ATI (a member of the GamePCconsortium), title developersworking with Windows '95 and DirectDraw are quite impressed.Nicholson saysthat developersare rapidly finishing
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a, up a cycle of DOS-basedproduct, and will soon turn toward creating o 95, of end the at "trickling out new genre of "PC action" gamesbegan but could turn into a flood of product by mid-'96." Nicholson also said 26 chip makers are competing to supply the 3D chip-sets for PCs, which should boost feature sets,while driving down incrementalcostsper add-oncard.For technologyvendorslike ATI, codification of a GamePC"standard" could be an important step in the journey to capture a piece of a potentially large, lucrative, but so far uncommitted, consumer game segment,despite the early successof Sony's PlayStation.
CaseStudy:MortalKombatin the Arcade Releasing a game through the "atcade" window is becoming somewhat analogous to theatrical distribution in the motion picture business because the street buzz that it createstypically goes a long way toward driving title profitability at retail. But beyond being abellwether indicator for retail sales,arcadesare valuable proving groundsfor title developerswith the right mix of assets in place to exploit it. It's also businessthat severalmajor developers(witnessTime Warner and Acclaim) are gearingup to enter,despitethat fact that it's a tough market to crack becausethe "value chain" of assetsnecessaryto establisha position (from creative developmentto stand-uparcade box design) is usually fortressedunder one corporatenameplate. The entrenchedcompetition is fierce. WMS Industries, Capcom, Konami, Sega and Hamco ffe already major arcadeentrants and have a hammerlock on the segment.The dominantplayer,WMS Industries(best known for rtsMortal Kombatftanchise),has alreadycorneredabout 4OVo of the $500 million (at wholesale) coin-operatedvideo game business, according to Allan S. Roness of J.'W.Charles (Boca Raton, Fla.) and other game industry analysts. According to Roness,Mortal Kombat I sold about 10,000arcadeunits
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worldwide, andMortal Kombat II closeto 25,000.Stand-uparcadeboxes normally sell for between$3,000and $4,000,while game '.kits" (games sold for existing consoles)cost about $1,000to $2,200per unit. As for Mortal Kombat III,WMS IndustriesCFO Howard Bach, while not disclosing Mortal Kombat III arcadesales,says,"Arcade gamesthat sell 5,000 units are consideredstrongtitles." Bach did sa1l,howev er, arcade games that ship 10,000-20,000are a bonafide "hit," and Mortal Kombat III can be listed in that category.And talk about cross-promotional synergy,the Mortal Kombat movie grossedan excessof $80 million at the box office. The Mortal Kombat III trtle was releasedat retail on October 13, 1995 for the SuperNintendo and SegaGenesisplatforms, and according to the most recentinformation,WMS has shippedabout 1.1 million copies of the game,with 350,000units alreadysold through.The key to the whole thing, according to Bach, "is the platform that goes into the arcade,which is getting more sophisticatedevery year." The reasonis, the typical kid who has a home set-topbox goesto the arcadesfrom time to time for the super game play those venues offer. Arcade gameshave bigger screens,more complex controls and generally offer a more intenseexperience.WMS releasesabout 4-6 gamesper year through the arcade window, and Bach says games that take off at the arcadelevel establishthe following and enthusiasmto drive retail sales. A typical developmentcycle for a WMS arcadetitle includes creating the game, then fitting onto an upright platforrn. That platform and game are then put out in a beta test.Basedon player response,the game is modified, or new charactersand action featuresa^readded. Then a sample"run" is distributed to the arcades.Basedon that additional "bottom up" input from players on the game, the final version is releasedanywhere from nine to 18 months after the design document is first started. Acclaim Entertainment (former distributor for WMS) is in the processof developingits coin-operatedbusinessand shouldreleaseits first
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title (Batman Forever) by early 1996. Its secondtitle is scheduledto utilize the NBA Jam property and will incorporate full motion sequenceshots using movements of Juwann Howard. Howard spent severalsessionsin Acclaim's Glen Cove, N.Y. motion capture studio to add authentic movements for the charactersin the game. Acclaim's strategyis to own the title franchise,from arcadesto comics, home video, online (multiplayer experiences)and TV network distribution (in partnershipwith TCI). Time Warner has a partnership alrangement with Acclaim for both Batman F orever and D emolition Man,even though its interactive/arcade subsidiary (formally Atari) has a staff of about 280 and releasesabout 30-40 titles per year. T'WI's Primal Rage title reachednumber one at the arcadelevel in Juneof 1994,andthe companyis now in the processof creating 12 home versions of the title. The first five versions of Primal Rage came out about a year after the title's arcadedebut (in August) and sold in excess of 1 million units. Another six versionswere releasedin November, 1995. Similar to the long-establishedHollywood studio model, game developersare finding new ways of extendingtheir softwarefranchisesinto new exploitation windows as the interactive title publishing industry matures,and technology opensup new avenuesof distribution. That ability to capturemore of eachrevenuedollar in the game businessis a crucial element to profitability, and that typically begins at the arcadelevel. That's why the major playershave steppedup and made the incremental investmentsnecessary to hedgetheir distribution bets going into that street level starting gate.
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rsH In theory, anyone who has read a book, played a video game,watched a TV show or gone to the movie theaterrepresentsa potential market for interactive titles. The real issueis how to court thoseuserswho are faced with thousandsof software choices,particularly as distribution avenues proliferate.Those"eyeballs"belongto individuals,gameenthusiasts,large and small communities of interest (niche/personalpreferencesegments) representingall demographiccategories. Determining the target audiencefor a product is probably one, if not the most importoflt, step in the developmentprocess.The second most important step is to follow those audienceswherever their leisure entertainment hours rre spent:Online, with CD-ROMs, in front of a TV with a game box, etc. The questionsevery developermust ask about a proposedtitle are: r Who is the audience? I
Can it be identified, quantified and justified as a community of interest?
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What ire the best promotional channelsto reach them?
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What are the product "sell-through" assumptions,and can the proof of conceptbe justified againstthat forecastlevel of buy-in?
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r what companiesare potential "poker" partners? r
Where doesthat audienceexpectto purchasethe product?
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What distribution avenuesare available to get the product in thosechannels?
A good concept,well thought-outuser interface,compelling visuals and jarring audio are all key pieces of a successfultitle. But, no matter how good the title, if there is no audienceor community of interestthat a product resonateswith, or if there is insufficient marketing support to promote it, then saleswill not meet expectations,and the product will becomean expensivelessonin what not to do. Audience researchcan be crucial in formulating a quality document design strategyand can be done in a number of ways. There is a voluminous amount of third party researchavailable on the market to guide developersin making a sound decision, but common senseplays an important role as well. If a developerknows that millions of peoplelikeAmerican-rules football, and a large portion of them own computersor consolevideo games, there is a likelihood that the union set of thosetwo segmentsmight result in a definable community of interest that a product can be quantified againstand eventually sold into. Focus groups and testing are also a useful means for determining your audience.In other words, if you test football fans and none of them like your prototype football game, it will likely not sell as a full-blown product at retail.
CreatingMotivatedBuyers Once interactive developershave identified a core market group or product constituency,the next job is to createproduct for or target a known core enthusiastcommunity that will act as word-of-mouth (i.e. hyped) "barkers."
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That strategy servestwo purposes: 1) Development costs can be amorttzed over an expected sales base of a core constituency; and 2) Those"hyped" user segmentsform an asset(i.e. revenue)baseover which to expand the product's retail reach (see graphic) into adjacent or less attractive segments. Hyped enthusiastsare not only avid purchasersof product, but can also be counted on to find multiple uses for that sameproduct. For example, a core user segmentcan also be an attractive way to experiment with new usesof that product (i.e. online and multiplayer environments). What developers should strive for is to make an enthusiasticcustomer out of each buyer. That can be a function of game play.
Brand Loyalty One of the basic goals for the developerto consider during the proof of concept stageis how to createa seriesof productsthat compel user loyalty to that brand. Brand loyalty is an extremely valuable product differentiation tool and is, by definition, a "hyped" user.Brand loyalty can be further broken up into four discreteflavors:
| , Hard core (hyped) userstypically will buy a preferred or favorite brand all the time. For example, many parents are attractedto Disney's kidvid titles becauseof a long associationwith that company'sproduct. It's a known, comfortable product zonethat has built up a large degreeof trust betweenboth supplier and purchaser. Some gameenthusiastswill always prefer Segaproducts to Sony. 3DO has a similar, albeit smaller, core group of enthusiaststhat boy the company'sproducts. 2 ,softcore usersire loyal to two or threebrands.Those could include Acclaim, Activision, Interplay or Byron Preisstitles in the game segment.That divided loyalty can be an attractive sourceof incrementalrevenueand
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marketsharefor developersif they can find one or two product characteristicsthat appealto that segmentbut that were not presentin earlier versions of product. 3 ,shifting usersmove from brand to bratrd,favoring one brand over anotherbasedon price, feature sets,word-ofmouth endorsements,availability and key influencer groups (i.e. name endorsements). 4 , Switchers are userscompletely driven by price or deal.
Q&A Ken Goldstein, Executiye Producer Broderbund Software Q. Where doesthe product conceptcome from? Who evaluatesthe available market? How do you strike a balancebetweendeveloping a concept and targeting the end-user? A. It's slightly different with an edutainmentproduct than it is with an entertainmentproduct. With a Carmen Sandiegoproduct, we clearly ask ourselves:What is it that both the parent is looking for in terms of an educational experience for their child, and what is it that the child is interestedin? And what is age-appropriatecontent? We have a pretty good understandingof that here, having produced theseproducts for 10 years. So what we're always asking ourselvesis: Who is the culrent customer,as well as who is the current purchaser?In the caseof a Carmen product, it's not necessarilythe samething. If a parent is purchasing it for their child, the parent is looking for one thing, and the child is looking for something else. But most of all, what the parent is looking for is whether the child will stay with the
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product for a long time, and whether the product will have a great deal of value. So, one of the things we look for with our conceptsis, do they appeal to the user-to the child? How can we make it more appealingand more interesting? How can we make the content more age-appropriate,and then once we have that nailed, how can we frame that information well for the parent who may be buying it? We work very closely with children in the developmentof the concept, in the development of the interface, in the development of ageappropriateclues, in the developmentof age-appropriatedatabaseinformation, make sure that the languageis clear, make sure that the content coveredis broad and interesting,make surethat thejokes arefunny to the right customers. There's a lot of user testing that goes on in the developmentof that concept. Those products-the Carmen Sandiego products-tend to be developed internally by people who have worked on products before. I serve as the executive producer of all of those products becauseI have done quite a few of them now, so I have a pretty good feel for what needs to go on there. But in terms of leading the design process,I usually assign a producer to be in charge of that, basedon work they have done in the past and demonstratedsensitivity for the needsof the customer. With educational and edutainment products, we do a tremendous amount of early testing. The focus testing is more for the entertainment products, where you've got a brand-new conceptthat you are laying out there to seeif people will react to it. With the educational products, we're pretty clear whether we have something that's marketableor not, going into it. What we need to do is to hone those concepts,so I wouldn't call those so much focus tests as much asplay tests. We're constantly(bringing testersinto the) developmentprocess,letting them bang on it, letting them tell us what they like and what they
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don't like andreactingto thatandrolling it into thedesign.A focustestis usually-with an original pieceof work-something we haven't done before,somethingwe haven'ttried. It's somethingwe lay out thereandsay, "Herearetheparameters of the technologywe are exploring.Here are the parametersof the gitme. This is the gameplay,this is the story,thesearethecharacters, this is the interface."(Then we ask them), "Is this somethingyou would like to spendthenext20 hoursof yourlife with, andif so,wouldyou feel comfortablepayingus "x" pricefor it?" That'sthe traditionalfogustest. And, youknow,with entertainment productsthatire movinginto the 7-figurebudget,you needto geta senseof thatprettyearlyon.As I was telling oneof my producers-who hasbeendevelopinga treatmentwith an outsidedeveloper-today, our fate is pretty much committedin the first 20-40pages.If that 20-40pagesis good,itosonly goingto getbetter from there.If that 20-40pagesis bad,therereally isn't any reasonto proceeduntil it is good,because thatis whatyou ire goingto produce.
Q&A llason Woodbury, VP llarketing Seryices Broderbund Software Q. How do you market to a particular audienceonce you have a product in-hand-whether it's an educational title or an arcadegame? A. Well, the first step is the name of the product, so that's where the marketing group gets the first contact. Once they have a reasonablytight beta and the concept is pretty nailed down, we will start working on what the name of the product will be and also trying to determine those kinds of issues in terms of the age (appropriateness)-Is this really going to
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appealto a S-year-old,or is this going to be too sophisticatedfor a teenaget? And all of that sort of gets rolled into the beginning development of the nirme and what we call the "why to buy"-i1's sort of like the tagline. Historically, the product developmentpeoplehavepretty muchjust walked in and said, "Here's the product. Now put it in a box and sell it for us." With the shift, over the last year or so, to a more marketing-driven orientation, I have beenworking with people right from the very concept stage.In terms of, say, what is the demand for chicken raising: Should we do a chicken raising CD-ROM product? How many CD products are out there that talk about raising chickens?What does the market side look like? Who's the market leader?What's the price point for that type of stuff? The marketing managerand the marketing researchmanagerwould get involved with focus groupsin terms of we've got three different interfaces-which one seemsto work best and appealto the customer?At this point, I would say that we're reasonablyinvolved almost from the moment that they start thinking about going down a certain road. It still varies a little bit from product to product, particularly (with a product we are publishing for a third-party developer). With a product that we are publishing, marketing would have far less of that early involvement because,in that case,it's an outsidepersonthat usually walks in and has a fairly completeproduct or concept.But if it is something we are doing internally, marketing would be involved almost from the inception, in terms of does this sound like a good idea, is the market there. Really, the first time that we start to do real work is pretty much when they say, "Okay, now we need to come up with a nrune."That is where we start.Product developmentmight saythe agerangeis 4- L2,but when we start working on the name and the box design, is when we really startsaying,"Is it really 5-9,or 4-I2 or 6-7?"
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What Do ConsumersBuy? Customersmake purchasingdecisionsbasedon a number of factors, but the most compelling reasonsare need,product appealand availability. In order to feel compelled to buy a product, customersmust first be made aware of that product's existence.Advertisitrg, promotions and public relations are all appropriatemethodsfor getting the word out about new and existing products,althoughthe marketing mix variesby product genre, scopeand target audience. A well-branded developer,backedup with preexisting content in the marketplaceand word-of-mouth buzz, contributesin a positive way to a consumer'spurchasedecision.According to research,buyers who own dedicatedplatforms (Sega,Sony,Nintendo, etc.) buy the most software. While computer owners purchaseentertainment software to some degree (.8 titles per year, accordingto Dataquestresearch),that's far less than the 1.8 titles per installeddedicatedgame platform. Home productivity software-rzurging from referenceto word processingsoftware-is probably the next, most soughtafter category.Educational, hobby/craft and home improvement categoriesfall last on the list and have a much smaller potential market than entertainmentor productivity.
Q&A Kelly Gonway, VP Marketing Multicom Publishing Q. How do you pick ideasfor your products? A. Multicom's product strategy is one that somewhat mirrors the book business.A couple of underlying piecesof that strategyare that all prod-
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ucts should have names-most people call them brands, but names can take many shapes-that consumersare familiar with in the particular category of product that we have decided to do. Thke Better Homes and Gardens,Warren Miller in the skiing world or Home Depot in home improvement category. So, number one: All products will work to have a well-known consumername to attract the multimedia buyer. Number two: The content is sourcedeither from the name that is the expert in the field or an expert in the field, the two may not come from the samesource.How we determinewhat productsto do is a function of looking at the book market and determining what categoriesof books have beenperennialbest-sellers,large volume categories,etc. As an example, cookbooks are one of the high est volume by title and in number of titles in the category...art,history, sports,cookbooks,travel, etc.We do researchthat helpsus to understand that. Then, the secondpart is just general market researchthat we can accesswhich helps us focus in on where the interest is in theselifestyle product categoriesfor multimedia products.Really that's third-party researchfor the most part, that we subscribeto and pay for.
o&A Michael Pole, Executive Producer Electronic Arts Q. How are your titles and conceptspicked, and how do you know what is going to sell? A. What I like to do in the children's market is acquire pre-sold content
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(meaning contentthat is reco gnizableto the consumer),which makesfor an easiersell when you bring a title to the retail channel.That's what we did with Madeline. The difficult thing with this is that anyone who controls high-profile content usually has their hand out for a huge advance and sizable royalties. In the children's market in particular, it's very difficult to make your financial model work under thesecircumstances.It's in those rare instanceswhere people are willing to become your partners-as we did with Madeline-that you are able to createa remarkable program in a cost-effectivemanner. The advancesthat we paid for Madeline were very reasonable,and we put every dollar that we could on the screen.There ire companies that have made a name for themselvesby acquiring great content-in particular SunSoft,Acclaim and some of the others.But they have (generally) paid out a lot of money in the advances,and they didn't put the money or care into the developmentof the property, so the titles weren't very good and didn't sell very well. The best thing you can do is work very closely with the peoplethat you acquirecontent from and explain to them the model and make it attractive on the back-end. Q. When lookittg at a couple of your affiliate labels and subsidiarieslike Origin and Bullfrog-those developershad original ideas and then built popular titles. A. Right. But then again, they were small development companiss-100-I25 people strong-that were acquiredby EA. What we've done is given them complete autonomy to continue doing what they do. Peter Molyneux and Robert and Richard Garriot are three of the most talented people in the industry. They make ground-breakingproduct. Bullfrog is just now becomingsuccessfulin the US. Garriot's group has been successfulwith Ultima and Wing Commander,and now they are doing feature-lengthmovies within Wing CommanderIV. They are working on their franchises-they may be new to EA, but they havebeen around for many years. Once you create something of value, you try to continue to createfranchiseability with that and continue on. This businesshas changedso much.
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of a title on a cartridgecouldbe donefor Whereasthe development $125,000,the budgetsarein excessof $1 million for mostof the titles now, andyou haveto be muchmorecarefulaboutwhich titles you deline you create. velopandcontinueto investin, in the successful Q. Is the platformimportant? A. Yes.The platformstrategyis very important.EA hasbeensuccessful in that.We developeverythingwith multi-platformin mind.
HowDoTheyBuy? Most customersstill purchasesoftwarethrough the traditional retail software storechannel.That is beginning to change,however,becausesoftware content is expanding greatly in scope,to reflect a wider range of needsand tastesof the growing softwire consumermarket. Consumersbuy multimedia titles basedon a number of key behavior setsthat are functionsof 1) Price;2) Brand; 3) Availability;4) Convenience;5) Perceptionof value; and 6) Need.Thesebehavior "influencers" to purchasemay be scrambled and recast in a variety of permutations. No two consumersare the same,which is why those setsof buying preferencesand pricing sensitivitiesmust continually be factoredinto a product developer'sforecastsand salesexpectationsasprojectsmove to completion. Consumers can now buy or acquire packagedmedia in just about every retail channel.The chart on the following page outline the current retail channels. One successfulway to introduceproduct to the consumeris via hardware and software outlets that allow customersto sampletitles before a purchasedecisionis made.But, one of the main issuesthat must be solved is making multimedia appealing to women, namely young adults, becausethis segmentof the populationis most often doing the shoppingand they frequently look for bargains. That's why multimedia title salessuccesswill, in large measure,be
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definedby the level of success developers havein grindingdowncosts, evenwhile gettingqualityproductflowing into commercialchannelsand on storeshelveswherethe mzurimumnumberof shopperscanfind it.
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&A Gary Hare, President & CEO Fathom Pictures Q. Do you buy market research?How do you know your market? A. We had a relationship with ABC Sports-aformal one-for a while. Now that's not quite so formal, but we use their researchfacilities. We also use one of the other broadcasterswhich needsto be namelessfor the moment. And then also, we've found the most interestingthing about the Internet is that almost any question that's on the tip of your tongue you can get the answerto if you know how to look. We look at things like-let's use the auto category as an examplewho is our market? And then we start seeing how many people watch what on TV. We have a regular report that we get telling the bestselling books, magazines,films, music-all of that kind of stuff, country-bycountry each month. How many people take what kind of car magazines or boat magazines,etc.?Mostof that is fantasymarket, however,because only about IUVoof the people who take boating magazinesown a boat. The other 9OVothink they'd like to. And then auto racing-who's interestedin auto sims?Could you do an auto sim that's so sophisticatedthat the new computer technology that's going to come out 3rd Quarter 1996 would buy it just to put on their machines?Those kinds of questions.We try to answer those questions in as much detail as we can before we come up with a concept. Most of those magazineshave done in-house researchand can tell you how many of their readershave a PC and when they bought itwithin reason.You can call Car and Driver's marketing departmentand probably get that information right now. They're pretty free with that information, and we've never had a problem with it.
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In thepast,whenI wason thepublishingside,I usedto try to figure out if 3Voof the installedbasewould find it interestingandthenrun the installedbasefiguresandseeif it wasinterestingto do.Youhaveto take into consideration(saywith a baseballsimulation)how many simsare out there-and canyou do a betterone. If you use that 3Vonumberand lookedat baseballas an example, you'd find that there'ssevenor eight gamesout there-four or five of them arereally good.Is that somethingyou really want to do?Are you differentenough,or is your licenseimportantenough?There aresome namesthat guarantee you a certainamountof shelfspace. I think thatin thesportsarena,EA s namemeanssomethingbecause they've spentso much moneyin EA Sports.But beyondthat,I don't think therearetoo manypeoplethatknow thenames.
The "Satisfied"Customer As technologyallows suppliersand customersto form closer"gain-sharing" relationships (via online services,the World Wide Web and better, more finely-tuned direct marketingthrusts),the actual saleof a CD-ROM unit becomes only the first level of contact. Content in that context is simply the carrot that brings both partiestogetherbut, nevertheless,provides both sidesa powerful vehicle to satisfy wants and needs. Customer supportis a key meansof building customerloyalty and is really a matter of living up to promises made in publicity releasesand promotional packaging. Developers typically budget from $3 to $5 per CD-ROM for technical support,locahzation (i.e. voice-oversfor foreign markets) and other enhancements. Those enhancementscould include a Web site tie-in that allows a game or enthusiasttitle purchaserto update the ROM client, add new charactersand scenariosin real-tiffie, and find a community of interest basedon the genre of entertainmentor information.
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Q&A Mason Woodbury, VP Marketing Services Broderbund Software Q. Technicalsupport.How important is it and how expensiveis it? How do how you view tech support? A. Well, I run tech support,so I view it asessential.Actually, Broderbund considersit fairly importffit, and over the past four yearsI've been given a blank check to get the service up to be what it should be. I've never been constrainedby head count or budget issues.When I told them I needed10 more people and a new phone system,the answerwas: "Do whateverit takes."It's crucial. Techsupport/customersupport-we added it up the other day-I think it's closeto 257oof the total headcount of the company. Q. In creating your tech support department,do you look at it on a per title basis. If you releasea new title, do you plan on adding a number of customerservicereps? A. No. We try to look atreadand so|, "A Mysl is going to generatemore calls than a Carmen." We know that Print Shopgeneratesmore calls than JamesDiscoversMath. We watch it on a day-to-daybasis. Q. Are the calls typically problem calls or calls from people that don't know how to use the software and need somehelp with it? Can you give me a percentagebreak down of those two? A. We don't break it down, but it's all over the map. The reality is that very few of the calls relate to problemsdirectly associatedwith our product. They don't have the latest video driver or somethinglike that. Say a consumerbuys Myst. Myst is a pretty stableproduct, but it does require the latest video and sounddrivers-so you get someonewith a two-yea,rold machine that goes out and buys Myst, and then it won't work.
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There'sreally nothingwrong with Myst, and at the end of the call we tell the consumerto call theircomputercompany'sBBS anddownloadthe latestvideodriversandget it up andrunning.With Print Shop, we get a lot of callsfrom peoplewho can'tfind the right printer,or it's printing sideways,or they can't find the graphics.Very few of the calls products.Most of the actuallyarebecauseof bugsor poorly-designed calls are from peoplewho really aren't familiar with computersand needhelp.
Q&A Gary Hare, President & CEO Fathom Pictures Q. What aboutTechsupport? A. Ourpublishers do it unlessit's a bug,thenwe dealwith thatissue.As themachinesgetbetterit, however,becomes lessof an issue.Today,it's a horrendous issue.Thereare29 ditrerentvideocardsout there,andhalf of them probablyaren't any good.We releaseda title 2Q of last year (1995)thatwe calledThe SkinsGame-lot of fulI motionstuffon it. We foundout, muchto our chagrin,thatfive videocardsdon't supportQuickTime.Thesepeoplecallup,anduntil yougothroughthewhole decisiontreefiguringout whichvideocardthey'vegot,/ou don't even know whetherthe title wasbuilt to supportit. As we startgettingmore andmoreof a standard,a lot of thatkind of stuff will go away,andthat's 90Voof thecalls. Q. DoesWindows95helpor hurt? A. It helpsit a lot. Windows95andtheAppleplatfonnsdon't havenearly as manyproblems.It's beena massiveproblem.Also, the MPEG stanfor Windows95doesn'tmakeanysense, dardthattheytriedto announce andthey'retrying to coffectthatnow.
CHAPTER3
Any project has to have money in order to survive, particularly entertai nment titles. One way of getting it, is through private funding sources. Venture capital firms (VCs) spendeveryday auditioning the future. That future needs to be different and unique becausethat's where VCs are willing to place their investmentbets. Ann Winblad, partner in HummerWinblad Partners(investorsin such companies as Humongous Entertainment) provided a host of strategies for courting scareinvestmentdollars.HummerWinblad "auditions" about 1,000companiesper year and has about $95 million under management, which is spreadacross31 investments.The averagesize of each investment is about $2 million, and that fund generatesannuahzedreturns of about 47Voof net managementfees.This formula is exclusively focused on software companies. Despite the fact that market opponunities are large and there are few winners, Hummer Winblad is very bullish on the future of the market for somekey reasons: t
Software-driven entertainment sectors are experiencing 30Voannual growth.
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There are 3,250 game titles available, as of December, 1995.
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Ten titles made 25Voof all revenue.
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The top 100titlesgeneratedg}Vo of segmentrevenue.
While it's bad newsfor developersthat the top 100 titles capture 90Voof the market,the flip sideof that is no one supplierhasa greater than7Vomarketshare. Accordingto HummerWinblad,thatspellsopportunitiesto find andfund a growthcompanyfrom amongthe developer ranks.Venturecapitalistslove to fund companiesthat havea chanceto capturemarketshare. By contrast,in the edutainmentsector,it's a little differentbecauseDisneyandBroderbundown a combined2AVoof that market. Venturecapitalistsare often knockedby gamedevelopersbecause theyhavea reputationfor driving hardbargains.But, HummerWinblad putsa positivespinontheVC/gamedeveloperrelationship. Privatesources of funding arealsovaluablefor the experienceandbreadthof contacts they can add to the business,as well as someotherstrongadvantages theybring to the table: I
Experience at buildingcompanies.
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Expanded networkof customers, press,bankinfluencers, ersandanalysts.
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"Rubberball" consultantfor immediatefeedback.
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Understanding of strategicissues,operations andindustry trends.
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Theyalsoformulatebusiness models.
What interactivedevelopers haveto realizeis venturecapitalistsare opportunists, anddevelopers mustbe the visionaries.It's a VC's job to provideanenvironment for thevisionto grow.VCs actasevangelists to movethe businesstowardan IPO (initial public offering)or "sell-out" (privatesaleto a largercompany).VCs know theliquidityprocessvery well. Theyfocuson achievingliquidity (IPO status).That'swherethey maketheir money. Venturecapitalistsarelookingfor a uniquecombinationof creativity and breakthroughtechnicaltalent.Winblad saysSilicon Valley has
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numerous venture capital attorneys who are often willing to work for reduced fees to get a company financed and build a long-term relationship. Many VCs and VC attorneysare willing to work with companies from acrossthe country. But those attorneys ile often looking for companies that already have a "number of dogs in the dish," or users that love the product, or a previous successindicative of what the company can do. As for striking up a relationship with a VC, Winblad suggestsone of the best ways to do it is to stop by a Web site. She advisesgame developers target only three or four firms, researchthe right one for them and then get introduced by a key influencer (somebody who knows a decision maker at the VC company). Winblad suggestsprior to the meeting developers: Preparea businesssummary of 2-5 pages. Understand the market oppornrnity. Have a unique product and technology. Have a solid developmentteam. Have a good fix on the competition. Have a well prepiiled demonstration. Hummer Winblad advisesthat one of the most important things to remember when pitching a VC for investmentcapital is they ire always looking for a senseof product style and the ability of the developer to show the "signature" of the business. In addition, gamedeveloperscan achievemuch richer valuations for smaller parts (equity) of the company during a secondround of financing. That secondround could take place, for example, once *company has alreadyestablisheda relationshipwith a larger publisher (i.e. affiliate label deal). Initial financing rounds typically require that game developers offer up more of the company to lure VC support becauseof the increasedrisk associatedwith that level of financing.
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The GoldenRuleof InteractiveTitleDevelopment The goldenrule of interactivetitle finance,nowadays,is: The company with the gold makesthe rules.Title developers, like everybodyelsein theentertainment or edutainment business, needaccessto a readysource of investmentcapitalto sustainoperations. Theproblemis thatdevelopersareartistsandengineers, notMBAs, sothethornyissuessurrounding productfinanceexposetheclassic"geekvs.suit" hurdlethatall developersmustgetbeyondin orderto keeptheir productvisionalive. The first step,accordingto developerswho haverun the financing gauntletandsurvived,is to bepreparedfor a lot of rejection.Developers shouldalsobe preparedto stickit out in orderto let both publishersand potentialinvestorsknow that you arereally serious.Beyondthat,there areseveralwaysto boot strapa start-updeveloper,anda goodoneis to takethe productto OEMsandstrikea bundlingagreement. Developersneedto keepaneyeon themarketplace andpitcha product ideato hardwarecompaniesthat takesadvantage of a specifictechnology(i.e.3D).Thatcouldtaketheform of a bundlingagreement with an upfrontadvancepaid againstroyalties.OEMs oftenhavea desireto put a gameinto a box with anotherproduct,andthatgivessmallstart-ups a chanceto makea namefor theircompanyandbreaka productinto the channel.Anotherway to attractventurecapitalis throughinvestment forums,whereprivatecompanies arelookingto investin high-riskdevelopers. High risk investmentsare often struckfor small piecesof equity, which might be sufficientfor "bridgefinancing"to completea design document. Anotherangleis to go for fundingof $1 million to $2 million to completelyfinishthetitle.An importantpointto rememberis developerslookingfor moneymustbe ableto showinvestorsan "exit strategy," a businessplanmigrationeventuallyleadingto anIPO or a sell-outstrategy.Many investorsdon't wantto "bail-out,"but theywantto know the optionis available.For companieslookingto sell,largerpublishersare alwayslooking for key piecesof technologyandtalentthat sitsbehind the terminal.
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One possible strategyto fund a project is to identify a niche market and submit product proposalsto fill that market gap. But developersmust be able to justify the market and successfully go through a "proof of concept" phase.The "model" for getting signed to a development deal can take several paths. First of all, developersdo not need a complete, finished product. Rrblishers don't want developers to come in with a finished product becauseso much is changed(music, art, storyboard) once a publisherjumps in.
Makinga SuccessfulProductPitch Developers beware: Eight of the most frightening words in the English language are "I have the greatestidea for a game!" And publishers a^re the first to reco gnizethis fact. Great ideas are a "dime a dozen." There is not that much work in the idea. It's the marriageof the developer'svision and passion with the game idea that is valuable and interesting to publishersand investors.Passionis necessary becausethat enthusiasmmust be maintainedthrough 18 monthsof development.Passionis also necessary becausedevelopersmust sell the publisher long before the public ever seesit. Project proposals are not only a good idea, but the only evidence prospectiveinvestorsand publishershave to determinethe merit of your concept. It's a lot of work and can take several months to put together. But the processforces developersto think about putting functional product together. At the end of the day, what matters in a proposal is the information conveyed in it. Here are some of the key elements that should be included: I
The working title give the publisher and their marketing staff an idea of what the project should convey to the consumer.Marketing may have other ideas after they've seenthe final project.
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The target platform (i.e.MAC CD-ROM, PC CD-
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ROM, SEGA,Nintendo)determines projectedprimary coreaudience. This is an importantgaugein determining thepotentialprofitabilityof the proposedproject. The target audiencedefinestheprimarycoreuserThis shouldincludegender,ego,incomelevel andspecial interests.The targetaudiencefurtherdefinesthe total marketfor the podect. A conciseproject descriptionshouldconveythe essense of the projectnot only to thepotentialpublisher, but to the potentialconsumer. Describethe special attributeswhich will makethis productstandout from others.Specialattributesincludelicensedcharacters potentialco-marketingarrangements, sponsors, talent (nameactors,niunewriters,na,meanimators). A special attributeis an elementof theprojectthe publisher doesn'thaveaccessto or thetime to access. A sampleinteractivesequence(script) providesthe publisherwith an inclinationof theplayablityand overallconceptof theproject. The scope(charactersand levels)definestheultimate creationin termsof usageandvisualstimulus.In the gamemarketthe charactercanbe the mostimportant part of the girmeandhave. Describein detailthefeatures(gameplay or interface), the technologyandwhatmakesthis projectdifferent from othersin its genre. A reasonable competitiveanalysisdescribingsimilar titles,the sellingpointsof thosetitlesandhow this marketingdatacompareswith theprojectunderconsideration. A completedevelopmentplan (proofof concept) describeshow the developeris goingto producethe projectandwhatis requiredof the developmentstudio.
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The importance of honesty as to the strengthsand weaknessesis important here. t
The budget and schedule determine the milestones and the scopeof the project. The publisher setsthe milestonesand negociatesthe advancebasedon these documents.Do not under estimatethe time and money to produce the project. This can lead to irreparable damageto your relationship with the publisher.
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Biographies are extremely important to any monitary source.The experienceof the team working the project is usually the key factor determining whether the project will be financed.
Developers must also have a strategy to make a successfulpitch. Makin g aproduct pitch is, and will remain, atr integral part of the entertainment businessand should be consideredvery carefully prior to actually going before decision makers. Deals are made from personal relationships. Securingmoney and striking publishing dealswill come down to three factors: r
Do they like the developeron a personallevel?
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Does the developerhave the capacity to produce what they are promising?
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How strong is the concept?
The key will ultimately be, does the publisher personally like the developer.If this is true, publishershave a habit of helping development companies with strong conceptsput together teams to bring those concepts to fruition. If all meetswith publisher approval,the publisher will commission a design document, which is typically paid for with an advance of anywhere from $35,000 to $50,000.But a word of caution: Once a developer receives the $50,000 to do a 200-pagedesign document, the publisher owns it, and the developercould wind up with a successfuldesign document experienceand a little cash-and nothing more.
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GaseStudy:MondoMediaandzapperlnteractive Interactivegitmepublishingis oftena "hits" drivenbusinessthat generatesvery few legitimate"hits." That createsa strongmarketfor quality content,aswell asthetalentthatproducesit. In today'shigh stakesgame market,eventhelargestmediagiants(i.e.TimeWarnetViacomandMCA) will fund a title developerwhich offersthe companysomethingit can't do in-houseandwhich appearsto havea stronglikelihoodof finding an audience.For smalldevelopers with a well-designed productandbusinessstrategy,thereis still plentyof opportunityto breakinto the major leaguesof interactivegamepublishing.The challengedevelopersface, however,is to keepthoseprojectsaliveuntil publishingdealsaresealed, andadvances areissuedto completetheproductor fund additionalones. ZtpperInteractivePresident andCEOJimBoslerandMondoMedia's CFO Tim McNally providean exampleof how differentapproaches to gettinga dealdonecanstill leadto thesamesuccessful outcome.Namely, keepingthecompanysolventwhile pitchingfor a deal.Both executives are key playersin two firms that haverecentlysigned(or completed) dealswith majorpublishers. While thesetwo development shopshaveslightlydifferentcorporate personalities andmarketstrategies, theyhavesuccessfully exploitedthose uniquecharacteristics to establishthemselvesas "branded"playersin theinteractivegamebusiness. ZtpperInteractiveannounced in Spring 1996a multi-title developmentdealwith ViacomNewMedia.Thefirst title,DeathDrome,is slated for a Fall 1996release.MondoMediajust wrappedup contractwork for Activision'sZorkNemesis sequel,andis well-knownfor its development contributions on suchprojectsasRebelAssaultII andTheDig, Mondois alsothe developerof TheDaedalusEncounter,publishedby Virgin InteractiveEntertainment, which sold about200,000units into the channel. Accordingto bothdevelopers, publishersarelookingfor two basic businessattributes:1) Experience; and2) Capability(i.e. an assembled creativeandmanagement team),which meanthe ability to meetproject
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milestones.That includesforecastingbudgetsand milestonesand then managingto them.In addition,with therigorsof 3D systems,publishers arelookingvery critically at a potentialpartner'stechnology. Many gamesandmultimediatitlesrequireif not bleedingedge,cutarenotavailandthoseproperties ting edge3b enginesandenvironments, coverup a "Content can Jim Boslersays, assets. ableasshrink-wrapped to beefup the publisherswill work with developers lot of sinsbecause he cautions, But content." is killer there if teams technical or creative other." the or "Developersmusthaveone
StayingAlive Long before a project pitch is made, however, developershave to cover initial developmentcosts.Mondo Media uses a hybrid model that balancesoriginal production with contract work (about a50150split). Internal projects compete for resourceswith external projects. The aim, according to McNally, is "to make internal projects as competitive as possible with the best stuff in the industry." Plus, he says,"It keeps everybody paid." McNally believes that is very important in the early days of a company becausethe work flow of a typical title varies depending on what stageit's in. There atepeaksfor artists and peaksfor progrilmmers.And once you come off those peaks,the question is: How do you create a stimulating environment for that talent? The projectsMondo hasdone for other clients,os well as its original work, have helped the company get major contract gigs with other companies.The company startedwith contract work back in 1988 in the corporate CD ROMs and eventually was contracted to supply aft for Microsoft's Encarta title. The company kept its Daedalus title alive by using a small core team in the initial stages.That team included an artist, gamedesigner,progrirmmerand producer.Creativebridge financing also helps. Daedalus, for exampleowas partially funded (about 20Voof the $1.5 million budge| by pre-selling some of the foreign rights against royalties.
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Zipper Interactive, by contrast,does not do any contract work. The company initialty funded operations by cranking out its first title in two weeks. That "skunk works" approach,says Bosler, was partially the result of a design team that had been together for about 12 yearsand possessedthe know-how to shaveabout a year off its game engine development time. Revenue from the first game was used to put together the Viacom pitch, according to Bosler. But industry contactshelp, too. Bosler (when headof Boss Studios)had developeda casualrelationship with Viacom in the past basedon mutual respect.And when Bosler left Boss (a company he helped found), the director of businessdevelopment at Viacom called the next day and saidthe company wantedto work with him.
Whereis the Gash? One of the biggest issuesconfronting a start-up developer is whether to seek an alliance with a publisher, or pitch for VC money. McNally believes publishers are often the best partnersfor new game developersin the culrent market environmentbecausethey "help guide the project, set milestonesand createa risk/reward relationship basedon performance." Start-up developerswill have to give up a lot to work with a publisher (creativecontrol, a large shareof any profits), but the publisher is thereto keep the project on track if it (and it usually does) runs into stumbling blocks. McNally says any developer looking to attractvc money has to be of sufficient scaleto crank out a lot of product or to eventually go public. That meansdevelopershave to be in "a stateof readinessto kick on the turbo engines when a venture capitalist comes on board." That places a lot of pressureon the company and can spell disasterif the management team is not tested. Bosler says, "VCs are looking for something different than a hitsbaseclbusiness.They want an initial public offering or big exit, and that's not a classic fit between developersand that community." The primary upside from VC support, though, is creative control. Bosler says it's a
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mistakefor a start-updeveloperto comeout of the chuteand publish games."With only onegameto live or dieby,it's too risky,"he says.But he continues,"With a publishercoveringgamecosts,a developercan live to fight anotherday if thefirst title is lessthansuccessful." productpitch,however,is whatstandsbetweena project A successful makingthe leapfrom conceptdemoto gold master.Gettingfundedthis yearis tougherthaneverbecausetherearereportedlyfewerpublishers scoopingup proposals.In addition,with the collapseof the 16-bitmarket, andthefact thatadvancedplatformshaveyet to takeoff anddrive up softwaresales,thatmakeseverybody'sjob harder. But, the industryis growingat a compoundedannualrate of 35Vo, To claim a shareof the potentialupandthat'shealthyby any measure. needto showpublishersor VCs whattheyare side,however,developers buying. I
Sell the companytsstrengths:Makethe publisheror investorbelievein the teamfirst, andtheproduct second.For example,ZtpperInteractivehasa very enginedevelopedby a crack robust3D development engineeringteamthatgivesthe companyan advantage in the military simulationmarket.Mondohasa very strongproprietaryassetintegrationtool (MechaVision) thatcompanyengineershavecontinuallyupdatedas titleshavecometo market. successive
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Providea tthighconcepttt:"High concepts"in the creativebreakHollywoodfashionareconsidered throughsin storytellingandcomposition,andof course everyfilm producerwill tell you their projectfalls into thecategoryof "highconcept."The "story"in storytellinghasnot changedmuchin over2,000years, hasundergonea major howeverstorypresentation "face-lift" sincethe Greeks'presentation of their ffagedies.A "highconcept"is a storywhichincorporates elementsfrom differentstoriesin a uniquewil!, creating
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a new type of story. It is becoming increasingly difficult to find quality "high concepts"in Hollywood, however the interactive medium presentscreative talent with a whole variety of new story paradigmsfor "high concept" stories.If interactive developerscan find a way to provoke an emotional responsefrom their storytelling, interactive is destinedto become a powerful medium. Interactive developersin the product presentationshould understandhow their project is "high concept" and be able to articulate it in the pitch. Hit your target audience: For any game, one audience that must be nailed to make publisherscomfortable is the young, male market. If the product has enough depth, explain how it could capture a wider audienceor form the basis for a seriesof titles. Focus on one or two delivery platforms: Don't get so tangled up in the "portability" issueto the point that you lose sight of the top one or two primary market segments;today that is PC CD-ROM and Sony PlayStation. with porting costsaveraging$100,000to $200,000per platforrn, any incrementalrevenuehas to cover those expensesat a minimum. Deliver a product demo: Show publishersthe actual game level graphics and game play. That can cost upward of about $15,000.Zipper used an action-packed demo (put together inside of two weeks) to sell Viacom, for example, which is very similar to one the company will show at E3 in May. Mondo showedVirgin a working prototype of The DaedalusEncounter that had the look and feel of the game.The tool has also been used and improved throughout numerouscontract work cycles.
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Know your business:The goalis to put out a great game,not takeon technicalrisksof evolvingtechnologies, Zippertriesto stayon the "lean" edge,not the accordingto Bosler. "bleeding"edgeof technology, values(i.e.live production high its for is known Mondo action),but it is movingto digitally renderedenvironthattwitchmentsto supplythelevel of randomness demand. enthusiasts Bewareof ttslickttpresentations:Publishersire dollars lookingfor reality,not a lot of development thrownat hype.While Zrpperhada strongdemo,it typically workswith fold-outtableswith expensive equipmenton top; but thecompanywatchesits overheadvery closely,andthatis crucialto sellinga deal.
on a monthly model,cashis usuallydispensed In a publisher-funded getting hurt," says parties from "keeps both This milestones. basisagainst of game days early In the good discipline." Bosler,andhe notes,"It's oftenwerenot met.Bosler publishing,so-calledsoftprojectmilestones warns,"It doesn'tdo any goodto stringout the relationshipfor a year andthenrcalizethatthegameis not goingto be completedon time if the weretoo soft." milestones
KnowWhatYourProductis Worth Interactive profits may be hard to come by in the culrent marketplace, but thosecompaniesmaking money are growing their marginsfaster than royalty rates paid out to developers.That's the opinion of Brian Napper, founding shareholderand VP of The Barrington Consulting Group in San Francisco. Part of the reason for that disparity is that, in the past, developers have been happy just to find a licensor for their titles, and have taken a "less than analytical" approachto striking deals.
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Nappersaysrightsholderscantakeseveraldifferentapproaches to determiningroyalty rates,which currentlyrangeanywhersito- IVoto 25voof wholesalerevenue.The four basictypesof deals: A fixed rate deal could involve a straight development deal, whereby a publisher pays the developeran upfront developmentfee, plus a minimum "backend" participation basedon product sales.The advantagefor game developersis that the product is funded externally and distributed through an establishedentity. Rate-based deals are struck for a percentageof sales (wholesalerevenue) sold into the channel, minus an allowance for returns and defective product. The main concern for developersin this type of deal is to structure an "audit clause" into the agreement.This type of clause allows the developerto audit salesfigures and determine if royalties match with product units sold through. Napper saysthesetypes of arrangementstypically uncover a trend toward underpayment. The cost-based royalty model focuseson how much a publisher can saveby licensing the product of a smaller developer.In that type of deal, developersand publishers typically sit down and calculate how much the former avoided in R & D investment, carying costs (production costs) and in some cases,marketing. The income-based model is calculatedas a straight percentageof wholesalerevenue.Nowadays, publishers are often willing to structurethose types of deals with higher royalty percentagespaid at the front end of the product's life cycle. That, in effect, better coincides with more robust salesduring a product's launch and early purchasepattems.As the product matures,ratesare then calculated on a sliding scale.
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Trendsrippling throughthe industryhaveplacedupwardpressureon royalties.Thosetrendsinclude: I
A hot mergersandacquisitions(M & A) marketfor qualitycomPanies
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An increasein gameinteractivity,multimediaapplicaCopying(i.e. tionsandlevelof softwiresophistication. softwarepirating)wasalsolistedasa reasonthatroyalty rateshavebeenmovinguPward.
Napperbelievesthebeststrategyarightsholderhaswhennegotiating royaltyrateswith a potentiallicensoris to know whattypesof deals before(referredto as"comparables"). havebeenstruckin themarketplace He suggestslicenseestakethe time to investigatefinancialdocuments for td public companiesin orderto determinea baseroyalty ratepaid for third-pwty product. In addition,rightsholdersshouldconsiderwhetherthecontractcalls for a periodof exclusivity,the stateof productdevelopment,licensing technology,licensorpromotional breakthrough/pioneering alternatives, protection costs,administrationcosts, market, of size teaching, support, and "grant backs."Grant example) for field of use (in otherproducts, give the licenseethe right to recoverprofits from cerbackagreements tain derivativeproductscreatedasa resultof the originaldeal.
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Interactivetitle developersarecreatingnew waysof deliveringcontent to coreconrmunitiesof intrrest(hypedusers).Thesecommunitiesof inThe industryis in a perterestNe basedprimarily on userengagement. petualstateof re-definingits productmandate,however,becausetechnology is constantlyprovidingalternativewaysfor usersto accessthat inforiation and entertainment,and audiencesfragmentas a result.At this point, storytellinghastakena back seatto technology,but that is quickly changing. Motion pictureshave survivedfor almost 100 yearsbecausethey of disbelief' found two major conceptualjustification:the suspension and the repeatabilityof story-telling.Interactivetitle developerscould learnsomJthingfrom Hollywood,namely,that oneof its untold secrets is thatpeopleoftendon't know whattheywant. But, oncedevelopersdiscoverwhat usersdo want, those"wants" turn into habituatedrycles of consumption.That'sthe natureof brand loyalty. It representthe fruits of long yearsof labor,creatingcontent from scratchwith a healthydoseof intuitionand"guestimation." That's why the Internetis going to be so usefulto developers,bethatwork, it canbe combinedwith CDcauseoncetheyfind categories in real-time,which andplay scenarios ROM clientsto addnewcharacters can be fed products those addition, In product life. extends essentially
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into dedicated gamelentertainmentnetworks which will provide a more lucrative aftermarket for developersbeyond the retail level. It's the same path of evolution book technology took during this century.It's far easierto readtoday than it was 100 years&go,so ir,can be enjoyed more, and therefore it encouragesthe reader's willingness to explore. That's the crucial foundation for making amassmarket for CDROM product and interactive content in general.There has to be a willingnesson the part of the user to explore. There are three macro end-usermarketsthat developerscan mine for marketshare: Adult Edutainment/Personal Growth : Material presentedshould be useful, logical, entertaining,compelling and familiar. This means scouring the magazine rack as a starting point, and presentingthat content in a new way to an old audience. Children: There is considerableopporhrnity for developers in this segmentbasedon repeatability of content and thematic treatments,which can be leveragedinto additional titles and incremental distribution avenues. Children will spendhours with a movie learning dialogue. The key is to provide a compelling reasonto do so with a multimedia title as well. Games: Repeatability of storytelling, the level of actioo, technology and high concepts(a concept presentedin a unique fashion) generatethe street buzzwhich keeps gamersflocking to retail shelvesor online dungeonsto participate in the experience. Entertainmenthasbeenaroundfor thousandsof years.The real foundation of the longevity of the art form is the repeatability of story-telling. So-called "high concepts" often can effect paradigm shifts in the entire creative process of what is consideredviable and profitable entertainment. Examples are Star Wars and E.T.: The Extraterrestrial, from the
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film market. As for multimedia, the two most recognizabletitles to have had that kind of impact on the businesszre Myst and Doom. As developers begin to invest more resourcesin storytelling, the market will seemore ind more high concept titles emergethat not only have an imp actatthe retail level, but spawnnumerousimitators who will attempt to tut r advantageof the ground-breaking nature of the content and the manner in which it was presented.
BetterStorytelli ng-Bigger Franchise Interactive product, like other entertainmentproduct, is basedon a fourlegged stool: economics, money, technology and creativity. One of the p*Utrms with multimedia today is most of the money has been thrown at technology and not the message,namely, better storytelling. Moreover, interactiveproducttoday is experiencingtechnologyshifts (i.e. that are confusing the end user and timiting greatermarket adoption retail the at universe platfonn software sales)brcuuse of a fragmented level. But the medium and technotogyare not the message.The content is the rnessage, Developers can't get too caught up in machinationsof the hardware market and should go after the safestplatform investmentin today's market. In other wordr, drnrlopers needto focus on the largestinstalled hardwile base-in this casePC CD-ROM, Sony Playstationand SegaSaturn game consoles-not to mention the networks that already feed both the PC and TV. The secondstep is for developersto simply concentrateon making interactive content as compelling as its linear cousin. And a good way to understand that is to co-develop "with the audience." That's why all developersuse beta trials and consumer feedback to hone the product. Developers do have the answersbut not the questions;Those can come only from a closer relationship with the end user.
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Supportinga ProductDevelopmentDecision For establisheddevelopers,a great deal of the decision making process in determining what type of product to develop is basedon purtlxperience. For new developers,identifying potentially exciting product concepts is an important step in getting off the ground. This can be done in a number of ways. Proven market stand-by'slike flight simulators or 3D Doomclones are one choice to createpotintially popularproduct. But original ideasandunique implementationoften make for the biggesthits. Mystand Wolftnstein3D (perhapsthe first real Doomstyle shoot-em-up)persuasivelyillustrate the benefits of this strategy. If the developeris repurposingcontentfrom an establishedfranchise, he should be able to gauge the potential successof a title based on the content's popularity in its original incarnation. Content based on franchisesthat have sold well asbooks,movies,TV shows,etc. will likely do well in the market when integrated into a interactive title-assuming that the new product ties in well with the original, and provided that a sufficient number of the content's prior audienceare also computer owners/ software buyers. Those are big assumptions,and a lot of gut-wrenching decisions must be made long before those types of projects are greenlighted. Some of these factors can be gauged through market research,as well as by building a casefor production from prior developmentexperience with a particular title or market. With new, unpronr-d products or concepts,developerssometimesusefocus groupsandusertestingto spotcheck viability in the marketplace. Thesetools can help reveal what could be insurmountabletechnical hurdles and can work out "kinks" in basic product concept.Testing can also help to determine potential market size by allowing a developer to determine what sectorsof the population would find a particular type of title interesting. There ffe, however, no magic bullets available to developersto penetrate markets nowadays,given the hyper-competitive nature of the mar-
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ketplaceand the numberof largeplayersthrowing lots of promotional moneyat the channel.Developmentand investmentin multimediatitle developmentis a risky businessat best.
PlatformDecisions Platformdecisionsare often problematic.Choosingwhetheror not to developfor more than one platfonn can also be an importantchoice. andlong-livedsoftwarecompaSomeof the industry'smostsuccessful nieshavesurvivedprimarily becauseof their ability to quickly identify andmoveonto emergingplatforrlls. Largerpublishers,like Acclaim EntertainmentandElectronicArts, canafford to port a title to four or five discreteplaybackplatforrns.That is not the casewith other smallerpublishers.Portingto additionalplatformscancostfrom $100,000to $200,000per iteration.For big sellers, like LucasArt'sRebelAssaulrseriesandEA s Maddensportsfranchises, it's obviouslyworth it. Thosetitles sell hundredsof thousandsof units (thefirst RebelAssaulrhassoldthroughwell over1.5million units),and a $100,000investmentin thatcontextis well worth the effort. combineplatforminstabilitywith the fact that develNevertheless, opmentbudgetsarenow pushingsevenfiguresfor manymultimediatitles destinedfor the market,andthat addsup to a lot of caution.Investment of a productmustbecarefullythought decisionsto backthedevelopment andpublishers. out+specially for smallerdevelopers
The DoomedProduction Tens of thousandsof dollars can easily be spentin title creation without a final product (gold master)emerging.Many developmentconceptsare cut at various stagesof production milestones.For the time being, interactive development is a seriesof milestonesdesignedby the publisher. As the developermeetsthe milestoneswithout technologyproblefils, thematic probleffis, art problems or a distinct shift in the marketplace, the
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publishercontinuesto pay monthlyon thosemilestones. Therearefive possiblereasonsa publisherwill abandona production: I
Developerconsistently missesmilestones.
I
Developer'spromisedtechnologicaladvantagenever comesto fruition.
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conceptandstorydisintegrate on implmentation.
r
Art doesnot meetlicensedspecifications.
I
Rtblisher'ssalesandmarketingcan'tjustifytheproject(i.e. shiftsin the marketplace).
Althoughit is betterto stopdevelopmentin mid-streamratherthan releasea title that doesn'thavemuchof a chanceto succeedat retail, avoidingthe situationaltogetherthroughcarefuland ongoingproduct planningis preferable.
E STUW Theonly Multimediaconstantis change Rocket Science The volatility of the multimediabusinessis beingexposedon a routine basis,with manycompanies eithergoingout of business, deeplyin the "red" or mergingwith largerentitiesto defendandfortressmarketshare. No matterhow manyqualitytitles a companyproduces,or the strength of its distributionmachiner/,thosetitlesstill mustfind an audiencewilling to pay for them.The marketis the absolutearbiterof successand failurein the multimediabusiness.
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Rocket SciencePresidentand CEO, SteveBlank, hasbeenquite frank aboutthe company'srestructuringefforts. Blank saysthe company,which he helped cofound, has been through some "interesting shifts in the last three years," when it began corporatelife as a game console developer. Rocket Sciencewas founded in July, 1993 and was positioned as a great technology and graphicscompany.That was a time when the "hype of tnultimedia and Hollywood meeting in Silicon Valley was at its zenith," saysBlank. The reality was, howevet that "the company was not a multimedia company but an entertainmentcompany in a hits-driven business,"saysBlank. In addition, while the company was founded on spectaculartechnology, "That did not default into great games," according to Blank. Compounding the overall problem, "was a poor choice of platforms to develop for." The result was Rocket Science "produced weak games,with abysmal game play," according to Blank and market analysts.The irony was that Rocket Sciencehad hired a lot of great talent from Hollywood's effects and graphics communities, but their component skill sets did not translatewell into a game company environment. In this market, however,companieshave to "reinvent" themselvesto take advantageof market preferenceshifts. Blank says Rocket Science went through a period of reevaluation and put together a l2-step program for reviving the company. Rocket Sciencewas then committed to making major repositioning and structuralchanges.Blank saysthe company is "now in the processof sitting and executing, and executing very hard." He quips that employeesof Rocket Scienceall weir buttonsaround their work spacesthat reflect the company's new operating philosophy: "It's the Game Stupid." Rocket Science also initiated an intense prototype process which occurs before any art is submitted.Blank saysfunding the repositioning plan was made complicated by the fact that "the game console market has collapsed dramatically over the past two years." The problem for Rocket Science and other game developers is fixing companies takes
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time and money. But, according to Blank, "Multimedia is no longer a play for venture capitalists.Its an entertainmentbusiness." That meant Rocket Sciencehad to "reposition the company where the money is." Blank saysthe "money in the businessis now tiding on three waves of platforms: Consoles,PCs and the Internet." Despite the company's market travails, Blank says this is his sixth start-uP,an6 four of thosehave gone public, which could be in the cards for Rocket Science.The company's Firewalker 3D tool (developedin conjunction with SGI) is now coming to market, and dynamics of the Internet appearto offer gamedevelopersa strong vehicle for maxim rzing the value of establishedgame titles. Blank believes Rocket Sciencefinally real rzedthe company had to deliver what the market was asking for. The market alwayr rulrs, according to Blank, and the companiesthat can deliver what consumerswant at a price they are willing to pay for it will always come out on top.
Q&A Ken Goldstein, Exec. producer Broderbund Software Q. Can you talk about the computer or PC side of title developmentand then about the dedicatedgame console market-from Sony PlayStation to SegaSaturn?How do you decide which platforrns to develop for? A. We're in the desktop computer business.That's where we've been making our money for the last five years. For at least the foreseeable future that's where we see it continue to happen. It's an open architecture, and it's a free publishing environment(i.e. I don't have to pay a predetermined technology royalty to someoneelse to put a title out).
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We're very excited about the Windowsg| platform and the Windows91 SDK.We're very excited about the technology in the PowerPC and the powerMac. I think those ire both going to be very viable platfonns for the foreseeablefuture. I think you're going to see growth in the online gaming environment-in some wa!, shapeor other exploitation of the Internet in the multiplayer setting. I'm thinking the Internet right now is more about connectivity-in terms of people sending e-mail, and chatting, and sharing thoughts and information, and doing research at Web sites-than it is about putting people together for multiplayer gaming experiences.I think a lot of that has to do with the technology limitations. I think that in the next several yeius Someof thosewill go away and someof thosewon't. As those limitations go away you'll start to seemore online gaming. I think that the issue with online gaming has more to do with how the people putting the products out continue to enjoy enough of a revenue stream to make it a worthwhile businessventure. No one has yet to articulate a businessmodel that makes a lot of sense. games? Q. Does Broderbund have any multiplayer or network A. We are working on a couple of things right now that supportmultiplayer involvement, although they-like most of the things we do here-+xist primarily in stand-alonemode where somebody can drop the CD into ittrit machine and start playing.We are trying to add a connectivity element to some of those Products. Q. Are those entertainmenttitles? Or are you doing multiplayer educational titles for schoolnetworks,etc.? A. Well, we've been on school networks.Local areanetworks ilre easy for us. Carrnen has been on local areanetworks in schoolsfor-I don't know-six, sevenyearsor somethinglike that. But we're startingto explore it more from a point-to-point environment where kids can play cooperatively as well as competitively. I still think that the real opportunity there is in bringing the kinds of games that people have enjoyed over local areanetworks to serverenvironmentswhere people can play in two
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remote places-where they would previously have played in the same location. Q. What about dedicatedplatforms? Is Broderbund interestedin that market? A. We're certainly interestedin it. The economicsof it are pretty tenifying. If you look at some of the best-sellinggameson the PlayStation,a frightening number of them are Sony-publishedtitles. The odds are still with the hardwaremanufactureron thosetypes of businessmodels. The licensing agreementstend to favor the licensor of the hardware and software.Thereareeconomiesof scalethereaswell, where,if you're going to market those aggressively(which you seem to have to do in those kinds of games),if you donothave a dozengamesout there, it's pretty hard to really spendyour marketing dollar well. I think that the technologyon the PlayStationis real exciting. I don't think that the machineshave been positioned as edutainment type machines. I don't seeus getting real aggressivethere. We have had some projects go over and be licensed.Myst has done real well on the Sega CD. Prince of Persia drdtenific on the Nintendo. I can do sub-licensing, but I don't foreseeus in the immediatefuture getting into the publishing businesson thoseplatforms,althoughwe're clearly keepinga; eye on it.
Q&A Brian Farrell, President r*HQ Q. what platforms do you developyour titles for? A. We ateprimarily in the consolebusiness-the dedicatedgame system business-as opposedto the PC multimedia platform. The reason for
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that is two-fold. Number one, although people keep talking about convergenceof console gamesand PC games,it hasn't happenedyet. We can see the argument that PCs are getting more powerful and therefore more game-oriented and that with WindowsgSyou may have something closer to the plug-and-play environment found in a game console. But, we also seethe argument-we vote for this with our own capital-the game consolesare generally found in the entertainment section of the house+ither the den, family room or kid's 1ss6-rsvhereas the pC is currently used more as a home productivity device. In the PC milket, bundling is also an issue. When I bought my own multimedia PC, I must have gotten 30 different forms of entertainment software, so there wasn't a big need for me to go out and buy four or five new entertainmentconceptsfor me to do. So while I won't say there'snot an entertainmentmarket on the PC, even the 16-bit market-which everyone is singing the death knell of-is bigger than the entertainment side of the PC market right now. Q. Especially the arcadeside of the PC market? A. Absolutely. When I look at PCs, I look at straight entertainmentdifferent from what I'll call edutainment,different from productivity software. So if you take all those three things, then the PC market is pretty broad. But when you are comparing apples to apples with just straight entertainment software, the 16-bit market is a bigger market on the entertainment side than PC entertainment. Q. Are you doing the multimedia-type titles that are big on the PCMyst, Tth Guest for examPle? A. Not at this time. That's not the kind of thing we would do. We are actually working on two concepts for the PC market, but they are more console gamesthat we are going to port to PC, rather than the other way round. The other point I wanted to make is in the PC market there really are no barriers to entry-the cost of goods is very low. You don't have to pay thesehigh "path charges"to the Nintendo, Sony and Segafranchises
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of theworld.Youdon't haveto getyourproductapprovedandlicensed. Youjust shipit. If you havean IBM-compatibleproduct,there'sreally no barrierto entry.Thathasresultedin a reallycrowdedmarketplace anda realbitter battlefor shelfspace.While in theconsolemarket,you still haveto battle for shelfspaceandhavesomedarngoodproduct;MaybeI'm competing with 100otherSonyPlayStation games,not 2,000PC wanna-be's. Everybodysaid,"Wow! Here'sthis openplatforrn,worldsof opportunity,hugeinstalledbase."But theflip sideof thatis it's reallycrowded for shelfspace. Whensomebodybuysa SonyPlayStationtheybuy it for onereason andonereasononly: to play videogames.A PC canbe boughtfor home finance,soyou canwork at home,haveyour kids learnto do math.Currently they aredifferentexperiences. Q. Are you primarilydevelopingfor hand-heldand 16-bitconsoles? To whatextentareyou goingafterthe marketfor advancedplatforms? A. Obviously,the future of the companylies with the more advanced platforrns.But beinga public compffiy,our shareholders pay us to earn money.Rightnow-particularly theGameBoy,Segahasvirhrallyabandonedthe GameGear-thereis a marketthere(hand-helds). Everyone elsemovedinto 32'bil andwe'remakinga living on theolderplatforrls. Like anythingelse,whena marketmatures,there'sstill businessto be had there.The only differencebetweenus and otherpublishersis that we're not turningour backon thosemarkets. Weknow our futureis in 32,andmaybe64-bit,ord we areinvesting in R&D. We'resigninglicenses. We'redevelopinggames.It's funnywe've kind of gottenthis monikeras the hand-heldcornpanyonly becausewe aremakinggoodmoneyat it. It's a nicebusiness becausewe didn't havea lot of competitionto getthekind of licenseslike LucasArts' Returnof the Jedi, the EA stuff-Madden, Fifa, NHL, Pocahontasand ToyStory with Disney.It's a nice little business.It's not great,and I wouldn'trecommend peopleto go into thatbusiness now because it's on a downwardslope.
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But for somebodyin that market who has the contacts,has the game design, has everything to do-they can still make money in that busiNESS.
Buildingthe Assets The steps involved in creating a interactive title are fairly uniform, &l' though the process,sequenceof tasks,technologyemployed and production terminology vary from publisher to publisher and title to title. According to developerspolled for this book, the typical production processincludes 13 stePs. Interactivedevelopmenttypically consistsof threemajor phases:preproduction, production and post-production. The pre-production phase begins with the concept treatment and includes goal definition, user/audience analysisand the intricacies of authoring design and specification, and target platform (s) of the title. The script and the storyboardprovide the developer with a creative "blueprint" for the design of the project. They provide the developer and the publisher with the entire creative scopeand scaleof the project. They are critical for determiningthe use of technology,new technologyneeded and the scheduleand budget of the project. They ire the precurserto the design document, which adds the technological specifications to the project. Technicaldesigndocumentspecificationsexplain how the title's goals will be accomplished.It will typically include what kind of interactions and media elements(graphics,animations,video, etc.) the title will contain and whether media assetsare available for re-purposing, or if they have to be acquired or created. The design document includes a brief description of each section of the title. Typically, all of theseelementsgo through a revision process,as the scopeand scaleof the project are defined and redefined.Theseredefinitions are usually directly attributed to the budget. As the budget is built from the design document,the project goesthrough a kind of "argumert,"
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The Interactive Decision Tree and Production Process Preproduction 1. Title conceptpitched,anddecisionprocessinitiated 2. Informalanalysisandgroupbrainstorming 3. Discussionof broadtreatmentcornmences 4. Developmentor purchaseof script 5. Storyboardlayout 6. Prototyping Production '1 . Make/acquiremediaassets(initial productionphase) 8. Alphatesting 9. Betatesting 10. Finaltesting Post-Production 11. Portingmediaassetsto targetplatfonns 12. Enduservalidation 13. Shipgoldmaster Source: The Carronade Group the questionbeing: How do we developthis conceptfor the budgetwithout denigrating the original vision of the project? Here lies the dark pit for every developmentteam.With careful consideration,the team redefines the project to meet the scope and scale of the budget. This is not necessarilya bad thing. One question for all production managers,directors and producers alike: Does this cut hurt the playability, user engagementand reusability
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of the project, and how will this cut ultimately detractfrom the consumer's experienie?If the answerto thosequestionsis, "Yes," then ask, "How do *r make it simple with the surmeeffect?" Often the simplest solutions are
Cycle TitleProductDevelopment lnteractive Pre-Production-The collaborative team madeup of lead interactive designer,writer, soundengineer'programmer' art director and product managef,begins piecing together a generaloutline. Sketching,brainstormingcycle, preliminary script development,assemblingimages' rough story board ile completed.The discussionof licensing/purchase of technology needed.Targetplatform (s) delivered otl. Graphics and Animation-Development begins. Character designs based on gesturesand body language are produced; professional actors are contracted for voice overlay. Sound and Video-Analog video shoot.Thpedresultsare dtgtttzed,then adjustedforbalance image and quality with intendedscreensize.Soundteamis assembledwhich comprises musiciansand composers.Sequencesare selected for incorporating classic cartoon sounds. C omp uter Pro gramming-Technic al requirements(di sk space,colors, screen size, what code modules must be original or used from in-houseprogramming librafy) are created. Technology is possibly sourcedfrom 3rd party (work-for-hire) developmentshops. Post-Production-Quality assurancetesting, third party validation (parents/teachers),consumer and beta release testing is conducted. Source: Broderbundts annual report.
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the most elegant. During pre-production,prototyping (typically a 40-60 day job) startsn once the creativeand designstatementsare done, and while the script is being written. Sound and video productionbegin abouttwo weeks to 10 days into prototyping.At the sametime, the interfaceguidelinesare developed. The production phaseinvolves the creation or acquisition of media assetsand then, the preparation,captureand editing of thoseassets.Still photographs,graphicsand other flat artwork can be capturedusing scanners. Image processingsoftwareis then usedto edit capturedimages. Original graphic imagesarecreatedusing drawing and painting tools. Video can be capturedusing video frame grabbersor scanners.Once still and motion imagesare created,they must be convertedto the resolutions and formats used by the target platform. Audio is recordedand modified using digital audio processing. Once the authoring or programmingis complete,simulation testing begins, followed by pre-masteting.During pre-mastering,images and audio are convertedinto the formats usedby the targetdelivery platform.
Q&A Michael Pole, Exec. Producer Electronic Arts Q. How do you develop project milestoneswith your developers? A. A lot of people figure out what they want their releasedate to be and work backwards.I'd rather work with the knowledge of how long each of the elementsand tasksare going to take to build the game.We build a really good design and then require a technical design document. That
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technical design document and the game design will basically dictate what our milestonesare going to be and how long it's really going to take to do a project, basedon the amount of people working on it. Then I figure out when we are going to ship. You can promise the company anything you want, but being able to deliver product on time is what you are judged by. No milestones are broken down until we have our technical design document. At that time, we build in preliminary deadlines.We want to get to the prototype stagevery early on in the process-spending as little money as possible in the process.We like to jump over the most important technical hurdles as early as we can. Then basically, it's delivery of levels and game tuning as you move forward. Q. Do you find that method of schedulingworks best for meeting deadlines? A. Set a realistic scheduleand you can be successful.Once you have a design and technicaldesign,you can give a realistic releasedate. Q. What does creating a technical design document entail-what goes into it? A. It basically outlines the stepsinvolved and the technical aspectsof it-the girmeengineor engines.Somegameshaveone, somehave more. There is a lot of "proof of concept" stuff going on at the early stages.If you want charactersthat can roam in eight different directions, then you need to prove that you can do it technically. Those are some of the technical hurdles we want to get over. Q. So you needto know how to take careof all of the technicalaspectscreating graphics, sfs.-sefore you back a product development decision? A. Exactly. Show me one room of an enviroment that includes art and animation up and running, somecollision detectionand somegame play. And if you can move all of those assetsaround in a limited space,then you can expand.If you can't, then there's no reasonto move forward. Honestly, you can spend half of a million dollars and have nothing to show for it. That is scary.
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Q. How quickly into the development process do you want to have a prototype or working prototype piecesup and running? A. I like to seepreliminary artwork and a preliminary prototype in four months. Once you have this, you can intelligently schedulethe remaining game development. Q. What is your worst nightmare in dealing with a developer? A. Being late is problematic.Not being able to get over a technical hurdle is also one of the most difficult situationsto be in. My biggest fear with a developeris that they will fall on their face technically and not be able to deliver on milestoneshaving, already createdthe technical design document. Q. Where in the design processdo you start working with your marketing assets?From the very beginning or later? A. Producershave to wear two hat hats. We are responsiblefor product creation, but we must also be salesmen,ffid that begins from the very start of the project. We work with the marketing departmentto make sure they believe contentand designaredemographicallycorrect.So that starts very early. We go in as partners.We sit down, and we talk about the genre. We decide if the content and genre work together,and then we decide what game to build. You have to marry the right concept to the right genre. Madeline doesn't belong on the Sony PlayStation- Genl3 does.
Q&A Gary Hare, President & CEO Fathom Pictures Q. Can you give me someinformationabouthow you work with publishers?
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A. We've doneit two ways.Oneis advanceagainstroyalties.We go in a title, andit's goingto cost so ands&],"'We'dlike to do such-and-such muchmoney."And theyadvanceus thatmoneyagainstfutureroyalties. Q. Do you havea prototyPein-hand? A. We havea title treatmentor evena morefleshedout design.Literally, we' ve donetitles on the backof a napkinwhenwe're talking to somebodyandsay,"We'dlike to do this." Somebodywill s&],"Whatwill that cost?"fuid I'll throw a numberoff of my tongue,ond we sit thereand write down aboutfive dealpointson the back of a napkinand fax it to began relationships our respectiveattorneys.Oneof our mostsuccessful with a situationlike that,About 507oof the time,publisherscometo us andsit downandsay,"Here'swhatwe'd like to do,andhere'souragenda. Would you like to do that, too?" So we've doneit both ways.We've seldomdoneany blind mail stuff out to people. andsay,"I'm thinkingaboutdoingthusUsually,I'll call somebody you might be interestedin?" They'll say, is that the kind of thing that solet'stakea look at it." Thentheydo, and "yes, we mightbe interested, not.Eitheroneis fine. The theyareinterestedandsometimes sometimes is whenyou don't here publishers with hate I only kind of relationship can from themfor 90 daysor not at all. If somebody call you up andsay' "Natl, that's ctar,lt"that'sfine. Sometimespublishershavea specificagendaand that's nice, too, becausetheycansit downands4!, "This is our strategyandthe stuff we like to do." Someof the very bestpublishingrelationshipsareprobably the hardestto find. That'swhenyou sit down and figure out what you wantto do togetherasa two-waydeal.Wedon't havethatyet in the long term. I'm enviousof the few companiesthat do becausethey can sit down andtry to figure out the publishingstrategytogether. Q. Do you do any of your own publishing? A. V/e've donea little bit-where we've fundedour own titles andhad themdistributedandmarketedby others.Interplayis distributingoneof our products-actually two. We did a title not long ago that hasbeen pickedup internationallyby Adler Communicationsout of Washington
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D.C. They are doing all of the international licensing, and I think it's going extraordinarily well. Q. Can you detail the budget structurefor an averagetitle? A. For PC or Mac, about $700,000. We ire probably somewherebetween $500,000and $900,000,so let's say $700,000on average.On an averageconversion-let's say you do a PC title, and you want to convert it to PlayStation,that's a couple of hundred thousanddollars. Depends on the title, how much JPEG you have to do and that sort of stuff. We're not doing $3 million titles or anyrhing like that. Q. The PC is your primary authoring environment? A. Generally speakitrg,yes.We develop on the PC or the SGI, and generally we'll port it over. It's usually arewrite, code-wise.Using golf as an example, we have a ball flight engine that can be transportedacrossplatforms pretty easily. Q. What is an averagewholesaleprice for one of your products? A. It varies a lot basedon the publisher.I guessthe averagethesedays is $20 to $25 for most folks, but it's changingso quickly thesedays.We're seeing an erosion in the wholesale and retail price, which theoretically will raise volume anyway,so it's a wash.I could not give you an intelligent answer about what the wholesale price might be six months from now. It's going down. Q. What about retail prices? A. Those are coming down, too. I think that most peoplearetalking about $39.95 as an average,where they were $49.95 a year ago. On the platform side it's higher.
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o&A Kip Konwise4 VP of Entertainment Graphix Zone Q. How do you pick a title or a concept,andhow do you know whenit will sell? A. We're in the businessof sellingemotions.We'renot in the hardware Wedon't careif thedeliverysysnot in thetechnicalbusiness. business, systemthe audiencehas... delivery tem is on a potatochip-if that'sthe and there is an opportunityto get an expandedemotionalavailability it worksfor us. andthe artists...then betweenthemselves Wepick our titlesbasedon whetheror not theystrikeus asemotionally veritable,useful,worthy andapplicableto this format.Do they belong on an interactiveformat,ffid do they ring emotionallytrue and fat enoughto makeenoughjuice out of therealestatethatwe arestartingto occupyon a CD-ROM. Q. Do you look to the musicandmovieindustryto know what sellsand preferwhenyou arechoosing a title? what audiences A. Sure.I meanyou canpayattentionto theworld,too.Look aroundand and seewherearepeoplegoing-what's their streamof consciousness, what's the musicthat definesthat streammost accurately,and doesit applyto this medium.If theansweris "Yes,"thenthat'sthedeal. Q. Is it a formulaor is it innrition? A. I don't think it's a formula.I think it's life. If you recognizelife, ord you know whatit is thatyourcompanydoesandwhatyou do within that company,thenthingscanline up. Q. What aboutyour titles?
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A. We produced Bob Dylan Interactive, perhapsthe leading seller in interactive music, and it's peakingjust below 100,000units in its first nine or 10 months. We've done "Prince" Interactive,which is about 93,000 units in its first 12 months. We did the Nixon soundtrack with a John Williams score. The Nixon soundtrack, by the way, was nominated for an Academy Award, which is the first time that the Academy has recognizedan interactive property.And it's the first time ever that a film scorewas released solely on an enhancedCD platfonn- i.e. the only way you can get the soundtrackis as an enhancedCD that you can play in your standardaudio CD player, as well as in your computer at home. Q. Is that deal still exclusive or is it available in other formats now? A. That's it. Exclusive.One SKU. That's the way it's going to be forever, except in countries where they don't releaseCDs- Zimbabwe or some place like that. We are doing the Nixon CD-ROM, which comes out at the end of March, 1996 and is basedon an Oliver Stone film as well. Q. Is that a cinematic decision or a documentarystyle decision? A. It is everything. It's the world's largestterm paperbasedon the movie, with Oliver all through it. It is a complete annotatedscreenplay. It has interviews with actors, cast, real people from the Nixon era- 75,000 pagesof never before seentext and documentsthat have been dug up by John Dean, who we went into businesswith Cinergi Pictures in order to make all of this stuff come true. It's hyper-linked all throughout the disk, as well as onto the Web with an Internet browser site that goes through more documentsand insight. A 3D White House that the user can navigate through to uncover all of the stuff. Tons and tons of robustness.It is a thick disk, and it's entertaining. It's not just documentary. We are doing a jazz music CD with Herbie Hancock that basically tracesthe history of jazz from its landing in America. It doesnot go back into the African diaspora and the beginnings of rhythm and sound that actually gave binh b jazz. To a large extent, though, it does touch on
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thoseelements.But what it doesreally get into is Congo Squarein New '20s New York in the '40sand New Orleansin the 1900s,Chicagoin the , '60s, Los Angeles in the '50s. York in the It has environmentsto transport you, such as river boats and trains and things like that. It's a fully-navigable 3D environment for each of thoseperiods,where you can uncover more material on music, and jazz specifically, than you would ever uncover in any other disk. It blows Dylan away in the opportunity that a user has to get close to the artist becausein this case- unlike Dylan and Prince- the artists themselves are all over it. It is robust and deep, as far as all of the resourcesand material that are available on the disk. So it is pretty thick. We are doing three titles with Herbie-that's the first. We are also developing new technologiesand producing record albums on CD+. We are doing three blues releaseson unheard-of blues artiststhat will be duetingwith ClaptonasCD+s. We're doing a bunch of movie scores as enhancedCD or CD+ from all kinds of top features, from Oscar-winningdirectorsalmost exclusively. We are doing Bob Marley as three CD+s with 49 tracks of neverbefore releasedor heard Bob Marley- tracks that just came available legally. The first of three titles is already out. The next title will be releasedon February 6, 1997 to coincide with Bob Marley's birthday. We will be doing a Bob Marley CD-ROM as well- that's to be done with the Marley family, as well as with Danny Sims and Chris Blackwell and the whole group. We are striking deals with major labels like Philips, Capital Recordsand others,dependingon the material available, We are dalso creating a SouthernCalifornia music sceneCD-ROM, which traces the music history of Southern California from the Mamas and the Papasall the way up to Pearl Jam and also includesThe Doors, Joni Mitchell, Crosby, Stills, Nash and Young, JacksonBrowne, James Taylor, America and many, many more.
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llnteractiveTitle Budgets Increasingilmounts of interactive content is driving production budgets uP, and that is a long-terrn phenomenonthat is not going to change. Development costs for sometitles are now averagingmore than $1 million-with super high-end titles such as Origin's Wing CommanderIV exceeding$10 million. Titles for 16-bitconsolemachinescan rangefrom $250,000 to $500,000 or more, dependingon complexity (Nintendo's Donkey Kong Country probably ran as much as $1 million). Titles for 32-bit consoles can run as much as those for the PC CD-ROM- $t million or more. One of the most expensiveaspectsof creating a software title is the time spentby the developmentteam. Graphics,soundeffects, music and video ire all very expensiveto create---€speciallyat the volumesrequired to fill one or more 650+ megabyteCD ROMs. As compressionand storage technologiesimprove those costs will continue to skyrocket. The average16-bit title can take betweensix and L2 monthsfor development. Titles for 32-bitand PC CD ROM platforms can take anywhere from one to two yearsor more to develop. Fewer resourcesand smallerdevelopmentpersonnelcan extendthose development times considerably.IT can be quite expensive to license existing content for repurposingas an interactive title , both in terms of up-front fees and factoring in back-end royalties. Licensed content can lend considerableappealto a retail product. Paying a large up-front fee for a content licensecan be devastatingfor smallercompanieswith smaller development budgets, as it limits the irmount of money that can be directly spent on creating the project. Partnering and reduced fee/higher back-end participation are two meansof coping with those difficulties. Budgeting and scheduling is an art which would take another book to cover, so here are the basics: Design Document Breakdown- a compositebreakdown of all of the elementsin the project. This is the master shopping list containing all of the artwork (characters,landscapes,3-D design,animation,mecha-
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nuzedgadgets),live- action video, 3-D animation, and programming code. Schedule- How long will each element of the breakdown take to acquire or create, ffid in what order does it need to be done in to complete the project. The schedule should have achievablemiletones.This is imperative. Budget- Each element will have a cost involved either in salary or acquisitioncosts.On top of the basic production costs there is usually a IUVoadministration cost, finge, contingency padding and special costs related to the project (i.e. special hardware and software).
o&A Gary Hare, President & CEO Fathom Pictures Q. What kind of titles do you do? A. We do two-primarily of examples:
sportsand sports-derivativeproducts.Acouple
We're doing a title calledNick Price Golf.It's Nick Priceat the Prince course in Hawaii. It was all shot on 35mm film and is completely controllable. It's basically a golf game that is completely real. There are three new pieces of technology in it that have never been used beforesomething like that. We're also doing an auto racing simulation called Bob Bahnderan's High-Performance Driving. The Bahnderan School is the number one
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school for race car drivers to learn and train at. We're basically putting the Batrnderancourse into digital format and then letting you iu... And then they'll pull you off of the raceand tell you you're ofl-lin., or you're this or you're that. It will be the first title where you can race cars and actually learn how to drive them. Your performancecan get better.So it's a true racing simulation. It's probably aimed at an older, more sophisticated audiencethan Need For Speedor something like that. Q. Does the golf product have a tutoriar aspectas well? A. No. Well, there'sa help sectionwhereyou can ask Price how he plays short irons or how he plays out of the sandtrapor something like that. But its intention is really to be a pretty high-profile golf game, as opposedto a sim. Now we've got the datathatwould allow us to make that into a sim. In the courseof making the Bahnderantitle, we've written the physics of the race car. So we now have physicsthat are sensitiveenoughthat we can race any vehicle on any surface. In fact, let's say we did a title where you could race a Porsche at Laguna Seca.You could take the car into the garage,changethe air pressurein its tires and ratchetdown the anti-sway bar a little bit, and the car would actually behave differently out on the track. Q. You're planning on doing somethinginteractivethat allows a user to actually customize a car? A. Yes. And we hope to announcethat on the l2th of this month in Europe. We are heavily involved in all of this car stuff. And then our third sports areais what we'll call "left/right control sports," and we are doing a title that is controllable full motion. When I say "left/right control sports,; I'll just give you someexamplesbecauseI can't talk about this tiile yet. That would be skiing, snow boarditrg, surfing and all of that kind of stuff. We're doing one that will actually give you control in a photo-real environment.We've written tools for that. So primarily we do sports.We do three sportstitles, culrently, and then we do one non-sportstitle. We are doing a science-fantasygamecalled Dregs. This is a different
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kind of thing.It's anaction-adventure-originalstor!,originalcharacter with 3D characters We havemixedlive-actioncharacters development. but not probablylike onehasseenbefore.They'reliterallymixed,where a 3D charactercanactuallygo up andgraboneof thelive-actioncharactersanddraghim downthehallwayfor onereasonor another. Thelogicalquestionis: Why wouldyou do mostlysportseventsand somesci-fi?And the answeris we usethe sci-fi title to test and sometimescreatetechnologywhich we applybackto our sportstitles. It becomessortof an R&D productionfor us.The stuff in our latestsciencefantasytitle-two of thethingswe're doingin it we areapplyingto two new sportstitles. Q. What aboutproductiontechniques? A. What interestedme from the very beginningwashow you coulduse in the body of interactive traditionalfilm andtelevisionmethodologies product.Sowe'veusedminiaturesandmotioncontrol,live-actionshoots, controllablestill andmotion35mm.We'veuseda lot of prettytraditional stuff.But we werethefirst companyto everusebluescreen.Wewerethe first companyto everuseinteractivesoundmapsin thebodyof a title, so that whatyou hearrelatesto whatyoujust did. We useda lot of this kind of stuff.We lookedaroundand in those days(thiswasaround1989)- so our first CD-ROMtitle wasfor CD-I like a lot of people'swere.Wehadthenumberoneandnumbertwo titles in the world. Q. Whatwerethose? A. ThePalmSpringsOpen,whichis a golf title, andEscapeFrom Cyber City,whichis a sci-fititle.If you'veeverseenCD-I- ourgolf title is the one most often demoed.That'sbeenthe numberone best-sellingtitle sincethe systemcameout- overfour years. What we didn't want to do wascartridgestuff. But really,in those days,cartridgestuff waswhat wasmostsuccessful. I just wasn'tinterestedin figuring out how to movepixelsarounda screen- that didn't interestme.Interactiveentertainment interestedme.
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AverageActionTitle ProductionValuesRise Game developerslike Activision, LucasArts, Origin, Interplay, Virgin, Blizzard, GTE, Mindscape, Rocket Science,Electronic Arts, Cyan and Philips are routinely creating titles with multi-million dollar budgets. Payback for an investment of that type can take a couple of years and in many respectsdependson the number of aftermarket windows producers can push the product through. For example, WMS Industries' Mortal Kombat franchise was not only a hit at consumerretail, but the movie of the samename earnedwell over $70 million at the box office. A video rentaUsell-throughwindow will add even more payback punch to the company's coffers. Activision is set to license rtsZorkproperty to one of the major studiosfor a feature film project as well.
MULTIMEDIA TITLEPRODUCTION COSTS Per Unit Breakdown PC CD ROM CategoryPer Unit Costs - $2.75- $4.00 Homeimprovement (3(( EdUCatiOn -" 33 AestheticEnvironment. - $4.00- $6.00 Entertainment 32-BitCDs $9.00- $10.00 Carts-$15.00-$30.00 PackagingComponents Box-$0.60-$4.00+ JewelCase- $0.10- $0.20 - $0.50- $3.00 Documentation - $1.00- $1.25 CD Duplication Cans-$10.00-$25.00 Source:CarronadeGroup
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That franchise leveraging paradigm can also go the other way. For instance,GeorgeLucas leveragedhis SrarWars franchiseinto a lucrative multimedia window with suchtitles asthe RebelAssault andDark Forces series.Even though the characters,scenesand storyline ile not duplicated, the Lucas brand is a well-known commodity to both consumers and retailers. LucasArts releasedthe secondinstallment of it's much-anticipated Rebel Assault franchisein November 1995, amid industry expectations of yet another million unit sell-through success,and the title has performed very well at retail. Given the $3 million dollar budget, it had to. At this point in time , Rebel is designedto run on PC CD-ROM and MAC CD, with Windows 95 integrating into the mix sometimeearly in 1996. Rebel AssaultII (suggestedretail price $54.95)has already shipped well over 250,000units, and sell-throughsaleshavereportedlybeenbrisk. With some re-orders already booked, LucasArts says, "Rebel II is on a paceto equal or surpassthe original retail successof RebelAssault, when it was releasedback in the fall of 1993." LucasArts preliminary forecasts for the first Rebel had been somewhat modest, but the title opened up with over 200,000 units selling through by Christmas, surprising everybody. The original RebelAssault continuesto be the company'sbest-selling title to date, with about 1.5 million copies sold through (not counting OEM bundlittg). Hot on the heels of that franchise, however, are LucasArts' X-Wing and Dark Forces titles, each with about 1 million units in retail salesand budgetsto match. And despite the glut of multimedia titles on the market, LucasArts titles have managedto stay on store shelvesfor as long as a year and a half with the strengthof the Lucas namebehind them, enabling the properties to perform more like annuitiesrather than two-month wonders. Paft of the reasonfor shelf life longevity is the company, at the ripe old age of 14, literally grew up with the multimedia business and has cultivated a number of direct accounts with the retail sector.Another reasonis retailers are comfortable with the quality of LucasArts products and arewilling to allocate shelf spaceto thosetitles on an ongoing basis.
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GASESTUry LucasArts LucasArtsuanks out aboutonedozentitles per yearandhas 220total employeesin development, productionandadministration. Evenso,developmenttime for Rebel// wasaboutL.5years.And while theaverage gametitle nowadays costsanywherefrom $2.5million to $7.5million to produce,LucasArtswasableto grinddowncostsbecause of thelevelof pre-production planningthatis built into theprocess. Lookingat theeconomics of a typicalmillion unit seller,LucasArts appearsto be publishingfamiliesof cashcows.While the break-even pointon a $3 million title is around250,000units(seechart,nextpage),a numberwhichwasunheardof severalyears4go,onceit doesbreakinto the 750,000to 1,000,000unit range,the ROI can run anywherefrom 50Voto 60Vo.That'sassuming LucasArtssellsdirectlyinto theretailchannel andby-passes two-stepor nationaldistributors, AssumingRebelII rcaches themillion unit plateau,it will havegeneratedcloseto $46 million in grossretailrevenueandcontributedmore than$9 million to thebottomline.That'smorethanmanytheatricalmotion picturereleases nowadays. Onereasonthe economics for RebelII ue so favorableis thebasic gameenginealreadyexisted,eventhoughit wasoverhauledto improve its compression andplaybackcapabilities. This alloweddevelopers the useof full-screen,full-motionvideo. The authoringengine,calledINSAI.IE(InteractiveStreamingAnimationEngine),hasalsoprogressed to the point whereLucasArtscan presenta numberof intricatesetimagesandintegratethem seamlessly with computer-generated designs,addingto boththegameandentertainmentexperience. In addition,Hal Barwooddirectedthe productionn andRebelben-
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efited from his work on Indiana Jones and the Fate of Atlantis. He also knows George Lucas well and was tapped becauseof his long years of film expertise.
REBELASSAULTII: OF A MILLIONUNITTITLE ECONOMICS Sell-ThroughUnits
(000) 2s0
500
SRP SffeetPrice GrossRetailRevenue WholesalePrice# WholesaleRevenue COGS ('rE ,f Ga.,li 9"ldl GrossMargin Marketing/Sales DevelopmentCosts G&A/Tech Support Contribution Margin
($) ($) ($oool ($)
54.95 54.95 45.95 45.95 22,975 45,950 19.23 19.23 9,6L6 19,233 1,539 3,077 8,078 16,155 1,923 962 3,000 3,000 769 1,539 3,347 9,693 4l.4Vo 60.0Vo
54.95 45.95 1l,488 19.23
($ooo)4,808 ($ooo; 76e ($Mit.) 4,039 ($ooo) 481
($oool3,ooo ($ooo;38s ($ooo1r73 4.3Vo
1,000
# - Net of Promotions/rebatesand distributor incentives
Source:Paul A. Palumbo
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.,q,7 DevelopmentDealFinancialModels DEVELOPER PAYBACK SCENARIOS-PER TITLE StraightUpfrontPayment ModelWithPercentage Backend UnitsShipped SRP Street Price
(000) ($) ($)
RetailRevenue WholeSalehice
($000) ($)
Wholesale Revenue
($000)
DeveloperRoyalty @20V0
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Marketing/Sales($)000 DevelopmentCosts# ($000)
Development Fee G&A,
25 4g,g5 39,95 624 24,94
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1,,247
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450
450
450
450
450
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DEVELOPER PAYBACK SCENARIOS.PER IITLE Affiliate Label Deal Model Units Shipped SRP Streethice WholesalePrice WholesaleRev. Affiliate Label Markup Affiliate Label Revenue Pressing/Packaging CoopFunds ReturnsReserve GrossMargin Marketing/Sales DevelopmentCosts G&A DeveloperRoyalty Contribution DeveloperMargin
35
$) $) $)
$ooo) $)
$ooo) $ooo) $)
$ooo) $Mil.) $000)
($ooo) ($ooo) ($000) ($000)
49,95 39,95 24,95 873 10.00 350 105 0.65
s3
t93 0 500 65 t23 -250 -129,9V0
75
t2s
49,95 39,95 24,95 1,871 10.00 750 225 0.65 113 413 0 500 65 263 110 26.7Vo
49,95 39,95 24,95 3,119 10.00 1,250 375 0.65 188 688 0 500 65 438 560 8l.SVo
Source:PaulA. Palumbo
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TITLE SCENARIOS-PER PUBLISHER PAYBACK Self-Publishing Model Units Shipped SRP StreetPrice Retail Revenue WholesalePrice WholesaleRevenue Marketing/Sales Costs Development/R&D ReturnsReserve DeveloperRoyalty Packaging/Pressing G&A TotalCOGS Contribution hrblisherMargin
(000) $) $) $000) $)
$000 $000 $000 $000 $000 $000 $000 $000 $000
s0
75
150
49.95 39.95 774 24.95 1,248 116 650 100 000 150 70 1,086 162 l3,0Vo
49.95 39.95 1,161 24.95 1,871 244 650 150
49.95 39.95 2,323 24.95 3,743 581 650 300
225 105 1,373 498 26.6Vo
450 209 2,L90 1,553 4L5Vo
Source:Paul A. Palumbo
Q&A Kip Konwiser, VP of Entertainment Graphix Zone Q. What type of budget range do your projects fall into? A. It dependson the format. A CD+ has a significantly different budget than a CD-ROM. A CD+ is music first and interactivity second, and a CD- ROM is the other way around.Interactivity is a lot more expensive. CD+, if the music comes delivered- if we don't have to produce the music, which has its own cost,canbe anywherefrom $15,000to $50,000 or $60,000- certainly no more than that.
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A CD-ROMcanbe anywherefrom $100,000to $650,000,depending on the sizeof the artistandthe advancesandhow the dealis structuresandall of that sortof thing--dependingon how many3D environmentswe wantto createandhow muchcontentwe needto fill up those environments. Q. Whatis thetypicalretailpriceof eachof thoseformats? A. CD+ pricesareall overthe placeright now because it's sucha new bird on the market.Nixon wasreleased at $16 whichis the exactsame SRP it would havehad as a standardCD. Marley will be releasedat $17.98.We can do that becauseit is morecompetitivemusicmaterial anda buckmoreis not thatmuchto ask.Theycanrangeanywherefrom $12.99to $24.99. On theCD-ROM,DylanandPrincecameout at $59.95andstill sell lots of units at that pricebecausetherearevery few artistswho candemand$60 from the consumerfor a CD-ROM- unlessthat CD-ROM shreds,ilnd unlessthat artistshredsin that person'sopinion.So if we havecompetitiveartistsandcompetitivetitles,thentheyreleaseat $59.95 or $49.95, somewhere in that range.But generally,they are $29.95to You can sayanywherefrom $30to $60,depending $39.95. on theartist. Q. What pricedo you sell into thechannelat? A. You can generallytakeabout40Voto 507ooff of that for wholesale prices. at all? Q. Do you work with third-partydevelopers A. To datewe havedoneit all ourselves because it's theonly way we can really guarantee the look andfeel we reallyneedout of theproduct.But that shouldbe changing.Wecan'tdo all of this stuffby ourselves. As it is, we aretotally tapped.If we aregoingto continueto grow andexpand our rosterandgetthatmanyproductsout ontothe market,thenwe need to startfinding somekindsof partnerships thatmakesensefor us.Weare makingthosekindsof partnerships happenright now. Q. How will you structurethosedeals?
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A. It will vary.It's a publicly-heldcompany,so we cando stockswaps andmergersandstrategicalliances.It all depends. andoutrightpurchases
o&A llichael Pole, Exec. Producer Electronic Arts Q. What arethe averagebudgetsfor differenttypesof titles? A. Developmentbudgetscanrangefrom $500,000to well over $8 million dollars. Q. Canyou comparethecostsinvolvedin producinga CD title vs. a cart title? A. It's hardto compffe,but let's saythat the costof developmentfor a g a cartridge. CD is 8x that of developin Canyou discusshow you work with Q. What aboutdeveloperpartners? you havewith them? someof your partnersandthe relationships A. Therisksaresomuchgreaternow because costsile thedevelopment somuchhigher.Webaseour choiceof partnerson pastexperiences with thosedevelopers.It's thoseloyaltiesthat makeus go back again and again. We've gottenburnedbecausethe cart companiesaren't alwaysthe oneswho are going to do well in the 32-bit market-it's different becausethe dynamicof the businesshaschanged.Therearenow so many newelementsneededto createa top sellinggame.We'relookingfor new partnerseachandeveryday. Personally,I like to marryreallytalentedart andanimationresources
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with really talentedprogrammingresources. Interactivedevelopmentis morelike movieproducingnow-not everyonecando it all, it's not onestopshoppinganymore.So you needto havegreat art,animation,great music,soundeffectsand greatprogranrming-aswell as a terrific design-in orderto be successful. Factis, if it's not a greatgame,noneof the otherelementsmatter.It is a combinationof all theseelementsthatmakea greatgame.To protect our interests,we like to seeprototypes.I wantto seeearly stagesof development.I don't wantto seethedeveloper jumpingoverthemostdifficult technologicalhurdlesat stagealpha.I want to seeit early on. So that'show we chooseour resources. Greatplanning,design, art,animation, programmingandsoundareneededto build a greatgame. with yourdevelopers? Q. How do you developprojectmilestones A. A lot of peoplefigure out whattheywanttheir releasedateto be and work backwards. I'd ratherwork with theknowledgeof how long each of theelementsandtasksaregoingto taketo build thegame.Webuild a really gooddesignand thenrequireatechnicaldesigndocument.That technicaldesigndocumentand the gamedesignwill basicallydictate whatour milestones aregoingto be andhow longit's reallygoingto take to do a projectbasedon the amountof peopleworking on it. Then I figure out whenwe aregoingto ship, You canpromisethe companyanythingyou want,but beingableto deliver producton time is what you arejudgedby. No milestonesare brokendownuntil we haveour technicaldesigndocument.At thattime, we build in preliminarydeadlines. We wantto getto theprototypestage very earlyon in theprocess-spendingaslittle moneyaspossiblein the process. Welike tojump overthemostimportanttechnicalhurdlesasearlyas we can.Thenbasically,it's deliveryof levelsand gametuning as you moveforward.
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o&A Kelly Gonw?Y,VP of Marketing Multicom Publishing Q. Within your genre,how manyunits do you needto sell a particular title to breakeven? work, thosekinds of A. A lot of our time andenergygoesinto database areprobablyin the 30,000to things.Dependingon thetitle, break-evens 60,000unit range,basedsolelyon retail sales.OEM is an incremental opportunity.Internationalis incrementalaswell. Q. What is thebudgetrangefor oneof your titles? of $400,000to $750,000 A. Well,theyprobablyrangein theneighborhood pertitle. Q. What analysismodelsdo you useto comeup with budgetsandbreak evennumbersfor a title? andit's alsodrivenby content-what A. It reallyis basedon experience, ile theappropriatemultimediaelementsfor a particularcategoryof products.On onehand,if you look at our homeimprovementproducts,they saidthey that'stheway consumers areveryillustrationintensivebecause howto changelight switches,build shelves, likedto beableto understand The WarrenMiller ptoducthas etc.---€venin a multimediaenvironment. lots of video andmusic.It hasa differentfeel to it to appealto that particularconsumer. Q. Whatis your pricerange? A. Generally,retail softwareis in the $35to $40range,andwith a complimentarybook-we do bundlingwith booksas well, it's about$10 higher.
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Q. What aboutwholesaleinto the channel? A. About $65Voof the shelfprice. Q. Do you think that'shigh or low for the industryasa whole? A. That is aboutaverage.
Q&A Ken Goldstein, Exec. producer Broderbund Software Q. Are budgetsdevelopedby formulas? Is there a model that Broderbund can plug numbersinto and think about how many units you can sell, or is it intuition? A. No. Clearly, once we have the concept framed, it becomesthe question of a businessopportunity. That's the context under which I run the studio. I own the P&L for the studio, so what I have to do is-based on the concept we are lookin g at,basedon the projected budget we are looking at, based on the projected schedule and time to market that we are lookinE 4t, basedon the first year projected salesand lifetime projected sales at a certain wholesale price,(determine)what the businessmodel for that product is. I have to set the businessmodel and make a casefor whether it does or doesn't make sense.Yes, once we're excited about the creative concept, we do a fairly formal businessanalysisof it to seeif it makes sense. Q. How do you come up with break-evennumbers for different titles? How do we needto sell this many titles to pay for development?How do you judge the budget?
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A. I have certain tools that I have developedand that we have developed internally here--certain financial models that we can plug some numbers into and push and pull. I have different returns on investment that I need to deliver and different budget thresholds.So there are different, if you wil|, proprietary formulas that we apply to it. So I go...callI can get this much marketsharebasedon this investment,this amount of time in development and this time to market (i.e. we're developing early or late in a platform's cycle, that meansa lot). If we're right at the beginning of developing for Pentium technology, we're going to get to market in the middle of that curve, as opposed to at the end of that curye. There are different expectationsthat I apply and play with the numbers on the spreadsheetand pretty much know whether somethingis a good businessproposition-if my assumptions are correct. There's virRrally nothing that I do here that we don't break even on. I won't do it if I can't break even in a worst casescenario,and there aren't a lot of people who can say that. If I can't show a reasonablemodel-where over eighteenmonths of salesI break even-I will not do it. My assumptionshave to show me that the worst case scenario is that I will break even. The interesting thing about the businessmodel that I apply to things is I say that in the worst case scenario I will break even, and in the best case scenario I won't even be able to predict my return on investment.That's the way I like to look at things, and that's the reasonBroderbundhasbeen success6'x" amount of dollars and reasonful. We don't say that you can spend ably expect to make "y" amount of dollars. 66x"amount of dollars, and we can Instead, we say we can spend reasonableassumethat in an averagecase scenario we will make "y" amount of dollars. But the ceiling on that is unlimited. That is why you seehits here like CarmenSandiego,like Print Shop,like Myst,like Living Books.While the businessmodel is entirely conservative-which is how we approachthe business,the upside is unlimited, and that's what our stock holders like to see. Q. What is a general or rough estimate for what Broderbund seesas a
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budget for an educational title such as Carmen Sandiego or for an entertainment title such as Myst? A. We generally don't quote budget figures becauseit's not a rcalcomfortable place to be, but let's just say that they've all been creeping into the seven-figurerange pretty consistentlyin the last year. Q. Is that becauseof the need to createmore content to fill a CD-ROM? A. The word content is really obscure to me. It doesn't mean anything anymore.Peoplesayto me, "Well my budgetis 'x'dollars becauseI have got to go out and acquire 'x' video assetsand 'y' music and blah, blah." That stuff is all cheap.That stuff doesn't cost very much when you think about it. What costs me a lot of money is people's time. The thing that goes into stuff here is people'stime. If I'm going to have a team of Light to 10 animatorswork for me for six months-and they're top notch animators, that's going to cost me a few bucks, especiallyif they're staff peoplefully-loaded and receiving benefitsand all of that. But all of the money is going into people's time. The hard costs are a fraction of the product. Q. But in terms of people's time, doing a Myst-typetitle takes a lot of investment in modeling, rendering and that sort of thing?. A. That's correct. But when people say "contert," it's not about acquiring content. Q. What about third-party developersat Broderbund- for example, a relationship like Cyan or Living Books? A. Living Books actually is a very unique relationship in that it's a joint venture betweenRandom House and Broderbund.Each of us owns 50Vo of the company.One of the things that Broderbund still doesin that relationshi5aside from distribution-we treat them as an affiliate label. We actually developedtheir software engine for them. All of their engineeringis done on propri etarytools developedhere. So it's sort of a unique relationship.From a businessmodel-we bill them back for that, the same way we would bill back anyone else for
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a publishing doing engineeringservices.But with cyan, that is simply circumfinancial a for deal wherethey Io all of the work in exchange sales, stance,ffid *, h*dle themarketing,publicrelations,distributior, andwill etc.Theonethingwe aredoingwith Cyan-that we did onMysr That'sanother alsobe doing oi UystII- iJthe Windoulsengineering. They're uniqueservicethatwe havebeenableto offerpeopleovertime. very strong very comfortabledevelopingon theMacintosh,andwehavea developsimultaneously are we setof Windowsdevelopmenttools.So version. ing theWindowsversionasthey aredevelopingtheMac That,soneof thethingsthatwe're very goodat.Ratherthanforming way or a lot of hard,fast traditionalmodels-saying we only work this successso been has Broderbund only work thatwa], oneof thereasons in that ful overtheyeils is we'll do whateverit takesto do goodwork. So on icular instance,what they want to do is developthe creative assets partlcu
Thatworks their side,andtheywantusto dotheWindowsprogramming. developer a whatever for us. We can alwaysfind a businessmodelfor needs. comingto youwith conceptsketches e. Sowouldyoubeopento someone wouldyou proceedfrom graphics-how and anda few computermodels there? just A. Again,somebodylike Cyanis a lot differentthansomebody coming in cold. Cyan ii on their fifth softwareproduct-somebodywith a trackrecord*ho haddevelopeda coupleof products,who hashadsome in theindustry,whoknowswhattheyaredoing,who comes earlysuccess to me with a Macromediaprototypeanda designspecificatior,andone of my producersgetsexcitedaboutit. Thereis virtually any numberof waysthat we canproceed.Somebody that'sjust comingin with an idea? It's not very oftenthat we buy ideas.Thefhave to generallybring somethingto the table in terms of capabilityor history.Otherwise,they'rebetterservedworkdevelopment ing on my staffJn whichcase,if oneof my staffcomefonvardwith an idia, that'sa mucheasierway for me to proceed.We don't pay royalties to staffpeople.
04rb t+ th{ nrofitability. It's just a different kind of relationship.I would hardly call their dealtypical. Q. What aboutwith another.developer-atypical one? A. I wouldn't want to be quotedin print assayingwhat the parametersfor our dealsare.Thereare fraditionalpublishing-oo"ls-u".y much based on the_book indusbry.we fund advanceagainstroyalties. if we pick up somehard costs,those are our hard costs.The amountof dollars that I advanceis inverselyrelatedto whatroyaltiesyou canreceive-so at a certain point it declinesbeyondbeingreasonable. we want to be ablero put a reasonablenumberof dollars into a productto bring quality work to market, and if the developerdoesa goodjob, we want them to makemoney too. Q. can you give meanideaof thepercentageof royaltiesyou canexpectto makeas a third-partydeveloperwho brings you atitle you fund? A. overall, it is extremelydifficult to fund developmentadvanceagainst royaltiesin this market.Generally,peopleneedto comein with somekind of backing,somekind of financestructure.A lot of times, what we seeis people who have done very well in other parts of the industry who can carry themselvesfor a while- the moneythat I put in all goestn ,"r""n. Generallyspeaking,if you aredevelopinga title asa start-upbusiness, you needto havesomeseedcapital.The peoplethat I seeget into nouble the most in the multimediaworld are the peoplewho go Jut and makea dealfor $500,000advanceagainstroyaltiesand suddenlyrealizethatisn't going to be enoughmoneyto makethe title. In this market,that's not enoughmoneyto makea quality tifle that is going to haveanykind of life at retail. on the otherhand,I'm not comfortablewidely spreadingseven-figureadvancesaround.I,d ratherdo a shared risk with somebody.Thosearethe kind of dealsthat aremost appealingto mebecauseit showsfaith on thedeveloper'spartanddoesn'tpui u ortn" risk on me.
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Stimulatingproductdemandbeginswhenthecustomeris madeawareof theproduciandpicksup speedwhena purchasedecisionis made.It's an in themultimediabusir*plnsive processthatis mademorecomplicated andshelfspaceis at a product, with thechannelis saturated nessbecause premium. At the sirmetime, the channelis still relativelyimmature,andthere giantsthat canthrow a lot of promois a growinglist of entertainment tional firepowerbehindtheir title launchesand commandshelf space, evenif theydon't actually"buy" it. Thebattlefor shelfspaceis goingto intensifyasthenumberof multimediatitles expands,despitethe fact that new retail opportunitiesand sourcesof distributionwill emergeasthe industrymatures. A lot of marketingmuscleformerly placedin the handsof advertisis becomingmore and more a hands-onpart of every ing messages, product creationcycle.Thegoalof this chapteris to explore developer's andexaminemarketingandpublic relationswithin the interactivecommunity- how it works and the strategyof nicheproductpositioning. andcourseware Nicheproductscaninclude"how-to" series,educational suchasreferencetitles sub-segments entrants,as well asentertainment aboutthebusiness.
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AWARBNESS: Thecomsumer mustbe awareof theproduct.
KNOWLEDGE: To makeany decisionthe consumermustof knowledgeof theproduct.
ACCEPTANCE: The consumer must accept the product of what it claims to be.
PREFERENCE: The consumer coms of a prefer of one product over another. COIWICTION: The consumer is convinced there is a personal need for the product. PURCHASE: In responseto the consumer'spersonal need, the consumerbuys the product.
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Most entertainmenttitles are designedwith a broad-basedconsumer audiencein mind, which is typical of a "hits" driven Hollywood model. That model often requirestitles sell through well over 100,000unit sales to reach payback. The demographiccharacteristicsof that audienceare male, ti-Z+ years of age. Developers and publishers have to nail that demographic at aminimum, and if the product has broader appeal,then attempt to capture incremental audiencesas well. In the past, the process of awarenessbuilding was built on gross advertisingand promotional impressions,whether in print, TV' radio or point of purchase(POP) merchandisingthrusts in retail environments, iuch ar Blockbuster Video. But as new technolodiesbring suppliers and consumerscloser together,the industry is lookin g atdeveloping marketing strategiesbased on "net" impressions-namely, marketing to audiencesthat have a specific interest in the products or servicesa company is promoting. The best examplesof that philosophy, today, zre specialty ^igurines, such as various computer magazines or sports magazines (Running,Walking, Bicycling, etc.). On a much broaderconsumerscale but still part of that more tailored advertising strategy,is the World Wide
Web. Hollywood studios, for example, are throwing up sites to promote awarenesof every movie hitting the theatrical window. Game company developers aggregatingcontent on such sites as Happy hppy or Splash Snrdios( www.happypuppy.comandwww.splash.com)ire courting niche audiencesthat play games and surf the Web. The union of those two demographic segmentsis attracting a lot of advertiserinterest (i.e. game companieseagerto promote retail salesof packagedmedia, comic book publishers, merchandisersand retailers). Developing marketing strategiesfor specific potential customer groups will be essentialfor interactive titles being developed.A good example of this trend is advertising a skiing title in a magazineor venue which attractstargetedcommunities of interest around skiing. Advertising dollars are targetedinvestmentsdriving sales.Matching the correct messagewith the medium and the target audience creates a powerful advertising investment.
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creatingcustomerRelationships Thewholeconceptof corporate America'smerchandising andmarketing thrustis basedon gettingcloserto coremarket-essentially bringingthl manufacturerandthe consumertogetherwithout intermediaryinterference.That philosophy(producton demand-when,whereand how the consumerwantsit) is becominga morecloselywatchedawareness building strategyasthe interactivetitle development industrymatures. And that cantakemanydifferentflavors.So far, we havebeentalking extensivelyaboutentertainment industrymodels,whicharebasedon largeaudiences. This modelis focusedprimarily on producingmultiple titles andamortizingtheprofitsof successful onesagainstthoie thatare lesssuccessful. Even thoughunit salesof a particuturproductmay not achievesuccess, it is all partof a librarybuildingstrategyor theability to establishcorporate"brand"in theconsumermarketplace. A librarybuilding strategymakessencefor an up andcomingdevelopereventhough oneparticulartitle may not performwell in the marketplace: r It givespublishersconfidencethata developercandeliver a steadystreamof product. I
It betterestablishes "brand"in themarketplace.
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It amortizesdevelopment costsagainsta moreproperties loweringthe costof developmentfor any particularone property.
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It createsmore opporhrnitiesto extendthe valueof that franciseinto othermediumsandancillarymarkets.
Anotherway to leverageandestablish"brand"is to caterto a very specializedaudience.For example,StanleyKaplan'scoursepreparation for SAf' LSAT,MBA, GREexaminations aredevelopedfoiconru-.rs interestedin self-study.Kaplan,4s a seminarand piint company,has developeda strategicconsumerrelationshipwith a renewableaudience of potentialgraduateschoolcollegeapplicants. Anotherexampleis Davidson& Associates, aneducational publisher that hasdevelopeda closerelationshipwith key influencers,suchas
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teacherand parents,and is dedicatedto a K-l2 type of product. Bottom-up relationships between title developers and end-usersare being enhanriA daily by the existence of the World Wide Web. While consumersoften flock to retail outlets or perusecatalogsto find a title of preference,that's long after the developer's investment in the title has been made. fur even closer relationship with consumerswould yield data about preferencesthat could be profiled into needsor desires,which developltr roold then utilize when they considernew title concepts.This goes a long way toward ending the "hit or miss" characterof the development business.For example,abridgedor beta versionsof titles could be tested on Web sites, with consumerfeedbackused to improve performance and gameplay. Jay Williams, VP of Research and Development for Webcaster Serye.Net (www.serve.net)says,"There is going to be a reversal of the paradigffi, to one where producers are listening to their audiences and providing them with entertainment they want to see." He goes on to say the businesswill have to acknowledge the fact that "the Web will allow multimedia producers to distribute entertainment product every bit as good as what comes over network TV or the big screen."This will further fuel the competitive move to get closer to audiencesthat pay the bills.
Defininga GoreAudience What urrecharacteristicsof your audience?Are they coltege graduates? What specific interestsdo they have?Do they ski? Surf? And if so, what are the cross-promotional opportunities that exist to a publisher in the case?Where do they shop?How much do they earn?What do they read? What brands in other market categoriescater to the samesegment?What are other co-promotional opportunities in that segment? For example,considera "how-to" title focusedon deck or patio building. It would most likely have a male audiencebetween 30-50 years of
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EXPOSURE:Exposethe audience to a newbehavior. RECEPTION:The audiencereceivesthe behavior.
RESPONSE: A directreaction to thenew behavior. ATTITUDE: A conversion or aversionto thebehavior. INTENTION: A created needor repulsionfor the behavior.
BEHAVIOR:Thebehavior is modified.
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age.That buyer would typically own a home with a backyard, shop at Home Depot or Orchard Supply, purchasehand tools, subscribeto various "fix-it yourself' types of publications and make between $50,000 and $100,000per year.
AudienceInformationConsumption What seminars does your target audience participate in? What magazines, books and publications do they read?What type of TV programming do they prefer? Do they subscribeto cable TV? Do they have a computer?What sites on the Web do they visit? Our deck builder probably has purchaseda "fix-it" seriesof books, and most likely he attends Home Depot seminars on various topics, watches Bob Villa on TV watches the Home & Garden Channel, and visits various similar Web sites.
CreatingAudienceAwareness Advertising, promotion, streetbuzz, co-marketing thrusts and public relations (PR) are all elementsthat drive increasedconsumerawarenessof products.The goal of any marketing program is to maximize the budget acrossa media mix that has the best chanceto reach the defined target audience.That investment should lead to product salesand can then be quantified as a return on marketing investment. The marketing thrust dependson the marketing budget-the higher the budget, the more advertising "buys" available through various media. A more limited budget will depend more upon an ability to create marketbuzz through PR. The most effective marketing tool, perhaps,is the so-called "word of mouth" advertising becauseit is a result of users that are hyped about the product or service. PR is all about creating a "hyped" user.A hyped user is a product's best salesperson.One hyped user can potentially influence a wide circle of friends.
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Q&A Andrew Maltin, president lnsights Software Q. what is your philosophyfor marketinga title? A. First of all, it's expensive. How do we go aboutit? Well, first of all, we participate.Wereallyarechoosyin thedifferentmarketingprograms thatcomeacrossour desk.Therearea lot of programsout therein working with thedifferentretailers-from advertisingto in-storemerchandising andstuff.Our basicphilosophy?I guessfor us it reallyis dependent on the programand whereit fits with what we're doing and in what retaileror distributionchannelit is in. Therearecertaindistributionchannelsthatjust don'twork for us. Q. Vfhichones? A. Like entertainment. Therearecertainretailersthat arestrictly entertainment or Nintendo-oriented retailers,that our typesof market just won't shopat thatstore. Q. What arethe storesyou arethinkingabout?A SoftwareEtc.? A. Right.Not that we would not go into SoftwareEtc., but we would limit the marketingdollarsthat we would spendwith a companylike that. We ile alwayslooking for as much shelf spaceas we can getmaximumshelf spaceis what we are all looking for. What I tike is to really find the programsthat work with our market.Then,that'swhere we spendour marketingdollars. Q. What aboutPR?Canyou comparePR andadvertisingasmarketing tools? A. First of all, PR is really wherewe arefocused.We arevery focused with our PRcampaign.Wetook a turn abouta yearanda half backwhen
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we launchedour product Pure Motivation.We went directly into national advertising without having distribution. I think we learned our lesson there with the print media, ffid I think we turned at that point and made a decision to really work with PR. We're finding that people read reviews. People read storiesand respondbetter than direct responseadvertising. Now, we zre definitely willing to support our retail distribution efforts with advertising, with print media. At this time we are only looking into doing trade publication advertising to make the buyers more aware. Q. What kinds of publications do you take out ads in? and Home Office Computing.Weworked with A. Magazineslike Success We did the airline catalogsand the in-flight magazines-AmeriWindotry,s. canWay.Like I said, our advertisingis now more focusedand will appear rn ComputerRetail Weekandother industry tradepublications. Success,Entrepreneur,Home Office Computing,lns.-fhose are the types of magazinesour customersare reading. Q. How do you work with your PR firm? A. It is more about positioning than just getting the articles written. The processthat we do is we sit down with the PR company and work out our angle-where's our market, what's our position, how do we want to be known in the marketplace. And then we devise a campaign around that position. Q. How much input do you have in that process?Do you direct them a great deal, or do they bring you plans? A. It's a very directed approach.I think it needsto be very closely monitored to make sure that the positioning is continuingat the right angle. There's definitely a part that we play in that. I'm not sure if all companies play a similar role, but we play the role becausewe feel that we have the creative side as well. Q. Do you think your PR could be better handled in-house or out-ofhouse? A. I think it's better handled out. I enjoy out-sourcing as much as pos-
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sible.Everythingthat we do, we out-source. I think that'skind of the modelof the '90s.I think it's betterhandledoutside,andthe reasonwe pickedthepeoplewe're with is because of therelationships. Theyhave greatrelationshipswithin their field, their industry.Thatisreally what you'rebuying. Q. Tyhataboutdistributionchannels? What channelsareavailable,and whattypesof marketingarenecess aryto gettheproductinto thosechannels? A. All of them.We work with all of the channels-thereare so many channelsavailableto plug your product.You seeso manyopportunities comeat you onceyou get into the distribution.We werekind of a oneproductcompanyfor a while, andwe reallylearnedour lessonwith distributionandsoforth.Weweren'ttouched.Everybodywasafraidto touch a one-product company.No onewantedto work with a companythathad moneybut only oneproduct.That'swherewe realtzedthatwe neededa line of products. Q. Do you think that might be a given in the industry?You needmore thanoneproductbeforeanybodywill takeyou seriously? A. No questionaboutit. That'sthe onerule that I would tell anybody gettinginto thebusiness. You'll seethatanyof thesuccessful companies in the industryright now aredefinitelymorethanoneproduct. Q. How do you createa buzzon the streetaboutyour productswithin your demographic? Is it thePR? A. It's actuallyour otherchannels.We've becomereally well known within the personaldevelopment channel-vi a catalogs. We work with thespeakers andtheauthors.Wework with thecreamof theindustry.So in the personaldevelopment industry-which I seeasa totally separate channelthan the softwarebusiness-we haveestablished ourselvesas the leadersof the electronicpartof thatbusiness. We haveactuallybeencontactedby speakers to put their bookson the software,andwe do customproductsfor themthattheytakeandsell in thebackof theroom.Theydon't haveenoughretailpull. We'll actu-
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product ally createa productfor themandpackageit in theSuccessWare line. But we won't put it ontotheretail shelvesor evenintroduceit into the retail channel.They sell it in the back of the room or throughtheir own channels. Q. So you mightconsiderdoingsomethingfor Amw ay? 'We deA. We actuallydo that.There'san Amway productthat we do. velop the productand put a stickeron the box that says,"Developed exclusivelyfor this market." comes of yourbusiness Q. Canyou give me an ideaof whatpercentage ? shelfproducts from off-the-retailA. I'm not sure.We'vejust begunshippinga few monthsback,sofor us, it's a majorpartof our revenue,of ourmarket.A yeardowntheroad,I'd like it to all be electronicdistribution-no moreretail.That'sthe future I'm hopingis on it's way.Wearereallybettingon electronicdistribution in the future. Q. Is thatyourkey focus?Is thatwhereyou'd like to be? A. It's not our key focus.Mainly,what we wantto do is establishourselvesastheenginefor thistypeof product.Westartat thetopby acquiring the bestbooksin the businessandmovefrom there.The goal is 60 titlesbeforeyear-erd,1996. Q. Canyou reachthat? A. Yes.We know most of the titles.It's just the issueof retail space. That'swhy we're hopingelectronicdistributionwill be a big avenuefor will pick up ourtop 10titles-but not our other us.Theretailspecialists 45 or 50. Q. Are you seeinga lot of productsalesfrom theInternetalready? A. Like I said,that'snew for us,What we're doingis just giving away freesoftwareinsteadof chargingfor it. Weagreethatwe arelooking at a coupleof yearsbeforewe beginto seeanysubstantial incomefrom it. I'd like it to be 100Vo of ourbusiness at somepoint,but we needto dealwith
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this retail channel until then. Q. In terms of Internet distribution, how will you market to that audience? A. We'lI use all of the searchengines.We'll use all of the marketing everywhere else-we've got anothermarketing company to do that. We will put the word out in our PR campaign and in our ads. We'll have incentives for the distributor, the end user and the retailer. Q. You mentioned catalogs. Do you do your own, or are you in with someoneelse on that? A. Our catalog is really just a four-color sheetright now, until we grow the number of titles. When we do, we'll put togethera little catalog, and we'll out-sourcethat. Right now sincethere'sonly 14 titles, we just send out our four-color brochure. Q. What is your largestretail channel? A. It's bookstores. Q. Do you buy shelf spacewith them? How do you work with them to promote your product? A. It depends on the retailer. We haven't been in the situation where we've had to buy shelf spaceor been forced to. We have been asked to participate in many of the different coop programs. Some of them we have accepted,and otherswe havenot. There are many different avenues for participation.For us, an end cap isn't necessarilyviable becauseit's expensive. Our products are a lower margin, and we need to move a whole lot more product. We do ads and catalogswith them. Q. What is the retail price of your SuccessWareproducts? A . $l 7 . 9 5 . Q. And you put them out for $9? A. Yes.
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Public Relationsand MarketEffects marketbut mostunpredictable, thecheapest, Publicrelationsrepresents partof important an be can reviews Software developers. ing methodfor increased mean product can marketingas well, andgoodreviewsfor a shelf spaceor bettershelf locationand increasedcustomerawareness. Conversely,bad reviews,whetherdeservedor not, canbe the downfall Competitorsoftenuse developers. of a title-+specially for lesser-known poorreviewsasanrmunitionfor convincingbuyersto choosetheirproductsoverothers. and Moreover,a goodreviewcanreally boostconsumerawareness etc. newsletters, radio, TV, productsales.Title reviewsin magazines, introduceandin manywaysvalidateaproductin the consumer'smind. Interviewsconductedwith developmenttalent also contributeto andstreetbuzz.Hollywoodhasbeenvery sucstrongproductawareness playing thesemodelsto thefullestdegree.Hollywoodlovesto cessfulat book its key theatricaltalenton David Letterman,JayLeno,andSaturdayNight Live, aswell asdoingthemorningAlvl-networkprogramtalk showcircuit. Interactivepublishersmight find a receptiveaudienceon high tech showssuchas Next Step(shownon The DiscoveryChannel),Beyond GamingNews,andHomePC Magazine 2000,PC Magazine,Interactive also a numberof AI\dradio talk showsdisThere are andon Websites. whichareopento guestswhoseconcussingtechnologyandcomputers, of thattechnologyandlevelof computersophisticatenttakesadvantage tion.
PublicRelationsin the ProductChannel National buyers (distributors, product reps, retail buyers and affiliate label reps from major publishers), faced with a looming wall of new software choices, will often make purchasingdecisionsbased solely on reviews, or go with publishersthey know. Often bad reviews are given to a good product when the reviewer's preferencesdo not coincide with the
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product's qualities. This can be particularly true for entertainmentsoftware that crossesover the PC/consoleboundary. PC games tend to be more complex but less action-oriented than console games.The difference can causereviewers who typically stick to one of the two platfonns to dislike productscreatedfor or ported from the other. PC reviewers often say arcade-stylegameshave no depth and console reviewers usually feel that PC games are too complicated. The difficulty is compoundedby the fact that reviewers usually only spenda few minutes with the products they are reviewing. PR relates directly to national buyers as well. However, due to the immaturity of the interactive channel,it is increasingly difficult to pitch for that shelf spacebecausea buyer isn't necessarilythe buyer responsible for a particular piece of retail real estate.For example,in the caseof a home improvement title, it would probably end up in the interactive title section of a bookstore and not in the home improvement area.This is typical of many of the retail channels nowadays. Even if our home improvement title is written up tn Homes & Gardens, which national buyers would be aware of, those buyers aren't necessarilychargedwith acquiring interactive product.
Q&A Gary Hare, President & CEO Fathom Pictures Q. what aboutPR in termsof sneakpeeksandreviews? A. PR is really important.Probablypressreleases andall of thatkind of sfuff work reasonablywell to get the word out abouta title. It getsyou somereviewsand that sort of thing. You haveto be carefulaboutthe
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reviews.We've beenon both sidesof this.We've gottenfar worsereviews thanwe deserveandwe've gottenfar betterreviewsthanwe deserve.The differencebetweenthetwo is technicalphilosophyof the reviewerasmuchasanything. We got a revieweroncethatjust absolutelyhatedoneof our titlessaidit wasoneof theworstthingshehadeverseen.Thenat thevery end of the review,he saidthathe hadto admitthathejust reallydoesn'tlike photo-realstuff. Someof the otherreviewerswerefar more subjective aboutit, andtheybasicallygaveus sortof "B+" reviews.He gaveus a flat-ou,*pr'-said it just didn't work for him, of thegrowthin theindustryandthetremenYou alsohave,because reviewingtitles andthe tremendousnumber dousnumberof magazines of titlesbeingmade,theaveragetimethata reviewerspendswith a product is probablya few minutes. If you do anythingthat is very difficult to get into, then they just don't getinto it. Theygiveyoubadreviews.If youdo Dootn,andyou get andthesecondguy a few seconds to shootthefirst guy in eightseconds gameto play."Thenif you do is an action This go, you "Bingol later, of somethingwherethereis a wholebunch setupinvolvedandit's really a tmeinteractivething,you'll find thatthereviewswill bestronglyslanted oneway or theother.Thereasonis thatreviewersdon't spendthatmuch time with them. Q. Doesan extremelygoodreviewfor a mediocretitle hurt You,too? A. Thereare sometitles that fall into the "MercedesBenz" category.If you buy a Mercedes,you don't tell your neighborthat you hateit becauseyou look bad.Thereare sometitles that fall into that categoryandthenyou don't tell peoplethatyou didn't carefor it very muchbecauseeveryoneelseboughtit, and it got greatreviews.You feel like maybeyou aretheproblem.Therearea coupleof titlesthathavegotten extraordinarypressandthat everybodybought,andI can't find anyone that spentmorethan t5 minuteswith it. Therewill alwaysbe stuff that falls into thatcategory.I don't know if it hurtsanybodyall thatmuch,to be honestwith you.
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I think what hurts you is if you get a really bad review on a title that you release in lst quarter or 2nd quarter. Then you are in big trouble becauseit affects the Christmas buyer. What really happens with bad reviews is that your competitor's sales-forceXeroxes them and takes them to the buyers.And the buyers don't have a chanceto review everything, so they don't want to pick up something that someoneelse said was bad. That's the real impact. 3rd quarter and 4th quarter, depending on your publisher, thesethings get onto the shelvesanyway. Q. Is it harder being a small company trying to get good reviews? A. There are a lot of people that think there is a correlation between ad spaceand quality of reviews in someof the magazines.I would not argue with that casewith a number of certain magazines.So a company is not buying as much spaceand may find it difticult to get much attention.We have big publishers,and they get a lot of attention. Q. Can you talk about promotions? A. There are a lot of titles that can benefit from sponsorshipand/or specialty distribution. Let's say that we can do a really cool truck racing Jim using a specific truck. We would go to the manufacturerof that truck and say, "Let's use your truck, and when people come in and do a test drive they get a free sampleproduct." The numbersare large enoughfor something like that, and it benefits the manufacturer becausethey need that kind of promotion anyway. It benefits us as well. We get a lot of stuff we would not normally have accessto. The installed base of PC is getting high enough that some of the major consumer product companies areseeingit as a premium item that can help them with what they're trying to do marketing-wise. Let's say we did somethingthat's really great that sells for $40, and you can getit for $5 if you also buy a case of oil. We're pretty active right now in that area.A large enough percentageof the customer base of some of thesecompanies have PCs.
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TradeShows Industrytradeshowscanbeanimportantpartof a product'slaunchcycle. aroundshows Many publishersschedulelaunchesand announcements bangfor maximum the obtain to in order CES and E3 like COMDEX, associated press coverage the their marketingdollarsand capitahzeon with thoseshows.Meetingswith the pressprovidethe PR platform to initiatean industrybuzzarounda new product.Thesemeetingsoffer an excellentpublic relationsvehiclefor upcomingproductby putting the pressandthe publisherin the sameroom. to find thelatestproducts(i.e."hits") to combconventions Resellers enhancemarketposition.Many resellersmakeinventorypurchasingdeto meetsuppliersat it's convenient because cisionsat theseconventions onelocation,andalsoit givesthemthe opportunityto comparisonshop with hundredsof softwarevendorsattendingthe sametradeshow. at maThe drawbackto launchingtitles andmakingannouncements Major get the shuffle. lost in players to tend jor industryeventsis smaller developersoftengain the mostmediaattentioo,andthey spenda lot of marketingand PR dollars to do just that. The largestbenefit of trade in onelocashowssuchasCOMDEXandE3 is thegatheringof resellers tion. David Crane,Presidentof FlagTowerMultimedia,Inc. says,"Aga focus gressivepresscoverage,excitingchannelmarketingstrategies, distributors your customers, what to listening products, and quality on aryfacetsof a well thought-outdisandretailershaveto say" arenecess tributionstrategy.Cranebelievesthattheclassicapproachto distribution and marketingincludesa salesforce,directto customers(via the Web not to mentionworkingwith resellersandpartandcatalogs)programso nershipswith nationaldistributors. The problem,saysCranenis as simpleandcomplicatedas "getting distributorsto noticethe product."FlagTower'sapproachwastwofold: 1) Thecompanyfirst took its productsto E3; and2)It createda promo-
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tional buzz when it drove afully-functional tank into exhibition spaces to get people talking about its WWII-based product line. The fact is that the strategy worked, and the company's products have locked up key distribution accountsnationally. It's a similar strategyused by id Software in an electronic environment, when the company releasedpart of the Doom development code over the Web. It allowed users to create their own dungeonsand situations. The key messagehere is getting attention of the target market by creating a word-of-mouth btrzz.
Q&A Kelly Gonway, VP of Marketing Multicom Publishing marketing andPRastoolsfor makingthepublic Q. Canyoucompare aware of and attractedto your products? A. I think one thing that we're trying to understandand that we're testing is the value of advertising softwareproductsin the massmarket publi cation that the multimedia content has been taken from. The rp..ific example is running an ad for Better Homes & Garden.sproduct inthe magazine of the samename.We feel like it is the time to do that. We are testing it to see which types of ads are most effective. What we are trying to figure out is if it is time to advertise in mass market publications, as opposedto computer-orientedpublications.We think it is probably the right thing to do to tell the Better Homes & Gardens readerthat Better Homes & Gardens recipes are now available in software form in the magazinethat they are so comfortable with. Q. What about PR in those same magazines?
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A. Reviews are very important. Still though, I think we're realistic about what reviews meanin terms of overall marketingmix, and we don't count on reviews alone to drive awarenessand acceptanceof the product. It takes coop and retail marketing, and it takes some consumermarketing. We put reviews, in terms of the launch of the product and timing of that, about third on the list becausewe are kind of honestabout being able to get finished, reviewable copies to publications happensabout the time that product ships to retail. We do consumerand retail advertising right at the launch of a product and then assumethat reviews will start to hit in the second,third or forth month after release.That is kind of the tail-end of the launch plan in terms of timing. Q. V/hat is your basephilosophy for marketing a title? A. We use trade shows to announceproducts.We use whatever "sneakpeek" opportunitieswe can create.Then, at release,we like to have retail promotion and retail advertising in place, as well as some selectedconsumer advertising. We then follow that up with the next piece of PR which is to get reviews out of the dailys and the syndicated writers for the dailys. Last comesreviews in the monthly's. Q. What are your best channelsfor marketing product right now? A. Still the core software channel. Q. Then the book channel after that? A. Yes. But still the majority of businesscomes from the software and computer superstores. Q. Vfhat arrangementsdo you have with your distributors and retailers? A. We have our own direct salesstaff that work directly with the retailers, setsup the products with the retailers. Then we sell the products to the retailers through the traditional wholesale distributors. Depending on the product, we'll put a focus on it in terms of coop support or put a special buy-in incentive on the product. Those ure two of the variables that we look at in terms of creating some additional interest in the title.
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Promotions Promotionscanbe an importantmeansof gettingthe word out abouta new or existingproductand often give customersthe feeling of maximizing value from their purchase.Promotionscan encompasssimple purchaserebatesor complexbundlingagreements with relatedgoods rangingfrom mousepadsto golf balls,dependingon thetargetaudience of thetitle. For preexistingcontent,cross-promotion with otherproductsfrom that franchisecan provequite successfuland therebyattractfans who might otherwisenot haveboughta relatedsoftwareproduct.Unfortunately,promotionsaregenerallyquiteexpensive,leavingsmallerdeveloperswith little opportunityto employthis valuablemarketingtool. Sometimes, lesswell-knowncompanies cansuccessfully teamwith otherwell-knownpartnersfor cross-promotion opportunities. Promotions havealwaysbeenimportantand will becomeevenmore importantas distributionroutesexpandevenfurtherbeyondthe softwarechannel.
Q&A Brian Farrell,President T.llo Q. How muchof your own marketingdo you do? A. Partof theEA dealthatmakesit sowonderfulis thatwhenwe launch our MaddenGameBoyor GameGear- theyarelaunchingtheir I6-and 32'bit titles- we just piggyback.We arenot bashfulor ashamedabout that.That'sjust partof thedealandpartof thegreatthingaboutworking with EA, thatwe don't haveto spendour own marketingdollars.We pay
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them a royalty. In our mind that's not part of the deal- it's to be able to piggyback on their project. But for our own projects like Mask and BassMastersand some others, we try to figure out who the target market is and then hit that market as cheaply as possible.We will do a fair amount in the gamepublications becausegamersare reading those.A great exampleof the kinds of things we do is a promotion with Nabisco this last year that included two of our produ cts (Mask was one of them). Nabisco put it on somethinglike 30 million snackcrackerand cookie boxes and then put the promotion on TV. We had the equivalent of 10'L2 secondsof exposurefor our game in their promotion. It cost us only the $5 rebate on some minuscule amount of games. Some people call it guerrilla marketing, but I think it is an excellent exampleof effectivecross-promotionwith anothertype of company.It didn't cost us a lot, and we got a tremendousamountof impressions.We have a terrific marketing departmentthat has a small budget. Q. Is advertising, or PR, more important for T*HQ as a marketing tool? A. We are very heavily weighted towards publicity and PR. Let's get coveragein the form of publicity, and let's do promotionslike the Nabisco deal. We did one with Howard Johnsonand Sega.We have a lot of things coming up with our Olympic slices coming up this year-the Summer Olympics. BassMastsTs-ute did somethingwith them. Promotions and publicity can buy you a lot more impressionsthan sometimeseven the best advertising. Q. Some PC developershave said reviews are less and less important to them. How do you look at reviews? A. Video game magazinesdo help. That brings up what I consider a global issue,and that is gamemagazinesare more gearedto the hard-coreor more active gamer.And people in this industry seemto forget that what really made this industry re-happenin Nintendo 8-bit was Mario-becauseanyonecould play it, and it appealedto everybody.It appealedto a
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gamer,a 5- year-oldkid or a 4}-year-oldadult. My point is that if you just concentrate on the video gamemagazines,you canmissa lot of yourmarket.Like whenwe hadBassMasters, we hit thegamepublications, but we alsodid thebassfishingthings,?od we did thebasspro shops.There'sjust otherthingsyou haveto do, particularlyon thingslike Pocahontas for GameBoy.We're not goingto put thatin gamemagazines. Hard-coregamersarenot Pocahontaspeople.We areprobablygoing to tagwith Disneya lot,butwe'll try to getsomecoverage in women's magazines. It's a gift purchase.It's not a traditionalvideogamebuyer, we don't think. I'd like to add that the importanceof publicity for us now is that buyersandretailersdon't play thegamesthemselves, sothey'redependenton previewsandreviews.Oneproblemwe'refacingis gettingproduct to thesereviewersbeforethetitle hitstheretailshelves. Theleadtime forPC andCD-ROMgitmesis a month,whereas forcartsit's threemonths. Wearehavingto reassess how we do publicity,how we getpreviewsand reviewsout to our editors.Retailersreally seemto dependon thesereviewsmoreandmore.As thegamesbecomemorecomplex,theydo rely on reviews.We havea gamethat got terrific reviewsacrossthe board, but onereviewerjust slammedit. It wasmoreof an arcade-style game, anda morePC type of publicationpickedit up andjust didn't like it. It canreally hurt you.You can't gethungup on that. Q. What is theaveragewholesaleprice? A. Roughly,our coston GameBoycarts(it dependson the price of the cartwe purchase fromNintendo)is somewhere between$10and$1t.50, andwe sellit at between$19and$22,andit endsup retailingat $29 to ' $35. Q. Sothecostof thecartis a majorthingfor you guys?Whatabout3DO andothers? A. Huge.When3DO first cameout,theirdealwasasfollows:You pay for your own costof goods.The costof a CD, includingjewel case,is
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around$3. Initially, 3DO wanteda royalty of $3.Thentheyuppedit to another$3 to $4 marketingcontributionaboutsixteenmonthsago.You cancall it whateveryou want,but it endsup at aroundan $8 to $9 cost, evenfor a 3DO item. Therealkiller is 16-bit.Ourcoston a 16megabit16-bitcartis around $23 to $25 dollars,which is ridiculous.Thatmeanswe haveto sell it at $40something,andit endsup retailingat $64to $69.We arehopingthat NintendoandSegawill realizethat 16-bithasa life asa matureproduct at a lower pricepoint andlower their priceson it-but I'm not holding my breathon that. Q. What aboutpromotionswith retailers? A. That'ssomethingthat'sverydifficult andexpensiveto do.In a perfect world, I would like to do more.And we keeplookingat it, but it is very difficult to execute,unlessyou havea mega-hitproperty.I've seenit with Nintendo'sDonkeyKongCountryandEAsMaddonesuccessfully denFootball.I would like to do moreof that,andif we everhavewhat we think is a mega-hit,we will try like hell to do it. Q. Canyou ride alongon a partner'spromotion? A. Absolutely.We aredoingthatwith Madden.Weareon a displaywith prodEA s otherversionsof theproduct.To do thaton evena successful uct like our BassMaster-youjust can'tdo it at a costthatmakessense.
Advertising Advertising messagesare all about creating a corporateidentification in the mind of potential consumers.It can be very expensive,particularly if a TV campaign is designed.Advertising budgets are running anywhere from 3-5x developmentbudgetsin today's market. It requiresdeeppockets, or publishing partnerswith ready accessto cash,all understandingof the channel and a large product baseover which to amortize that investment.
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In developinganadvertisingprogram,developers andpublishersmust alwaysstartby identifyingthe targetmarketandbuyermotives.Ther, theycanproceedto makethe five majordecisionsin developingan advertisingprogram: What arethe advertisingobjectives? How muchcanbe spent? I
Whatmessage shouldbe sent?
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Whatmediashouldbeused? How shouldresultsbe evaluated?
For anycompany,however,collateral(brochures, productspecsheets) print is a goodplaceto start.Productpackagingis oneof the bestforms of advertising, assuming a developer cangetit on storeshelves,andit is a goodreasonfor theindustryto standardizethesizeandshapeof boxed mediaassets. The mediaplannerhasto know the capacityof the major typesof mediato deliverreach,frequencyandimpact.The majormediacategories,in orderof theiradvertising volume:l) Newspaper s;2) Television; 3) Directmai\ 0 Radio;5) Magazines; and6) outdoorbillboards.Given the mediacharacteristics, the plannermustdecidehow to allocatethe budgetto themajormediatypes.For example,launchinga new interactive title, a publishermay decideto allocate$2 million to Saturdaynerwork television,$1 million to gameenthusiastmagazines and$500,000 to coopadvertisingwith retailers. If a Web site is thrownup, it makessenseto pull in existingwork (key messa$es, themes,visualsandcopy)from otheradvertisingmedia. Web sitesare an attractiveadvertisingmediumbecausethey are not a time-based expense. Theycanarchivecomprehensive content,andusers cancontroltheexperience. On the otherhand,Wbbsitesarea lot of work andexpense. And if customersaren'tout there,theymakelittle sense.Thatrequiresdevelopersto be suretheir potentialcustomers havemodems.
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GASE STUW Advertisingand PromotionalMix The Acclaim Entertainment Model The proliferation of multimedia PCs in the marketplace may be beginning to change the way software is advertised because a larger, more eclectic crowd of users is begining to purchasetitles. For some companies, particularly those with larger audiences,advertising in non-corlputer magazinesand other forms of media is becoming a viable marketing option. The console game market was perhapsthe first to pick up on this possibility a few years ago. They began to advertise computer games during peak child viewing hours. Today, for example, a developer of a how-to seriesof software titles would likely find a measurableaudience for its product in a mainstream magazinesuch as Popular Mechanics, or during a television show such as WGBH's This OId House, or even at office supply storesthat parentsfrequent. This trend will grow, as powerful computersbecomemore prevalent in homes acrossthe country. Developing an advertising budget, however, is part scienceand part instinct. Acclaim Entertainmentis well-known in the businessfor launching titles across multiple game platforms, including day and date with motion pictures(witnessBatmanForever),and spendingas much as $10 million per title to get the streetbazz going. Acclaim has never been bashful about glittery marketing extravaganzas,and 1996will be no exception.The company is unleashing a$2 million marketing campaign to support its D title, which will be released for the PlayStation, Saturn and PC CD-ROM in March, 1996. "Your marketing options chanBe alot when you can releasethe same game title on more than one format," saysAcclaim's VP of Marketing,
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SamGoldberg.Goldbergsaysthe majority of thosemarketingdollars will targetat leastfive computergamingmagazines anda hostof video gameandhorrorgenrepublications. Acclaimis planningto polybagmorethan750,000demoversionsof theCD-ROMwith thecomputermagazinethrust. Thecompanywill also directabout150,000demodiscsto selectedconsumers, andthousands morewill be madeavailableto videogameretailersto sell at anominal cost. But that'snot all. Acclaimfundeda national,in-storesweepstakes, which was promoted via the company's web site (http:lI www.acclaimnation.com). POPmaterialswill roundout the marketing blitz,Acclaimalsoboughtmorethan10,000theatricalsizeposters,8,000 bannersand4,000sweepstakes displays. Acclaim'smarketingthrustis built onbuildingawareness with a key demographic:youngadultsof collegeage.Acclaim is alsomountinga "grassroots" nationalradiopromotionthat will run in 50 to 60 college markets.Televisionis not part of the advertisingmix, accordingto Goldberg,because it's notthemosteconomical vehicleto delivera good ad impression.
ProductPricingDecisions Today'spricingstructurefor multimediasoftwareseemsto fall into three distinctcategories: Premiltrlt,Standardand"BttdgetWare." Premiumtitles includemultimediaextravaganzas like Cyan'sMystandOrigin Systems' WingCommanderlV.Softwarewithin thisrangeis typicallypricedfrom $45 to $65 per unit at retail.Some"new release"titles within this categoryespeciallythosewhichincludea numberof CDs,cango ashighas $75perunit. TheBudgetWare categoryincludespackages from bundlesof lowerquality titles, combinedon oneCD for onelow price point to a single, smaller,no-frills productivityor gametitle. Theacknowledged leaderin this categoryis SoftKeyInternational.BudgetWareis typically priced from $5 to $25perunit.
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The Standardcategoryhousesanything in between-from last year's title, to a title that didn't quite make Billboard's top ten list. Products within this category range from $25 to $45 per unit on the retail shelf. Pricing over the next couple of years,provided there is an expansion of the market, will probably begin to find equilibrium between $20 to $35 per title. One model to consideris the video cassettebusiness.Ten years ogo, video sell-through tapes were priced at $99 per tape. Today, that figure is between$14 to $25 per tape.Many categoriesof tapes(box office duds) can be purchasedout of specialty video isle bins for about $4 per tape. Eventually, there will probably be three levels of pricing: 1) Rental; 2) Sell-through; and 3) Remainder/OEM bundling. Rental outlets will pay a premium to rent the title for multiple "turns." This price will likely resemblecurrent premium sell-throughpricing. Sell-throughpricing will likely follow the evolution of video cassettesand books, &s tonnage shippedescalates.OElWremainderingwill basically be inventory clearancefor unsuccessfultitles. Developerscan generally expect to sell their products into the channel at 50Voto 65Voof the suggestedretail price. That margin dependsconsiderablyon the type of product, the distribution agreement, royalties and overall brand strength.
TITLE MULTIMEDIA PRO'FORMA COMPONENT COSTS-PER $39.95RetailPrice $12.00RetailerMark-up $7.00DistributionCosts Costs(talent,etc.) $5.50Development $3.50 Manufacturing/Packaging o $1.00Disc/Jewel Case o $1.50ProductBox " $0.75Manuel o $0.25Other $0.50PackageDesign $4.00Marketing $6.00Distribution $3.50TechnicalSupport Source: Compiled from public information
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Q&A Gary Hare, President & CEO Fathom Pictures Q. Canyou give me an ideaof OEM prices? A. This year,in the last coupleof quarters,we were approached by a companythat wantedto distribute500,000units of oneof our products for free.I askedhim why I woulddo that-what's in it for me?He said, "Exposure."I said,"Well, if you distributed20 million of themfor free, thenI'd havetheentiremarket."Therearea lot of peoplenow thathave saidthat-"We'll put your title or a pieceof your title in a bundle,but we're not goingto payyou anythingfor it." Then I haveseendealsrangingfrom 50 centsper unit to a high of $4.00.Wehavedonedealsin thepastashigh as$12 perunit andaslow as$7.00.Thisyear,I think,will befar lessattractiveon theOEM side.A coupleof dollarsis morecommon.Thereis a newcomputercomingout, andthey aretrying to do 30 titlesin theirbundle.And if theypay $1 per unit, theyhave$30 for theircosts.A lot of the softwareis garb?ge,but theproblemis thenewcomputerbuyerhas30 newtitlesto wadethrough beforethey haveany interestin buying anotherone.That's one of the reasonswhy therateis sobad. Q. Do you seeOEM asa positiveforceat all in buildingnew customer loyalty or brand-name recognitionfor your products? A. Well, it's exposure. We wereapproached by a companyfor our new NickPricegolf title sayingwe wantto putnineholeson it andtheincentive wouldbethatpeoplewill go outandbuytheothernine.I don'tknow whetherthat'strueor not.I just thinkthatit's sooverwhelming whenyou buy a new PC andyou get a stackof software. Youdon't knowmuchaboutwhotheyilre,howmanykidstheyhave,
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how old they are-you just give them a bunch of stuff. At one time, Apple was lookin g atit and wanted to kill bundling becausepeople were so dissatisfied with the stuff in the bundle that it made them dissatisfied with the technology as a whole. If you went and bought a CD audio player and they gave you 35 CDs, we wouldn't seepeople buying eight CDs that year-that's a pretty high tie rate. We wouldn't see that anymore if you got all of that stuff for free. I wish bundling would go away. Q. Do you seeit as somethingyou have to do? A. Dependson the deal. It also dependson your publisher. Q. What about older titles that you are not selling many of through retail? Would you throw those into a bundle-would they make people more or less likely to buy your culrent titles? A. It dependson how good the old title is. Some of them are very very good. If you have a good older title, it doesn't hurt you in the slightestto bundle it. But most of the bundlesno% they want stuff that peoplehaven't heard of. They even want an exclusive or six month windows or that kind of thing.
Packaging Packagingis an important part of presentingan interactive software product to consumers.Software packagingrangesfrom shrink-wrappedCDs at almost no cost to the manufacturer,to oddly-shapeddie-cut boxes covered with splashyartwork. Costs for packagingcan range from a low of around 25 centsfor the simplest, no-frills boxes, to $4 and up for fancy or specialty packaging. Some software retailers,however,have found it ditricult to integrate nonstandardshapedboxes into their shelf displays. So, although an uneven packagewill likely capture the consumer's eye, good shelf placement might be sacrificedto accommodatethe convenienceof the retailer. The industry hasnot come up with a standardizedproduct packaging format. This has limited the opporhrnity for interactive titles to be re-
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leasedthroughnontraditional (i.e.videospecialists, channels bookstores, massmerchants,etc.).A standardized interactivepackagewill help to providemoreshelfspaceavailabilityin thefuture. "A lot of companiesaregettinga shrink-wrapped product-not includingthebox-for under$1,"claimsGaryHare,President & CEOof FathomPictures."That'swhy it's so interestingto the musicindustry andthemovieindustryandeveryoneelse.Theactualcostfor a discthese days,in anyvolume,is under60 cents,pressed." Manualsarealsoimportantfor ensuringconsumersatisfactionwith a productaftertheyget it home--€speciallyfor complexproducts.This documentation canbe an extremelyexpensivecomponentof the manufacturingprocess,rangingfrom 50 centsfor a simplebookletto asmuch as $2 or $3 for moreexpensiveliterature.To alleviatesomeof that expense,manydevelopers areputtingmuchof thedocumentation on disk, either as Windowshelp files or in anotherformat, like Adobe'sPDF documentformat. "Mostpeopleareputtingthemanualson discnow,"addsGaryHare. "That'strue,the manualcanbe expensive. The box can be anywhere. You seedie-cutboxesand weird shapes.The box can cost anywhere from 25 centsto $3 to $4 dollars,dependingon how razzle-dazzle you wantto get."
DirectMailor SimplyDirect? Keepingcuffent and pastcustomersinformedof productupdatesand newtitlesis themajoruseof directmail.Themediumis quiteexpensive on an ROI basis,andusuallyonly largerdeveloperscanaffordto actually mail productliteratureoutsideof theirown customerbaseasa marketing tool. Direct mail itemscanrangein sizeandcostfrom a simple postcardflyer to full-colorproductcatalogs. Direct mail campaignshavebeenrelativelysuccessfulin general, however,and for MAc-basedtitles in particular.Accordingto Apple Computer,asmanyas50Voof MAC ownersbuy softwareandhardware
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throughthemail. Similarto videoandaudio,mail orderis a popularway for multimediaPC ownersto orderpackagedmedia.Thetrick is to have accessto (andbe ableto afford)a hugemailing list with qualifiedend usersthatmatchtheaddresses. Developerscanpurchasemailing lists from CD-ROM manufacturerswho collectnamesfrom registrationcards,aswell asregistrantsfor high-endvideocards,peripheralsandothercomputerhardware. Sellingdirectlyvia variousmedia,however,is not limitedto mailor print, for that matter.Therearebook fairs at schools,the online services and the WWW not to mentionthe productupdatecircularsthat follow existingusersof products.
Q&A llason Woodbury, VP of Marketing Broderbund Software Q. When you advertise, what channels do you use--direct mailing to current customersand that sort of thing? A. Most of the direct mailing is for upgradesonly. We don't really do a direct mailing for a general announcement.The little bit of advertising we do has been a wide variety-a lot in the home computer magazines. But we've also done a lot in the parenting magazines.We're on American Airlines right now with Print Shop on the in-flight movie trailer. We sort of dabble around.The gaming productsare advertisedin the gaming magazines. Q. Do you get more exposurefrom taking out ads or from the PR side of things?
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A. We take out ads, but there is far more exposurefrom the PR side of things. If you add it all up, it's probably a factor of 100 to 1. Q. what about schools?How do you market to schools? A. We have a whole division that's devoted to the school market. We have what we call "certified partnersin educatisn"-about 100 dealers that we sort of certify as significant players, and they have to go through an authorization process.We have school editions where the content is done with a teacherguide and material to help the teacheruse it aspart of the course. It's really a different packagedproduct, and we have site licensesand network versions.If your schooldistrict hasfive schoolswith 2,000 computers,you can come in and get a district site licensefor KidPix. Q. In terms of marketing to schools,how do you get it out to the teachers that, "Hey, there's this product ...?" A. They go to a lot of specialty trade shows.That's the purposeof these dealers-they all havespecialrelationshipswith the schooldistricts.We're really dependingon thesedealersto be sort of the beat on the street. Q. Does it work anything at all like the textbook industry? A. No. These are true dealers.They either buy the product from us outright, or, in the caseof when they sell a site license,we pay them a commission. But they're not reps, as such.The net result ii probably about the same,but theseare literally 100 different businesses,and they range from fairly large businesses,like EducationalResources,down to a roup1, of people working out of their basement. Q. And they all have a stakein actually selling the product becausethey get a commissionor somethingelse? A. Inventory. Q. What about electronic marketing-through the World Wide Web or AOL? Do you do very much of that? A. Yes. We're on AOL, CompuServe.We have a Web site. We're on Microsoft Network.
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Q. Canyou buy productthroughtheWebsite? A. Not on theWebsiteyet, but you canon AOL andCompuSerye. Q. On MSN? A. No. Not yet. Do you produceyour own catalogs,or do you Q. What aboutcatalogs? go in with others? A. Both. We haveour own little catalog,but it's really beenlittle more callsup andsays,"Sendme a thana customerservicetool.If somebody catalog,"we can'tverywell saywe don't haveone.But it's not anything we activelymdil. Q. Do you get onein a box if you buy a Broderbundproduct? A. We don't evenput it in the box. It's reallyjust to havefor when a customercalls up and sayssendme a catalog.We arelooking into an electronicversionof thecatalogthatwe canput on thedisk.Like I said, it hasn'tbeenviewedas an activemarketingtool-more of a customer servicetool, Q. What aboutselling-cycles-for both the K-12 marketand the consumermarket?Canyou talk aboutthat a little bit? A. The schoolmarketis obviouslypretty deadfor the summerand in Novemberand December.Thereis a hugeblip when you get around in a lot of cases,they'vehadfundingallocated April andMay because, to them,aodif theydon't spend,it goesaway.Sowhathappensis when you getto April andMuy, all of a suddentheseschooldistrictsgo, "Oh my God. I've got $5,000left in my technologybudget,and if I don't spendit by Junelst, it goesbackto the district."We geta hugenumber saying,"You'vegotto shipit by theendof theweek.If it's of customers not hereby ther, I can'tpayfor it." Thereareotherperiodswhenyou wouldexpecttheschoolmarketto be slow becausethey aren'tthere.It's prettyeven.You get a blip in the fall whentheycomeback,but thebig rushis thatApriUMaytime frame.
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The consumer market is basically that December and January are the peaks,but even the slow months,when we've done the overlays,it's not a huge difference.It's not as if we do 50Voof our businessin December. It spikesup, but it's not to the point where you look at it and say,"Wow! The businessis driven by Christmas." Q. Does 40Voof your revenuescome from educationaltitles, including Carmen Sandiego? A. That soundsa little high. It's probably closer to 30Vo. Q. What percentageof that comes out of the school market? A. We've never figured that out. I can tell you that the school market is probably around 13Voof our total volume. But we've never figured that number out. Let me qualify that. When we say that's our schoolbusiness, those are products that we know have been sold into the schools.But there's nothing that prevents a teacherfrom walking into Egghead and buying Carmen andusing it in the classroom.We don't know what percentageof the productsultimately end up in schools.All we know is the percentthat we sell into the schools.ft's probablyhigher.I sensethat in a lot of theseschools,the teacherseither pay for it out of their own pocket, or it's petty cash or car wash fund-it's not going through the purchase order process. Q. How do you work with retailersto distribute?Do you buy shelf space? How does the arrangementwork? A. It's kind of complicated. They are all a little different. I don't know that we buy shelf space in the sensethat you would associatewith a grocery store or somethinglike that. We buy "end caps" for key promotions, but we don't pay a shelf stocking fee on a regular basis. For the most part, we depend on the strength of our product line to drive those relationships. Q. How are your relationshipswith the various retailers developed,and how do you pursue additional ones? A. Again, it varies. There are some retailers like an Egghead or a Soft-
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wareEtc. wherethe relationshipliterally goesbackto the beginningof time. It's just oneof thosethingsthat'salwaysbeenthere.Thoughboth companieshavechangedandmodifiedtheir plansa little bit, there'sal*uyr thatbaseline of a relationship.Thenyou havesomeoneelselike a on thescenein thelasttwo yearsandsays' WalMartthatsortof showsup 'We've probablyspenttwo yearsjust under"I want to carry software." standingwho they trro,how they do businessand how you work with them. Q. Do retailerscometo you now,morethanyou go to them? A. I wantto be carefulnot to soundarrogant.Whathappensgenerallyis whena new channeldecidestheywant to carry software,they cometo says,"Hey! This softwareindusin theirbusiness us.Becausesomeone try lookshot. Maybewe shouldput softwarein our musicstores,"they go to someonethatknowssomethingaboutthe industryand sit!, "Who shouldwe talk to?"And theygo on up thelist andsolo"Broderbundis in the top threeconsumersoftwaredevelopers,andyou can't really have any credibilityunlessyou carrytheir products." who says,"Let's In thatkind of case,we'll geta call from someone In othercases,we you business." do how about talk and havea meeting how they do see want to might identify a channelor a partnerthat we business,andwe mightcontactthem.Mostly theycall us. Q. What do you seeasthe largestuntappedchannelsfor softwaredistribution? A. Rightnow mostpeoplebuy softwarefrom retailerswho carrya large getto bemoreof a massmarketitem,whatyou're As computers selection. goingto haveis a storemightcarrytwo or threesoftwaretitlesrelatingto whatevertheir specialtyis. You might havea stationarystorecarryinga Print Shop,or GymboreecarryingLiving Booksproducts.You might havea NatureCompanytype chaincarryingCarmen.Historically,that hasn'tbeenthe case.Theyhavewantedto carrya big selectionof softyou ile going to see ware.I think asthe titles get moreniche-oriented, the channels-you'll walk into a hardwarestoreand seethe 3D Home Architecton a shelfnextto thecashregister.
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Q. Do you expectto seereferencetitlesbeingsoldalongsidebooksin a Waldenbooks? A. I think the book storewill probablycarry a wider selectionbecause it's moreentertainment. A videoor recordstoremarketis probablythe largestuntappednew distributionoutlet.'
CustomerSupport Customer support is becoming increasingly important for developersas computersbegin to fall more widely into the handsof less techno-savvy consumers.Just a few years8go, real customersupport serviceswere the stuff of legend and confined to business-onlyconsumers.Now, most established software publishers maintain well staffed and knowledgeable customer relations departments.Even smaller publishers are allocating resourcesto provide reliable customer service through out-sourcing to specialty service companies-a trend which could lead to better service and lower overhead. Even a "bug-free" product needsgood support becauseof the wide range of target hardware and software configurations presentin the marketplace. There is no guaranteethat even the most robust software will function on every PC, and prompt and accuratesupport is one sure way of building customer loyalty. This is obviously less important for the console market, where customersupportoften comesdown to offering a 56900" line for hints and tips.
Q&A llichael
Pole, Exec. producer
Broderbund Software process Q.At whatpointin thedevelopment doesmarketing reallystart gettinginvolved?
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you A. usually,we Ne involvedat thepre-alphastage.Actually,when really acquirea pieceof reallyhigh-profilecontent,marketingwould starttalkingto peopleafterthe signingof thatcontent.This wasa big thing for EA whenwe acquiredGen13becausewe haveneverbeen in the actioncategory.Nailing this onewasa big win realiy successful for us becauseotherpublishersreally wantedit. Q. How do you approachmarketinga title-in stages? A. Marketinghastheirown ideas,but I reallylike to geta tastefrom the marketat the earliestpossiblestage.When thereis othercategoriesof productbasedon the conceptyou arebuildinginteractively,it makesit easier.Welike to startsomepre-hypewith initial buildsgettingoutto the trades.Thenwe like to startcreatingsomereally cool presseventsthat in their otherformsat tradeshows,etc. will exposethe characters Q. Whataboutthe "comingsoon"box? If thebox is goingto be out there A. It reallyticksme off asa consumer. with it. If theemptybox for a weekor two weeks,I'm notuncomfortable is going to be therefor a month,it really pissesme off becauseI'm al*uyr pickingit up to seeif it's thereyet.I think thedisplaysaregoingto changldrasticallyoverthenextyeil, andI dont think there'sgoingto be asmuchof that.Hype is onething,but too muchhypeis aggravating. Q. Do you seePR aslessor moreimportantasmarketing? A. It's everybit asimportant.It is a collaborativeeffort+verybody has to do theirpart.Youcanhavea greatgamethatdoesn'tgetthemarketing themarandsalessupport.It doesn'tgetthePR.It will go awaybecause game, great got a ket is soflooded.It is wheneverythingclicks-you've greatmarketingandgreatPR-that's whenmagichappens. gamewith with Myst.It's a veryuser-friendly That'swhathappened thatwas ROM CD real first the was It hype. and marketing theright PR, in bottle. a user-friendly.That'swhat'scalledcatchinglightening Q. What distributionchannelsareyour bestchannels-nextto retail? A. Online is going to be a muchmore significantpart of our business
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very soon.We aretakinggreatstridesin that area.Theretail channelis our bestchannelbecause we do it so well. We don't shipto distribution companies. Weshipdirectto thestores.Wehaveintricatesellingdevices that let us know whenthey ffe out of inventory andwe can rnip automatically,basedon thatinformation. Wehavethesesystems thatwe've spentmillionson thatallow us to makesurethat whensoftwareis not on the shelf,we canaddressit immediately,sothere'sneveranylong-termemptinesson the shelf. Q. What aboutOEM? A. It is greatfor sometitles andnot for others.It shouldsubstantiate or helpretail sales. Q. Canyou talk a little moreaboutelectronicdistribution? A. I think thereis goingto be a hugeopportunityto buy thingsoverthe net.We'll be doingdemosandreleases overthe net,so thatpeoplecan demothe productandbuy it automatically. I think it is going to be increasinglyimportantfor usto reallyestablishourselves on ourwebpages andmakebuyingsoftwareoverthenet easy.
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productdistributionis all aboutdevelopingchannelsof productsales OEMbundlingand two-stepdistributors, distributors, throughpublishers, haveto first developers and/or Publishers numerousotherretailchannels. andforemostdetermine: I
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everyday,and Distributiondealsarebeingstruckin themarketplace deals.The those of structure in the latinrde of great degree thereis oftena (or will beleft for little) much however,is: How questionto beanswered, future development,manufacturingand marketingafter slicing out a distributor'sor affiliatelabel'sshare? The alternativeis to determineif sufficientin-houseresourcescan
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be allocatedto mount a direct salesforce campaigtr,without endangering developmentand creativeassetbuilding. ft's at tlis stagemany developers are at the greatestrisk of failure becausethey often do not want to "tum loose" the project in any way. They can become intent on going it alone, which is dangerousand expensive. Few developersand publishers,however,havethe in-houseresources to completely go it alone.In fact, one of the easiestand fastestways to fail in the multimedia businesstoday is to NOT take on any strategic partnersor form beneficial alliancesthat maximize establishedrelationships. The multimedia businesshasmaturedto the point where venturecapitalists are lessinterestedin funding developerstart-upsthat attemptto go it alone for one very key reason:Interactive publishing is now-and will continue to be-an entertainmentbusine.r,sand therefore, takes on the businessmodels of that industry.The competition is big, well financed and very well-known in the marketplace.If newcomers don't have accessto retail shelf spacethrough partnersand alliances,they will have to buy it. That requires any developerto spenda lot of capital to createproduct categoriesthat resonatewith end users-and even more to crack distribution channelsdominatedby major players,like Disney andMicrosoft, that can afford to buy up shelf space. In the Hollywood model, producersdevelop a project to the point of production and then sell the project to one of the studios to raise sufficient financing to produce the film. In the last year, the relationship between interactive developersand publishers has evolved into a similar model. Even so, both generic (national distributors) and propri etarydistribution channelsused for multimedia titles reflect the factthat the businessmodel is still immature. Channelsare developing quickly, however, as entertainmentgiants enter the market. It's anticipatedthat more store shelves will open up to publishers, but the flip side of that maturation processis the cost of informing those channelsand getting the product
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out abovethe multimediapromotionalclutter. message Maturationof the interactivebusinessis raisingmarketinganddistribution expensesfor everybody.More assetsare now requiredto inform poteniialdistributorsandbuyersaboutproduct.Increasinglayers machinesof estabof productclutter and the powerfulmerchandising lished mediacombines,from Hollywood studiosto arcadespecialists like WMS IndustriesandKonami,zlromakingretail real estatescarce. The cunentdistributionmodelborrowsliberallyfrom software,auIn fact,ffiffiY of the key disdio, videoandbookpublishingbusinesses. mediaprior to CD-ROMdiscs,now also tributorsthathandledpackaged carry a largelibrary of thosetitle, too. JoannaTame\ & highly regarded multimediadistributionconsultant,describesthe multimediadistribution contractas a "softwile model,built on a recordindustrycontract, with a bunchof bookpublishingtermsandconditions." Tamerbelieves,however,the businessis consolidatingaroundthe filmmakers,smallmultimediapubHollywoodmodel."Like independent lisherswill alwayshavea hardtime securingdistributior,"shesays.But the goodnewsis that with largestudiosandpublishersstill focusedon devJlopingin-housetalent,small publishershavean excellentshot at (work-for-hire)pactsthat signingaffitiatelabeldealsor co-development at leasta minimumlevel of distribution. will guarantee It canbe a tricky balancingactfor a newmultimediapublisher.Borrowing elementsfrom the contractsof eachindustryyields confusion, andslimmermargins.While a videodisadditionalconsultingexpenses tribution deal is standard,consistingof four or five pointsand can be of donevia fax, multimediadistributioncontractsarelengthydocuments 20 pagesor more. that havehad yearsto Comparcdto the film and video businesses developandmaturearoundproductionanddistributionrelationships,the multimediamarketremainshighly fragmentedby suppliers,categories andretail outlets. canlearna thing or two from the But interactivecontentdevelopers
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Hollywoodmodel,whichis built onthevaluechainconcept(seegraphic). Thatmodelimpliesthatthemorea franchiseis maximizeO throigh variousexploitationwindows,thebetterchancea propertyhasto reachpaybackandgeneratepositivecashflow. Thegoodnewsfor developers is therearenow morewindowsthrough which to exploit a franchise,includingonlineandweb applications,its well ascharacterlicensingvia thetoy andapparelsegmenti,forexample.
Educatingthe Channef The battle doesn't begin and end with consumers.Interactive title publishers have to educate,inform and persuadethe retail channel to take a chance on new products where those products are sold, namely, retail counters.That requires a point-of-sale marketing program, some sort of retailer (not to mention distributor) incentive and a well-staffed in-house salesforce. Those are all excellent reasonswhy developersshould seriously consider a distribution deal with an establishedpublisher that already has a concentratedpoint-of-sale marketing program; it's an expensive and time-intensive channelevolution that will rout up scaredevelopment funds. Tracking is anotherelementin distribution. That can be as simple as making sure once products are shipped,they do, in fact, end up on retail shelves.hrblishers' marketing programs need to make titles i futniliar and comfortable name with retailersas well as the generalpublic. Salespeople at retail outlets shouldbe taught and informed aboutthe company's products and told how best to pitch them to customers.
Book Ghannels Multimediatitles aredistributedprincipallyalongthe softwaremodelat the presenttime,but publishersanddeveloperstue lookingfor waysto expandthe book channel.Distributorsareplaying arole as well. Book publishersare beingencouraged by distributorsto take a differentap-
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their multimediatitles thanthey proachto marketingandmerchandising do for their books.The distributionof softwareis much more diffuse thanbookdistribution.Unlikebookpublishers,softwarepublisherscannot dependon a singledistributionchannelto selltheir productsthrough to endusers. For book retailerswary of stockinginteractivetitles, supportamong the distributorranksis taking shape.While thereis a lot of confusionin thebooksectoraboutCD-ROMproduct,theroleof a distributorin today's marketis to designopeninginventoriesat variouslevelsof buy-in that enableretailersto simply "get started."The strategyis to not load the channelup with productthat is neversold through,but to matchthe requiremenisof the storewith its customerbase.Rentalor demostations *uV play a morecentralrole in thebusinessaswell. Many industryexpertsbelievethemultimediatitle publishingdistributionmodelwiltparitt.t prior formsof packagedmedia,iilld bookpublishersshouldstudythe distributionmodelsin the software,recordand videoindustries. Consumerswill increasinglyspendtheir mediadollarsthroughone of several"gateways,"whethermadeof brick and mortar, shippedin 'isnailmail," parkedon serversanddeliveredasdigitizedbits catalogsby over a network,or inspiredby directsalespitches. Book publishersneedto build on their experiencein marketingand merchandiiingproductsin an environmentwherebooksiue not the only type of medium.Bookstores,in turn,will haveto learnnot only how to r.tt booksbetterbut also,inevitably,how to sellelectronicmedia. packagingseemsto be an overall concernfor the peripheralretail channelswhich includebook,musicandvideo.If the publisheris interthesechannels estedin thesechannels,the publishermustaccomodate "friendly" package is not product self spaceconcerns.Most interactive in theseretail environments. titles which would do There areanumberof self-help/education spacedevotedto display cuffent the however channel, book in the well
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thebookretailer'sprimaryproduct,books,doesnot accomodate current interactiveproductpackaging.Bundlinginteractiveproductwith a book or packagingthe title to look like a book might makethe book retailer moreamenable to stockthesetitles.
E STUDY Baker & Taylor Success at retailtypicallyinvolvesthechannelsupportof a distributoras well. Baker & Taylor's(B&T) Directorof Market DevelopmentMike Albanesesayswhile thereis a lot of confusionin the retail aboutCDROM product,the role of a distributorin today'smarketis to design openinginventoriesat variouslevelsof buy-into simply"get theretailer started."He notesthe "issueis not loadingthe channelup with product that is neversold through,but matchingthe requirements of the store with its customerbase."Rentalis alsoexpectedto play an ever-increasing role in thebusiness. In 1993,for example,B&T expanded its effortsto distributemultimediatitlesinto bookstores, recordstores,videostoresandmassmarket channels, includinggrocerystores.Albanesebelievesentertainment softwarehasthebestchancein theshort-tennto find distributionthroughthe videochannel,while educationalandreferencetitles area naturalfit to flow into the bookchannel.Baker& ThylorSoftwarecarriesoneof the largestselections of CD-ROM/NewMediatitlesavailableon themarket, with over 1,000cD listingsin its catalogs. In 1994,B&T announced that B&T Booksjoined with B&T Softwareto developa joint CD-ROMAIewMedia merchandising program for bookstores, andit instituteda revisedreturnprocedureto bettermanageslowmovinginventorythathadbeencloggingthechannel.Baker&
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Taylor is offering book retailersa choice of three types of merchandising The units that come pre-stockedwith CD-ROM and new media titles. rack spinner merchandising units include a l2-tltle end cap, a 21-title and a 30-title wall unit The displays have different software categories,such as literature, reference,children's education,gamesand best sellers,that can be customized by the retailer. The program attempts to eliminate some of the merchandisingguessworkthat plaguedbook retailers in the early 1980s, when they tried unsuccessfullyto stock and sell computer software applicationi. participating CD-ROM and new media software publishers include Comptonis New Media (now a unit of Softkey International), Knowledge Adventure, Sony,Time Warner Interactive and Virgin. Baker & Thylor reps maintain that the biggest net positive going forward is that "the channel is starting to get its arms around the returns issue." Everybody throughout all levels of distribution is looking at returns with an eye to putting the right level of inventory into the channel, saysAlbanese. The emphasisis not on "returns" per-saybut on distributors buying the right amount of inventory from suppliers and moving that product into the channel.Baker & Taylor Softwarerepresentativesprovide retailers with ongoing support, expertiseand information about the new media productsmost in demand,including electronicversionsof bestsellers, mysterylgarnes,referenceand children's titles. The company'sprogram is designed to put opening inventories into the hands of consumersat various levels of buy-in. As part of the program, B&T Software is producing a catalog devotedto CD-RoM/multimedia products.
DistributorCategoriesand DistributionChannels Multimedia titles are currently distributed via the classic software channel (Babbages,Software Etc. and other specialty computer software stores),OEM bundling arrangements,catalog mailings, direct consumer sales/mailings,national distributors, two-step distributors, online mer-
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chandisingor Web marketing.They are also cross-merchandised with booksandotherpulp-based material.The strengthof thecomputersoftwarechannelcannotbe overstated. Computerandsoftware-onlystoresarethetwo mostpopularvenues for multimediatitle salesto date.Retailchainssuchas-nabbages and SoftwareEtc.(whichmergedin I994in a marketshare grab),Electronics Boutiqueand EggheadSoftwareare amongthe leadersin multimedia title salesandgeneratesomeof the highestrevenueper squarefoot figures($5+oper sq.ft.) in all of retailpackaged media. By comparison, Hollywoodstudiostores(Disney,WarnerBros.,etc.) generate about$400in revenuepersq.ft., videostorescloseto $150per sq' ft. andmusic-onlystoresabout$278per sq.ft. This meansproduct movesoff of thesestoresshelvesquickly,or nervousretailersremove andreturnit themselves. At present,it is estimated80Voof all CD-ROMsoftwaresalestake placein computerspecialistandsoftware-onlyretailenvironments. Researchalsoshowsthe majorityof CD-ROM salesaremadeto so-called "informationhouseholds"thathavehada computeror othergamegear for five or moreyears.Thus,this wouldappearto be a matureaudience, in a relativesense,because theuserwho is buyingproducthasbeendoing so for years.For a publisherto reachthesetypical productusers, dealsmustbe struckwhichguarantee a certainlevel of retailpresence in the softwarechannel. Thesesoftwarespecialistsand otherretail chainsin the computer distributionchannelaresuppliedby a handfulof nationalcomputerhardwareand softwaredistributorsandby distributionsubsidiaries of some of the largerentertainment softwarepublishersthroughdirectandaffiliatedlabel programs.This meansdeveloperscan take a "rifle shot" approachto gettinga distributiondeal done.This strategyis to targeta nationaldistributoror a publisherwith a nationalsalesforce. A newtypeof storefrontthatwe haven'tyet seencouldemergeover thenextfew years,thatwouldmorecloselyresemblea videosupetstore thatalsostocksgirmes,booksandmusicbut wouldbe positionidasan informationsuperstore.
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This type of storewoutd fall into the classof video superstoretoday. 12,000 It would have well over 10,000sq. ft. of floor spaceand around content. digital of forms all titles, but it would specializeexclusively in Distributors and distribution consultantsoften must advise publish(i.e. ers that they, and not the distributor, are responsiblefor marketing creating "pull" demand)for their titles. The distributor's responsibility is to broadenchanneldistribution by building retailer awireness. To accomplish this, distributors will create reseller education and training progrzuns,promotions and buying incentives backed by Market Development Fund (MDF) capital. It is the publisher's role to create market (end user) demand for the products. This is what is referredto aspush and pull marketing.Distributors "push" product into the channels.The Publishers'responsibility is to "pull" end usersinto stores.
Publisheras Distributor Interactive publishers ire a tried and true distribution outlet for start-up and single title developers.Companieslike Acclaim Entertainment,Electronic Arts, Broderbundand Mindscapehave the revenuebaseto support national salesorganizations.Additionally, someof thesecompanies(i.e. EA and Broderbund) grew up with the interactive publishing business and have long-establishedrelationshipswith key retailers like Babbages and Software Etc. For a new developer,it makes senseto use an establishedpublisher becauseof the costs associatedwith self-publishing. The large capital expendituresin duplication and building channel awarenessare simply out of the reach of a young company.National distributors will not pick up products one at a time but prefer a line of products, and many new companies are not gearedup for that level of production. That is not a complete solution, however, becausemost executivesthink it's a good idea to keep some distribution capability in-house beyond any partnerships and allianceswith classic channels.
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The MarketDevelopmentFund(MDF) Ouestion Informitrg,measuringanddevelopingsuccessful marketingprograms aimedat distribution,retailandendusersareissuesthatall muliimedia publishers, largeandsmall,dealwith on a daily basis.Max Wurz,of new mediaconsulating firm Levy & Wurz, says,"As thebusiness matures'publishershaveto getsmarterin everyaspectof thebusiness andmeasureandjustify marketinginvestment." Accordingto publishersandanalysts, multimediacompanies are averagingabout25Voof total saleson marketingandpromotion nowadoYS, with a small(but significant-aboutZVoto 5Voof wholesale price)portionof thatgoinginto so-calledMarketDevelopment Funds (MDF). Many publishersmaintainthatMDF moneysarehardto track andaccountfor andwind up benefitingonly theretail segment. Somedevelopers go sofar asto call it highwayrobbery.hrblishers anddevelopersarequick to complainthatoftenMDF (alsoknownas coopadvertising)is not an optionin manycasesandoftensubtracted from productinvoicesasa matterof course.Theirbig fearis thatMDF is just a blackholewhich,if it benefitsanybody,it's only theretailer. A sensibleway to integrateMDF into overallpromotionalinvestmentis to look for waysin whichretailergoalsdovetailwith yours.In addition,it's absolutelyimperativeto insiston compliance with the MDF program.This involvesclearlyspecifyingthedeliverables associated with theMDF commitment,with a form for "proof of performance."Ptrblishers needto developa relationshipwith retailers andconductthesetypesof negotiations in a clearfashion.If this is done,retailerswill respectit. If thosenegotiations don't occur,thenit is the "default"relationship thattheretailerwill cometo expect. For exitmple,Ed Sturr,President of Fry's ElectronicsSuperstores (a retailercateringdirectlyto thehigh techprofessional)saysFry's does,in fact,requireMDF, endcaps,or someotherPOPmaterial guarantees beforeproductwill be displayedin the store. Sturrsays"Thereis absolutelyno way aroundit." Beyondthat,the companyrequiresabout$12,000permonthin MDF support,which
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in Fry's ongoingproductassortgoestowardnew productawareness mentadvertising.
Two-StepDistribution Two-stepdistributorsareactuallymarketingfirms that"rep" a company's productsto otherdistributors.Forexample,HawthorneMarketing"reps" multimediaproductto nationaldistribuActivision,SonyandPsygnosis typesof dealsare typically struck for Those tors like Baker & Thylor. about3Voto SVoof thewholesaledollar.While it addsanotherline in the productenrichmentchain,it doessavepublishersfrom positioningexpensivesalespersonnelin everykey area. Publishersrely on a two-stepdistributorto gettheirproductsto retail but can also strike dealsdirectly with a national(i.e. "stocking") disalsooffer guar(bundlingarrangements) tributor.Hardwiremanufacturer anteedshipmentsandsales. Distributorsplaceordersdirectly with the marketingrep firms (like Marketing,HiTechandHawthorneMarketing)andnot with Performance the publisher.Tlvo-stepdistributionhasprovento be very popularwith establishedpublishersbecausepayingconrmissionsare often cheaper andfasterthanmaintainingor creatinga full-blown salesforce.
NationalFull-ServiceDistribution National distributors have large transport, trackingn warehousing, field rep and channel promotional resources.National packagedmedia distributors have broad relationships with suppliers and retailers, and they handle stockitrg, billing, shipping, warehousing and customer seffice. They also are responsible for product returrs, and typically require a portion of wholesalerevenuebe set asideto cover those costs.There ire four major, national software and computer products distributors that a lot of multimedia product is channeledthrough, and thoseinclude: Baker & Taylor Software, Ingram Micro, Handleman Company and Merisel. These national distributors generally pay publishers 407oto 50Voof sug-
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gestedretailandsellit to retailersat 45Voto 55Voofsuggested retail. Distributorsoperateon razorthin marginsandtypicallyearn5Voto L0Voof the retail dollar,but in L996that figure is skewingtowardthe higherendbecauseof returnsandthe fact that multimediatitles simply don't sellinto thechannelat thetonnagerate(andgenerate thecommensuraterevenue)thataudiotapes,videosandbookscurrentlydo. Publishers andconsultants agreethereis no ironcladdistributiondeal giventhe volatilenatureof the business. But servicestypicallyoffered by andcontracted for nationaldistributorsinclude:warehousing, banking,carryingrisk of collection,insurance, shippitrg,handlingt.turnsand administration. Distributionof multimediatitlesalsorequiresaneffortto educatetheretailchannel(i.e.marketdevelopment funds-MDF),to assistin inventorymanagement analysisandto ensurepaymentsto suppligrs. In addition,publishersmustgive I00Voreturnprivilegesto the distributorbecause thedistributorgivesit to theretailer.Retailerssendproduct backthatsitson storeshelvesanywherefrom 60-150days,Theaveragereturnratefor multimediatitlesis 1ZVo to 1SVobut canrun ashigh as 30Voor more.
AffiliateLabelDistribution Affiliate label distribution is a deal struck betweena small developerand a full-service publisher to introducp product into the packaged media channel.The difference betweenthis agreementand a publishing deal is the title developer pays for duplication, marketing and tech support of the title. Affiliate label programs are an attractive,but double-edgedsword for small publisherswho don't havethe resourcesand marketingmuscle to sell products directly into the channel.Affiliate label relationships are a long-standing fixture in the entertainmentsoftware publishing business,but those deals add anotherlink in the product enrichmentchain, and therefore, can siphon off a significant portion of profits (up to 30Vo
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of the wholesale sell-in price). Nevertheless,many multimedia titles are ,distributed through affiliate label programs, and both sides report the relationship can be profitable. The main affiliate label publishers areElectronic Arts, Acclaim Entertainment, Broderbund Softwilre, Softkey International, Davidson & AssociatesandActivision, amongothers.The Hollywood studiosarenow significant players in the businessas well, and they have aggressively signed affiliate label distribution deals over the past several years as a meansto supplementin-house developmenttalent, while keeping fixed costs (overhead)low. Affiliate label publishing programs are set up to sell to the national distributors or directly into the retail channel, in the case of EA and Broderbund. hrblishers that startedaffiliate label distribution programs back in the 1980s,suchasBroderbundandElectronic Arts, have longestablished relationships with retailers, offering a natural distribution advantage. Direct relationshipscut out the middleman distributor and add a few more precious profit points to the affiliate publisher's bottom line becauseit implies a correspondingincreasein wholesalerevenue flowing back to the publisher.Affiliate label publisherspay their affiliates 45 Voto 55Voof retail and sell to national distributors at 48Voto 577oof retail or to resellersat 50Voto 52Voof the retail price.
OEMBundling OEM distribution is selling product en masseto a packagerwho bundles the title with other titles, a book, hardware,etc. The title is usually sold into the channel at severely discountedrates, but it is a proven way to establishbrand equity in the marketplacefor an unknown developer.It's also a good way to unload slow-moving product and to sell bestselling agedproduct (i.e. Tetris). Bundling agreementsare likely to remain part of the marketing and distribution mix. Hardwile manufacturersire getting very selectiveabout
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whatproductthey align with becausetheyhavebeenburnedin thepast by titles that eitherdidn't play,or lackedany real technicalsupport.In addition,Publishersarebeginningto seetheemergence of newaftermarket windowsthat may eventuallybenefitthe bottomline far morethan bundlitrB,suchas the Web and via arrangements with online content aggregators like AOL. Additionally,OEM bundlinghaslost someof its lusterin thedeveloper community.Ken Goldstein,ExecutivePublisherfor Broderbund Softw&re,saystherearesimplytoo many"junky" titles out theretaking up valuabledistributionspace,andthereare"lots of failuresassociated with thosetitles,andthathurtseverybody." OEM shouldstill be considered asa key part of the overallmarketing, promotionanddistributionmix. But it is an incrementalfeatureof brandingthatis meantto augment,not supplement, a solidbusiness plan.
Q&A Gary Hare, President & CEO Fathom Pictures Q. What areyour primarydistributionchannels? A. Retail,by andlarge.We'vedonesomeOEM-particularly whenwe havedonenewtechnologystuff.WehavedonesomeMPEGversionsof someof our golf stuff that havebeenOEM'd into the new MPEG machines. racinggamefor thePC,youmighttry to getit OEM'd Q. Foranadvanced with a next generationPC platform?
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A. You said that, I didn't. I don't want to be telling you stuff I shouldn't. We say, "What can we do with this title that makes it compatible with a new piece of technology-an Intel or Apple product- that people are going to be interestedin?" If we can do somethingeasily, then we do it. And if we can't, we don't. Q. What about OEM prices? A. This year-in the last couple of quarters-we were approachedby a company that wanted to distribute 500,000 units of one of our products for free. I askedhim why I would do that-what's in it for me? He said exposure,I said, well, if you distributed 20 million of them for free then I'd have the entire market. There ile a lot of people now that have said that we'll put your title or a piece of your title in a bundle but we're not going to pay you anything for it. Then I have seendealsrangingfrom $.50/unitto a high of $4.00.We have done dealsin the past as high as $I2lunrt and as low as $7.00.This year I think will be far less attractiveon the OEM side.A couple of dollars is more common. There is a new computer coming out and they are trying to do 30 titles in their bundle. And if they pay $l/unit, they have $30 for their costs-a lot of the software is garbage-but the problem is the new computer buyer has 30 new titles to wade through before they have any interest in buying another one. That's one of the reasonswhy the return rate is so bad. Q. Do you seeOEM as a positive force at all in building new customer loyalty or brand-namerecognition for your products? A. Well. It's exposure.We were approachedby a company for our new Nick Price golf title saying we want to put nine holes on it and the incentive would be that peoplewill go out and buy the other nine. I don't know whetherthat's true or not. I just think that it's so overwhelmingwhen you buy a new PC and you get a stack of software.You don't know much about who they are, how many kids they have, how old they are-you just give them a bunch of stuff. At one time Apple was lookin g at it and wanted to kill bundling be-
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causepeopleweresodissatisfied with thestuffin thebundlethatit made themdissatisfied with thetechnology asa whole.If youwentandbought a CD audioplayerandtheygaveyou 35 CDs we wouldn't seepeople buying8 CDs that year-that's a prettyhigh tie rate.We wouldn't see that any moreif you got all of that stuff for free.f wish bundlingwould go away.
Developinga DistributionStrategy For a multimedia title producer,developeror publisher,the processof generatingpositive cashflow beginsby getting product into the wholesale channel, and eventually into the hands of end-users.That means moving product from factory pallets to store shelves.And in today's crowded marketplace,oncethey get there,titles have about 90- 150 days to make it (gameshave even less time than that) before retailers start to pull it, and "returns" begin to not only clog the channel,but also gnaw away at the bottom line. With product returnsstill averagingabout L5Vo to L7Vofor all titles, the front end componentof any development strategy has to acknowledgea distribution strategythat assureseverybody in the product's food chain there is a viable plan to get it into the channel quickly to wiurant the risk associatedwith potential failure. Innovative and creative strategiesplay a role. The marketing and promotional strategies directly relate to the channel(s)in which the product will be distributed.For example, for a "do it yourself' title, the channel may include bookstores,warehouse home improvementchains,office supplystores,catalogcompanies,mass merchants,some specialty video retailers and the Web. Many analystsspeculatethat the Web is transforming the way publishers and developerscommunicatewith end users,particularly businessto businessselling relationships.The Web can be useful for developers by providing coop marketing (i.e. hyperlinking) with the national retailer through the publisher or developer'ssite.That can be particularly useful to developersangling for a national distribution deal or a direct account with a national retailer.
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Anotherexampleof how theWebhasbeenintegratedinto the publisher/retailerrelationshipis thatall majorplayershaveWebsites,andin theyposttheir"opendays"where somecases(witnessFry'sElectronics), andpitchtheirwares cancontactproductbuyerselectronically developers or a via thenet."Opendays"meanbuyersdon't requirean appointment give and new developers pitch, willing but they are traditionalproject theirproduct"one-on-one"with publishersan opportunityto showcase the buyer. The issue,however,for developersis that real successor failure of still restson the strengthof packagedmedia anytitle in the marketplace mediaat theretail level is Packaged distributionandretailrelationships. hereto stay,despiteall thehypeaboutelectronicdistributioncuttingout the middleman. like Netscape Communications Theremaybeoneor two exceptions, which cameinto industryprominenceby virtueof freedownloadsof its at thedistributor somebody navigatorsoftware.But for mostpublishers, product your in to find anaudilevelhasto noticeandbecomeinterested ence.It is, however,usefulto consideralternativewaysof gettingproduct into the channel.
GASE STUDY Alternative Distribution The Voyager Gompany TheVoyager is aNewYorkbasedcompany Company whichstartedpublishingfilmsonlaserdiscsandin 1988began publishing consumer CDROM titles. Bill Heye, Director of Marketing for The VoyagerCompffiy, strongly believesin direct mail.
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The VoyagerCompany mails out severalhundredthousandcatalogs each year, but it's somewhatironic-and quite illustrative of where the market is headed-that about one-third of the direct responsesare coming back over the Internet, accordingto Voyager.Heye saysthe company will continue mailing catalogs,but more and more attention will "focus on the Internet as a direct marketing and distribution medium." He suggests,"There is no ide alizedway to distribute products." He helpedto craft a companyphilosophy that will alwaysbe "product-driven." That philosophy is basedon channeldiversity, with about 40Voof revenue generatedfrom schools,ISVomade via salesto the U.S. education market through value added resellers (VARs), ISVo from rackers (i.e. Handleman),20Vo from foreign salesand 20Vodirect to consumer. As for international sales,Heye saysinternational markets are "usually done on an exclusivebasis,the advantagebeing that the company's entire line is supported,"as opposedto negotiatingwith individual distributors on selectedtitles acrossdifferent linguistic territories. The company's Web strategyis to support retail as well as to build traffic to the site. That includes actually closing a sale online. The company has a daily title specialwhich is often cheaperthan what a storecan buy it for. The site is also hyperlinked with all the retailers' sites that carry the company'sproduct line. Discountsare about 30Vo. Voyager typifies a new breed of company using innovative promotions to attract attentionand even make some salesvia alternative distribution avenues.The companyhasdevelopedan interestingtwist on product distribution, for example,by linking audio CDs with online text that describesand discussesthe work. The "active" Web text connectswith sectionsor tracks on the CD. Heye says now anyone "can become a publisher about music, arrt literature, etc. without necessarilyobtaining the rights to distribute the work," the theory being that the user has alreadypurchasedthe disc, and Voyageris simply uniting what were formerly two separatemedia-print and audio.
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While Voyagerdoesthemosttypicaldistributionstrategy,it is, however,probablyoneof themostcreative.While noneof thesedistribution strategiesarerocketscience,the real successformulais to havea plan and follow it throughin exquisitedetail,while allowing for modificationsandmarketshifts.In theinteractivepublishingbusiness,18months is a generationandcancompletelyalterthe marketdynamic.
RetailChannelStrategy:Breadthand Depth The retail channelsupportingmultimediatitles is still relativelysmall, whencomparedto the book channel,videochannelandmusicchannel. Thus,the marginsareoften skimpyfor the majority of publishers,and it's a marketfact thatthebig "hits" soakup thelion's shareof consumer spendingnowadays.Therefore,the sizeandscopeof a distributiondeal canmakeor breaka title's launch. Moreover,distributionaffectsa publisher'sfutureproductioncapacity. The best strategyfor publishersis to go for "breadthand depth." Breadthimpliesmultipletitles,anddepthmeansnumerousdistribution channelssupportingthoseproducts.The morelocationsthat carryyour product,and the more SKUs your companycan offer distributionand retail channels,thebetteryour particulardealwill be.
OnlineMerchandising & DistributionStrategies The Internetis everywhere.At leastthat'sthe perception,and it's very importantfor developers andpublishersto embracetheconceptthatdisgoing tribution is to change.This implies therecould be a mergerof traditionalpackagedmediaandnew onlinemerchandising anddistribution segments. Bob Vogel,Presidentof SoftmailDirect,saystheaim in takingmessagesandproductsto theWebis to "makesalesandgenerate leads."The Web is at oncea distributionmediumand an environmentto sealthe
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deal. He saysthe action goals of promotion on the Web are no different than print: namely, to build image, create awareness,further the sales processand even close the sale. The good news for small developersis the Web offers them an opportunity to give potential customersmuch more content and information than through any other medium. It's also interactive, personal and fast. The Web is a great way to educatethe channel becauseWeb sites and content cab begin where traditional promotion and awarenessbuilding leave off. Vogel lists severalstrategicWeb promotional concepts: Createa unique URL (homepageaddress)for every single product. Link direct responseWeb content to ads promoting that specificproduct (don't sendusersto a generichome page with many other products). Provide product incentives to capturename/address. Testeverything:price points, sourcesof inquires,content, gtc. Always ask for the order. A good startingpoint is to populatethe Web site with a corporateID, collateral material (brochures,product spec sheets),product packaging information, celebrity endorsementsand catchy inducementsto explore the product further. The real benefit to smaller developersis Web sitescan be as good, or as bad, &sthe expertiseand conceptbehind them. Even the largestmedia companiesarelearningthis game,andthereis an openingto createawarenessin the cyberchannel.In addition, traditional methodsof awareness building are not two-way, and opening a dialogue with distributors or retailers is the first step in getting that product on store shelves.
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Q&A Kelly Gonway, VP of Marketing Multicom Publishing Q. What distribution channelsare you going through? A. We are in the bookstorechannel-that is in the early stagesof development.There areprobably fewer than 2,000 storefrontsthat have viable softwareselections,so that's going to be a slow growth channel.We have some good successin the Home Depot stores,specifically selling the home improvement products which has their brand on it. That legitimizes the product in thosestores.Interestinglyenough,when we did the research,there was a high correlation betweencomputer ownership and home repurlimprovement product buyers. It seemedlike a natural fit, and that has proven to be true particularly within those stores. Q. Were you able to break into that channelbecauseof the Home Depot logo-because they were working on the product with you, or would you have been able to get product into thosestoresanyway? A. Yes. And then we have had some successon a smaller scale with parks, gift shops and bookstores with our parks products-also in the sporting goods storeswith our skiing products. Those alternative channels will be driven by the appropriatenessof the content to that environment. Q. Has the proliferation of multimedia PCs driven the ability to sell through to alternative channels? A. Of course.
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Q&A Kip Konwiser, VP of Entertainment Graphix Zone Q. What is your channel marketing mix? A. I think that it dependson the product and which channelswe need to accessand what the genre of the product. Before we do a deal, we know who it is we are selling to, Before we do a deal and start talking to the artist seriously,we already know who we are going to sell it to, how we are going to sell it, how many we are going to sell and how much we're going to sell it for. That's the way I run projections and find out whether it's a viable business. Q. Which channelswork best for you? A. Standardbrick and mortar music channelsare still the places where the consumerturns for music. We also are trying to let consumerslook to Computer City and CompUSA and the various software channels,too. Right now, however, the standardchannelsremain the strongestchannels of distribution. GraphixZone hasalso "inked" a deal with GT Interactive which gives the company distribution into all of the massmerchantchannels,including Kmart, Wal-Mart, Sam's, Price Club, Tiargetand others. Q. What about online distribution? A. Yes.A whole part of the online strategyis too be able to distribute not only our own stuff but also the stuff of our artists on our Web site. I think that will grow and that music is one of the strongestpresence'son the Net-next to porn. Q. What about advertising?
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A. Wedo a lot of advertising,andwe do a lot of marketing.Wealsogo to a lot of shows,etc. Q. How do you handlepublicityfor launches? A. We pick andchooseprojectswe think aregoingto makea profit for timesduringour fiscalyearwhen us, andwe launchthemat appropriate to do a seriousmarketingpushwe know we canfreeup theresources we havecomingout.It otherreleases whenweknowthatit complements really dependson theparticularsof thetitle, but we try to give eachtitle its due. Q. Whatkind of PR do you do? A. All of it. We want peopleto know we exist.The point is to get the message out. Q. Do you do a lot of in-storepromotion? A. Yes.Especiallyat launch.Somehugenumberof your salesoccurin the first coupleof months.Someproductslast forever,and salesjust keepcomingin. I think musicis not like that.I think musicis about buyingsomethinghot right away.
Elementsof an EffectiveDistributionStrategy Multimedia title publishersmust determinea distribution strategy when their product is still at the concept stageand identify distribution channels before productdevelopmentand designbegin. Productdesignshould be influenced by the chosendistribution strategybecausedifferent channels have different expectationsfor multimedia titles. Key aspectsof formin g a distribution strategyinclude developing a product plan that includes the four 66Prs" of multimedia merchandising: Product, Price, Positioning and Performance.Following those determinations,then selectingappropriatechannelsfor selling that particular title is appropriate.
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Product plans submittedto distributors should exhibit the publishers vision and strategy over a two to three year period and should clearly establisha "family of products" approach.A productplan shoulddiscuss products cunently under development, os well as future products, and should include product positioning, target market, list price and packaging concept. Publishers have to continually evaluatehow and where to position their titles to maximize both the end user and the channel that will distribute it. The interactive market is undergoing a rapid transformation becauseusertastesandnew marketopportunities(andthreats)occur about every 24 months. Thus, any product started today may, in fact, have to deal with a completely new set of distribution realities when it finally makesits market debut 18 months from now. The distributor needsto be reassuredthat the product enhiurces-or will enhance-its cuffent offerings to stimulate additional sales to resellers, how many marketing dollars will be made available for advertising, and how much margin the title offers. To position a title to both the end user and distributor, publishers must differentiate their product from competitors. Rtblishers will need to examinecompetitors'productpositioning,pricing anddistribution strategies as well as the titles' featuresand functionality. Channel selection should be made in terms of product positioning, pricing and the resourcesavailableto pursuethe channel.Publishersmust have adequatefinances to penetratethe chosenchannel and sustain the program over a period of time. It is not an overnight process,and commitment ts the key operative word. Once product is in the channel,publishershave to market in order to get the product to sell- through. Publishers have to push their product into the channel by marketing to distributors and then pull the end user into the channel through advertising,direct mail and promotions. Publishersmust have aggressivemarketing progftrmsto get their product on the shelf before somebodyelse does.The marketing plan should
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leveragemultiple titles in a seriesor product line. This allows publishers to sell additional titles to the sirmemarket. Important marketing activities include public relations,direct marketing to your installed base,merchandising and advertising.
Buying into the SoftwareDistributionGhannel Distributioncostsarerising,andthisrequirespublishersto pick theright with comparable competitorsin ortitle categoriesandgo head-to-head chanceatreachingROI success. Rrblishersneed derto havea reasonable productmarthetoolsto play thegame,andthatincludesinfrastructure, ketinganddistributionassetsor alliancesto maintainandgrow a strong positionin the marketplace. JanGullett,SeniorVP of SalesandMarketingfor BroderbundSoftware,sayspublisherscontinuallyask:"Who areyour competitors?Do you havethe financialstayingpowerto play handafterhand-after-hand in the samebusinesssegmentwith thosecompetitors?" Moreover,he saysprofit comesfrom leadingtitles;"Unlessyou win a few handsat the pokertable,you will nevergenerate theROI." He says"ROIsreallycome backto the companyovertime,andpublishersmustbe long-tennplayersto generateprofit." RobinHarper,VP of Marketingfor Maxis Software,emphasizes the mostimportantaspectis to useenoughelements(variables)in your marketinganalysisanddistributionstrategy.Shesaysto wet the appetiteof thechannelby "comingup with promotionsthathavea themethatoffers a consumerrebateaswell asa rebatefor bringingproductinto thestore." Furtherrnore,shesays"selling-in" the promotionmeanstargetingspecific retailers,andit really makessenseto try to fit the promotioninto their marketingprogramswhichcreatesa win-win approach. Harperemphasizes that, "selling-in a promotionrequiresthat the retailerbelievesit will improvetheirkey measures: salespersquarefoot, inventoryturns and grossmargins."Sheempathizes that, "Publishers aren'tthe only oneslookingfor ROIs."Accordingto Harper,waysto
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determine an ROI for a marketing thrust include: 1) Increasedproduct trials; 2) Redemptionrates (number of people that return coupons,etc.); and 3) Changesin product awareness,image and increasedproduct usage.For confirmation purposes,PC Data is one of the most reliable tracking firms for quantifying sell-throughunit sales. Kerry Huffman, Director of ChannelMarketing for Intuit, provides a very simple and illuminating definition of ROI: "ROI is incrementaldollars spent and incremental dollars received back from that investment." He believes any investmentin channelpromotion must take into account the margin and baseline (what you would have receivedanyway without the promotion) to quantify that investment. For exirmple,if publishersinvest in a retail end cap, and that expenditure is $ 100, and it generatesincrementalsalesof $ 1,000, then the ROI is 10:1. Assuming a publisherwas forecastingbaseline salesof $ 100,000on a particular title and was further willing to invest $30,000 in an incremental promotional thrust, the break-evenpoint for that investmentis an additional $60,000in sales(seetable below). If the POP element was an end cap, for example,and the investment was that same$30,000,then an incrementalmultiple of "2" would justify the strategy.
The DistributionChannelLoves"Hits'n Interactive title publishing is at an important and critical juncture. The industry is-and will continue to be-volatile and subject to the same market forces as any other "hits" driven business.Everybody agreesthe "hits" nature of the businessis a clear driver behind the strongconsolidation trend working through the market. The problem,however,is an estimated4Voto 10Voof CD-ROM products are actually making a profit in any one year. Given that reality, creating a hit is important because,simply put, that's where the money is.
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Not only is it wherethe money is, but a successfultitle will go a long way toward guaranteeinga developer or publisher a crack at locking up shelf spacefor the next title. But it's also a catch 22becausethe industry is not mature enough to predict with any degreeof certainty which titles are going to be "hits." Ken Goldstein, Executive Rrblisher for Broderbund Softwile, says the market is unforgiving, and publishershave to "understandthe difference between a great idea and a good market opportunity.'oGoldstein says,"Lot's of greatideasdo not sell all that well, and the best strategyto take is to look at evergreen-typeproducts that have channel staying power.t' For example, Print Shop has been Broderbund's number one seller over the years, and right behind that title is the Carmen Sandiegoseries. Beyond the evergreentitles that Broderbund budgets for on a year-byyear basis, the company does try to develop a few hits, which is risky, according to Goldstein. "With budgetsthat are well into seven figures, we all have to answerto stockholdersfor our jobs," he says. Goldstein says anotherproblem with the businessis that there are too many 'Junky" titles soakingup shelf spaceor still bundledwith hardware. He maintains that there are "lots of failures associatedwith those titles which hurts everybody." For new publisherslooking for success, Goldstein strongly emphasizes"categorybuilding," He believes the "industry has always grown by category defining software." He advisesdevelopersto "define a category and then attempt to own and defend it." This makes the product much easier to garner channel attention. Even so, he saysinnovation is tough becausepublishersare running out of new categoriesto exploit. "You have to be very brave to create category defining software becauseno amount of marketing or distribution studies are going to replace instinct when it comes to picking the winners and bypassingthe losers." Goldsteinalso haswords of cautionaboutWeb distribution. He does believe the Internet is a huge opportunity, but he says,"ft is also a com-
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petitorbecause therearejust somanyviewinghoursin thedayandentertainmentoptionsconsumers arewilling andableto consider." GregRoach,a multimediaproducerandgraphicsartist,saysthemain issuesthatdefinea successful title are:1)Whereis thesourceof funding and the publishingopportunity?2) How strongis the distributionmachinery?and3) How couldtheexpectations of theVC (or fundingsource) publisherandaudiencebestbe aligned?Themostcrucialeledeveloper, ment,saysRoach,is that a producermustmaintainthe productvision throughthe 18monthsof development time. Andy Higgy,Presidentof Productionof theSanFrancisco-based First LinearStudios,saystherearethreeingredients to makea successful title: A strongtalent base,designphaseand productmeasurement criteria. Higgy sayswheneverhis companylooks at acquiringcontent,the first thing they do is developan extensivepropertyplan for that contentand figureoutwhichwindowsanddistributionopporhrnities legitimatelyexist for the proposedtitle.
Q&A llason Woodbury, VP of Marketing Broderbund Software Q. How do new forms of distribution complicate the copyright process? A. I don't know that it has affectedus at all except when we've tried to move charactersinto movies or TV shows. Then we've had problems becausewe may have only gottenthe rights for the software. The Carmen SandiegoTV show has had somecomplications in that area.Wehave the TV show on WGBH, and they createdsome characters.And we have a cartoon show on Fox, and they created some characters,Some of them are in the software,ord someof them aren't. So we're constantly talking
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to thesepeople in terms of who has the copyright for hck and hry. Q. So you might have problems moving a characterfrom the TV shows into a game? A. We generally take care of that. The problem comes when someone comes,illd now I want to make a movie or want to make a line of T:shirts basedon Carrnen We're doing acomic book with DC Comics. They are looking at a wide variety of sourcesof characters.We'll get the comic book, and they're using some of the charactersoff of the WGBH TV show.Then (comes)the questionof who owns the rights to thosecharacters to put them in a comic book. If we do a movie deal, the movie people want to own all of the rights to the characters,but meanwhile we've already assignedsome of the rights to other people. We don't really have any problems with the software as such. It's when we're taking a characterlike Carmen and moving her from software to TV to movies to books to comii books to T: Shirts. A11of a suddenit gets confusing as to who doesStretch the Wonder Dog belong to. Q. What about warehousingand storage? A. Other than the fact that we don't have enough of it? Q. Packagingcosts.What are the costsper title? A. The box is 60 cents.The jewel caseis like 10 cents.The books are usually another50 cents or 60 cents . The actual duplication of the discs is somewherearound$1.00 to $ I.25. By the time you end up with everything, I think it's between $4.00 and $6.00, depending on the level of documentation. Q. Is documentationone of the most expensivecomponents? 'We A. Yes. took the book out of Print Shopfor that reason. Q. Do you own your own pressingfacilities? A. No. Not for CDs. We did when we were on floppies, but we're in the processof selling off most of that equipment.
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For game developers,the cable network distribution strategyhas the advantage of offering players the sameperformance that carts are famous for, but with inventory that is close to 50 titles per month. The SegaChannelsayswith existing cableTV technology (premium network distribution), players can have virnrally the samegame experience as if they rentedthe cart. Segais not planning a web site for games, however, and the company's Internet presenceis strictly for information and referral, according to spokespersonJennifer Moffie. Sega only makes abridged versions of new games available via its network, and the company reports that its service currently passesapproximately 10 million homes and is carried on 20Acable systems.But in many cases,electronic distribution at this juncture is still a judgment call becausePC householdpenetrationis so low, and the numberof homes connectedto online servicesor the Web are relatively small.
CaseStudy:SegaChannel SegaChannel has been adding subscribersat the rateof about 3,000 to 4,000 per week, which would put the venture at close to 225,000 subs since service launch back in December, 1994.Looking at it from a penetration standpoint, however, and assuming a 2Votake rate for passed homes,SegaChannelis probably looking at ayear-end1996 subscriber figure in the range of 400,000.
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CONSUMER ON.LINESERVICE SUBSCRIBER GROWTH 1988.200 Year
Subs
1988 1989 1990 t99l 1992 1993 1994 1995 r996 r997 1998 r999 2000
(Mil.) 0.7 1.2 3.0 3.3 4.0 5.2 7.5 10.1 16.0 20.0 24.0 28.5 33.5
Vo Change
7 t.4Vo I50.UVo l0.j%o 2l.2Vo 30.Uvo 44.2Vo 34.7Vo 58.4Vo 25.UVo 20.lvo 18.8Vo 17,5Vo
Montgomery Securitiesda At that rate,and further assumingsubscriberacquisitioncosts of about$25persub,thechannelis grossing$59million from its electronic deliveryservice(notincludingactivationfees),with approximately 45Vo (or $26.6million) goingto MSOs,€ildtheremainderto SegaChannel. It's not a hugebusiness whencompared to retailrevenues, but electronic distributionis still in its deploymentinfancy.And, &sbroadband networkpipesgetfatter,thepossibilityto spinoff othernichegameap-
ON.LINE U.S.HOUSEHOLD COMPUTER CONNECTIVITY Category
All U.S. Ameritech Bell Atl. (Vo) (Vo) (Vo)
PC Homes 39.8V0 PC w/modem24.3V0 OnlineHomes7.8V0 NetHomes
8.t%o
BellSouth NYNEX PacTel SBC US \ilest (Vo) (Vo) (Vo) (Vo) (Vo)
27.8Vo l7.lVo l0.2Vo
44.8V0 21.7Vo 7,ZVo
36.4Vo 24.4V0 7.ZVo
42.9V0 47.l%o 39.9Vo44.7Vo 28.l%o 30.0Vo23.2Vo27,4V0 7.7Vo ILZVo 5.4Vo 5.5Vo
8.3Vo
1.lVo
69Vo
l0.2Vo ll.LVo 7.2Vo 5.8Vo
Source:RegionalBell OperatingCompaniesresearch.
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plications is more likely. That could mean dramatic aggregateelectronic distribution revenuegrowth going forward. BecauseSegaChannel takesup only half the MHz of a typical cable channel (about 3 MHz), the venture is already experimenting with spinoff services.SegaChannel recently rolled out a new sister service, Express Games, which launched in November, 1995 and is the Pay Per Play ann of the SegaChannel.
SEGACHANNELPRO.FORMA BUSINESS MODEL Premium SubscriptionServiceAnalysis Year-End CableTVHH Availability AverageSystemTake-up Avg. SegaCh. Subscribers Subscription Fee/JvI o. TotalYearlyRevenue New SubAcquisitionCosts Net new subcosts Net SegaChannelRevenue# CableAffiliate Compensation SegaChannelNet Revenue
(Mil.) (vo) (Mil.) ($) ($Ivtit.; ($) ($lvtit.1 ($Mit.1 ($Mit.; ($Mit.;
1996 20 2.Uvo 0.40 12,95 62.2 25.00 3.1 59.0 26.6 32.5
1997 35 2.5Vo 0.gg 12.95 136.0 25.00 12.0 r24.0 55.8 68,2
1998 45 3.Uvo 1.35 L2.95 209.9 25.N l1.g lgg.0 89.1 108.9
# = Service revenue only, and does not include activation fees.
Source: Paul .d Palurrbo
Here's how it works. First, & gameplayer must already subscribeto Sega Channel to get the service.Subscribersthen have accessto "day and date" releaseof electronic versionsof video gamesright along with retail outlets.The gameis available (in its entirety) for two calendardays for $2.95 per game, or the samecost as a rental title. The splits are three ways: $1 for the gamepublisher,$1 for the SegaChannel,and $1 goesto the MSO. Ekpress Game's first full month in operation was December, 1995, when Mortal Kombat III was available. In early 1996,Mortal Kombat III, CoIIegeFootbalt andVRTroopers will be available. The service is a more extensive version of Sega Channel's Test Drive section on the main service, which allows players
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to preview abridged versionsof gamesin advanceof retail release. According to Moffie, the company's researchindicates that where the channelis available,retail traffic goesup incrementallybecauseplayers get to sample the product for a relatively cheap price before they lay down the $70 at retail. Moreover, title availability windows have remained tairly constant since launch. Games are still available pre-retail launch for testing, followed by a 30-90 post-street-date window before the gameis once again on the network. Segasaysan averageplayer currently plays 39 of the 50 gamesinventoried on a monthly basis. Sega has found that add-on featuresand promotion are the driving forces behind adding new subscribers.SegaChannellearnedsomeunexpected characteristicsabout consumeradoption since rolling out its service on a businessas usualbasisin 1994. First, SegaChannel is considereda value-addedconvenience.The kids who play the gamesarenot the onespaying the cableTV bill. What's interesting is, thoseparentstypically identified as "early adopters"don't necessarilywant their kids playing 50 video gamesper month on a TV screen. Some would rather see them spend more time studying, while others would rather spendthe $300 on a new 3}-bitgame console and a few of the top gamesto keep up with the march of technology. Second,middle income families have really becomethe market becauseboth parentsare workitrg, and they don't have the time to go to the video store.At $ 12.95 per month for 50 games(assumingthey already own a SegaGenesisconsole),it's a strongvalue proposition. Sega'sadvertising messageto parentsis totally gearedtoward value and convenience.For example, it emphasizesthere are "no more late fees for games," and "There are $3,000 worth of video gamesavailable for $12.95 per month." And it's been working becausethat middle income demographicsegmentis buying the SegaChannel. For game title developersand publishers (and everyone else in the entertainmentenrichmentchain), it's not a matterof whetheror not games
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are here to stay-because they are-but rather, what delivery medium (or media) makesthe most senseto maximize the value of that particular game title franchise. In essence,the challengebefore SegaChannel and other electronic game distributors is to find a promotional and merchandisingvoice as an industry that is as clear and effective as retail has been over the decades, so the businesscan grow into somethingbeyond novelty status.
TheWorldWideWeb Everybody agreesthat content delivered over networks to the PC or TV are going to be an attractive distribution avenue and a much-neededaftermarket for interactive title developers.Developers are not only looking for an electronic exploitation window beyond retail (and maybe even distribution), but determining what network strategyto employ is where industry consensusbegins to diverge. At present,there are four network distribution alternatives: r
Set-up and maintain a proprietary web site to court the global Internet audience
r
Create a stand-alonecable TV servicethat targetsthe twitch-dominated set-topbox segment
t
License franchise propertiesto one (or all) of the online content aggregators(like AOL, CompuSenre,etc.)
t
Provide connectivity for usersvia one-on-onephone lines and modems.
Even with multiple options, the respectivemerits of eachindividual strategy are less important than what electronic distribution can mean for publishers eager to maximize the value of a particular game title franchise.With shelf spaceat retail in chronic short supply and costsrising to get product into the channel (let alone keep it there), interactive publish-
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ershavelong soughtalternativewindowsof distributionover which to amortize development costs. What's got the industrybuzzingnow, however,is that online servicesandtheInternetarebecomingpartof the "culture"soquickly,and theyarecreatingentirelynewvirtual "viewing" communitiesandanentertainmentconsumptionmetaphor. With mostset-topboxesandPCsdestinedto be hookedup to some type of networkover time, electronicdistributioncould havethe same dynamiceffecton interactivecontentin the '90sastheVCR hadon Hollywoodbackin the early '80s,whichis to completelyrevolutionizethe revenuemodel. Today,the film industrytypically generates607oof its retail dollar throughvariousaftermarketwindows(i.e. otherthan theatrical),from video,PPV premiumcableandgenericcableTV to broadcast television (notto mentionforeignlicensingopportunities). TitlessuchasTbrminator 2,BatmanandanyDisneyvaultor first-runproductis goingto achieve substantialsalesin overseas markets.In that case,productionnegatives can thereforebe amortizedacrossa seriesof windowsthat could take severalyearsto fully realize,Infact, Hollywoodis unlikely to fund any projectthatdoesn'thavea strongchanceof generatingsubstantialinternationalrevenues. Even mostdomesticnetwork"shows"don't reachprofitabilityin first-rundistributionbut do soonly aftersyndicationandforeignlicensing revenuesgetfactoredinto themix. Thatcouldtakeyears,asthefranchisemovesthroughits first run syndication,foreign and then second run syndicationlicensingwindow.Showslike Three'sCompanyare in fourthandfifth run syndicationandarecashcowsfor DistributorWorld Vision (a unit of SpellingEntertainment). As the gamebusinessmatures,JeffEinsteinof CrossoverTechnologiespredictsthe Internetmodelfor interactivecontentwill evolveinto basedon somethingresemblingthe basicTV model,with development (distribution) pocket upfront like the marketshare that a publishercan anyotherpre-licensing deaiandcombineit with corporatesponsorshipnamely,ad revenues.
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CrossoverTechnologiesis focusedprimarily on designinggamesfor the WWW because"the same guys that wind up paying for content on TV broadcastand radio are the silme ones who will pay for the convenience of the Internet," according to Einstein. And definable communities attract ad dollars. "The adventof advertisingon the web will encourage segmentation,the developmentof communities and servicesto meet the needsof thosecommunities,"accordingto Einstein. One strategy to "break" an interactive-basedweb site is to sign a distribution deal with an establishedonline provider that functions somewhat like a cyber or video "barker." It offers players a minimum layer of accessand also directs traffic to a web site. If it's a pure Internet play, then aggressivePR campaignsin the game trades ire useful, &swell as cross-brandingon cable TV or broadcast. If the title is a game, educational title or enthusiastproduct, user interest can also be generatedby aligning the product with a high-traffic web site that has cross-promotional(hyperlink) capabilities.
OnlineRevenueModels At the heart of any electronic distribution strategyis and revenuegeneration, either on the Web or via a cable channel.The current Web model is one basedon a hybrid of advertiser-supportedand pay-as-youplay sites. The software is made available to the game player, and then he/she is chargedaccessfees to hook up with other gameplayers.That strategyis being employed by S.F.-basedDomark Software. Domark spokespersonPaul Baldwin saysthe company's Confirmed Kill title "is going to be the world's largest Internet game, capable of supporting up to 500 players simultaneously."The company is making a downloadableversion of gameavailable for free (a software-ledmarketing approachthat paid off big for Id Software and its Doom title). After an Internet launch,the title will be availableat retail (with enhancements) six months later. Id also employed another intelligent marketing strategy,according to Baldwin. The companylet someof its gamecode "get out," so players
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(and hackers)could createtheir own experiences(i.e. new dungeonsand pathways).This type of "open-to-programming"lure is a good way to createa "buzz" on the net, accordingto Baldwin, and drive up site activity. Plus, saysBaldwin, the "net" is a greatbeta test site. Domark's web serviceis transactional,and players will pay $10 per month in network fees,plus another$2 per hour for multiplayer game access.
GASESTUW Web-based Multiplayer Gaming Strategies A surveyof selectedestablished andproposedonlinegamenetworkprovidersrevealsthat flexiblepricing strategies, ubiquitousaccessandkey contentacquisitionarethreeareasexpectedto differentiatemultipleservice entrantsfrom oneanotherasthemarketbeginsto grow andeventually mature.In the short-tenn(throughthe year2000),nobodyexpects onlinedistributionto threatenboxedmedia(i.e. packaged)assets,but thereis a sensethat networkgameplaywill moreandmorebecomean expectationin consumers'minds after the initial purchasedecisionis made,no matterwherethattransactionactuallytakesplace. On the networkside,therearebasicallytwo onlinemodels,though Thosebasicmodels eachonecan(andoftendoes)havemultiplevariations. include:1) Proprietarydial-upnetworks(i.e.Dwango,TotalEntertainmentNetwork),targetinghard-coretwitchgameenthusiasts; and2) Web(i.e.MPath,CatapultEntertainment basedgameservices andINN's Cyber Park), accessiblevia ISPs (InternetServiceProviders,like Netcom) and OSfs (Online ServiceProviders,like America Online). or example, MPath is partneredwith the ISP PSINet in a distribution and content aggregationplay. That alliance can guaranteeits users
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FLOW ltl|ODEL NETWORK PROFORMA REVENUE.DISCOUNTED CASH ON.LINE GA||J|E ISP/OSP-Delivered Web-Based GameServiceScenario Year Net Service Users Average gameplay hrs/wk Average gameplay hrs/mo "Pay for time" fee/hr "Pay for time" fees/mo Gross revenue/mo Gross revenue/yr COGS# Gross Profit Margin Gross Profit Operating Expenses Start-Up costs Operating Income Depreciation /Amortization Cash Flow Cash Flow margin Cumulative cash flow Discount Rate
12345 7,500 20,000 35,000 55,000 75,000 4.0 3.5 4.5 3.0 .2.5 10.0 r2.0 14.0 16.0 18.0 2.00 1.50 t.25 1.00 0.75 20.00 18.00 17.s0 16.00 13.50 150,000 360,000 612,500 990,000 1,012,500 1,800,0004,320,000 7,350,00010,560,000 t2,150,000 1,350,0002,809,000 4,410,0005,290,0005,710,500 25.0V0 35.0Vo 40.0V0 50.0V0 53.0V0 450,000 1,512,000 2,940,0005,290,0006,439,500 337,500 982,900 1,617,0002,376,W02,575,900 -2,500,000 0.0 0.0 0.0 0.0 -2,387,500 529,2W r,323,000 2,904,W 3,963,700 358,125 84,672 159,760 290,400 347,733 -2,029,375 613,972 1,491 ,760 3,194,4A04,2tr,433 -ll2.7%o l4.2%o 20.2Vo 30.3Vo 34.7Vo -2,029,375-1,415,50366,257 3,260,6577,472,090 t0,0Vo l0.0Vo l0.AVo l0.0Vo l0.0Vo
Cumulative Discount cashflow Sth Year Cashflow multiple Implied 5th year enterprisevalue
4r572r50t 8.5x 3Er8ffir257
# = Costof GoodsSold(COGS)includesroyaltypaymentsto title developersandnetwork (i.e.server/software) expenses. & = Networkusersare"average"payingusers,net of estimated"churn" @ 20Vo.
Source: Paul A. Palumbo network latency of about 150 milliseconds, which is a strong promotional inducementfor game players interestedin high-impact titles. In that type of businessmodel, the ISP is compensatedby a monthly flat rate from game players who accessthe Web through their dial-up POP sites,mostly becauseof a guaranteedlevel of game play. MPath, in turrl, generatesrevenue by charging players about $2.50 per hour for usage.MPath maintains its own network serversand strikes all the content deals. Gross profit (revenue minus cost of goods sold-COGS) is then split equally (similar to the premium pay TV model) betweenMPath
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andgametitle developersor rightsholders. Basedon an analysisof the Web-based model(seemodelabove), positivecashflow is generated whenabout35,000regularmembersbegin loggingontothesite.Addingapproximately 20,000"net" newmemper bers yearimpliesthattheentireventurecouldhavea privatemarket valueof closeto $40 million by yearfive. "Net" membersequalsthe numberof new subscibers minusthechurn.Thechurnbeingsubscribers droppingthe service.That assumes start-upcostsof $2.5million, cash flow marginsrampingup to about35Vo,andan 8.5xcashflow multiple appliedto cumulativediscounted cashflow.For comparison, that'sabout half theimpliedvalueof a small(niche)premiumcableTV networklike the Sundance Channel. Whetherthosearesufficientnumbersto prick the interestof MadisonAvenue-which wouldfurtherincreaserevenueandvalue-or maybe evenIPo-happyWall Streetunderwritersremainsanopenquestion.But creatingqualifiedcommunitiesis whattheWebhypeis all about.Kristen Asleson,VP of Marketingfor MPath,saystheWebgamesiteconceptis similarto a neighborhood tavernor gamearcadethat cultivatesa dedicatedclientele.Siteshaveto createa senseof: "This is whereI belong. This is whereI like to hang-out,"saysAsleson.
PricingPressure Even so, the pro-fonna Web-basedmodel assumesthere is going to be intensecompetition for leisure gameplaydollars, which will drive down price points. The good news is cashflow margins in the Web model benefit from the fact that there are no telecornmunicationschargesto absorb on the part of the site provider, which can make up as much as 307oto 40Voof cost of goodssold (COGS). Proprietarynetworks,like INN and Dwango, typically pay about33Vo of eachrevenuedollar generated(not including monthly servicefees)for telecom charges.Nevertheless,INN saysits usersaverageabout 5 hours per week, and it can still be cash flow positive (without corporate sponsorship)if it keepsa tight reign on telecomcharges.
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Looking at the proprietarynetworkmodel,thoseservicestypically chargegamersa flat subscriptionrate per month ($7.95for Dwango, $9.95for INN), which helpscoverthoseadditionalcostsandincludes five freehoursof usage.Additionalhoursarethenbilled at about$2.95 per hour,with incrementsof time soldon a slidingcostscale.
New ModelsEmerge Dean DeBiase,CEO of The Imagination Network, says the company's network is changingits model. DeBiasesays,"fNN doesn't believe in a future where an online gaming servicecan be sustainedwhen you charge members on a separatemonthly statement."He says INN is moving toward an Internetretail presence,with pricing modelsrangingfrom a"payper-play scenario,all the way down to free." That type of service would be characterizedby its Cyber Park venture, which will potentially be available to millions of online membersthrough agreementswith an ISP or an OSP,like AOL. In that case,saysDeBiase,"All the billing and functionality is transferred to the connectivity provider." Then, he says,"It becomesa wholesale transactionbetween supplier and provider," which is similar to the relationship between theatrical exhibitors, cable TV MSOs or TV networks and Hollywood studios(or their distribution subsidiaries)for filmed entertainmentproduct. The kry, saysDeBiase,is "There must be pricing flexibility becausewe are moving from a hard-coreaudienceto a mainstreamaudience."Cyber Park will have a number of different "flavors," dependingon which gateway the serviceis accessedthrough. DeBiase suggests,"The new game model is how many potential users are you exposedto via network relationships,and how many sessionscan you generatewith casualusers,not proprietary members." Dwango is also evolving. Presidentand CEO Bob Huntley noted that the company introduced its Windows 95 Internet client software at E3, which allows gamers to accessthe service through any ISP they choose.At present,Huntley saysDwango's businessmodel is quite stable becausecosts are very "fixed." With a relatively fixed model, Huntley
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says,"The companyknowswhereto put its money." Dwangohas also lockedup a hyper-linkingdeal with Pathfinder. The serviceis goingto havea "hot button"on TimeWarner'sPathfinder homepagein the not-too-distantfuture,one of the hottestsiteson the WWW. Huntleysaysanassociation with thelargestcontentaggregators, whethersiteson theWebor networkslike AOL, makesa lot of sensefor gamenetworksto betterdriveup usageandawareness.
online opportunitiesand 1o-bitHardware CatapultEntertainmentis unique in the group,however,becausethe company hasjust gone beta with its PC software for Web gaming, but it continues to operatea network for 16-bit enthusiasts.And it's generating "positive cash flow right now," according to Adam Grosser,President and CEO of Catapult.Grossersaysits 16-bit network service(using the X-Band modem for Segaand Nintendo game boxes) is still adding 50100 subscribersper duy, and the number of connectionsmade into the network on a typical weekdayis between80,000 and 120,000. The biggest problem the company had with building subscribersfor the 16-bit network, though, was gamerswith a Sega Genesismachine didn't really think of it in terms of a connectivity device, whereasPCs ile, by default, connectivity-enablednowad&ys,and thoseusershave a senseabout what it meansto be online, according to Grosser.The irony is that the company thought it would be deadby now. "There is clearly a desirefor it to stay there," addedGrosser,consideringthat churn is averaging only about 2Vo.The company's 16-bit customersspendabout 16 hours per month online, with 50Voof Catapult's user base logging on every week. Catapult'sWeb-basedservicewill bea very low flat monthly fee, on the order of $1 to $2. But to actually enter one of the tournaments,there will be an entry fee. The hook, says Grosser,is "If players think they have a chanceto achieve somethingmeaningful (i.e. win the prize), the transactionis tolerable."Similar to INN,Catapult's Web seruicewill likely be a nominal flat rate model, or with hybrid a la cartepricing tiers. Grosser
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pricingmodel says,"Thecompanydoesnot believethatthetime-based game takes30 with a experience worksfor gamesbecausea reasonable don'tworkout." economics minutes."At thoseusagelevels,hesays,"The
ExclusiveContentand RoyaltyRates The issue of striking exclusive content deals with developersto create provider loyalty and brand differentiation met with mixed reaction from the market survey.Mpath, for example,doesnot ask for exclusive rights. But the company does work with software developersto co-market in order to createconsumerawarenessof a particular game available on its Mplayer service.MPath's model is to developentire gamedesign document specs(Brian Moriarity is the company'smassively,multiplayer game design specialist)and then farm them out to developers.Those developers then box the assetsfor retail distribution along with the MPlayer software kit. Bob Huntley seesthe industry as moving toward a non-exclusive model, which he equateswith the theatrical mode. "Movies don't play across one theater chain, but many, in an effort to maximize eyeball reach," he says. A non-exclusive deal with a developercan generateanywhere from ISVotoL1%oof online revenueflowing backupstreamto the rights holder. But there are other options for developers.In the case of key content, there may be pieces of provider equity put up as a long-term lure for developersthat also servesas a guaranteedsourceof online distribution. There may also be as much as 100Voof the revenueoffered to developers for a hot title just to generatesite traffic. According to providers, tro one is offering upfront licensing guaranteesright now becauserevenuesjust aren't there yet. Adam Grosserbelievesexclusive content "in many ways, will be a key differentiator." While the company claims to have the lowest latency network, Grosser says, "The difference between 150 milliseconds and 110 milliseconds probably isn't a huge selling feature, comparedwith the ability to play a gamelike Quakeversusthe ability not to play Quake."
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He goes on to say, "Exclusive content, over time, will become very important. In the very near term (i.e. two years), it's probably not that important becausenone of the publishersview online as a dramatically compelling revenuestreamwhen comparedto their boxed assetequivalents." Grossersayshe can "easily seea network provider like Catapult providing funding for key content." Catapult will not, however, be in the businessof producing. INN already has exclusive accessto Sierra On-line (now CUC's) content for approximately the first year it is available on the network. DeBiase saysthe companydoesusethat as a promotional leveragepoint, and INN is shooting for about I}Vo of its inventoried product to be on an exclusivebasis. It probably comes down to a judgment call on the part of network providers, however,whetherto put promotional capital into contentdeals or directly into market awarenessmuscle.Either way, it's an opportunity for developerswho need partnersto shareinternal costs and help to get the product messageout.
The All-PurposeEntertainment Appliance The debateover which platform will emergeas the all-purposeentertainment and information device of choice in the home may not be resolved in the retail marketplace,but Dataquestpredicts PCs and TVs will coexist, with each box showing signs of a winner. According to Dataquest analyst Bruce Ryon, "TV setswill win the installed basebattle, but the failure of the MPEG movie title market atteststo the fact that people do not want to sit and watch full-length movies on the PC." Ryon forecasts, "TVs will win the passiveentertainmentrace,itrd PCs will win the interactivity battle." Dataquestpredicts PCs will win the revenue generating value, but the company qualifies that statement.Considerthat TVs are replaced,on average,about every 10 years, while PCs are upgraded approximately every four years. So the often-quoted statistic about PC outpacing TV shipmentsis somewhatmisleading.
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Ryon says,"Thereis not goingto be a war to be won, but a lot of thattherealvalueis goingto be wonby battlesto bewon." He speculates worker" becausethat demographicsegment "information so-called the boxes. andcommunication entertainment hasthemoneyto buy advanced researchsampleof 10,000homesfound Here'sthe issue.A Dataquest that homePCswereinstalledin slightlylessthan 30Voof U.S. households,but growingrapidly. What'sfuelinggrowth,though,is corporatedownsizing."Many of that startedhomeconsulting thosepositionswere middlemanagement saysRyon.In addition,"oneof thewaysthatpeoplecanbe businesses," morecompetitiveis to havea PC at home,which allowsthemto extend workinghours." Dataquestanalystsbelievethegrowthof thePC asa gamingdevice by the explosionof onlineandthe Internet."The PC is beingenhanced just has beendesignedfor homeuseoverthepastfive years,andnow a realtrendtowardthehomemarketsandinteractiveis drivingthattrend," saysRyon. thecost RyonclaimsInteractiveTV wasessentially"killed" because projected required about match demand. Infrastructure the factordid not arelookingfor a2a 10yearreturnon investment,andmanycompanies 3 yearROI. As a result,he predictsthe PC andthe Internetarethe new marketfor interactiveTV. But thatmarketis goingto primarily residein As for otherbasictrends,Ryon said the informationworkerhousehold. both PCsandTVs will be gamecapableandeducationcapable. As for games,PCswin with betterresolutionandperformance, but Therehasalsobeena levelingoff consoleswin in socialenvironments. of TV viewing hoursand an increasein PC use.Ryon said the main reasongameconsolesstill exist (about10 million units by the end of 1,996)in largequantitiesis price. "For $150,gamerscanget a lot of goodaction,andgameconsoles alsotendto be muchmoreconduciveto socialinteraction."Ryonnotes willing to spend$2,000for a PCwill alsospend$150for thathouseholds a dedicatedgamebox to maximizeentertainment investment.
Theopeningfor PCCD-ROM,accordingto Dataquest, wasthatsettop boxeshave abouta 4 year re-prescription cycle. "The 16-bit is transitioningto the 3}-bitmarket, andthat allowedthe PC to comeinto the market,"saysRyon. Ryon believesanotherkey factor in the rise of the PC as a game platformis "thereis a lot of secondarystorageandRAIVI."Thathasmeant a lot for titles,sincetherehasbeena7SVocompound rateof growthin the numberof PCCD-ROMunitsshippedoverthelastthreeyears,basedon Dataquestestimates.
The "Btrz" in Cyberspace The recent spate of on-line game spectacularsand multiplayer gaming environmentsare proving to be successfulstrategiesin building communities of users that can generaterevenue streamsnecessaryto make a sustainablebusinessin cyberspace,and maximi ze the value of franchise titles. For example, Catapult Entertainment has sponsoredseveral national gaming tournamentsfor its 16-bit console-basednetwork, and The SegaChannel has used EA's sports (i.e. Madden Football) to generatea player enthusiasmand createan event atmosphere. There itre numerousways that event (i.e. gametournament)communities can be built, but it always comesdown to leveraginga "brand" (i.e. Madden's football franchise) forward or porting existing product to a new medium (i.e. Total EntertainmentNetwork's online service).But the true hallmark of thesegaming or pure entertainmentenvironments is that they are competitive by nature and are therefore designed to create a "social interaction" or social contractthat is technology-based.
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GASE STUDY Outer LimtsFranchise Goes Online MGll and Worldsr lnc. and MGM andWorldsInc.aretakingthepopularOuterLimitsfranchise While embracing it. around g auniqueonlinegamingexperience creatin the chaoticand organicnatureof the Web,OuterLimits can be crosspromotedacrossa varietyof media,includingcableTV andbroadcast TV. This helpsdrive onlineclick traffic, accordingto Ron Frankel,VP andGM for MGM Interactive. Supportingclick traffic at theWeb site,is the MGM parent.MGM which originally hasreceivedordersfor 44 moreOuterLimits episodes, syndication, in broadcast also are airedon Showtime.Thoseepisodes whichwill furtherenhancethebrand'svalue.MGM promotesthe series always on cablethroughbroadcastaffiliates,and thoseadvertisements (www.mgm.com). list the show'sWebsiteaddress for WorldsInc. says,"Cooperative KenLocker,VP of Entertainment gamingis the nichepositionthat MGM andWorldsInc. aretaking becauseit requiresplayersto work togetherto get to the nextlevel,andat the sametime it's conrmunnl"-for example,a joint searchfor cluesto entera new level. The companyhad plannedto closeits WorldsChat site,but userstold the companythey would pay to keepit up and ruIlning.LockerbelievesOuterLimitscanmakemoneyin oneof two ways: model(i.e.pay for time);or 2) Yrathebroadcast 1) By the subscription Thebroadcastmodeldeliversplayersand model(advertiser-supported). therefore,corporatesponsorship.
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But, MGM's Frankel saysthe gaming environment may not support the subscription model, and the venture will simply sell the client CDROM at retail. Locker believes,"The CD-ROM client could be bundled in along with Internetaccessprovider softwareand the site accessedwhen multiplayer play was desired.
GASESTUry OnlineDistributionNetwork Dwango Dwango's dial-up online gaming servicehas taken an even more radical approach to event programming by hosting tournamentsover its dedicated and proprietary game network. Bob Huntley, Presidentof Dwango says the company's whole model is built on two principles: it's important to make a local call to play and provide a "twitch" gaming service that could maintain low latency and data transfer rates demanded for real-time gaming. This requiredthe installation of point of presencesites acrossthe country. Dwango is adopting the subscriptionmodel and recently established a new pricing structure.According to Huntley, monthly accessis now $7.95 per month and worth five hours of play (about $1.50 per hour). Lobby or chat time is free. The company is still selling blocks of time, however,with 10 hours at $19.95, 20 hours at $34.95 and 40 hours at $59.95. Dwango's businessplan calls for setting up an additional 130 POP sites (in areas with a population of 250,000 ) over the next two years. Dwango partnered with Microsoft, id Software and GT Interactive to host a gaming tournamentbasedon the id's Hexen title, an extension of the Doom franchise. While a full-scale marketing strategy was not
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used,the partnerswereableto stimulatesubstantialplayerinterestand word-of-mouthbuzzbymassmailingdetailsof thetournamentto registeredusersof Doom.Thenext "event,"saysHuntley,will be a partnership with InteCorp and will exploit the company'sWitchhavenfranwill be basedon thethemeof theSt.Valentine's chiie. Thetotrurnament Day Massacre. andcable is nothingnew.Thebroadcast Evenso,community-building with years, albeit for model that on thrived and survived have TV models niche is in cyberspace difference key The a heavydoseof adsponsorship. communitiescannotonly be courted,but the early responseindicates andgamingexcitementthat usersarewilling to pay for theconvenience fact shouldgive title developers That offer. these"event"environments somethingto smileabout. "event"buzztypicallydrives It's alsogoodfor specialtyretailbecause more foot traffic at storefronts,which makesup the bulk of software sales,andit will continueto do sofor yearsto come.
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to estabIn today'smarket,it's a muchsafermarketplay for developers with larger,more establish publishingand distributionarrangements lishedpublishingcompaniesthat haveboth proprietarymarketingand salesforces.It's thesameevolutionHollywoodstudioshavegonethrough overtheyears,andit alignsproductionwith powerfuldistributionassets. haveall the But, evena largepublishinghousedoesnot necessarily businessrelationshipsto fully maximizethevalueof a franchiseproperty.Thereis a lot of marketvolatility anda significantdegreeof market consolidationripplingthroughthe industry. and intenton creatingoriginalcharacters For thatreason,developers storiesshouldattemptto retainasmuchcontrolovercopyrightsasposthat'swherethelong-tennreturnon investmentnumbersis siblebecause generated. It's a difficult balance,however.Interactivepublishersdon't havethe skill setsto go into Hollywoodandmakea featurefilm outof proprietary alliThereverseis alsotrue(witnessAcclaimEntertainment's character. There Forever). game Batman title the develop ancewith WarnerBros.to andallianceswoven arealwaysgoingto haveto bemultiplepartnerships togetherto exploita title throughmultiplewindows.
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CASESTUry Disneycreates MerchandisingHistory Pixar's Toy Story WaltDisneyis reallythemerchandising modelto emulatefor title developers.Thecompanyhasfine tunedthebusiness of franchiseexploitation to a fine art.For example,thereleaseof ToyStorywasuniqueb".unseit was the first time Disney used a World Wide Web site (http:ll www.toystory.com) asa cross-promotional tool to coincidewith a film's release.It was alsothe first time Disneyreleaseda motionpicfuretitle day-and-date with its videogamecounterpart. The video girmewasmadeavailableat retail (includingtoy stores, massmerchants, computersuperstores andsoftwareboutiques)day-anddatewith thereleaseof thefilm andwasdesignedfor plafon SegaGenesisandNintendoSuperNESplatfonns. For Disney,lining up merchandising partnersis a little like settinga holidaydinnertableanddecidingwhich candelabra is moreappropriate. Basically,Disneyassembles a groupof potentiallicensert*d presents thepropertiesto them,andeachdealis thennegotiated separately. Disney's othermerchandising partnersfor Toy StoryincludedBurgerKng, Frito Lay,Minute Maid, NestleandPaylessShoesource. ft's quitr a line up. Otherwise,themerchandising of ToyStoryis thetypicalfull promotionalprogrampresshonedto exquisitedetailby Disneyoverth; years. What'sironic is that ToyStorymightendup beingoneof thecompany's biggestmerchandising successes of all time, despitethe fact thai it did not havethe promotionalpushgivento PocahontasandTheLion King. Disney'sgreatestretailmerchandising (sofar) rs TheLion King, success whichgenerated over$1billion in worldwideretailsaleswithin six months of its theatricalreleaseandis well beyondthatfigurenow.
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For an averageHollywood licensee, royalties range of about 7VoISVq Disney properties,however, typically go well abovethose figures. Toronto-basedThinkway Toys is Disney's partner for doll merchandising of Toy Story characters, and sales of Cowboy Woody and Buzz Lightyear figures sold out fast. Disney ships merchandiseto its network of 450 sfudio storesworldwide and other retail outlets. Nestle USA recently signeda l0-year merchandisingagreementwith Disney to do promotions for such items as Pocahontas and Lion King chocolatebars.According to Nestle, the chocolatebars ure great impulse buy products. There is also the Toy Story soundtrack, featuring songs written and performed by Randy Newman. These are a few of the secretsto interactive moving into mainstream revenuesuccess.
Licensing While somehigh-profile,heavilypromotedinteractivetitles canindeed breakinto profitabilitythroughtheretailwindowexclusively,this is not the casewith the vastmajorityof titles. Developersandpublishersincreasinglymustlook to ancillary,aftermarket windows to help defray the costsof productionand reachthe maximumnumberof "eyeballs."Licensingis a Hollywoodtraditionthat hasturnedinto a hugerevenuestreamfor savvyrightsholders.Hollyto I57othat wood licenseestypically averageroyaltyratesof aboatT%o go properties north of those typically flows backto licensors,but Disney figures. Interactivetitle developerssimply cannotafford to ignorelucrative merchandisingwindows that other entertainmentmedia are driven through.Accordingto KarenRaugust,editor of TheLicensingLetter, productsasa wholein 1994hadgrossretailsales entertainment-character for the U.S.andCanadamarketsaloneof $t2.2 billion--up9Vooverthe previousyear.
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SALESOF LICENSED MERCHANDISE 1982-1 994(ln $eillions) Year 1982 1983 1984 1985 1986 1987 1988 1989 1990 r99l 1992
r993 r994
Tlotal 20.5 27.0 40.0 50.0 55.0 56.0 60.0 64.0 65.0 63.0 61.0 69.0 70.0
VoChg. 3l.7Vo 4g.tvo 25.UVo l0,Uvo l.8Vo 7, l v o 6.7V0 l.6vo
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Source:Analysisof EPM Communications,Inc. da
In 1995,thatfigureshouldgo evenhigherwhenall themerchandising effortsbehindApollo 13,CasperBatmanForever,Jumanji,Cutthroat Island,TheX-Files,Mortal KombatandToyStoryarefinally talliedup. On a worldwidebasis,moviestudiosandotherentertainment giants generate about.z|Vo of the$98billion in retailmerchandising of licensed products.The U.S. and Canadaaccountedfor the largestpieceof that retail segmentin 1994,with about$70 billion in grosssales(seebar graph).In fact, merchandising of film characters really was startedby Disneybackin 1929,with Steamboat Wlly, But themarketreallytookoff in 1977,whenlicensingof Star Wars figuresturnedinto a merchandising gold minefor LucasArts.According to Len Reiterof BradfordLicensing,a dealis 'trsually basedon an advancepaidto rightsholdersagainsta minimumguilantee,andtheguaranteeis againstroyalties." Today,oneof theboommarketsgoingforwardinto the21stcentury is shapingup to be mixing Hollywoodcreativetalentwith thecomputer industry'spenchantfor workstationproductivityandquality.
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Moreover, retailersget excited aboutthosetype of day-and-datedeals, too, becausea picture createsa lot of foot traffic (and sales),oncethe title hits the theatrical exploitation window. With a film like Toy Story, there was a tremendous amount of "hype" built up by virtue of the Disney name and its promotional budget. For example, The Lion King generatedover $1 billion in worldwide merchandisingrevenuewithin six months of its theatricalrelease.Whenever any interactive publisher looks at original content, they consider that, in success,how the company might be able to translatea character into another aftermarket. But, Raugust says many interactive developerssimply haven't had the time to seriously begin licensing thrusts becausethey ire still focused on cranking out marketable titles to sustain their business.And beyond that, unless a title has "sales of a minimum of 1 million units, they don't really have a realistic shot at alicensing deal." Reiter says, "There is no substitutefor software that is selling successfully." He further suggests,"Ifthere is a ceiling for the softwaregetting incrementalexposure,then publishersneedto find ways to get additional exposureto the massmarket; but licensing is probably the last step in that exploitation chain." One thing that the industry has not been doing is a concertedmarketing effort on a per-title basis.For the most part, what we've seenis that publishers will take a title as part of their marketing campaign and place five or six titles on the sirmepage.Advertisers, publishers and developers must go after a specific demographicin the marketplacethat can be qualified, quantified and compelled to try the product. Developers must know who their audienceis, where those eyeballs reside,and how bestto deliver messagesto thoseeyeballs.Without communities of interest and a reasonablepromotional budget, it will be very hard to createa streetbuzz abouta specific title.
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APPENDIX
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Publisher: DevelopmentCompany: Content Rights: Budget: Break-€v€D(units): Platforms: Retail Price:
CreativeWonders€, EA Vortex Media Arts DIC Entertainment $500,000 60,000 PCA,IAC $49.95
Description:Madelineis a line of French chitdren'sbookswhich was first published in the 1930's.DIC Entertainment bought the rights to the project from the author in 1993 and produced a highly acclaimed animatedseriesfor Home Box Office and The Family Channel.
The Deal In L993, Michael Pole was an executiveproducer for Creative Wonders,a division of ElectronicArts. Michael believedthat the edutainmentmarketneededa recognrzed, franchizablepropertywhich could be marketedto girls in the 7 -LZ year old age bracket. He approached DIC to acquirethe electronicrightsto Madeline. Creative Wonderssecuredthe franchisefor a low up-frontfee (plusroyalties)by assuringDIC that the producedtitle would containthe highestquality designelements. How wassucha dealpossible?Considerthatcurrentlicensingfees for brandedmediacharacters rangefrom $100,000 to $250,000.Production budgetsfor high-etrd,children'sedutainmenttitles rangefrom between$400,000and$700,000.Obviously,a licensingfeein the six figureswould leavelittle moneyfor the publisherto developa title with qualityproductionvaluesandstill turn a profit. CreativeWondershadto
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performa "song & dance"negotiation.It hadto convinceDIC that the iong-termben"lit of licensingits contentat a lower, up-front licensing fee outweighedthe shortterm, lower cashinfusion. Such benefitsincluded: Association with multimedia software of award-winning caliber Branding the Madetine name into a new market-multimedia Free, collateral publicity for DIC's television pnogram from publisher's media campaign for the title
In instanceswherecompaniesare willing to becomepartners- as CreativeWondersdid with DIC for the Madelinetitle- a publisher& licenseecanproducea top-notchtitle in a cost-effectivemanner. There arecompaniesthat havemadea nitmefor themselvesby acquiringbrandedcontent- particularlySunSoftandAcclaim. In instances wherethey paid too much moneyfor licensingrights, they often had little moneyleft over to properlydevelopthe title. Consequently,the title did not alwaysperformup to expectations- both in its gameplay and retail salesresults. While the interactivemarketis in its infancy, high licensingfees do not benefit the publishernor or licensee. The formula for successlies in a true partnership- the licensee,publisher anddeveloperworkingtogetherasa leanproductionentity- while sharing in the back-endrewardswhena quality title wows the consumer.
Development Michael had a prior relationship with a company called Lil' Gangster Entertainment- a developmentcompany known for creating high quality animation for top interactive title publishers in Hollywood such as Virgin Interactive, Electronic Arts and Disney Interactive. Michael felt Lil' Gangstercoutd handle the animation work an Madeline, but felt the firm lacked the technology to produce the entire title in-house. When Lil' Gangstermerged with a technology company, Creative Vision (the creator of BuzzAldrin's Race Into Space),the new development house
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was able to securethe Madeline deal with CreativeWonders. The merged entity, now called Vortex Media Arts, has gone on to land production dealswith Fox Interactive(Digital Springfrelfi, Hasbrc (TonkaConstruction) and Electronic Arts (Bump in the Night).
ProductionConsiderations With the moneysavedby acquiringtherightsto Madelineat alow, upfront licensingfee,CreativeWonderswasableto allocateafair amount of moneyto the "on-screen" elements of theproject.Many of theartists now workingfor Vortexhadprior experience with theMadelinecharacter duringproductionon the animationseriesat DIC. This loweredthe "learningcurve"for thetitle'sdesignwork.Additionally,theproduction teamutilized an established engine(a customauthoringtool set)previouslycreatedby CreativeVision. Thismeantthatthetechnology"learning cunre"wasalsokeptto a minimum.Theuniquecombinationof these business anddesigncaveatsallowedCreativeWondersto publisha topcalibertitle at a substantal lowercostthanusual. This is oneexampleof how the interactiveindustryis streamlining its productionprocessto minor the "bestpractices"of the Hollywood moviebusiness- wherepartnerships betweenpreviouslyunrelatedcompaniescreatespowerfulnew alliancesandproducts.
PromotionlMarketing GiventhatMadelinewaspreviouslyknownasa book andbeingdevelopedas an animatedcartoonseries, Madelinewasvery recognizable to retailers(it didn't hurt that manynationalsalesrepsnow in the interactive softwareindustryareformerbookandtoy repseither).With a little extracashin themarketingbudget,CreativeWonderswasfreeto distributeeye-catching, stand-alone displayswhichwereproudlyplacedin the front sectionof manyretail stores.The display- a combinationof toy, software,dolls,booksandvideos- werepresented just in time for the Christmasbuyingseason.
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It is important to note that the in-store promotions would have fallen flat if the title itself wasn't everything that the buying public expected from a brandedcharactersuchasMadeline.The Madeline dealultimately paid off for DIC in the back-end.Based on the praise generatedfor the multimedia title, combined with ABC's needto pick up quality children's programming, the network picked up the animatedversion of Madeline from DIC and aired it all season.
Publisher: DevelopmentCompany: Content Rights: Budget: Break-€Y€D units: Units sold as of June 19962 Platforms: Retail Price:
Graphtx Zone Graphix Zone Columbia Records
$650,000 45,000 93,000 PCITVIAC $59.95
Description: Highway 61 Interactive is a compilation of the events and major works of singer/songwriter Bob Dylan woven into an exploration of Bob Dylan's music. The strategy behind the CD-ROM was to present the artist in a way that the user comes away with a greater appreciation for the artist's work.
Acquisition/Rights The major issue with any music CD-ROM is to clear the publishing and performance rights. That was made slightly more complicated in the case of the Dylan CD-ROM becausesome concert footage had to be securedfrom private sourcesand agreementshad to be securedfor those properties based on the amount of material used, with an
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assessment of what that material might be worth in the format presented. In the case of Dylan, however, most of the publishing and performance rights were held by Columbia Records, which made researchmuch easier. Once given the '6OK" by the artist and record label, it was then easy to go about determining what shape the licensing agreementwould take.
Developer/Partner GraphixZoneproducedandpublishedthe Dylan title. In addition,the company producedoriginal video for the project. Graphix Zone createdeverythingbut the music,which was compiledfor the disc by Bob Dylan. The productwas assembled usingthe Apple Media Tool andoriginalsourcecode.
Promotion/Marketing The artist, Bob Dylan, is well known to music retailers, mass merchantsand consumersof all age groups.Thereforethe title was easily positionedin a numberof retail outlets(recordstores,mass merchants,specialtyvideo and computersuperstores). When a wellknown artistis the basisof a CD-ROM title, marketingexpertsknow how to exploit the artist's name to maximize press coverageand ultimately,sales. The Dylan title was launchedwith a "premire" party at Bob Dylan'sNew York studio,which wasattendedby RogerMcGuinn and Al Kooper (key channelpartners).Launchpartieswere thrown in a numberof cities with additionalchannelpartnersin attendence. The partiesprovidedthe "story" for the PR machineto kick into gearchurningout advancerelease"hype" for radio stationpromotionsand musictradepresscoverage.This freepublicityprovidedthe salesforce with the necessary"hook" to sell the title into the channel.By
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informing the pressand key music organizationswell in advanceof the title release,Graphix Zone was able to sustainthe presscampaign until the title's natural releasedate. Graphrx Zone was able to continue this PR push by entering the title in numerous multimedia contestswinning 25 of them. The most prestigious award won was Byte Magazine's Top I0 CD-ROMs of AII Time award. The title went on to garner positive reviews in newspapers and periodicals across the country, helping to expand retail salesefforts.
Publisher: DevelopmentCompany: Content Rights: Budget: Break-€Y€D(units): Platforrns: Retail Price:
MCA Media X MCA $625,000 55,000 PC/]\,IAC $49.95
Description: B.B. King seemed a particularly good subject for a CDROM because of his personality-he is the quintessential charming story teller with southern charm. He is also an icon in the blues community. From a marketing perspective, it just doesn't get any better. His appeal flows acnossall genders, all races, and all ages.
Development Alex Melnyk was MCA Music's VP of Interactive who helped launch the B.B. King title. Before deciding on B.B. King as the focus for MCA's first music CD-ROM title, she looked at several possible properties and charactersupon which to enter the interactive universe.
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Her feeling was that the world wasn't quite ready for a full-blown onlinetitle, mainlybecause of bandwidthconsiderations. Shefett that CD-ROMswhich werebasedon strongmusicalidentitieswith a body of work of which to drawupon,wouldbe the bestbet for MCA's first time out of the interactivechute. Of all of the differentpropertiesthat MCA owns,a B.B,King title seemed to havethemostpotential.
Acquisition/Rights MCA has some very stable artists which are known as "bread and butter artists." They no longer sell millions of albums each year, but they generatea fair amount of salesrevenueyear-in and year-out. B.B. King, a legend in his own time, is one such artist. The acquisition of rights were a painlessprocesssince MCA and B.B. King had a long, healthy relationshipdoing businesswith eachother.
Developer/Partner MCA initially put together a production team, and was sorely disappointed by the team's first effort. After six months of disappointing results, MCA pulled the plug and start all over again with a new developmentteam. The new development team, Media X, did something pretty remarkable. They took a miserable project and completely re-created everything. Alex Melnyk hired a writer named Michael Shaun Conaway, who wrote the treatment,the script and the branching in five days. The developersthen alranged for the blue screenvideo shootsand other productiondetailswith B.B. King. B.8., a CD-ROM aficionado, was very involved in the whole developmentprocess. He was even involved in reviewing the projects scriptsand treatments.Media X and Melnyk sifted through every information resource they could find relating to B.B. King and his work, including museums and library archives. They gatheredtogether the necessarymaterial, cleareding all
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of the music, publishing and media rights. In short, they went from inheriting a dismal project to delivering a finished gold master in less than six months, including new video shoots,content acquisition and programming. Media X really savedthe day in terms of their ability to contribute to both the creative processas well as doing a bang up job putting the title together.
Promotion/Marketing The B.B. King title was placed in music storesover software channels by a ratio of 60:40, One of the most prominent in-store displays was made possiblethrough a deal with the Tower Recordschain. The title also lent itself extremely well to the book channel since the disc contained a rich history of B.B.'s music, &s well as a history of the music early scene. MCA did a truckload of audience research and found out everything there was to know about B.B.'s fans, his record sales (where his music sold well and not so well), what kind of channelsthey sold through, and his concertdemographics. The company also worked very closely with BB's manager (Sid Feinberg,who has been B.B.'s managerfor 30-odd years). MCA took the time to get know B.B.'s audienceand then utilized that knowledge to their advantage. It has been said by many that record label marketing leaves a lot to be desired. It tends to follow the software model and yet it is selling what is fundamentally an entertainment product. Working within a tight budget forced MCA to get creative with both its marketing campaign and marketing buck. The music giant even created stickers and slappedthem on the bin cards in the B.B. King Blues and R&B sectionsof record stores. The stickers say things like "now available, B.B. King has gone interactive," pointing the customer to the CDROM. Luckliy for MCA, B.B. was ringing in a "big" year. He won the coveted Kennedy Award, appeared on The David Letterman Show,
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celebratedhis 70th birthday yea\ and celebratedthe 25th anniversary of his single biggest hit, 'nTheThrill is Gone." MCA even installed a web site two weeks before product launch (www.mca.com).
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PATENTSAND CORPORATEUTIGATION: PRACTICALOBSERVATIONS AllenS. Melser Popham,Haik,Schnobrlch& Kaufman 1450G Street,N.W.,Suite800 D.C. 20005-5717 Washington, (202',) 824-8013 melsera@ PoPham.com
Synopsls Thosewho have experienceda patantlitigationknowthat the drainon monetaryand humenresourcesis enormous.This is due h largepartto the complex natureof patentlitigationand the volumeof paperworknecessaryto put on a patent case. A majorportionof a patentlltigationis directedtowardinvalidatingthe patentin suit. Manyof the activitiesthat take placepriorto the issuedate of the patentare of the great importanceto both th€ patentownerand the accusedinfringer. TherEforE, beglnningof this articlepresentsa generaldiscussionof what a pat€ntls, how a that go lnto filingand prosecutinga patentis obtained,and some of the considerations that patentapplication.The rest of the artlclegenerallycoversthe conslderations mustbe takenintoaccountby in-housecounselwhenlacedwithtrial preparation, discovery,and dealing risk analysis,damageanalysis,costcontainment, infringement with witnesses.
About the Author propertyattorneywhosepracticeconcentrates AllenS. Melseris an intellectual and enforcingdomesticand foreignpatentrights. He heads on procuring,maintaining propertyand technologylaw group. PophamHaik'sintellectual @ 1995AllenS. Melser
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INTRODUCTION Those who have experiencedpatentlitigationknow that the drain on monetary and humanr€sourcesis enormous.This is due in largepartto the complexnatureof patentlitigationand lhe volumeof paperworknecessaryto put on a patentcase. A major portionof a patentlitigationis directedtowardinvalidatingthe patentin suit. Manyof the activitiesthat take placepriorto the issuedate of the patentare of great importanceto both the patentownerand the accusedinfringer. THE NATUREOF PATE}.ITRIGHTS A U.S.patentis a rightgrantedby the Federalgovernmentto preventothers from making,using,or sellingthe inventioncovsredby the patentin the UnitedStates. The rightis enforceablein any Federaldistrictcourt,even if the infringerdiscovered the inventionby innocentmeans,such as his own experimentation. A U.S.patentis not enforceableoutsidethe UnitedStates. Threetypesof patentsare granted: (1) design,(2) utility,and (3) pfant. A designpatentcoversthe ornamentalapp€aranceof an item,and is primarily of valuein protectingthe aestheticaspectsof articlesof manufacture, such as furniture,ashtrays,and similaritems. However,designpatentscan also be of valueof protectingthe ornamentalappearance of moremundaneitemssuch as toolsand machines.Recently,designpatentshavebeengrantedfor iconson videodisplay screens. A utilitypatentprotectsthe mechanical, electrical,chemical,and/orfunctional aspectsof an invention.A utilitypatentincludesa detailedwrittendescriptionof the invenlion(referredto as the 'specification') and at leastone, and usuallymore, 'claims' consistingof a conciselistingof
structuralcomponents and functional
limitations(or methodsteps)of the Invention.The claim(s)definethe scopeof
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coverageof the patent. Utilitypatentsare usuallymoredifficultand costlyto obtain than deslgnpatents. A plantpatentcoversany distinctand new varietyof plant,Includingcultivated spores,mutants,hybrids,and newlyfoundseedlings,otherthan a tuber,propagated state. plantor a plantfoundin an uncultivated A patentapplicationshouldbe liled as soonas possiblEafterthe inventionhas oublicdisclosureto othersor been completedand beforetherels any unrestricted publication.Thls is oftennecessaryto obtainforeignpatentprotection,becausemany countries,includingthose in the Europeancommunity,subscribeto an absolute noveltystandard. doesnot give any legalrightsotherthan the The filingof a patentapplication can copy an inventionup lo rightto markthe invention'PatentPending'. Competitors the date of issuanceof lhe patent. All petentappllcationsmust be filed in the nameof, and signedby, the actual or transfersof patentrlghtsshouldbe recordedin lrue inventor(s).All assignments the U.S. Patentand TradEmarkOtfice('PTO'). Amongotherthings,a validU.S.patentcannotbe obtainedif: (1)
The inventionis so closeto publiclyknowndevices(disclosures of prior patents,and the like)as to be obviousto a personof knownpublicatlons, ordinaryskill in the art to wlrichthe patentis directed;or
(2)
The applicationis fifed morethan one year followlngpublicuse or placingon sale of the inventionin the UnitedStatesor disclosureof the inventionin a publicationanywherein the world.
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"Patents and Corporate Litigation: Practical Observations" courtesy of Allen S. Melser @ 1996
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Beforeproceedingwlth a patentapplication,it is usuallydesirableto conducta preliminarypatentabilitysearchhrough the publb recordsof the PTO in an effortto uncovsrpriorpatentsrelevantto the subjectinvention.The searchindicatesthe scope of protectionthat may be obtainedand preventsfiling ol a uselessapplication wherelhe prior patentsindicatelhat the inventionalreadyexists. lf the searchis favorable,a patentapplbationls preparedand submittedto the inventor(s)for inspectionand signingprior to filing in the PTO. Most patent applicatlonsare reiectedat leastonce by the PTO,and applicanlsshouldexpectto file one or more responsssto such rejections. In circumstanceswhere largescale use, manufacture,and/orsale of an inventionis contemplated,it is highlydesirablethat the questionof possible infringementof currentlyenforceabbpatentsownedby third partiesalso be investigaledat ths same time that the probablepatentabilityis investigated.The questionsof patentabllityand possibleinfringementpresentdifferentlegal how€ver,there is considerableoverlapbetweenpatentabilityand considerations; infringementissues. Conductlnga slmultaneoussearchcoveringboth the patentability and possibfeinfringementaspecls is conslderablymore economicalthan separate searchesat difforenttlmes. Investigation of the possibleinfringemantaspectsis quite time consumingand relativelyexpensiveas comparedwith a patentability investigation. A patentattorneycan also counselcompanieswith regardto settingup proper contractualobligationswith employeesto ensurethat the employerobtainstitle to inventionsof employeesand that employeesfollownecessaryproceduresfor protectingthe employer'spalentand tradesecretrights.
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PATENTL]TIGATION A.
Inltlal Gonslderatlons
decisionsgrantinghigh damageawardsserveto Recentpatentinfringement that remindcorporatemanagement patentsare importantand valuablecorporate assets. For a smallcompany,one key patentmay be the entirebasisfor stayingin business.On the otherside of the coin,a company'slegalstaffmust be raadyto defendthe entityfrom claimsof others. Corporatecounselcannotand shouldnot wail for problemsto occur. A companyholdingpatentsmust remainvigilantand readyto protectthese assets. At the same time, stat{attorneysmust be readyto defend agalnstchargesof infringoment.Theseprocessesrequireconstantmonitoringand propertyand keepthe control. The trick is to bothprotectthe business'intellectual companyfrom becominga defendantin a patentsuit. alleging defendantmay asserta counterclaim A patentinfringement of a differentpatent. Anotheralternativeis attemptingto invalidatethe infringement plainliff'spatgnt. The choicesare numerousand corporatecounselmust be awareof the dangersand pitfallsof patentpractice. A company'sattorneydoes not wantto firstdiscovera conflictov€r patent a patent rightsby receivinga ceaseand desistletterfrom a law firm representing liabilitywhenevernew owner. In-housecounselshouldanalyzepatentinfringement equipmentis developed. InfrlngementFlsk Analysls legalcounselshouldassessthe risk lf a businessis accusedof infringemenl, presentedby the clalmof infringement.This assessmentusuallytakesthe form of a 'best case' scgnario, reviewof the'best casg' and 'worstcase' scenarios.Undera and claims the companyconsidersthe issuesof liability,defenses,counterclaims,
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againstthe plaintiffand third partiesin the most favorablelight possibleunderthe circumstancesof the case. In generaf,tha best case scenarioprovidesa framework for determininghow the companymightaggressively litigateto achieveoptimum results. One of the mostditficultpartsof this determination will be analyzingthe company'sabilityto handlethe litigationprocess.Generally,in-houseattorneysare paid to keepa companyout ol a courtroom.However,if the othgrside is boundand determinedto go to war, the time for diplomacymay be over and the companyshould considerhiringexperienced lrial counsel. Hiringoutsidetrial attorneysshouldalso be consideredafteranalyzingthe worst case scenario,in whichthe cornpanyassumesliability.Penaltiesand hardshipsmay includethe issuanceof an injunctionagainstthe companyand damages,costs,and with an increased,possiblytreble,damageaward. lees cornmensurate Althoughtime consuming,the studyof liabilityfor patentinfringement is essentialfor a completeappreciationof the risksof litigation.Often,the worst case scenariocan be summarizedas an injunctioncoupledwith the greatestmonetary awardpossibleunderthe circumstances of the dispute.The worstpossibleinjunction is usuallyone which compelscompleteand immediatecessationof the infringing activityand a deliveringup of all infringingmaterialsor inventory.The monetary awardmay includedamages,prejudgmentinterest,a punitoryincreasein the award, and the patentownsr'satlorneys'feesand costs, Theseelementsare designedto restorea patentownerto the financialpositionit wouldhave occupiedhad the infringernot engagedin the unlarvfulconduct. An accuratestudyof the worstcase scenariois especiallyimportanttoday,becausethe growingtrend is to try patent infringementcases beforejuries,ratherthan beforea judge.
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C.
DamageAnalYsls
froma businessperspective, Damageanalysisis at the heartof determining, what the company'sresponsewill be to ceaseand desistletterfrom a patentowner. Thereis no simplestandardrule of damages,but rathera flexiblearrayof applications to tit the proofsavailableto the damagedparty. Theoriesof recoveryIncludelost profits,establishedroyahy,reasonableroyalty,and comp€nsationfor miscEllaneous expensesand injuriesas a resultof the infringement. D.
Role of In-HougeCounsel
Whendiscussingthe interplaybetweenin-housecorporatecounseland trial of each mustbe well-defined to avoid counsel,the dutiesand responsibilities confusion.Somedecisionsshouldbe madelong beforeany specificlitigationis such as (1)what the companyshoulddo beforelhreateningto sue, (2) contemplatsd, to litlgation,and (3) whetherit is more whethernegotiationis a validalternative importantto strengthenthe company'scaseor to attackthe otherparty'sarguments. lf insidecounselcannotmakethesedecisions,outsidehelp is clearlyneeded. Onceoutsidecounselis selEcted,the attorneysmustwork togetherpreparing lor defensesand/orcounterclaims.One approachis to leavethe responslbility preparingthe corporation's casewith in-housecounsel. Assignthe lawyeror lawyers hiredfor the instantdlsputethe task of attackingthe olhErside. In general,corporate counselmakessubstantivedecisionsand sets policy. Trial counselhandlestactics and strategy. Underlhis divisionol labor,in an actiondefendinga patent'svalidity,a buslness'legalstaffwill spendtime colleclingsupportingmaterialfor the patentIn question,and documenlingnon-infringement of an opposingparty'spatent. lf a corporationhires outsideassistancein an actionto shut down an infrlnger,the
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shouldbe handledby in-housecorporatecounselor outsidecounsel. One reason suggestedfor avoidingoutsidecounselin a settlementsituationis to cut downon the involvedbetweenattorneyand clientin amountof backand forthand cross-checking any settlementnegotiation.By the sametoken,outsidecounselcan act as a buffer betweenthe disputingparties. The decisionwhetherto negotioteinsteadof litigateshouldbe made by inhousecounsel. Whileit is truethat sometrialattorneysare by natureadversarial and outsidehelp can also be employedeffectivelyin settlementtalks. conlrontational, Therefore,part of this processinvolvesa decisionas to what kind of outsidecounsel as tigersin the shouldbe engaged. Somepatentfirmsmadetheirreputations courtroom,whileothersare very goodat hammeringout settlementagreemsntsand battle. avoidinga winner-take-all F.
Dlscovery
An entirevofumecouldbe writtenon the problemsof discoveryin patent litigation.The issuesare oftencomplexand confusing.Evenif outsidecounsefis not responsible for preparingmaterialregardingthe client'sproductsor processes,outside counselmustbe lully briefedregardingfacts,figures,and othertechnicaldata. Corporatecounselmust be readyto providetheir outsidecounterpartswith all the is attackingthe informationnecessary.Whetheroutsidecounsel'sresponsibility validityof the otherside'spatentwhilein a defensivepostureor provinginfringement in an offensiveaction,they wlll needlo knowall the detailssurrounding theirclient's litigatorcan preparebetterquestionsand employmore operations.A well-informed effectivetactics. for handlingall contactwith One strategyis to givetrialcounselresponsibility the court and with the other side. Discoveryrequestsare receivedand then passed ontothe client'slegalstatffor answers.In-housecounselpreparesthe material,which
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is returnedto the trialattorneys.At the samelime, a litigationt€am preparesmaterial to be servedon the opposingparty. The corporatelawyersgive the requestsand questionsa onclover and returnthemto the outsideattorneysfor service. Conductingand defendingdepositionsinvolvethe use ol skillsonly developed throughpractice. Experiencedtrial lawyerscan use depositionsas a way of prosp€ctive witnesses,askingcleverquestions,and allowingself-doubtto intimidating case wantsthis creepinto the deponent'sthoughts.A partyto a patentinfringement a partyto a patentsuit kindof attorneyon his side,or perhapsmoreimportantly, wantsan advocatethat can dealwith that klndof attorneyon the otherside. G.
Wltnesses
Everylrlal attorneyhas heardadvicelike,'let the witnesstell a story,'and patentlitigationis no ditferent.A tale of inventionand discoverycan be interesting and sxciting-- if you have a credibleand articulatewitnessand a lawyerwho can keepthe narrativegoingwithoutboringhis audienceor violatingrulesof evidence. Althoughexpertwitnessesare sssentialfor somephasesof a patentinfringement trial, a simplefact witnesswill otten be more etfEctive. Patentlitigatorsshoulduse expertsto coverhighlytechnicalor confusing topics,keepingin mindthe fact that the otherside has expertstoo. The secondword of the term 'expertwitness'is just as, if not moreimportantthan the first. All the technicalexpertiseor scienlificknowledgein the worldcountsfor nothingif the witness cannotrespondto questioningin a convincingmanner. Prolesslonalpatentlitigators shouldhave a list of expertsreadyto testifyon patentmatters. Attorneyslitigatingfor a livingknow who can reactto toughcross-€xamination froman opposingcounsel. A trainedlitigatorwill also be able to judgethe potentialof prospective witnessesalready familiarwith the case. In-housecounselknowswhat polntor ldeasneedto be broughtout or explained.Outsidecounselknowswhat kind of psrsonwill do the iob.
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"Patents and Coryorate Litigation: Practical Obserttations" courtesy of Atlen S. Melser @ 1996
The task a courtroomerpert is to presentand explainwith complexand often confusingdata in a simplestraightforward mannerto lead the trier of fact to an inevitableconclusion. lt almostgoes withoutsayingthat any witnesstestifyingas to prior art must be familiarwith the field. When provingpatentvalidity,expertsshould defineand pay tributeto the inventiveconceptof the patentin question. Naturally,a witness testifyhg to defend an infringementchim is expectedto demonstratethe obviousqualitiesor the non-orlglnality of the subjectpatent. Withoutthis kind of testimony,it may be ditficultto provethe noveltyand beneficialaspectsof a particular apparatusor method. At some point,probablysoonerthan later,sleerts becomeboring. Any change of pace can reawakenjuror or judicialinterest. The tricksof the trade are reallyno differentthan any other kind of litigation.Visualaids, charts,and diagramscan be helpful. Complicated mechanisms or processesmakea lot moresenseif the witness can demonstratewhat she is talkingabout. A corporation'swltnessee,often employees,would be best preparedby outside counsel. Unaffiliatedcounselis lags likelyto makeassumptionscommonbetwsencoworkers. Everyonewho worksfor a companyproducingspecializedproducts,from the receptionistto the legal staff,will have some knowledgeof the goods in question. An outsiderbrlngsfresh perspectiveto the situationand knowswhat kind of questions someoneunfamiliarwith the deviceor irJeaon trial wouldask. Conversely,inside counselsttouldbe responsiblefor exphiningthe productor idea to expertsprocured by trial counsel.
lv.
coNcLustoN
The foregoingrepresentsa broadoverviewof patentsand patentlitigation. lt is the hope of the authorthat this articlewill give the readera better understanding of the complexissuesthat arise in patentlitigationand a feel for the desirableinteraction betweenin-housecounseland outsidetrial counsel.
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"Patents and Corporate Litigation: Practical Obserttations" courtesy of Allen S. Melser @ 1996
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S"ltrnat Dtqclafa'o,h|thl Pr,lrl;"rl':"r.tAgrrt^'"^l
SOFTWARE DEVELOPMENT
as
of
THIS -
AGREEMENT
AGREEI{ENT is made beEween ![$ offices at, sher" ) and wieh offices corpo r a t , i o n ('DeveLoper').
SOFTWARE DEVELOPMET.IT AI{D PT'BLISHING (the DaEeo) by and "Effect,ive
a pelaware corporar,r?Tr$iil
@, I'IULTII,IEDIA at
AI{D PUBI,ISHING
DEVELOPER.
INC.,
a Delaware
RECITALS A. Developer wishes t,o produce muE,ually accept,able specifications.
upon
B. program.
Publisher
wishes
to
a mult,imedia
retain
Developer
t,o develop
the promises Publisher
NOW, THEREFORE, in consid,erat,ion of covenant,s and agreemenE,s seE, forth herein, Developer agree as follows: Section
progr€rm
and and
based
the
mut,ual
1
Def initio.nsi.
the
be
1.1 Proqram. working title
as
L.2 set
nProgram' "-'
means the described
Specification. "specifications' forth in Schedule "Au of this
prograrn sof tware with in Ehe specif ications. for t,he Program Agreement.
shall
1.3 source Materials. Mat,erials, "source means the source code, documentation, notes and other naterials and conEenE, produced or creaEed by Developer during t,he development, of the Program, in such int,ernally documented form as is actually used by Developer for development and maint,enance of the program, (i) together with all software t,oors, development, alds ind technlcal docunentat,ion creat,ed by or for Developer, €rs t,hey may be modified, corrected or added to from time to time, that ire necessary or helpful in the modificat.ion and maintenance of the Program, and (ii) the narne of a person or persons knowledgeable about and familiar with the source code whom publisher may guestions conLact with thereon. nDevelopmenE and pavment schedule. _t_-4 Dgvelopment uB. t,o ttris schedule' shal1 be as seE forth In sched\ile Agreement which list,s the deliverable icerns conEracted for ('Deliverables') 'payment and the deadlines for their delivery. . B ' . schedure' shalr be as arso set forth in schedule 'Alpha 1.5 Alpha copv. copyn means Program which includes all interface ar!, progranming, all navigational voice-overs,
a version of the all navigational alr music, and
"Software Developer and Publishing Agreement," courtesy of Thomas J. Ceryantez and the law firm of Pillsbury, Madison & sutro, Irp @ 1996
zzs
Al.trrtr/;*
represent.ative examples photos and t,ext displays.
of
all
content
including
movies,
still
'Beta 1.5 BeE,q copv. copy means a working version of t,he _ Program recorded in executable form on the specltiea medium with any necessary support,ing software and dat,a, which has been fully tested by.Developer.prior to derivery and which Deveroper believes in good faith to be bug frel and t,o fully irnpiemenr all funct,ions called for in t,he Specifications L.7 Final copy" means a non-copy protect,ed "Final Qgpv. _ and unencrypt,ed disk mast,er of the program, recordla in executable fonn on Ehe specified mediurn with any necessary supporcing software and daEa, ds t,o which all dlvelopmenE work hereunder, and coruecE,ions to the Bet,a Copy, have beln complet,ed prior to the delivery thereof t,o publLsher, Devlloper _anq.which, believes in good faich to conform in arr respect,s E,o the Specif icat,ions. 1.8 CollaEeral MaEerials. Matelials. means "Collateral graphics any art work, or writ,t,en copy for packaging, disk labels, manuals and related maEerials, if dry, which are developed by Developer for use in association wit,h the program. Developer shall be under no obligation to produce Collaceril Mat,erials. _ 1.9 code copy associated Publ.isher
product" Licensed Prqduct. means an objecL "Licensed of t,he Program t,ogeE,her wlt,h packaging, manuals ana maLerials whlch are either independencly developed by or which incorporate collaBeral Mat,eriar.i.
'Net, Receipts" 1:10 Net Receipts. means gross receipts actually received by Publisher from the sale or sublicense of Iricensed Products less cost of Goods, crediEs for discount,s, refunds, replacements and ret,urnsr or credlts allowed to products purchasers for the ret,urn of Licensed or as reimbursement for danaged Licensed ProducEs, incLuding returns for purposes. stock balancing No license fee shalI be payable on units of the Licensed Products whlch are sord at, or ress than, Publisher' cost,. 1.11
Trademarks. and
"Trademarks" means the words or a replacement, t,rademark.
oConversionn L.L2 means E,he Program as Qonversion. game or del,ivery modified for use on a compuE,er, video (e.g., t,echnology oE,her t,han the DOS or Macint,osh platform Windows, Sega Genesis System, 3D0). 1.13 Cost, of Goods. "Cost, of Goods, means the actual cost, to Publisher, of program media, manuals and other packaging collat,eral materials, maE,erials and shipping cost,s the Licensed Product,. The Cost of Goods is comprised of the 'En. ,E, contains component,s seE, forth in Schedule Schedule
for the
"Softvtare Developer and Publishing Agreement," courtesy of Thomas J. Cervantez and the law firm of Pillsbury, Madison & Sutro, LLP @ 1996
226
hl/u*x
A?rr*4^l furlctafao,r"ttul P4^lrl;"t/';",.t
year of the the first, be used for will Cost of Goods which of the Upon each anniversary Agreement. DaEe of this Effective and adjusted be reviewed Date, Ehe Cost of Goods shall Effect,ive Ehe Licensed actual CosE of Goods for Publisher' to reflect. 1., Product. ruh.r,ri) 1.14
\r I SEorv
Boards.
"Story
Boards'
means
graphic
displlys and the sequ-nce of those ffil depictions form. For purposes of this displays in hard copy or electronic Story Boards also include screen shots and graphics definit,ion, look and feel of the Program. which demonstrate the overall Sect,ion 2 DevelopmenE, and Deliverv
of Deliverables
2.L (a) and using Developer shal.l, in good faith commercially in accordance with reasonable effort,s, develop each Deliverable the Specifications. Developer shall deliver Deliverables which conform with the Specif icat,ions. Once t,he Specif icacions and St,ory Boards to be are accepEed, such accept,ance not withheld, or unreasonably Publlsher may requesE, rnodificat,ions addit,ions to the Specif icat,ions and/or SEory Boards. If the requested modifications require will dernonstrable addit,ional to be incurred by Developer, will erlpenses negot,iate Ehe parties any required in good faith modificat,ions to the development fees '8". set foreh in Schedule (b) A1I development work will be its employees at, Developer's offices. developmenE work shall be performed by hrithout, a suit,able of rights assignment
performed by Developer Developer agrees that independent, contractors agreement,.
or no
(c) Following execuEion of this Agreement during which any developmenE and/or tesEing hereunder remains uncomplet,ed, upon Publisher' reasonable request, contact, Developer shall or meet Publisher' with representat,ive, and report, all Easks compleEed and problems relating encountered t,o deveJ.opment and t,esting of Ehe Program. During such discussion or rneeting, Developer shall Publisher advise in deEail of any recommended with changes phases respect, to remaining of development in view of Developer's experience with Ehe completed development,. In Developer addiEion, shalI contact Publisher, represent,at,ive prompt,ly by t,elephone upon discovery of any event or problem t,hat will materially delay developmenE work, and Ehereafter, if pronpt,ly requested, confirm such report in writ,ing. Deliverv. 2.2 Developer shall deliver all Deliverables for the Program within the times specified in the Development, schedule and in accordance with the specif icat,ions. rn t,he event, a delay in the delivery of a Deliverable occurs for reasons which are solely attribuEable !o Publisher, one (1) day
"Sofrware Developer and Publishing Agreement," courtesy of Thomas I. Certantez and the law firm of Pillsbury, Madison & sutro, Irp @ 1996
2Zl
sharl be added t,o the due dace for derivery of the Deriverable for each day of delay which is at,tributable to publisher. Publisher shall be responsible for the delivery of check disks within one business day following receipt, of the submission Eo Publisher. Developer shall schedule said submission no less (24'l hours prior to the time said materiaLs are than twenEy-four subrnitted to Publisher. Publisher shaLl provide reasonable and prompE, t,echnical assistance in order for Developer to implement the Media vision movie compression and play back t,echnology. 2.3 MF$ner of Deliverv. DeveLoper agrees to comply with all reasonable requesEs of publisher as to the manner ofdel.ivery of aLl DeLiverabres, whj,ch may include derivery by elect,ronic means. Deliver v of Sour ce MaEer ials. Sir nul taneous l y w i c h the , 2 .4 derLvery of each Deliverable, ana arr addit,ions, correct,ions or enhancement,s thereto, Developer shall also dellver to PubliEher copies of aLl corresponding Source Materials. Section Test,ino and Acceptance;
3 Effect
of R e.i ec ti on
3.1 Testinq and Accept,ance Procedure. All Deliverables shall be thoroughry tested by Developer ana att neceEsary eorrections as a result, of such test,ing shall be made, pilor to delivery to Publisher. Upon receipt oE a Deliverable, bublisher wl l l , (l ) deter m i ne E,hat l n it,s r easonable discr et,ion either : the Deriverable conforms Eo Ehe speclftcaEions, accept che DeliverabLe and make Ehe rnilestone palment set, forth in Schedule n B '; o !, ( ii) pr ovlde Developer with wr it,Cen noti c e of Ehe aspects in whlch the Deliverable does not, conform to t,he Specificat,ions and request that, Developer correct said De l i ve ra b l e. 3 .2 Addit,ioqal Oa Passes. If publlsher request,s thaC Developer correct the Deliverable, Developer shall within five (5) calendar days of such notice, o! such 1onger period as Pubrlsher may alLow, submit, at no addit,ionar charge a revised Deliverable in which such errors have been corrected. upon receipt, of t,he corrected Deliverable zublisher may, in lts (i) accept, the correcBed Deliverable reasonable discret,ion: and ma ke th e milestone palr m ent set for th in Sche dul e ,8.,; or , (ii) request, bhat, Developer make furcher correcE,ions to Ehe Deliverable and repeat, the correction and revLew procedure set forth in this Paragraph 3.2. In the event zublisher determines, i n l cs so le discr etion, that, the Deliver able i s s C tl l not acceptabLe after the further coruect,ions, publisher may terminate this Agreement,. 3 .3 Check Disk. All check diskg neede d for the developmenE, and tescing of each plat,form of Ehe program witl produced by Publisher at, PubLisher' expense.
be
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"SoftwareDeveloperand PublishingAgreement,"courtesyof ThomasI. Cervantez and the lawfirm of Pillsbury,Madison& Sutro,,q, @ 1996
S"lfiuar Ducl4'"l'e*l /*l Pr^l,l;4t;q.tAgrrt*"^t
4
Section
Oualitv. agrees Ehat the Program Product, Developer 4.1 previously quality produccs consistent, with wiLl be of a high in mat,erial be free of defect,s and will developed by Developer in all mat,erial respecEs, and Ehe Prograrn will and workmanship descript,ions and other in aII respecEs to the funct,ional conform Developer agrees E,o f ix at, its contained in Bhe Specif icat,ions. which nay be discovered in the own expense any errors or defect,s for of one (1) year a period after t,he dat,e of Program accept,ance of the Final Copy by Publisher. Product.-.Suppgrt. In order to assist Publisher' 4.2 efforts its to provide cust,omers with Eechnical support, Developer agrees to provide Publisher wich reasonable technical for a period supporE and assisE,ance of one (1) year aft,er Publisher' at no addit,ional shipmenC of the Program expense t,o Publisher. Developer further agrees to inform Publisher, and prompt,ly Publisher agrees to inform Developer of any known defects or operat,ional errors in the Program. Section
5
Development 5.1 according Publisher'
Fees.
Prooress pay Developer Pavment,s. Publisher shall nB, t,o the payrnenE, schedule set, forth in Schedule acceptance of each DeliverabLe.
upon
5.2 payable . Any and all amounts t,o Developer hereunder shall be subjecc co all laws and, regulat,ions now or hereafter in existence requiring t,he deduction or withholding of payment. payable for income or other taxes by or assessable against, Developer. Publlsher shall have the right t,o make such deductions and withholdings and t,he payment thereof to the goverrunental agency concerned, and Developer agree that, it sharr make and prosecute any clalms whlch it may have with respect thereto directl,y with the governmental agency having jurisdiction over any such maEter. Section Riqhts
Conveved
6 to
pubLisher
5.1 Grant. In accordance with the t,erms and conditions of this AgreemenE, grants Developer hereby t,o publisher, it,s parent, subsidiaries, company and affiliates (a) for Ehe later of (51 years from the Effective (b) upon pubLisher, Dat,e, o! !+r" discontinuation of its distribuE,ion platforms of all of the 'Termn (the Program and exclusive ), the sole license and rights E,o modify, create derivat,ive works, including but, noE, lirnited eo sequels, use internally, manufacture, publicly use, reproduce,
"Software Developer and Publishing Agreement," courtesy of Thomas J. Cervantez and the law firm of Pillsbury, Madison & suto, LLp @ 1996
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Art ,/u
d i sp ra y, publicly.per for m, mar keE, dist,r ibute and s er r c opi es of t,he Program and Licensed product,s throughout the worLd, suuject, t,o the continuing license fee obligations set forEh in this AgreemenE. The right, to creat,e derivat.ive works (oEher t,han t,ra n sl a ti o ns) , incr uding but not limiced to s equeLs , s har r be su b j e ct to the ter m s set, for Eh in Schedule "D n. D i s c onti nuat,i on of the dist,ribution of the Program for purposes of this Section 5.1 means thac Publisher no J.onger makes att of the platforms of Program available to it,s wholesale or OEM customers. Developer shall provide Publisher with sixty (G0) days not,ice that, ir considers this AgreemenE,e>qrired for discont,inuat,ion of distribut,ion and this Agreement shall be deemed expired unless Publisher makes the Program available for dlst,ribution prior to th e e xp i raEion of said sixty ( G0) day per iod. U pon the e>
es of derivative works, modifications or sequels (other than conversions, E,ranslalions or similar tlpe d,erivat,ions of Ehe work) of the progrnm or in any advertising for t,he program. zubllsher agre-s chat Developer may nevert,heless use such licensed materiar in the progr€rm and Publisher, parent company, lt,s subsidiaries, affiliat,es and sublicenses will abide by the lLcense agreements made by Developer. Developer represents t,hat it, wilL noc use any material that is not, able to be fully ut,ilized in the Program and any and all verslons and conversions of the program. Developer will provlde Publisher with copies of arl ricense agreement,s for all materials that, Developer does not, own that, are incorporated into the program with the Beta Copy when d e L i ve re d . 6,2 Trademarks. Developer granE,s publisher the right, t,o reproduce, use and publlsh materials bearing t,he Trademarks in associaE,ion wiEh the Licensed Product, in accordance with che product approval and quarity contror procedures seE forth in this Agreement,. 6 .3 sublicenses. Developer her eby gr ants publ i s her the right Eo sublicense any and aII of the right,s set forEh in Sect,lons 6.1 and 6,2 . 5.{ Seouels and gther Derivative Works. Except as speeifically set forth herein, Developer Ehall have no right produce updat,es, sequels or other derivative works of the Program during the Tern. Publisher shall have the right Eo produce updates, t,ranslat,lons, sequels, and other derivatLve
to
"Software Developer and Publishing Agreement," courtesy of Thomas J. Certantez and the law firm of Pillsbury, Madison & Sutro, ILP @ 1996
230
S4lu,*r" fuuclat^tt4,r.l/d^l Pr,lrl;"tl':q^tAyrl"nt
works forth
of in
the
the Program during 'D'. Schedule
pursuanE
Term
to
the
E,erms set
in Conversions. Pursuant, to the terrns set, forth 6.5 nDn, publisher Schedule shalJ have the right Eo produce during of the Program t,o Developers Conversions the Term subject refusal righc of f irst, Ehe Conversions. During t,he to develop (6) months following shipment, firsc six the initial commercial shall of the Progran, Developer not have the right to request produce that a specific of the Program. zublisher Converslon (5) monEh period, After the e:
Fees;
7
PromotionaL
Copies
Rate. fn consideraEion granted for the right,s under Section 5 of chis Agreement,, and ior the other publisher imposed upon Developer, pay to sharr Ehe license fees and advances againsc, licensL fees set ,Bu and 'Cn. Schedules
7 .2 Pawment, schedule. Except, for the adv€urces set, f orth in schedule license fees or ocher payments "8", due under Ehis Agreement shall, be paid (45) days after within forCy-five the end of each calendar quarter in which Publisher rlceives Net Receipts, accompanied by a statement set,ting forEh the basis for the payment. 7 .3 Becords. accounc and records
Publisher agrees principal at, its
t,o keep accurat,e place of business
books of covering
"Sofiware Developer and Publishing Agreement," courtesy of Thornas J. Certtantez and the law ftrm of Pillsbury, Madison & sutro, LLp @ 1996
231
arl t,ransactions subject t,o a license fee or ot,her pa)rment, under this sectlon 7. upon reasonabre notice of not, less chan (1{)_,1"y", fourteen but in no event more than Ewice per year, Developer shall have the right to inspect, such books of lccounE, and records t,o confirm t,hac the correct, amount, owing Developer publisher under Ehis sect,ion 7 has been paid. shall mainca-in such books of, account and records which support each st,acemenC for at, least tr,vo l2l years af Eer t,he date ol the stat,ement,. 7 .4 cornpliance wit,h Tax Laws. payable Any and arl amounts to Developer hereunder shall be subject to a1r laws and regulaEions now or hereafter in existence requiring the deduction or withholding of payment, for lncome or oE,her taxes payabre pubrisher by or assessabre against Developer. shall, have the right, t,o make such deductions and withholdlngs and the palrment thereof to Ehe governnent,al agency concerned, and Developer agree thac it, shall make and prosecut,e any claims which it may have with respect, lhereto directly wich Ehe governmental jurisdict,ion agency having over any such matter. PTomotionaL copies. provide Publisher will Developer ? '5 with 25 copies of each plat,form of the program in retail packaging at no charge within L4 days of shipping. rn addit,ion, Developer shall have the right E,o purchaee zso copies of each plat,form of the Program packaging in retail per copy. aE, S_ promotional said copies are not, for resale and shatt uenPromot,lonaL conspicuously marked Copy--Not For Regale.,, No license fees shall be payable Eo Developer promot,ional for said copies. Sect,ion
8
property 8.1 ownership. riEle to all righE,s including but not limlBed patent,s, t,o copyrights, trade secreEs, names, trade and t,rademarks in t,he Programs, and the coLlateral Materials licensed under this Agreenent, are and shall remain the exclusive property of Developer. A1I copies of Ehe Licensed Product,e made Publisher, by or for program as well as any and all and collat,eral materiaLs developed by Publisher or f,or it.s benefit shall be and remaln the property of publisher subjecE t,o Developer's copyright ownership of the Program and Collateral, Materials. Publisher shall have the right to mark these publisher Publisher developed mat,erials with appropriate copyright and t,rademark notices. 8.2
AcknowleCaments.
(a) Publisher agrees to show t,he following Developer t,rademark and copyright not,ices on packaging, in the manuals disk labels for the Licensed Product,s as seE fort,h: Copyright 1996 Mult,imedia Developer, Inc. ALl" Right,s Reserved.
and
"Software Developer and Publishing Agreement," courtesy of Thomas I. Cervantez and the law firrn of Pillsbury, Madison & Sutro, ILP @ 1996
Soltrn**fu^rclnfa,err.Nt*lPr^l,l;"r1,;"r^6Agau*e'rl
(b) box (or OsI screen, exEernal credit The Program itseLf case insert, as well as the jewel sleeve) che CD Rom disk following credit, will include the and document,ation or CD sleeve Developer, and Produced by Multimedia which reads: "Conceived ' Inc. (or OE[.[ sleeve) as well The ext,ernal box iE,self , the CD Rom disk will include as the jewel case insert, a represenEaEion of (ac a size Developer's than 80t of bhe logo logo of no less on Developer's business card) which which currenE,ly appears will Publisher' appear in conjunction with logos and publishing credits, crediEs. Detailed including the list,ing of st,aff , names of cont,ent, owners, etc. will appear in a mutually acceptable credits screen located acceptable in a muEually ( "Credics locat,ion in the program Screen') . (c) The parties will acknowledge each oEher's role in t,he creaEion of the Progr.rm in any press release or other promot,ional mat,erials lt, produces which is solely devoted to the Program or progrerms developed by Developer. Subject to Publisher apBroval of the stat,ements, which approval shall not. be unreasonably withheld, Developer shall have the right to promote its role in developing the Program via iEs own marketing communications. 8.3 Approvals. Publisher acknowledges and agrees thaE the Licensed prior Product.s shall be subject, t,o Developer,s approval as t,o any use of the Trademarks, which approval shall not be unreasonably withheld. Developer will endeavor to approve or (3) working disapprove submitted mat,erials wit,hin three days after receipt, and shall b€ deemed to have grant,ed approval if a response is not received (5) working by Rrblisher within five days aft,er Developer's receipt of Ehe submitted mat,erials.
8.4 . Publisher may adopE, its own artwork, copf and packaging in marketing and promoting the ticensed Products subject, t,o Developer,s approval which shall not be unreasonably withheld, and publisher is under no duty to use the artwork, copf and packaging of previousty product,s pubrished versions of the Licensed in rnarketing, products. promot,ing or selling the Licensed 8.5 Trademark and Copvriqht St,atue. Developer shall provide Publisher wich information concerning any trademark searches which it has conducted and trademark registraE,ions which it has secured for the programs or Trademarks in any councry in the Territory. Developer similarly, agrees t,o provide Publisher with informat,ion concerning the currenE, status of any copyrighE, regist,rat,ions which ir has filed or copyrighr regist,rat,ions which it, has secured for the programs. oeveloper shall advise Publisher if it has any reason to believe that Lhe Programs or Trademarks are not available for use in any counEry in the Territory.
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"Software Developer and Publishing Agreement," courtesy of Thomas J. Cervantez and the law ftrm of Pillsbury, Madison & sutro, Irp @ 1996
Aff.,r'J;e
8.6 Soonsorships. Developer shall have t,he right, Eo lnclude ln the credlE screen foi the program the namis of various sponsors who have provided serviieE or malerials to Developer in exchange for an acknowledgrrnent,. No paid adverEisements shall be lncluded in the prograrn without the rnutual agreement, of the parties. The crediE shall t,ake the form of the statement-'special, Thanks to" or similar language. The inclusion, Locat,ions of the placement,, lnd form of Etreacknowledgment shall be subjecE Eo publisher, prior wriEten approval, which approval shall not, be unreasonably wittrlreld. Unlees Publisher accepts or rejects the acknowledgment, wichin (5) days of its receipt, Ehe proposed acknowledgmenc shaLl _fitg be deemed accepeed. Section
9
Confidentialir v 9.1 Confidential Informat,ion. The E,erms of this Agreement, the source Materials and any oEher source code, comput,er program liscings, EechniqueE, algorithms and processes and Eechnical and marketing plans or ot,her sensit,ive business informaEion, including all mat,erlals containing said informaEion, whlch are supplied by the Publishir co Developer or developed by Developer in the course of, developing the erogram sharl be deemed confidentiar ( "confident,ial information fnformation"). 9 .2 Restr ictions on Use. The r ecipient of the confident,ial rnformat,ion ("RecipienE') agrees thac, except as authorized in writ,ing by the party dlsclosing the ConfidenciaL rnformaEion ('Dlsclosing (i) Recipient will preserve Party'): and protecE the confidentiality of all Confidential InformatLon; (ii) Recipient will not, disclose t,o any r,hird party, rhe exiscence, source, cont,ent or substance of the confidential rnformaEion or make copies of confidential (iii) rnfornation; Recipient will not deliver ConfidenEial InformaEion eo any third party, permic or the Confident,lal fnformat,ion t,o be removed from Re ci p i e n E 's pr em ises; ( 1v) Recipient, will no E us e C onfi dent,i al rnformation in any way other than E,o deverop the program as provided in this Agreemenb; (v) Reclpient will not disclose, uEe or copy any thlrd parcy information or mat,erials received in confidence by developer for purposes of work performed under this AgreemenE; and (vi) RecipienE, shall require that, each of its employees who work on or have access to the mat,erials which are the subject of, this Agreement, sign a suitabLe confident,ialit,y and work-for-hLre agreement and be advieed of Ehe confidentiariuy and other applicabre provisions of this Agreement,. 9.3 Limications. Information shall not, be consldered t,o be Confident,ial Information lf lt, (i) is already or otherwise becomes publicly (ii) known through no act, of Recipient; ig Lawfu11y received from third parcies subJect to no restrict,ion
"Software Developer and Publishing Agreement," courtesy of Thomas L Ceruantez and the law ftrm of Piltsbury, Madison & Sutro, ILP @ 1996
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(iii) to have been can be shown by Recipient of confidentiality; in writing by is authorized developed by it; independently 1iv) or be disclosed, copied used Party t,o the Disclosing i or (v) is or of an administrat,ive in the context reguired to be disclosed judicial proceeding. of Source Materials. Upon Publisher' 9.4 Return shall Developer of the rinal Copy of the Program, acceptance provide with copy of the Source Publisher one complet.e provided to Developer, Mat,erials, as well as any other maEerials AgreemenE. Not 1at,er than or created by Developer under this (7) days after Agreement, for any of this the termination seven by Publisher, Developer will reason, or if sooner requested of any ConfidenE,ial return t,o Publisher all originals and copies provided as any as well by Publisher to Developer InformaEion which Mat,erials for Developer has received compensation Source under this Agreement,. 9.5 Third Partv Confident,ial Developer Informat,ion. acknowledges with t,hat, it,s association Publisher is in no way conditioned or based upon its knowledge or disclosure t,o Publisher information or of confident,ial trade secrets of others, Bnd agrees Ehat Developer will nog disclose co Publisher or Lnduce Publisher t,o use any confident,ial informat,ion or t,rade party. secret,s belonging to any third Developer agrees to advise Publisher of any agreemenE,s or other circumstances which may give rise to such a conf idential relat,ionship. Section
1 0. 1 represents,
ttarrants
and
covenant,s
10
to
Publ.isher
. Developer Ehe following:
(a) power t,o enter Developer has the full into this Agreement and perform provided t,he services for herein, and that such ability is not limited or restrict,ed by any agreements or underst,andings beEween Developer persons and other or companies; (b) Any information or materials developed for, or any provided advice t,o Publisher, shall not, rely or in any way be based upon confidencial or proprietary information or trade secrets obtained or derived by Developer from sources other than PubLisher unless Developer has recej.ved specific authorizabion in writ,ing to use such proprietary information or trade secregs,. (c) mat,erials \he code and other _ Developer, and the modifications made progran provided materials by Publisher misappropriaEe, patent dtry copyrighE, proprletary other right,s of any Ehird
and information added by Developer t,o the do not infringe upon right, trade secret or party.
by or
"Sofiware Developer and Publishing Agreement," courtesy of Thomas J. Certtantez and the law firm of Pillsbury, Madison & sutro, LLp @ 1996
235
19 . 2 Developer, s Indemnicv. Developer agrees t,o publiiher indernnify, hold harrnlesJ anilaefend from all claims, d e fe n se co sEs ( including r easonable at,tor neys , fees ) , j udgr m ent,s and ocher ercpenses arising out of or an account, of such claims, i n cl u d i n g without, limitacion claim s of: (a) alleged infringement, or violaEion of any trademark, copyright,, t,rade secret, patent or other propriet,ary right with respect to the Program or Collateral Mat,erials; (b) any use of confidentlal or propriecary information or t,rade secret,s Developer have obtained from sources other than P u b l i sh e r; (c) the breach of any covenant or warranty Sect,ion 10.1 above.
set, forth
in
1 0 .3 condit,ions to r ndem nitv. Dever oper ,s obr i gati on to indemnify is conditioned on pubrisher, notifying Deveroper promptly of any claim as to which indemnification wiLl be sought and providing DeveJ.oper reasonabl.e cooperaEion in the defense and sett,lement thereof . publisher agr ees to 1 9 .4 PubLisher , fndem nificatlon. indemnify, hoLd harmless and defend oeveloper trom iIl clairns, defense cost,s (including reasonable at,E,orn-ys, fees), Judgrments and ot,her erq)enses arising ouE, of the breach of the toltowing Covenants and V{arant,ies : into
(a) this
Publisher possesses full AgreemenE,and Eo fulfill
power and authority t,o ent,er it,s obligacions heieunder.
(b) The performance of the terms of this Agreement and of Publisher' obligations hereunder shalr not breach any separaEe agreement by which Publisher is bound. 10.5 indemnify is conditioned prompt,ly of any claim as providing and Publisher and settlement t,hereof .
.
Publisher'
obligaEion
to
on Developer ' s notify i ng Publ i s her t,o whlch lndernnificat,ion will be sought, reasonable cooperacion in the defense Section
11
Termination 1 1 .1 Ter m ination. In the event, of a te r m i nati on of thi s AgreenenE by Publisher pursuant to paragraph 3.2 hereof, Publisher will have no furcher obligations or llablliEies under this Agreement. Publisher wilr have the right, in addition to all of its other rights, Eo require Developer t,o deLiver E,o Publisher all of Developer's work ln progress, including one copy Ehereof , ds well as any other rnat,erials provided to Developer, or created by Developer under this Agreement.
"Software Developer and Publishing Agreement," courtesy of Thomas J. Cervantez and the law firm of Pillsbury, Madison & Sutro, IIP @ 1996
Agrt'*.^l S"l/nox Duclafa'hl .,r.1 pr^l,l;41'Lc't
under Schedule palmeng of any Development Schedule milestones for all .B-u which havl been nle shal.l be deemed paymenc. in_ full full including Agreement, this under oUfig"Eions of Publisher piytE"t for the licenses granted herein for aLl source code, -oUj""i other graphics all and code, documentat,ion, not,es, and work relat,ing Eo the porUion of t'he ProgrErm which malerials has been compleE,ed as of t,he Eime of terminaEion. Publisher may elecc in Publlsher sole discretion, efi"ir.tivefy, do return ali mat,erials developed under t,his Agreement by under t'his granEed DeveloPgT to Developer and aLl right,s of all agreemlnt, upon Developer's repalzment, to publisher Eo Developer under this Agreement'. plyrnenCs ma-de by Publisher Develgper shall have Ehe LL.2 TerminaEion bv Developer. breach E _because of a material right to te (30) dqyp after which remains uncured for thlrt'y by-Publisher of breach. pirUfisher' nature of the noEice receipE of writ,t,en If Developer terminates this Agreement because of an uncured all licenses grant,ed to Publlsher mat,erial treach by Publisher, If Developer is able shall terminat,e and revert, E,o Developer. or license , ot othenryise commercially e4lloit to publish, shall repay Eo Developer Program, in the right,s its transfer paid t'o Publisher all dlvelopment fees (advances) previously c ents 1E.50) De ve l o p e r u n d e r Ehis Agr eement, aC Ehe r ate of fifty ( $1.00) which Developer r eceives fr om s uc h fo r e a l h d o l l a r paid previously by Publisher all of the monies until disposition to Developer are rePaid. Sect,ion L2 Governino
Law and Dispute
Resolut,ion
The par Eies agr ee to sub r ni U any - di s pute L 2 ,L A rb itr ation. out, of or in connecE,ion with Ehis Agreement, t'o binding arising before the American in San Francisco, California arbitrition of Ehis AssociaEion pursuant t,o t,he provisions Arbitration SecEion L2.L, and, t,o the exlent not inconsist,ent with t,his S e cti o n L 2 .L , the r ules of the Amer ican Ar biEr at,io n As s oc i ati on. will be in lieu of The part,ies agree tha[ such arbilrat,ion party'to assert any claim, demand or suit in any rights eithlr (provided party may eLect, either either that alCion, court or a court, actlon wiCh respect, t'o a breach binding arbit,ration proprietary including part!'s rights, party such of by the-other any Erade secrets, copyright,s or t,rademarks). withouc Iirnitation one under thls Agreement, shall be before Any arbitration Discovery shall be allowed in such arbiEration arLitrat,or. Procedure, exc€pt, that no pursuant to the Federal Rules of Civil and one set each of more than three (3) depositions and requesEs for admissions and document,s shall inEerrogaEories shall be final and binding and the Any arbitration be allowed. order will be enforceable in any courE of compeEent arbit,rator's jurisdiction. w111 be chosen within 30 days of The arbitrator (if t,he discovery t,he submission of any issue to arbitration, the hearing 50 days thereaft,er, any) shall be conplet,ed within
"Softtvare Developer and Publishing Agreement," courtesy of Thomas I. Cervantez and the law ftrm of Pillsbury, Madison & Sutro, LLP @ 1996
Affotl:e
shalL occur within 30 days t,hereaft,er and the arbitrat,or musg render its d,ecision, in writ,ing, within 30 days afcer Ehe end such hearing. L2.2 performance the st,at,e conflict,s
Governinq Law. The validity, of tfris Agreement, sha11 be california without. regard law.
of of
Sect,ion Leoal
construct,ion, and governed by Ehe laws t,o principles of
of
of
13
Proceedinas
13 .1 Publisher agrees to prompt,ly not,ify Developer of any infringement of Developer's propriet,ary rightl Ehat, comes co Publisher' attenE,ion and Eo co-operate with Deveroper in any brought, -by Developer t,o invest,igate or remedy any sulh 1clion publisher infringement, of Ehese rights. may at, lt.s own cosE, take all such st,eps as may be necessary eo protect the original copyright and all other property intellectual rights existing in the Pro€tran, Licensed Product,s and colrat,eral uaEerials. Ant recovery shall be shared equally afEer deduct,ing costs and expenses incurred part,ies. by both Section
14
14.1 Notices. For purposes of all notlces and oEher communications required or permitted t,o be given hereunder, Ehe addresses of the parties heret,o shall be as- indicaE,ed below. All notices shall be in writing and shall be deemed t,o have been given duly if sent by facsimile, Ehe receipt, of which is confirmg9 bV ret,urn facsimile, or sent by iirst class regisEered or certified maiL or equivarent,, return receipt request,ed, addressed E,o Ehe part,ies at their addresses sec toittr below: If
Eo Developer:
If
bo Publisher :
Multimedia
Att,ent,ion: publisher
Attention:
Developer,
fnc.
PresidenE Inc. VP Legal
L4.2 DesignaE,ed to Send and Receive Material. The Ferson Part,ies agree that, all materialJ excha ties formal approvar shall be communicated between singll {or. designated persons, or €l single alternate designated for lerson each Party. Neither Parcy shall have any obligation Lo consider for approvar or respond co materials submitted other than persons. through the Designated Each party shall have the right,
"Sofiware Developer and Publishing Agreement," courtesy of Thomas J. Certtantez and the law ftrm of Pillsbury, Madison & Sutro, ILP @ 1996
23g
l r4.l prJtl;"rl;"t"t Agrs^r'r.l Sall*at Dtryclafa,Q,t
pesignat,ed its to changc not,ify the other.
Persong
from
t,ime
to
cime
and
t,o so
the including Agreement,, Aqreement. This Ent,ire 1{ .3 aE herein by reference are lncorporated which at,t,ached ScheduLes and underst,anding the entire set, ouE, contains Ehough fully matter t,o the subject with respect, of the parties agreement prior oral or writt,en all supersedes contained herein, as excepE relating Eheret,o and agreement,s understandings provided, modified and may not, be altered, otherwise expressly sigrned by duly in writing, except or ln paru, or waived in whole of the Part,ies. representativeE auBhorized Neither Force Ma'leure. L4.4 by damages caused for responstble its conErol beyond any contJ.ngency performance with hereunder. 1{.5 SeverabiliEv. shall by a court be held concrary the to any law, as and effect, force fuII
be held shaLl Party or default due any delay prevent,ing or interfering
Eo
AgreemenE of this any provlsion If jurisdiction t,o be of conpet,ent, provisions in remain shall remaining provision exist,ed. if said never
Agreement is personal t,o Contract, This 14.5 Assiqnment. sublicense, Developer. Developer may not, sell, Eransfer, under or assign and dut,ies this Agreement, hlpothecaEe igs right,s hereunder wit,hout, the written consent, of Publisher. No righus of law or oEherrlise upon any Ehall by operat,lon devolve receiver, t,rust,ee, This Agreenent, ligutdator, or ot,her parcy. shall Lnure to the benefit, of Publisher, it,s successors and asslgns. Vfaiver and Amendmentg. anendment, L4.7 No waiver, or Agreemenc nodificat,ion of any provision of this shall be unlegs consented Parties effect,ive t,o by both in writing. No failure in exercising or delay by elgher Party any right,E, power, o! remedy under operat,e this Agreement shall as a waiver power, of any such right, or remedy. 14.8 Acencv. The Parties are separat,e and independenE Developer legal ent,ities. services is performing Publisher for as an independent, contractor. Nothing coneained ln this shall Agreenent, be deemed to constituEe eicher Developer or joinu part,ner, Pttlcllsher an agenE, represenE,at,ive, venturer or party employee of the other any purpose. for Neither Party has the authority to bind or liabilicy the other to incur any on behalf of the other, nor to direcB the employees of the other. Titles 14.9 and Headinqs. The t,ltles and headings of each eection are intended for convenience only and shall not, be used in coneBrulng or interpreElng the neanlng of any part,icular cl.auee or secEion.
"Sofiware Developer and Publishing Agreement," courtesy of Thomas J. Certtantez and the law firm of Pillsbury, Madison & Sutro, LLP @ 1996
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gontr act fnE,er pr er ,ation. 1 *.1 0 am bigui ti es , . inconsist,encies, or conflicts in this Agreement shall not be strict,ly consE,rued against the drafter 5f Ehe ranguage but wilr be resol'ved by applying lhe mosE reasonable int,er{retation under the circunstances, giving furl consideration to tire part,ies, int,entions at, Ehe time chis Agreement, is entered into. This Agr e em ent i s nor for - 1 4 .1 1 No Thir d Far tv Riohts. t,he benefit of any thirdparty, and sha1l not, be considered t,o granE any right, or remedy to any third party whether or not, ref erred t,o in t,his Agreement. L4.12 sinqular and plurar Terms. where Ehe contexE of this Agreement, requireJ@s shall be considered. plural, and plural Eerms shall be considered singular. nenedies . Excepr, as . 14 ._1? Lrirnitat iqlr ol LiabiliEv, provided in Section 10 alI be 1iable t,o t,h e -o th e r par ty for any incidental, conseqient,i al , s pec i i l , or punicive damages, of any kind or nature, iricludirg, wichouc limitaCion, Ehe breach of this Agreement or any Lermination of this Agreement, whether such tiaUiticy ls asselced on the basis o f co n tra ct,, tor t, ( incr uding negligenie or sr ,r i c t, r i aui r i tv t , otherwise, even if either party hai warned or been warned of the ", possibility of any such loss or damage. fN WITNESS UEIEREOF,this Agreernent is Effeccive Date set. forth above. MULTIMEDIA
DIVELOPER,
By:
THE PUBLISHER,
as of the
INC.
By: (printed
Its:
INC.
executed
name)
(printed
name)
Its:
"Software Developer and Publishing Agreement," courtesy of Thomas I. Certantez and the law firm of Pillsbury, Madison & Sutro, IIP @ 1996
S4/ryprt furlct frtant r4.l PrJl;4t;"t't Ag"t*"^l
SCITEDULEA SPECIFICATIONS at'tached' the Specifications Eo Ehe preliminary In addilion ( 1ll m i nutes of for Ey;!lve no less- thln F i " g i ;-" f,i ff-i n ci u -Cr e which Speci'ficat'ions, fuff The slmchronlzed sound mot,ion *'id"o. hereby are Publisher, Eo delivered shall be separaieLy bY t,his ref erence ' incorporated
-L7 -
"Sofiware Developer and Publishing Agreement," courtesy of Thomas J. Certtantez and the law ftrm of Pillsbury, Madison & Sutro, ILP @ 1996
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Aff,r'r/;e
DEVELOPMEIIT
SCHEDUI,E B AIVD PATruEIIT Page 1 of 2
SCHEDULE
EXTRE'{ES - -WINDOVilS VERSION
rt,em
Due Dat,e
1
Execution
2
Delivery of final SpecificaEions and subsEanEial complet.ion of SEory Boards
3
Alpha
4
Beta
of
forrnal
Payment Upon Acceit,ance
agreement
Copy--WINDOWS Copy--WINDOWS
5
Final
6
The earlier of publisher, program shiprnent of finished or (60) after publisher, sixty acceptance of the Final Copy.
Copy--WTNDOWS
TOTAL
Alr developrnent fee sharr be payable upon accepr.ance of the milestone by Publisher and shilr ue ruity recoiipoui" .g.insc any license fees payable under this Agreemenl. AIl develolmenc tee's shall be non-refundable once the Deliverable has been accepE,ed. by Publisher.
"Software Developer and Publishing Agreement," courtesy of Thomas J. Certtantez and the law firm of Pillsbury, Madison & sutro, Irp @ 1996
2q2
44.l rrhl pr^l/;"il';u"*Agu-'"^t Sallnat furlclal.rn
DEVELOPMENT
EXTREI'TES --MACINTOSH
SCHEDULE B ATiTD PA1NENT Page 2 of 2
SCHEDULE
VERSION
Due Date
IEem of
formal
Payment, Upon AccePtance
agreement'
1
ExecuLion
2
SPeclficat,ion of final Delivery of comPlet,ion and subst,antial Boards StorY
3
Alpha
4
Betra
CoPY--MAC CoPY--MAC CoPY--MAC
5
Final
5
of Publisher' The earlier or Program of finished shipment, ( 5 0 ) Publisher' afcer sixty CoPYof t,he Final accept,ance TOTAL
of the upon accept,ance be payable f,ee shall development AIl any against be fully recoupable and shall Ly Publisher milestone fees development All under Chis Agreement,. fees payable license accept,ed has been once the Deliverable be non-iefundable shall by Publisher.
"Software Developer and Publishing Agreement," courtesy of Thomas J. Certtantez and the law ftrm of Pillsbury, Madison & Sutro, IIP @ 1996
ZI+3
Affotr/;e
SCHEDULE C LICENSE FEES Publisher from the Developer
sha1l pay Developer t of publisher, _ sale or license product.s of thilicensed has provided an acceptable Final copy--
Net, Receipts for which
"Software Developer and Publishing Agreement," courtesy of Thomas J. Ceryantez and the law ftrm of Pillsbury Madison & sutro, LLp @ 1996
Agfiu'.*l /4.1 Pr^lrl;"rl';d"t S"l7u*x Dtrclnt^t],e".1
SCIIEDUI,E D
corwERsroNs t'he and publish to develop right, has the excluelve t,o the cont,inuing platfoims subject on aIl. delivery and Developer's Agreement in this set-forth obligat,ion ;;Fiat on Conversions the following to prepare refusaL iitlr ;f;hg-6f terms: the following
publisher p;;i*t
1.
VIS
or.Sonv
that, upon.request' agrees Developer the exclusive grant Publisher ways, in one of three MMCD version
MMCD.
ry zuUrisn@ll the for rigtris che discretion
VIS ol Sony of Developer:
(a) Developer per tille preparatlon
perform the an addiEional per pLatform or, work;
(b) pay Developer per tigle ber plaEform, conversion; cont,ent
paying of and cont,eng
iEse1f, conversion advance royalty redesign its for
advance a royalt'y in consideraEion
of for
its
of advance (c) pay a royalty -pei Developer oE which plat,form, in considerat,ion per title prograrnming aII for responsible Ue lhalt beveloper preparation content, redesign, t,o platform addit,ion conversion. Developer and deliver period of
it
in and
(c) if (b) or finlsh iE cannoe option nay noc select, in a reasonable work Eo Publisher Lhe compleEed schedule. release to accommodaEe Publisher' time
Publisher If CD or Seqa CD formats. 3DO. Nintendo 2. on any one of these of the t,itles Co puEIIEFiny elects righE,s grant, Publisher the exclusive will plagformg, Deve).oper in one of t,hree CD or Sega CD version the 3DO, NlnE,endo lor of Developer: the diecret,ion rt ways, (a) Developer per Eitle preparation
perform t,he conversion royalty an addit,lonal per platforn its for or workr
(b) pay Developer per plaEform, per t,itle conversion; contenE
iEseLf advance redesign
, paying of and contenE
advance a royalLy in consideration
of for
its
(c) of pay Developer advance a royalEy of which per t,itle per platform, in considerat,ion progranming all for be responsible shall Developer preparaEion cont,€n! red,esign, to platform addit,lon convGrElon.
in and
"Sofiware Developer ond Publishing Agreement," courtesy of Thomas J. Certtantez and tltc law firm of Pillsbury, Madison & Sutro, LLP @ 1996
Zt+S
Aff,r'r/;e
rf Publisher elects produce the program on a second or third -t,o of these platforrns three (3pO, Ni"t""Ao CO or Sega CD) , Develope! agrees to perform tire addit,ional selected L of 3 levels of work for a reduced ,"Viicy-Idrr"rl.", to be determined, by borh parries in a manner conlisrini wicrr-ine-plicing oe previous versions. Devel_oper rnay not select (b) or option (c) if iE, cannoE finish and deliver the completed work Eo iuuiistrer in a reasonable period of time pubriJher, t,o accommodate release schedule. The conversion of the program for any other plaE,form noE, set, f-orth herein, preiaratro" ;i'derivaE,ive (oEher works .,''d. the than translations), tnlfuaing but, r,ot-fi*it;a io--""q,rels, sha1l be negoriaEed in good faith on a case by case basis at, t,erms no less favorable to publisher than the t,erms set, forth in rhis Agreernent. RoyalEy. obligations for aIr aerivitive-*orrs, including but not limited co sequels and conversions sharl be as ucu. set forth pubiisher in schedule shar.l have iiie right ro creat,e. foreign_ language Eransrations of the pi"J.", without providins Devetoper wiEh rhe righr, of tirsr ;;i;;i Eo prepare such translat,ions, however, OevEloper-shall have t,he -frior right t,o any forelqn language crans-lation lpprove versions to dist,ribut,ion, not, to b" unreasonably wirhherd, and "3iq_appr6vat said approval shall be limited to-.nv errors or omissions in content.
"Software Developer and Publishing Agreement," courtesy of Thomas J. Cervantez and the law firm of Pillsbury Madison & sutro, ILp @ 1996
2q6
hll**x
*l Dru*laftta,r-l
pr^lrl;"r/.:"t"t Agu**+t
SCHEDUI,EE COST OF GOODS
$_ i-
for tor
version retail the oEM version
of the Licensed of the t,icensed
ProducE. Product'
'
"Sofiware Developer and Publishing Agreement," courtesy of Thomas L Certantez and the law firm of Pillsbury, Madison & Sutro, LLP @ 1996
latilhat*lP4a@
R;{^f4
INTELLECTUAL PROPERTYRIGHTS AFFECTING MT]LTIMEDIA PROJECTS Allen S. Melser BeckY L. Troutman Poplum, Haik, Schnobrich & Kaufman, Ltd. Washington, D.C. 20005 (2021E24-8013 [email protected] [email protected]
Synopsis Creation of a multimedia project involves several aspectsof inrcllectual properfy law, including copynght, trademarh patent and trade secret law. A multimedia project author must be aware of the intellecnral property issues associatedwith multimedia to avoid creating disputes with others and to Protect intellectual property rights in the multimedia project.
About the Authors Allen S. Melser is an intellectual properry a$orney whose practice concentrateson procuring, maintaining and enforcing domestic and foreign patenr rights. Hi heads Popharn Haik's intellectual property and technology law group. Becky L. Troutman is an associateat Popham Haik's D.C. office. @ 1995 Allen S. Melser and Becky L. Troutman
"Intellectual Property Rights Affecting Multimedia Projects," courtesy of Allen S. Melser and Beclq L. Troutman of the law firm- Poplnm, Haih Schnobrich & Kaufman @ 1996
I.
Introductionr It is critical for a multimedia projcct author to understandthe intellectual
property issues involved in multimedia dcvelopment to avoid creating intellecnral property disputes wittr owners of sofnrare or content used in ttre project. A 6'picd multimedia project combines content, such as text, visual images and sound, and software that enables a user to manipulate the content. The conrcnt and software are created eithcr by the author of the project or another. Copynght, trademark"patent and trade secret law affect creation and protection of both the content and software aspectsof multimedia projects. Other areas of ttre law, such as right of publicity law, are also important. Avoiding intellecnaal property disputes requires a thorough analysis of all aspects of the project to identify any software and content that may be a protectcd intellectual property right of anottrer. Once the owners of protected aspectsof ttre project are identified, 0re author must securepermission from each owner of each protected aspect to use it in the project.
I
This article is provided with the understandingOar it is not intended to provide legal services and that the auhors by the article are not rendering legal sewicis. Becauie each situation is unique, if you have a legal problem, you shouio seek the advice of experienccd counsel.
"Intellectual Property Rights Afficting Muttimedia Projects," courtesy of Allen S. Melser and Beclq L. Troutman of the law ftrm- Popham, Ha{k, Schnobrich & kaufman @ 1996
Idillulul
in The author has certain intellecnral property rights
P4aftdty Ru/f4
ttre completed
by the author and any multimedia project, any sofware or content created ttre project. Prorcction for trademarls or service marks used in connection with that ttrey do not these rights should be sought and actively enforced to ensure poor policing efforts. This become narrowed in scope or lost altogether due to require article provides guidelines for identifying sofnrare and content that property permission for use in a multimedia project and for securing intellectud rights in the Project.
II .
Overview: Laws Relating To Multimedia Projects An author may use sofnrare, images, text or sound createdby another or
proper celebrity images in a multimedia project. The auttror must identify the owner or owners of any rights to tlre sofnpare, images, text, sound or celebrity images and sesure permission from each owner to use the material. Such material is normally protected by copyright, Eademarh patent or trade secret law, the right of publicitl, or a combination of theserights.
"Intellectual Property RightsAffecting Multimedia Projects," courtesy of Allen S. Melser and Beclq L. Troutman of the law firm- Popham, Haik, Schnobrich & Kaufman @ 1996
zsl
Affe,ql;*
A.
Copyright Law
Copynght law Protects original works of authorship fixed in any tangible mediurn of expression.2 The expressionof an idea, not the idea itself, is protected. Bottr sofnpare and content used in multimedia projects are protccted by copyright. Examples of such content include text, databases,characters, musical works, sound recordings, photographs,still images, motion pictrrres and other audiovisual worlcs. In addition, the completed multimedia project and any original sofnrare or content created by ttre project author are protected by copynght.
A work madc for hirc is either (l) a work preparedby an employee within the scope of his or her employment or (2) a work "specially ordered or comrnissioned for use as a conribution to a collective worh as a part of a motion pictue or other audiovisual work, as a translation, as a supplementary worh as a compilation, as an insfuctional text, as a test, as answer material for
2 17U.S.C.A. 102(WestSupp. 1995).Worts of authorship $ includeliteraryworks; musicalworksincludingaccompanying words;dramaticworksincluding accompanying music;pantomimes andchoreographic works;pictoriat,graphicand sculpturalworks;motionpicturcsandotheraudiovisual works;soundrecordings; and architectural works.
"IntellectualProperryRights\ffecting MultimediaProjects,"courtesyof AttenS. Melser and Beclq L. Troutmanof the lawftrm- Poptwm,Haik, Schnobrich& kaufnan @ 1996
l+.*llun*l P"y"t, Rtth4
in a wriuen insrrrment signed a test, or as an atlas, if the parties expressly agrce work made for hire."3 by them that the work shall be considereda
a work is fixed in Copyright protection exists automatically as soon as 1, 197E, copynght endres ungible form. For worla created on or after January ttre author's death.a for a term of the life of the auttror plus 50 years after years from the year of first works made for hire have a term of seventy-five whichever expires publication, or one hundred years from tlre year of creation, wittr the U'S' first.s The author does not have to register the copynght notice is required for Copynght Office to enjoy protection, and no copyright to use a proper works published after March l, 1999. Howevcr, it is preferable protected by copyright' to copynght notice to inforrn tbe public that the work is publication.6 If the identify the copyright owner, and to show the year of first
,
t7 U.S.C.A.$ l0l (WestSupp.1995).
rcrm is the 17 U.S.C.A $ 302(a) (West Supp. 1995). For joint works, tlre copyright death. life of the last surviving author urd Frfty years after the last surviving author's 35 U.S.C.A. $ 302(b) (West SupP. 1995)' 17 U.S.C.A. $ 302(c) (West Supp. 1995). or the Copyright notice should contain (l) the symbot @, the word "copyright"' (3) the nane of auUieviarion "Copr..; (2) the year of firsipublicadon of the work; and can be the owner of copyright in the-work, or ur abbreviation by which the name
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work is infringed and it carries a proper notice, a cout will not allow a defendant to claim that the infringement was "innocent" (that ttre infringer did not realize the work was protected). In addition, copyright must be registered to sue infringers,t and registration prior to the infringing act is necessaryto recovcr certain statutory damagesand attorneys fees.E
A work may have more than one copyright associatedwittr it and more than one copyright owner. For example, if Elvis Costello writes the lyrics to a song, David Byrne writes the music, and both Elvis and David malcea sound recording of the song, there are three different copynghts and trpo different owners at issue. Elvis owns copyright in the lyrics, David owns copyright in the music, and Elvis and David are co-owners of tlre copynght in the sound recording of ttre song.
recognized. Forexample, "@ 1995JaneDoe"is a propercopyrightnotice. l7 U.S.C.A.$ 4l I (WestSupp.1995). l7 U.S.C.A.g 412(WestSupp.1995).
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A copynght owner has the exclusive right to do and authoizn any of the following: (l)
reproduce the copyrighted work in copies or phonorecords;e
(2>
prePare derivative worls based uPon the copynghted work;
(3)
distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, leaseor lending;
(4)
publicly perform copynghted literary, musical, dramatic and choreographicworks, pantomimes, motion picnrres and other audiovisual works; and
(5)
publicly display literary, musical, dramatic and choreographic works, pantomimes, and pictorial, graphic or sculptual worls, including individual images of a motion picture or other audiovisual worlclo
In general, a person who exercisesone of the exclusive rights of a copyright owner without the owner's permission infringes the copyright. Infringing acts include copying and modifying content and publicly distributing, performing or displaying a work.
e The term "phonorecords"is defined broadly in the copyright statute to include "material objects in which sounds,otlrer than those accompanying a motion picture or other audiovisual work, are fixed by any method now knorrn or later developed, illd from which the sounds can be perceived, reproduced,or othenvise communicaEd, 'phonorccords' either directly or with the aid of a machine or device. The term includes the material object in which the sounds are first fixed." 17 U.S.C.A. $ 101 (West Supp. 1995). I0 l7 U.S.C.A. 106 (West Supp. 1995). $
" Intellecnal Property RightsAfficting Multimedia Projects," courtesy of Allen S. Melser and Becky L. Troutman of the law firm- Popham, Haik, Schnobrich & Kaufman @ 1996
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B.
Trademark Law
A trademark is a word, symbol or slogan used in connection wittr a product to identify ttre source of the product and distinguish it from other products. "ADOBE" and "COREL" are well-known trademarksin graphics desigu. Similarly, a service mark is a word or synbol used in connection with a service to identify the sour@ of the service and distinguish it from others. Examples of service marks include "MCDONALD'S" a.nd"AIVITRAK."
Trademark protection is based on use of a mark in commerce. A federally registered mark is protected under federal nademark law.u The trademark registration owner can prevent others from using any mark that is so similar to the registered mark as to cause a likelihood of consumer confusion as to the source or sponsorshipof the goods or services of the parties.r2 A court will consider several factors in deterrnining whether there is a tikelihood of confusion, including: (l)
Priority of use;
(2)
Streng0r of the plaintiff s mark;
rr Even if a mark is not federally registercd, it is protected under common law. In addition, a trademark owner may obtain a state trademark registration and be prorccrcd under state trademark law. 12 15 u,s.c.A
$ I I 14 (Wesr Supp. tg5).
"Intellectual Property Rights \ffecting Multimedia Projects," courtesy of Allen S. Melser and Beclq, L. Troutman of the law firm- Poplwm, Haik, Schnobrich & Kaufman @ 1996
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(3)
Similarity of the parties' rrnrlcs, goods, channelsof trade, channels of advertising and consurners;and
(4)
Evidence of acnral confusion.
C.
Patent Law
Ri"tU4
Patent law protects ideas. Specifically, patent law protects any process, machine, manufacture, composition of matter, or any improvement thereof that is new, useful and nonobvious.r3 For example, it is possible to obtain a patent covering a process including a series of operative stepsperformed by a software prograrn incorporated into a multimedia project if the legal requiremens of novelty, utility and nonobviousnessare met.
A patcnt owner has the right to exclude others from making, using or selling the patented invention in the United States. The patent owner can also prevent others from importing infringrng products into the United States. Patents granted on applications filed on or after June 8, 1995, have a term of 20 years from the application fiting date.rn
13 35 U.S.C.A
$$ l0t-103 (West Supp. 1995).
r'f Patentsgranted on applications frled before June 8, 1995 have a term of 17 years from the parcnt issue date.
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Where a multimedia project uses software written by a third party, the project author should (1) obain permission from the owner of the copyright in the sofnrare and (2) investigate whether the software is patented. If so, the author will need permission to use bottr ttre patented and ttre copyrighted aspects of the program.
D.
Trade Secret Law
Most stateshave a trade secret law that protects any formula, pattern, program process,plan, device, tool, mechanism,compound or compilation of inforrnation that is (l) kept secret and (2) gives the nade secret owner an advantage over its competitors. A classic example of a trade secret is the formula for Coca-Cola. Trade secret protection can last indefinitely if secrecy is preserved. However, trade secret protection does not prevent others from discovering the trade secret by legitimate means, sucb as independent research. Typically, multirnedia technology, such as data processing techniques,and software are protected rrnder trade secret law if proper steps are taken to keep the rcchnology and sofnyare secret.
l0
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E.
Rfght Of PublicitY
The "right of publicity" is a public celebrity's right to control use of his or her personality, narne and likeness for profir
For example, John Travolta can
object to unauthorized use of his image in a multimedia project based on his right of publicig in his persondity, name and lilaeness. The rigbt of publicity may survive an individual's death if tbe individual built up commercial value in his or her personality and exploited it during his or her lifetime-
III.
Creating A Multimedis Work The following hlpottretical multimedia project raises several intellecnral
properry issues. Allen plans to create a multimedia project called 'ALLEN'S WORLD." ALLEN'S WORLD includes a software program, "MIXIT," owned by Cybervinyl Inc. that is used in conjunction with several progftlms written by Allen to allow users to manipulate various content choices and create their own custom music videos. Allen would lilce to either use Paul Simon's recording of the song "Graceland" or hire use a version of "Graceland" recorded by James Brown as the theme song for ALLEN'S WORLD. Flashing images of Elvis hesley will appear on the opening screenfor ALLEN'S WORLD during James' rendition of "Graceland."
"Intellectual Property Rights Affecting Multimedia Projects," courtesy of Allen S. Melser and Becky L. Troutman of the law firm- Popham, Haik, Schnobrich & Kaufman @ 1996
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The user will then be given a choice of songs upon which to base the custom video. Allen would like ttre user to be able to select either REM's "rt's the End of the world As we Know It," The Rolling stones' "start Me up," or one of several pieces written and recorded by Yanni for ttre ALLEN'S WORLD project. once the user has selecteda song, a contetrt menu of various images and text appears. The user selects and manipulates the images and text to geate the video. The content menu includes clips from the motion pictrues "Pulp Fiction" and "Dr. Strurgelove.,, In addition, the user can choose textual passagesfrom Richard Lattimore's translation of Homer's The Iliad, several of Maya Angelou's poems and text written for ALLEN'S WORLD by John Grishanr. When the user logs off of ALLEN'S WORLD, an image of Bugs Bunny in a top hat and tails dances acrossthe final screenand says "That's All Folks!"5
As you can see, Allen is going to be busy obaining permission to use the various content elements for ALLEN'S WORLD. First, he wilt need permission from Cybervinyl Inc. to use its Mixit program. Also, he should investigate whether use of the MIXIT program or use of his own programs in conjunction with MIxm
will present any par€nt infringement problems.
rr For Warner Bros. purists, the authors rccognize that Porky Pig normally stutters the slogan "That's All Folks!" However, for purposesof this hypothetical, Bugs Bunny works better ftu Porky in top hat and tails.
t2
"Intellectual Property Rights Affecting Multimedia Projects," courtesy of Atten S. Melser and Beclq, L. Troutman of the law firm- Poplnm, Haik, Schnobrich & Kaufman @ 1996
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To use Paul Simon's recording of "Graceland," Allen will need permission from both Paul Simon, the copynght owner of the lyrics, and The Everly Brothers, who jointly own the copyright in the "Graceland" sound recording with Paul Simon. If The Everly Brothers have assignedtheir copynght rights in the "Graceland" sound recording to Paul Simon, then Allen will only need permission from Paul.
To use James Brown's "Graceland" recording, Allen will need permission frorn Paul Sirnon, the copynght owner of ttre song lyrics and music. Allen will also need permission from JamesBrown, who will own the copynght in his sormd recording of "Graceland." Similarly, Allen will need permission from REM and The Rotling Stonesto use their sound recordings of "It's the End of ttre World As We Know It" and "Start Me Up."
Allen's contract wi*r Yanni for the lyrics and music Yanni writes and records for ALLEN'S WORLD should qualify as a works made for hire, becauseAllen has hired Yanni to create the works for use as a contribution to a collective work as part of an audiovisual work. The contract must specifically state that Yanni's pieces are works made for hire, and should also provide for
r3
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assignmentof Yanni's copyright rights to Allen. If no agreementis executed, Yanni will be an independent contractor who owns the copyright to the song lyrics, music and sound recordings, and Allen will necd lenni's permission to use the sound recordings.
Use of the flashing Elvis image createsa right of publicity problem. Elvis' right of publicity has survived, becausehe built up commercial value in his personality and exploited it during his lifetime. Therefore, Allen will need permission from Elvis' estateto use ttre flashing Elvis irnage at the beginning of ALLEN'S WORLD.
Allen will also need to determine the copynght owners of
the clips from "[blp Fiction" and "Dr. Snangelove" and obtain permission from the owners to use the clips.
Although Horner's The Iliad is in the public domain, Richard Lanimore owns ttre copynght in his particular translation of The Iliad. Therefore, Allen will have to obtain permission from Richard l,animore to use excerpts from his translation, ds well as permission from Maya Angelou to use excerpts from her poems. The text written by John Grisham for ALLEN'S WORLD is similar to the Yanni situation. Allen's contract with Mr. Grisham must specify that fte
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text is a work made for hire and provide for assignmentof Mr. Grisham's copynght rights to Allen to ensue ttrat Allen owns the copyright in the tcxt. If no such agreenrcnt is in place, Mr. Grisham will own the copynght and Allen will need his permission to use the text.
Usc of the Bugs Bnnny image and the slogan "That's All Folks!" may create both copynght and trademark problerns for Allen. He will need permission from the copyright owner of the Bugs Bunny character to use Bugs in ALLEN'S WORLD. Bugs Bunny may also be prorccted under trademark law. If so, Allen needs to determine whether the trademark and copyright owner are tbe sarne entity to eurure that he has obtained all of the necessary licenses to use the Bugs Bunny character. The slogan "That's All Follcs!" also may be subject to rademark protection. If so, Allen will need a separatelicense to use the slogan.
IV.
Maximizing Intellectual Property Protection For A Multimedia Projec't A completed multimedia project is protected under a combination of
copynght, trademark, patent and uade secret law. The overall project is protected by copyright law, as well as any software or content createdby the
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author. For example, in the above hypothetical, the completed ALLEN'S WORLD project is copyrighted, as well as the software programs wriuen by Allen for use in conjunction with Cybervinyl Inc.'s MDCT program. Allen's programs may also be patentable if the steps or processesperformed by the programs rneet fte statutory requirementsof novelty, utility and nonobviousness. Otherwise, certain aspects of the progams, such as interval data processing techniques, are covered by uade secret if proper steps are taken to lceepthem secret.
Allen could have some rouble using and registering the mark "ALLEN'S WORLD" for his project. It is important to carefully select and register a unique rademark to identify a multimedia project in order to obtain the broadest scope of protection possible. Under U.S. law, a sliding scale of protection is afforded to marks having different levels of uniqueness. There are four levels: generic, descriptive, suggestiveand arbitrary marks.
A generic mark is merely a common nzrmefor a t)"e of product. Generic marks are not regisrable. Examples of generic marks include "SAFARI" for
"lntellectual Property Rights 'Affecting Multimedia Projects," courtesy of Alten S. Melser and Beclq, L. Troutman of the law firm- Pophnm, Haik, Schnobrich & Kaufman @ 1996
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hats and clothingt6 and "FIRST NATIONAL BAl.lK" for a bank.rT "ESCALATOR" is an example of a mark that has become generic.
A descriptive mark directly indicarcs qualities or characteristicsof a product or service to a consumer. Unle or no thought process or imagination is required to determine what qualities or characteristics the mark designates. For example, "TASTY SALAD DRESSING" for salad dressing is merely descriptive, rather than generic.r? "LA" for beer with low alcohol contentr8and "CUSTOM-BLENDED" for gasolinelehave also been held to be mercly descriptive. A descriptive mark cannot be registeredunless it has acquired secondarymeaning to consumersas designating a particular soruce of the goods designatedby the mark Therefore, it is normally difficult to obtain regisration for descriptive marks.
t6 Abercrombie & Fitch Co. v. Hunting World, Inc., 189 U.S.P.Q. 759,766 (2d Cir.
r976). 17 First National Bank and Trust Co. of Colurnbia, Mo. v. First Nationwide Bank, 15 U.S.P.Q.2d1457,1461(w.D. Mo. 1990). r7 Henri's Food Prods. Inc. v. Tasty SnacksInc.,2 U.S.P.Q.2d1856, 1858 (7th Cir. 1987). It G. Heilenwt Brewing Co. v. Anheusu-Busch Inc., l0 U.S.P.Q.2d1E01,18ll (7th Cir.
r98e). re In re SunOil Co.,165U.S.P.Q. 718,719(C.C.P.A. 1970). t7
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A suggestive mark requires ttrought or imagination to link the mark to the product it designates. Examples of marks held to be suggestiverather than desctiptive include "RUFFLES" for ridged potato chipsr and "35(P" for shoes with pivotal cleats.2r In general, suggestivemarks are relatively easy to regisrcr.
Arbitrary marls, such as "KODAK," are tlpically coined terms that have nothing to do wittr the product they designateand are normally easily registered. Such marks are afforded the broadest scope of protection possible.
Under U.S. law, a personal name mark is normally consideredmerely descriptive unless and until it has acquired secondarymeaning. Therefore, Allen is likely to bave difficulty registering the mark "ALLEN'S WORLD." He may wish to select a more arbitrary mark that has a greater likelihood of being registerable and will be afforded a broader scope of protection by the courts.
The owners rights in the movie WAYNE'S WORLD or other third parties may object to use and registration of the ALLEN'S WORLD mark. For
20
(S.D.N.Y. Frin-Iay Inc.v. TheBacbrunCo.,14U.S.P.Q.2il1027,1033-1034 1989).
2t
(D. Mass.1990). TanelCopr.v. Reebok Int'I. IJtl., 16 U.S.P.Q.2d2034,2037 l8
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example, If the WAYNE'S WORLD people can establish ttrat use of the ALLEN'S WORLD mark is likely to confuse the public as to the source or sponsorshipof the ALLEN'S WORLD project, then they will be able to prevent Allen's use and registration of the mark. The WAYNE'S WORLD people could also assert a claim of trademark dilution against Allen by assertingthat use of the ALLEN'S WORLD mark dilutes the distinctive qualiry of the WAYNE'S WORLD mark, regardlessof whether any consumer confrrsion is likely.
V.
Conclusion Allen may be in big uouble if he proceeds with the ALLEN'S WORLD
project wittrout identifying ttre aspectsof the project that require permission from copyright, trademark, patent and fade secret owners and obtaining permission from the owners. Once ttre project is completed, Allen should take appropriate steps to secure and maintain his rights in all protectablc aspectsof the completed worlc, including copyrightable and/or patentablesoftware, copyrightable content, trademarks used in connection wittr the projcct and uade secrets.
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Attnlu
269
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ATTILIATED LABEL AGREEMENT TIIIS AFFILIATED LABEL AGREEMENT (this "Agreement") is entered into effectivc _, 199_, between PUBLISHER COMPAI.IY ("hrblisher"), a California corporation with principal offices u and@(.'Developer.'),aCaliforniacorporationwithitsprincipalplaceof . business st
WI I N E S S E I E : WHEREAS, Developcr desires to enter into an agreement with Publisher pursuurt to which Developer shall grant hrblisher rights to re.sell and distributc Devcloper's products (the "Products"), as defined below, to hrblisher's customers in all the countries of the world (the "Territory"); and WHEREAS, Publisher desires to purchase from Developer the hoducts for resalc and distribution in the Territory; .NOW, TIIEREFORE, in considerotion of the mutual covenants herein containd, the parties agree as follows: During the term hereof, Dcvcloper grants to Rrblisher and its subsidiaries the l. gENf. exclusive first right of refusal to sell and distribute the Products to any Customer in the Tenitory. As used hercin, the term "hoductsn shall meu all software prograrns developed and/or published by Dcveloper for its own general distribution during the term of this Agrcement on all cornputcrbascd, cartridge-based or multimedia platforms. Products currently available arc specified in 'Cunent Exhibit A. Products." 2. Channels. Devcloper has the right to sell to [describc applicable distribution channel]. 3, Price and Pavment. 3,1 The purchase price for thc hoducts is f.o.b. Publisher's dcsignated point of receipt, curently which may be changed from time to time to a different designated point of receipt within the United States by writtcn noticc from hrblisher. All risk of loss prior to receipt by Rrblisher of the hoducts shall be borne by Devcloper and thereafter shall bc borne by Publisher. hrblisher shall be responsible for all shipping costs beyond its dcsignated point of reccipt, Notwithstanding that risk of loss shall pass to htblisher upon delivery of the Products, legal and beneficial ownership shall remain vested in Dcveloper until such time as Developer has received payment for such Products. Such payment shall not bc construcd to includc the accounting reserve as defincd in Scction 3.7 bclow. Dcvelopcr shall retain a purchase money security intcrest in all Products and their identifiable proceeds securing thc payment of all obligations arising hereundcr, It shall be clear, however. that hrblisher shall bc entitled to scll the Products in thc ordinary course of business, 3.2 Payment for Products shall be duc sixty (60) days after the later of (i) delivery at hrblisher's designatcd point of rcccipt or (ii) thc invoice date.
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3.3 Developcr and Publisher shall agree mutually on the expected retail price of all Products. For all Prod_uctswith an expected retail price of $-. hrblisher'r purchase price shall be $-, unless a different price is mutually agrecd between the parties and set forth in an amendment hereto. 3.4 In the event Publisher is offcred ccrtain special sales opportunities which require Publisher to sell Products at a discount from its distributor price, Publisher shall contact bcveloper and solicit is agreement to participate. Participation in such an opportunity shalt require a different purchasc pricc, to bc agreed between the parties. 3.5 In thc cvent that hrblisher and Devetoper should mutually agrce to lower the purchase pricc of any Product, Developer shall credit to Publisher thc difference between the new purchase Price to Pttblisher and the former purchase price, for alt units of the affecrcd Products thar are in hrblisher's inventory and the inventory of hrblisher's customers to whom Publisher has providcd price pruection, provided that hrblisher supplics reasonablc proof of inventory levels wiihin thirty (30) days of the agreemcnr to lower the price. 3.6 htblisher may mainoin an accounting rc$erve to protect Publisher from overpayment to Developer on each SKU of Producs that are returned to Developer by hrblisher.
(i)
pavment 8namount equar to il':511':"1':?t'11i:TJtrl
(ii) Ninety (90) days from the datc of each payment, all arnounts withheld from that payment shall bc refunded to Developer except that: (iii) For Products rightfully returned by Publisher to Developer, Publisher shall reducc any amounts duc to be refunded to Developer in accordance with Section 3.7(ii) by an amount equal to the amount paid for such Products by Publisher. (iv) All payments shall bc made in U.S. dollars by check to Developer at thc address shown in the Preamble to this Agreement or such other address as Dcveloper rnay advise from tirne to time. 3.7 Developer shall use all reasonable efforts to maintain a sufficient inventory level to providcdc|iveryofanorderofanyProductupto-()unitswithinten ( l0) wotking days of the placement of such order by Publisher. hrblisher purchase orders shall specify for each SKU: (i) thc Products ordcrcd by titlc and Devetoper's stock number, (ii) the quultities ordered, (iii) the price per unit and in the aggregate, (iv) the requesred ship date and (v) the aggregat€ purchase price for thc ordcr. For all orders, Publisher shall provide Developcr with as much advance notice as is reasonably possible. 3.8 In thc event of a panial shipment by Developer to hrblisher, hrblisher shall be required to pay only for the units actually received. The portion not shipped shall be deemed a separate order.
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3.9 Publisher shall allow 30 days to rcceive the initial order of a title and 20 days to receive any re-order. If thc Product is not delivered during the time spans specified above. then hrblisher may cancel the order. 4. Relpfins
and Audit.
4.1 Rrblisher shall provide to Developer, within thirty (30) days of the end of each calendar month, the following standard reports: (i) monthly sales of Products (showing unit and dollar sales by SKU); and (ii) monthly retums (showing unit and dollar values by SKU). In addition, Publisher shall providc details of all cooperative advertising activities which may have been undertaken by Publisher during the reporting pcriod. Rrblisher shall also share with Developcr thc rcgular sales information which it reccives from distributors and retailers regarding the Products. 4,2 ln conjunction with this Agreement. Publisher shall keep and maintain full and accuratc books and records rclating to the sale of the Products during the term of the Agreernent and for two (2) years thercafter. 4.3 Developer shdl have the right, not more than once per year during the term and for one year following its termination, to havc an independent certifiod public sccountant approved by Publisher inspcct those business records of Publishcr which relote to the sale of the Produc[s for the purpose of verifying the rccuracy of thc information provided by Publisher to Developer hercunder, provided that Dcveloper gives thirty (30) days written notice prior to the inspection, that the CPA sign Publisher's then-current nondisclosure agreement and that all inspections are conducted during Rtblisher's regular business hours and on hrblisher's premiscs. Thc expenses of such audits shall be bome by Developer, except that Publisher shall be charged for the expcnse of ury such audit that discloses a discrepancy of five pcrcenl (5%, or more in favor of hrblisher between the amounts paid to Dcvcloper and the smounts duc according to the terms hcreof. The amount of any underpayment disclosed by such audit shall be paid promptly to Dcveloper, together with interest at ten Perccnt pcr annum. 5, Term ald Termination. 5.1 This Agreement shall continuc in full force and effect for an initial term ("Initial Term") of one year, and shall thereaftcr be rcnewed automatically for additional periods of one year ("Renewal Terms") unless cancelcd or lcrminated as set fonh below. 5.2 Unless either party notifies thc othcr, in writing, at lcast ninety (90) days prior to thc expiration of the Initial or any Renewal Term, that it desires to tcrminate this Agreerncnt at the end of such Term, this Agreement shall automatically rcnew for an additional Renewal Tcrm, 5.3 In thc event of a breach by either party of its obligations as providcd in this Agreement, the non.breaching party may, in its sole discretion, terminatc this Agreement, provided that no such termination shall be effected unless the non-brcaching party frrst gives thc brcaching party thitty (30) days prior writtcn notice of its intcnt to tcrminate, whish notice sets forth a description of the breach, and thc brcaching party fails to cure such breach within the 30-day period.
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5.4 In the event that either party discontinues business operarions or files or has filed against it a voluntary or involuntary bankruptcy petition, the other party shall be entitled to terminate this Agreement immediately upon written notice. 5.5 Upon expiration of this Agreemcnt, or upon its rermination by either party, Publisher shall prepare an accurate inventory statement of the Products and deliver such statement to Developer within ten (10) days following the effective dare of such termination or cxpiration. Developcr shdl have the option, exercisable by notice to Publisher within ten (10) days following Devcloper's receipt of the inventory statem€nt, to repurchase all or any part of Publisher's inventory of Products. Repurchased Products shall be shipped FOB Publisher's warehouse and Paymcnt shall be made on dclivery to Dcveloper's designated carricr. Developer shall be entitled to set off any sum due to Publisher with rcspect to such rcpurchase against any sum due from Publishcr's purchase of Products. Amounts held in reserve by Publisher against retumed products, except amounts in excess of hrblisher's exposure to its Customen, may not be offset or deducted from amounts duc to hrblishcr for repurchased Products. Should Developer not exercise such right, then hrblisher and each of its customers shall have the right to continue to sell their inventory of Products until their supply is cxhausted or for a Pcriod of ninc (9) months after termination, whichever occurs first. During this sell-off period Dcvclopcr shall not bc roquired to fill any new orders. tf Developer should tcrminate thl Agreemcnf thcn Rtblishcr shall have the right to retum all of its inventory for a .six-month pcriod, at the original purchase price, to be paid within 30 days of invoice date. 5.6 Upon termination of this Agreement for any causer all rights granted hereunder to Pttblisher shall revert to Dcveloper except as provided in this Agreement. In addition, upon termination of this Agrcement and of any sell-off period authorized hereunder. Publisher shall promptly return to Devcloper, or olhcrwise dispose of as Developer may request, any documents or papers whatsoever relating to Dcveloper's business and/or thc Products (with the exclusion of information and documents relating to Pnblisher's customers, financial or accounting information). 6. Overstock Adiustmeny'stock Balancine. 6.1 At Rrblishcr's rcgue$t, from time to time but not bcfore ninety (90) days following Rrblisher's receip of thc initial order for any title of Products and not more than nine (9) months following rcceipt of the copies of the title of Products to be returned. Developer shall credit htblisher based either on a "Closc Out" sde price or thc rctum to Developer of all copics of any title of a Product purcharcd during the preceding ninc (9) months. The docision as to whether to closc out thc Product or to retum it to Developer shatl be made mutualty by thc parties. Upon the Closc Out sale by Ptrblisher or receip of such rcturns, Developer shall issue a credit to hrblisher based on thc amount previously paid by Publisher to Developer for such retumed Products less the greater of the actual Close Out price or thc actual manufacturing cost for the Products. Such credit may be applied by Publisher to future or past purchases, but only after the depletion of the accounting reserve established in Section 3.7. Publisher shall pay all transportarion charges from Pr,rblisher's warehousc to Dcvelopcr's warehousc associated with the return, and risk of loss shatl pass to Devclopcr upon rcccipt at Developer's warehouse. 6.2 lf a Product is retumed to Developer under Section 6.1 above, rhen with respect to such Prodrct Developer shall not bc subject to the restrictions in Section l.l. Developer shall have
"Affiliated label Agreement" courtesy of Thomas J. Cervantez of the law firm- Pillsbury, Madison & Sutro, ILP @ 1996
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thc right to rescll such Product without rcstriction, but Developcr shall bear the full rasponsibility for pricc protection to rescllcrs. 6.3 For stock balancc itcms, hrblisher shatl provide at no charge new shrink wrapping or other means of securing on items which are otherwise in acceptable condition for resale by Publisher. Any unis requiring morc than new shrink wrapping shall bc rcturned by Publisher, at Developer's cost, to Developer's warchouse for full refund or crcdit. 6.4 Dcveloper acknowledges that Publisher strall have no responsibility for any Product previously purchasod from Developer by any third party.
7. 7.1 Developer shall furnish to Publisher, promptly upon request, two hundred (200) each, not for resalc demonstration copies of each SKU of the Products, additional cnd-user manuals and any othcr pmmotiond matcrial as may be available for distribution to hrblishcr's resclling custonrcrs for thc purposc of supporting sales. All such material shall bc provided at no cost to hrblishcr. ?.2 htblisher may, from time to time, bc offcred cooperative advertising opportunities for thc Prodwts by Publishcr's resclling custom*s. hrblishcr may decide to participate in such advertising opportunitics and commit funds for such purpose. Such cooperative advertising expenditures may bc deductcd by Prrblisher frpm amounts otherwise owed to Developer hereunder, providing that, unless authorized by Devclopcr, such expendituras shall not in any quarter excecd five percent (5%) of rrct reycnucs received by Publisher for Products sold by Publisher in such quarter. 7.3 All hodrcts shall be clcarly marked on ths front of the outside of thc Product as ro mrchine, medium, and other important requirements (c.9., rnemory), as well as an easily identifiablc indication that the Product is distributed by hrblishcr, Dcveloper shall, ar its expen$c, shrink wrap or otherwise properly secure all Prodrrct and incorporatc bar code information and ISBN numbers on the packaging. No modifrcation of the Product or its packaging shall be made by Ptrblisher without Developer's prior approval. 7.4 Developer shall providc, for markcting, promotional and advenising purposes, free of charge, to hrblistrcr all packaging artwork, scrcen sho$, rcprints of any advcrtising phcd by Dcveloper and any other markcting, sales or prcss materials es well as all tcchnical information relative to thc Producrc that is rearcnably requested by hrblisher. 7.5 At least thirty (30) days prior to initial shipment of each Produc! Developer shall dcvclop and providc to Publisher, at no additional cost, reasonable quantitics of scll shccts for each srrch hodrct. Such sell sheets shall include major features, functions and capabilitics of thc hoducts, sct?en shots, a picture of the packaging and the principal technical requiremenr. 7.6 hrblishcr shall includc each of the Products in any Publisher sales and marketing trade literature and direct mail marketing materials which rre desigrrcd urd printed after the hroducrs are availablc to hrblishcr, and in which the substantial majority of rhc Publisher product tine is ircluded. The Products shall be included in the nert and subsequenr copies of hrblishcr's product catalogucs which are made avaihble to end uscr customers. In the event thu Rrblisher offers free
"Miliated
l-abel Agreement" courtesy of Thomas J. Centantez of the law firm- Pillsbury, Madison & Sutro, LLP @ 1996
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or rcduccd-price software products to its customeni as part of a promotion, hrblisher shall usc rearcnablc effons to give Developer the opion to have the Products inctuded, at Developcr's cxpense, in such promotion on a basis similar to thc other products included in such promotion. 7.7 Publisher shall be permitted to issue an initial press release announcing the commencemcnt of this Affiliated Label Agrecment. Thereafter, all responsibilities to communicate with the press relative to the Products shall rest with Devetoper. 8. Product Oualitv uid Support. E.l htblisher shall pcrform a quality assurance test on all Products. Developer shall provide to Publisher a completcd version of the end-user manual and operating instructions alone with a copy of thc Product at least one month prior to the intended release date of each mrchinc format. Publisher shall prepare and deliver to Developer a written list of atl errors which it finds during such rcsting. It shall bc understood that hrblisher shatl make reasonable efforts to check that the Product operates in accordance with thc end user manual and that there arc no fatal program erors which causc the hoduct to cease operation or "crash." All identified errors shall be conected by Developer, at no cost to Publisher, beforc manufacturing of the final Products shall begin. The forcgoing shall not be deemed to affect Developer's responsibilitics pursuant to Section 14 below, nor will it place any rcsponsibility on Publisher regarding rhe quality of the Products manufactured. E.2 Devcloper shall Promptly inform hrblishcr of any known defects or operational errors in any of thc Products. Dcveloper shall issue a credit to tbblisher at the original purchase price, for all Producus that arc determined by Publisher or Publisher's reselling customcr$ to be materially defcctive, which arc properly retumed to Developer as defective products, and which Developer rcasonably agrees are defective. Defcctive Products are defined as Products with material defccts in any of thc following: mcdia, programming, packaging, documentation and other components. 8.3 If a Product is rclcascd with a major defect which causcs massive returns, Publisher shall have thc right to return all of the units of such Product which it has purchased from Dcvelopcr, fq a full refund, to bc paid promptly. E.4 htblisher shall have thc right to inspect each order of Products it receivcs. Such inspection shdl bc limited to two pcrcent (2%) of the units received in each ordcr unless defects are found in the inspectcd units, in which case hrblishcr may inspect all units in thc ordcr. If the inspected unit is found to bc accepable, hrblisher shall repackage and Dcvclopcr shall providc ro htblisher, at no additional cost, whatever stickers or ofter portions of the original package may be rcquired for such repackaging. Publisher may return to Devclopcr, for rcplaccmcnt or credit, at Publishcr's clection (i) each materially defcctive unit or (ii) if Publishcr finds defect rates in any one order of geater than threc pcrcent (3%), all of thc units in such ordcr. 8.5 Dcveloper shall providc a tclephorc number and technical support for end uscrs to call during Developcr's normal busincss hours in order to have their technical questions about the Products answercd. This tclephonc number shall be featured prominently on all packaging and materials. 9. Advance Noticc. Developer shall provide to Publisher, from timc to time and upon request, a completc list of all Products manufactured or sold by or intended to be manufactured or
"Affiliated l-abel Agreement" courtesy of Thomas J. Certtantez of the law firm- Pillsbury, Madison & Sutro, IIP @ 1996
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sold by Developcr. Developer shall give Rrblisher at least sixty (60) days' prior noticc of any changc in the Products, including but not limitcd to price, availability and packaging. 10. Publisher Resmnsibilitics. l0.l htblisher shall makc a comparable effort to prcsent thc Products to all of hrblisher's customers and offer thcm for salc as it does for its own products. 10.2 hblisher shall provide the opportunity for Dcveloper to participate dong with Trade Shows. The costs associated Publisher at both the with such participation shall bc passcd on to Developer at htblisher's actual cost. Developer shall provide personnel to demonstrate thc Prodncts. 10.3 hrblishcr shall makc a comparable cffort to negotiate agreements to bundlc, couple, distribute or sell thc hoducts with othcr computer gamcs andor other products as it does for its own products. 10.4 hblisher
shall include thc Products in its "hints and tips" 900 line service to end
users. 10.5 hrblishcr shall not be rcquired to providc end uscr customer support. 10.6 hblisher shall be responsiblc for and shall bear rll costs associatcd with bad debt and uncollectible pryments due frcm hrblishcr customers with respect to the sale of the Products. 10.7 hblisher shall not rcgister nor u$c any of the business tradc names, trademarks, emblems or designs relating to thc hoducts except as provided for in this Agrecment or with Developer's writtcn consent and in accordarre with any dirwtions given by Developcr. l0.t hblistrer shall not alter, netnoye, conced or othcrwise interferc with any markings or nameplues br other indication of the sourcc of origin of thc Products. 10.9 htblisher shall immediately bring to Dcvelopcr's attention any improper or wrongfirl use in the Tenitory of Devclopcr's patents, tradcmarkr, emblcms, designs, models, copyright or other rights known to lbblbhcr which may comc to its notice in thc exocution of its duties, and use rcasonablc efforts to assist Dcveloper, at Dcvclopcr'$ expcnse, in taking stcps to defend such rights. 10.10 Publisher covenants with Developer that a all times it shall: (i) not malc any rcFcscntstion or givc any wuranties other than those expressly authorized in writing by Developcr with rcspect to the Products; (ii) ensure that it cmploys suitable sales rcpresentatives to ded efficiently wilh the sale of thc hodtrcs: (iii) ensurc that the Products are in good extcrnal condition when dispatched from its prcmiscs.
"Affiliated l-abel Agreement" courtesy of Thomas J. Centantez of the law firm- Pillsbury, Madison & Sutro, LLP @ 1996
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I l. Develooer Resoonsibilities. I l.l Developcr shall provide all prckaging and other materials used ancl shipped in the finished Products. I1.2 Developer shall pay for the design, preparation and placement of all consumer advenising. | 1.3 Devcloper shall be responsible for manufacturing activities including but not limired to providing inventory, warchousing and delivery of finished goods to Publisher. | 1.4 Devcloper shall notify Rrblisher of its manufacturing cost prior to receipt of Publisher's initial order for each Producr. I 1.5 Developer agrees to spend on an annual basis on the marketing of the hoducts, between percent (-%) and percent (_%') of publisher's net revenues on thc sale of Products. Such figure shall includc amounts spent on cooperative advertising as set fonh in Section 2.2. I 1.6 Developer agrees that, during the terrn of thc Agreement, it shall refer to Publisher all enquiries about salcs of the Products within the Tenitory. I 1.7 Dcvcloper shall be rcsponsible for performing all public relations efforts except as providcd in Scction 7. I 1.8 Developer shall be responsible for all freight, duty and shipping costs for the Products to htblisher's Designated Point of Receipt. In addition, Developer shall be responsible for all such costs when Publishcr returns product, either mint or defective, to Developer from Publisher's Designated Point of Receipt. | 1.9 Devcloper shall provide a representativewho shall furrction as a single point of contact for Publisher. The representative shall cooperate with and work closely with all personnel at Publisher involved in thc salcs and distribution of the Products. All rnarketing, public relations and manufacturing activities shall be coordinated within thc Tenitory by rhis reprcsentative. 12. Resoonsibilities of Both Parties. Each party covcnanrs with the other that it will at all times during thc term of this Agreernent obscrve and perfonn the terms and conditions set out in this Agreement and in panicular shall: (a) ensure is crnployces at all times use their reasonable endeavors to cooperate with and assist each other for the mutual benefit of the parties; (b) in all mattcrs act legally and faithfully to the orher; (c) unlcss othetwise provided for in this Agrecment not incur any liability on behalf of the other nor in any way pledge or purport to pledge the orher's credir;
"Affiliated label Agreement" courtesy of Thomas J. Ceryantez of the law firm- Pillsbury, Madison & Sutro, LLP @ 1996
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(d) immediately pass to the other details of any complaints received from customers in the Tenitory in connection with the Products or any difficulties which arise in implementing the terms of this Agreement; (e) use its reasonable endeavors to promote and extend the sale of the Products throughout the Tenitory. 13. Confidentialitv. l3.l Each of thc parties acknowledges and agrees that certain information which it may receivc from the other party shall bc proprietary to the disclosing party. Such information includes, without limitation: (i) the fact that the disclosing party intends to develop or market any particular hardwarc or software producfi (ii) thc designs, schematics, specifications and all other technical information of or concerning thc Products; (iii) ury non-public information concerning the business or finances of the disclosing pany; and (iv) any other information the disclosure of which might harm or destroy a competitive advantage of the disclosing pany. All of the types of information reflected in clauses (i) through (iv) of this Subsection shall be collectively rcfened to hereinafter as the "hoprietary Informttion." 13.2 Each of the parties agrees that it shall not, directly or indirectly, either during or subscqucnt to thc term of this Agrecmenu (i) disclosc any Proprietary Information of the other party, otber than to its own employees who panicipatc directly in the performance of thc rcceiving party's obligations under this Agrccment; (ii) copy or.use any Proprietary Informuion of the other patty except for the purposc of fulfilling its obligations hereunder; or (iii) publish any Proprietary Information of the othcr party without thc prior written consent of such party. The degrec of care crnployed by each of the parties to prctect and safeguard the Proprietary Information of the other party shall bc no less protective than the degree of care used by such party to protect its own confidential information of likc importance. 13.3 Thc parties acknowledgc and agree that this Agreement and thc subjcct matter and tenns and conditions of this Agreement fall within thc scopc of Proprietary Information identified in Subscction l3.l above. 13.4 Thc obligations set forth in this Section 13 shall not bc applicable to any information which: (a) the receiving pany is authorized by the disclosing pany in writing to disclosc, copy or use; (b) is generally known or becomes pan of the public dornain through no fault of the receiving party; (c) is disclosed by the disclosing party to third partics without restriction on subscquent disclosure; (d) is provided to the receiving pany by a third parry without breach of any separate nondisclosure agreement; or
"Affiliated l-abel Agreement" courtesy of Thomns J. Ceryantez of the law firm- Pillsbury, Madison & Sutro, IIP @ 1996
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(e) is rcquired to bc disclosed in the contcxt of any administrative or judicial proceeding. 14. Warrantv and Indemnitv. l4.l Rtblisher acknowledges and agrees that the Products which Dcveloper sclls to Publisher in furthenrnce of this Agreement shall be sold without any express or implicd warranties being granted or otherwise extended to Publisher, including, without limitation, any implied warranties of merchantability or of fitness for any purposc. Developer agrees, however, that it shall extend a lirnited warranty to all cnd uscr purchascrs of any of the Products that thc physical media incorporated in the Products purchased by any such end users shall, for a period of ninety (90) day.l from thc date of consumcr purchase, be free from defects in materials and workmanship undcr normal use and service. Developer's liability thercunder shall be limited to the obligation, at Dcvelopcr's option, to repair or rcplace any units of thc Products which are detennined to be dcfective and which are rcturned to Dcvclopcr u thc original consumer purchrcer's expcnsc within the applicablc warranty perid. Developcr's limited express waranty described hercin shall not apply to any units of the Products which are damaged as a result of any accident, negligence, usc in any application for which such Product.s were not designed or intended, modificuion without the prior conscnt of Dcveloper, or by any other causcs unrclated to defective material or workmanship. 14.2 Developer warrants th&t it either owns all righs, titlc and intercst in and to thc Products or that it otherwise has thc right to grant all of the rights granted hcreundcr, and that to the best of its knowledge neither the Products nor the rights grantcd hereunder violue thc pcrsonal or proprietary rights of any person or entity. Developer agrees to indemnify and hold Publisher and its customers harmless from and against any and all losses, damagcs, costs and expenses, including reasonable attorneys' fecs, arising out of any of Dcvclopcr's reprcscntuions and warantics including without limitation: (i) atlcged failure of ury Product to pcrform to specification or in a cu!$omary and reasonable manner as spocified or advertised by Dcvelopcr; (ii) alleged breach of exprcss or implied wananty by Developer with rcspect to any Product: (iii) alleged infringemcnt or violation of any trademark, copyright, trade sccret, patent, or othcr proprietary right with respect to any Product; and (iv) unfair tradc practice, trade libel or misrepresentation bascd on any promotional material, pockaging, documentation or othcr matcrials provided by Dcveloper with respect to any Product. 14.3 Dcveloper's obligation to indemnify is conditioned on hrblisher's noti$ing Developer of any claim as to which indemnification will bc sought, promptly after Publisher first bccomcs awarc of such clairn and, in the event Developer elects to defend, providing Developer with reasonable cooperation in the defense and settlement thereof; provided, howcvcr, that any failure of Publisher to give such prompt noticc shall not affect any of its righs hereunder, unless such failure matcrially and adversely affects the ability of Developcr to defend such claim. In the case of a final determination that a Product is infringing, and at Developer's opion, Developer shall: (a) procure a liccnse from any claimant with rcspect to the infringing Product that will enable Rrblisher to continue marketing the Product; (b) modify the Product so as to make it non-infringing without materially changing the themc or play of the Product; or
"Affiliated Inbel Agreement" courtesy of Thomas J. Certantez of the law firm- Pillsbury, Madison & Sutro, IIP @ 1996
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(c) buy back from hrblisher all inventory of Publistrcr and Publi$her's rcselling cusromers at hrblisher's original purchasc pricc from Dcvelopcr, and pay atl shipping, insurance and customs duties associated with its return to Developer. 14.4 Each party warrants to the other that: (a) it is not under any disabilily, restriction or prohibition with respect to its right to enter into this Agreement and its rights or obliguions to pcrform each and every term and provisiur hereof; (b) during thc Term of thc Agrecment it shdl not makc any agrcemcnt with any thirrd pany which is inconsistcnt with or is in conflict with this Agreemcnt. 14.5 Erch of the parties (the "Indemnifying P.ny') shall Memnify the other (thc "Indemnificd Party") and hold it harmless from any rnd all damages, costs, losses and expenscs, including reasonablc legal fces, arising out of or in connection with a materid breoch by the Indemnifying Party of ury provisions of this Agreenrent. H(CEPTFOR THE INDEMI.IIFICATION OBUGATIONS 15. @ OF EITHER PARTY AS H(PRESSLY SET FORTH IN SEC'TION 14 ABOVE NEITHER PARTY SHALL BE RESPONSIBLE OR LIABLE TO THE OT}IER FOR AI.IY INCIDENTAL. CONSEQLJENTIAL, SPECI"AL OR PUMTIVE DAIvIAGES ARISING OUT OF THIS OR THE BREACH OF A}.IY OF ITS PROVISIONS, AGREEMENT OR ITS TERMINATION WHETHER FOR BREACH OF WARRAI{TY OR ANY OBLIGATION ARJSING THEREFROM IS ASSERTED IN CONIR.ACT OR TORT OR OTHERWISE. WTIETHER UABIUTY (INCLUDING NEGLIGENCE AND PRODUCT LIABILITY), AND IRRESPECTIVE OF WHETHER THE PARTIES HAVE BEEN ADVISED OF THE POSSIBILITY OF ANY SUCH DAMACE. 16. Assignment. This Agreement may not bc assigrrd by either party without first obtaining the writtcn conscnt of thc otlrcr party (which conscnt shall not bc urueasonably withheld), except as part of the sale or transfcr of all or substar*ially all of tlrc party's entire business or the mcrgcr or consolidation of thc party into any othcr company or entity (a "Change of Ownership"). This Agrccmcnt shall be binding upon and shall inurc to thc benefit of Publisher and Developer and their rcspcctive succcssors and assignces pcrmittcd hereunder. 17. Indeoendent Contractors. Developer shall be deemed to have thc satus of an indepcndcnt contractor, and nohing in this Agrcement shall be dcemcd to placc thc parties in the relationship of an employer-employee, principd-agentt partners or joint ventures. Developcr shall be responsible for any withholding taxcs, payroll taf,cs, disability insurance payments, unemployrnent taxes and other similar taxes or charge on the paymcnts received by Devcloper hEreurder. 18. General. lE.l All notices, demands and communications hereunder shall bc in writing and shall be dcemed given if personally delivered or sont to a party by certified mail, return receipt requested,
"AffiIiated l-abel Agreement" courtesy of Tlwmns J. Cervantez of the law ftrm- Pillsbury, Madison & Sutro, LLP @ 1996
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to the address set forth in the preamble to this Agrcement, or to such other addressesas the partics shall notify each other from time to time. 18.2 Any delay in the performancc by Developer or Publisher of any of its obligations hereunder which are caused by any strike, fire, explosion, accident, detay by carrier, act of God or any other delay bcyond such party's reasonable control (collectively, ul "Event of Force Majeure") shall be excu.qcdfor a pcriod of time equal to such delay il promptly after such party becomes aware of thc effects of such Event of Force Majeure, it provides the other pany with written notice of such delay and such Event of Forcc Majeure. Notwithstanding the above, (a) if an Event of Force Majeure makes it impossible for Dcvelopcr or its manufacturer to manufacture the Products for a period of more than 90 days, thcn Publishcr shall have the right to find an alternative source of manufacture for the period of the Force Majeure, and (b) if an Event of Forcc Majcure makes it impossible for Publisher to sell the Products for a period of morc than 90 days, then Developcr shall have the right to find an altemative methd of selling the Products within the Tenitory for the period of the Force Majeure. lE.3 This Agrecment and any Erhibits or Addenda hereto represent the entire agrccment bctween the partics rcgarding the subjrxt matter hereof and superscde all prior agrecments and understandings beween the parties, and may not be changed or modified cxcept if done so by writtcn agreement between the parties. lE.4 No waiver of any right, obligation or default shall bc implicd but must be in Kiting rrd signed by thc pany qgainst whom the waiver is sought to be enforced. One or more waivers of any rights obligation or default shall not be construed as a waiver of any subsequent righr, obligation or dcfault. It.s Any provision or provisions of this Agrecmcnt which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any of the other provisions, and the remaining provisions hereof shall remain in full force and effect. 18.6 This Agreement shall be governed by and construed under the laws of the State of California applicable to contracts exocuted and intended to be performcd entirely within the Statc of California by resi&nts of the Stare of California | 8.7 In thc cvent of any arbitration or litigation arising hereunder bctwecn the parties, the prevailing party shall be entitled to recoyer from the non-prevailing party reasonable attorneys' fees incurrcd therein. The parties agrcc to submit any disputes hereunder to binding arbitration in County, California in accordance with the rules of the American Arbitration Ar*.i.ti"*
"Affiliated Label Agreement" courtesy of Thomas J. Certantez of the law firm- Pillsbury, Madison & Sutro, IIP @ 1996
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All;l;{ail L4ill Ag,rrt*.'rt
l8.E The following Sections shall survive the expiration or tcrmination of this Agreement: 4.3, 5.5,5.6, 13, 14, 15, 18.6, lE.? and 18.8. IN WITNESS WHEREOF, the partics hereto have executed and delivered this Agreement effoctive as of -, 1996. PUBLISHER COMPANY
DEVELOPER COMPANY
By Its
"Affiliated Label Agreement" courtesy of Thomas l. Certtantez of the law firm- Pillsbury, Madison & Sutro, LLP @ 1996
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Aff,r'J;e
EXHIBIT A DEVELOPERPRODUCTSAND PRICING
Rgduct
publisherprice
"Affiliated l-abel Agreement" courtesy of Thomas J. Certtantez of the law firm- Pillsbury, Madison & Sutro, IIP @ 1996
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Distributors ABCO
NorttrHills, CA 91343
400 Route59 Monsey,NY 10952
Ph:818-891-6710 JacquesMilon
Ph:914368-1930
Inc. AllegroTech.
Distributing Academic P.O.Box 1360 Dewey,AZ 86327
St. Z74Wahconah SuiteB Pittsfield,MA 01201 Ph:413-443-9M3
Ph: 520-632-7176 GaryRogers
Buyer
...........8uyer
Bill Nichols..........
AceComputers
Inc. Distributing Almo
8 E. CampMcDonaldRd. ProspectHeights,IL 60070
Blvd. 9815Roosevelt PA 19114 Philadelphia,
..Buyer
Ph:215-698-4000
Ph:708-253-9400 ......Buyer
JohnSanrborski
PsnnisBillodeau
....Buyer
Corp. Engineering AMAX
Inc. Acecom
3288LaurelviewCt. Fremont,CA 94538
3350ScottBlvd. Building 27 SantaClara,CA 95054
Ph:510-651-8886 Buyer .............. Christinel-ee-Hsing
Ph:408-980-1881 .. Buyer
Ken Kim
Corp. Centers Business Amcom
Inc. ACMA Computers
Ln. 1028Saunders WestChester,PA 19380
47988FremontBlvd. Fremont,CA 94538
Ph:610-918-9000
Ph: 510-623-1212
PatRucker
Buyer
.... Buyer
ChristineHsingh
Distribution Corp. International American
Inc. Electronics Advanced 1965LycomingCreekRd. Suite201 Williamsport,PA 17701
2 Winter SportLn. P.O.Box 80 Williston,VT 05495 Ph: 800-678-2432
Ph: 7l7 -327-1091 Kurt Haupt.....
.........Buyer
Inc. Technologies AmeriQuest
Agama Computers
3 EmperialPromenade SantaAna, CA92707
94iu-lOrionAve,
Ph:7l*437 -0099
293
AS;r*l:,t
Anson Computer
BigByte Media
15318E. ValleyBlvd. City of Indusury,CA9l746
18425NapaSt. Northridge,CA 91325
Ph:818-333-8558
Ph:818-700-2983 Ricky Berggren
AntiGravity Prcducts
CAL.ABCO
456 Lincoln Blvd. SantaMonica, CA 90402
6041VarielAve. WoodlandHills, CA 91367
Ph: 310-393-6650
Ph:818-704-9100
TheASCII Group Inc.
BobbyStrauss
7475WisconsinAve. Suite350 Bethesda,MD 2081+3412
Buyer
Camelot Corp. 17770PrestonRd. Dallas,TX75252
Ph:301-718-2600 Jill Ken
.....Marketing Manager
... Buyer
Ph:215733-3005 DannyWettrich
ASI
.....CEO
48289FremontBlvd. Fremont,CA 94538
Casey.lohnston Sales Inc.
Ph: 510-226-8000
37300CentralCt. Newark,CA 94560
Mike
Buyer
Ph:51U745-9991 DonaldJohnston, Jr............... Buyer
ATV VarServ 950 KeynoteCircle Cleveland,OH 44131
CDInteractive Inc.
Ph: 800-843-5010
3611S. HarborBlvd. Suite105 SantaAna, CA927W6928
AW
Ph: 7l4-378-4A2A
26W. HighlandAve. Atlantic Highlands,NJ 07716
DennisAcebo
VP, Marketing
Ph: 908-872-n90
Columbia House Co.
AWIndustries
l2ll Avenueof theAmericas New York,t{Y 10020-1090
8415ArdmoreRd. l,andover,MD 20785
Ph:212-596-2703 HarrietYassky
Ph: 301-322-rW0 CharlesPrivote
.......Buyer
CompuAdd Computer Corp.
Baker &Taylor Software
12303TechnologyBlvd. Austin,T](78727
3850RoyalAve. Simi Valley,CA 93063
Ph: 512-250-2000
Ph: 805-552-9800
zs+
.......VR Aquisition
DiolriA+4a++
CompuStar
Co. Distributing D&H
1283FOld MountainView Rd. Sunnyvale,CA 94089
2525N. 7th St. Hanisburg,PA l7ll0
Ph: 408-747-0366
Ph:?17-236-8001
NeveenMourad..
....Vice hesident-Sale
GaryBrothers
President .........Vice
Comsource
Inc. Marketing Data Storage
16-5Middle CountryRd. Coram,l.tY I1727
5718CenffalAve. Boulder,CO 80301
Ph: 516-696-2906
Ph:303-442-4747 Tom Ward
GeneSmith
President
Corp. Distributors Datalink Graphics Computer Connecticut 7423WashingtonAve. S Minneapolis,MN 55439
75 GlenRd. SandyHook, (JI0&82
Ph: 612-944-3462
Ph: 800-422-8416 JohnRohmer
Buyer
BrentMiller.....
Inc. Consan
Systems Datamini
7676ExecutiveDR. EdenPrairie,MN 55344
6223RichmondAve. Suite102 Houston,T){77057
Ph:612-949-0053 BeckyThomason...................Buyer
Ph:713-78+1666 fuif Hussnian........
Inc. Technologies Continental 300McGaw Dr. Edison,NJ 08837
.......InsideSales
Buyer
&Associates Davidson 19840PioneerAve. Torrance,CA 90503
Ph: 908-225-1166
Ph:310-793-0600
Inc. Cranel
Inc. Decision SupprtSystems
8999Gemini PLwy. Columbus,OH 43240
11800SunriseValleyDr. l5th Floor Reston,VA2209l
Ph:614431-8000 CarlReichert........
......VicePresident
Inc. Data Products Creative
Ph:703-715-9500 Mort Rezaee
Buyer
P.O.Box 361630 Milpitas,CA 95036-1630
Digital Entertainment
Ph: 408-448-3773
740049thAve.N New Hope,MN 55428
I^arryFriss
Vice President
Ph:612-535-8333 Ian AndrewPerl
.....Vice President-Sales
zgs
AS;r^k*
Direct Source Distributing
Athens,OH 45701
4548 McEwen FarmersBranch Dallas,TX7524
Ph:614592-2433
Ph:21{387-8338
EMJ America Inc.
DTR Business Systems
301GregsonDr. Cary,NC 27511 Ph:919-460-8861
1160CentreDr. SuiteA Walnut,CA 91789
ShelleyDarden
En.Gen Inc.
Ph: 800-598-5721 JackHilburn.........
.. Buyer
Duthie Associates
2727W. Baseline Tempe,AZ 85283 Ph: 602-438-lI l0
3310WestEndAve. Nashville,TN 37203
Rick Jeralds
Ph:615-386-3061
Eternal Graphics Inc.
Educational Resources
1016AirparkDr. SugarGrove,IL 60554
1550ExecutiveDr. Elgin, IL 60123
Ph:708-556-3339 JerryProefrock
Ph:708-888-8300 PatriciaLaystrom
......Buyer
... Vice President-Sales
Buyers
.......Buyer
Evershine, Inc.
Educational Technology Specialists Inc.
I l0l MontereyPassRd. MontereyPark,CA 91754
243FoamSt. Monterey,CA 93940
Ph:213-265-2228
Fifth Dimension
Ph: 408-372-8lN Tonelarsen
MarketingManager
Educorp Computer Services
2500Don Reid Dr. Ottawa,ONT KIH 8P5 Canada
7434TradeSt. SanDiego,CA 92121
FirstComputer Corp.
Ph: 619-536-9999
341 ShoreDr. Hinsdale,IL 60521
SuziNawabi..........
. VP,Marketing
Ph:708-920-1050
Electrograph Systems 175CommerceDr. Hauppauge, NY 11788
Electronic Vision, Inc. 5 DepotSt.
zg6
Vice President
Gates/Arrow
Ph:516-436-5050 SamThylor...........
GaryHirsch
.. Buyer
39 Pelham Ridge Dr. Greenville, SC 29615
Ph:800-332-2222 Rhonda Corn
Buyer
DtolriCula++
Inc. Distributing Gates/FA
Co. Handleman
121InterstateBlvd Greenville,SC 29615
500Kirts Blvd. Troy,MI48084 Ph: 810-362-MM
Ph: 803-234-0736 AndrewHeyman
....Vice hesident
Inc. Technologies GBC
HB
100GBC Ct. Berlin, NJ 08009
9630Clarewood BuildingB I Houston,T)K77036
Ph: 609-767-2500 BuYer
RobSchwartz.........
Buyer
DonBucher...........
Ph 7 13-776-4750 BuYer
Nick Walker....
Corp. Globelle
Computer Hi-Link
Rd. 6410W. Old Shakapee Minneapolis,MN 55420
973HopeSt. Stamford,CT 06907
Ph: 800-745-7000 BuYer
Mark Todd
Ph: 203-975-9335 BuYer
JenyLin.........
GPN
Co. Distributing Technology High
Box 80669 Lincoln,NE 68501-0669
20520Nordhoff St. CA 91311 Chatsworth,
Ph:402-472-2007 MarketingDirector
Larry Aerni
Buyer .................. SteveMatsuyama
Inc. lnternational Beyond Great 2255Lois Dr. Suite2 Rolling Meadows,IL 60008
Corp. Inacom 10810FarnamDr. Omaha,NE 68154 Ph: 402-392-3900
Ph: 708-73+1282 MarkLin .........
Ph:818-772-8001
.......BuYer
Vice President
MichaelA. Steffan
CorP. Software GTlnteractive
Distributing Infotel
16E 40thSt. New York,NY 10016
6990US Route36 E Fletcher,OH 45326
Ph:212-726-6500
Ph: 800-537-1423 Mark Runkle
Todd Steckbeck
Products Computer Hall-Mark
Inc. Micro Ingram
3011S. 52ndSt. Tempe,AZ 85282
1600E. St.AndrewPl. SantaAna, CA92705
Ph: 602-414-6500
Ph:71+566-1000
StanPhillips........
...Buyer
SanatDutta...... President
President
......ExecutiveVice
A1;r*k,
Inland Associates Inc.
hserResources lnc.
15021W. llTth St. Olathe,KS 66062
20620LeapwoodAve. SuiteF Carson,CA90746
Ph:913-7&-7977 PeggyMeader...
......hesident
Ph: 3lU32+4444 Bob Helphant.........
Intelligent Electronics Inc. 411EagleviewBlvd. Exton,PA 19341
LawCypress Distributing Co. 5883EdenParkPl. SanJose,CA 95138
Ph:610-458-5500 GregoryPraff.......
... COO
Ph:408-3634700 DavidLaw........
International Computa Graphics lnc. 30481WhippleRd. Union City, CA 94587
.....hesident
Leadman Electronics USA 2980GoldenAve. SantaClara CA 95051
Ph:510-471-7000 Mike Ahmar
Buyer
President
Ph:408-738-1751
ISTInc.
Liuski International Inc.
3444DeLaCruzBlvd. SantaClara,CA 95054
6585CrescentDr. Norcross,GA 30071
Ph:408-653-1000
Ph:40{447-9454
I. Ahmad
.. Buyer
EdwinJ. Feinberg................. VicePresident
Kenfil Inc,
LSIDistribution
16745SaticoySt. VanNuys, CA 9l4M
1900Jay Ell Dr. Richardson, TX 75081 Ph:214.690-61l0
Ph:818-785-1181 hwin A. Bransky
.... hesident
Kenitec Computer &Technologies 99 Route70 North Maywood,NJ 07607
Tony[.au........ Buyer
L.A.Data Systems
I-akewood,NJ 08701 Ph:908-370-4779
Ph: 805-526-1603
zgg
MacWarehouse P.O.Box 3013 1720Oak St.
1825Surveyor Simi Valley,CA 93063
Jeff Cook
I CoventonAve. GardenCity, t{Y 11530 Ph:516-248-8889
Ph: 800-536-4832 Mike Lowe
M.C.P.S.
. Buyer
.......President
Diolrihdoro
Inc. Multimedia Magic
Lab,Inc. Media
2445ClevelandAve. WestLawn, PA 19609
400 S. McCaslinBlvd. Louisville,CO 80027
Ph: 610-678-2300
Ph:303-499-54rr
CEO ................. BarryZettlemoyer
4514ChanrbleeDunwoodYRd. Atlanta,GA 30338
Industries Marshall 9320TelstarAve. El Monte,CA 91731
Ph: 404454-6889
Ph: 818-307-6000 BobCaldarella........... ....Corp.Sales Manag
lnternational Marvic
200 ContinentalBlvd. El Segundo,CA n245
BethWright
BuYer
Inc. Central Micro
Ph:718-346-7822 ......BuYer
Group Jtlax
Equipment Micro ... Vice hesident
Inc. Enterprise MDL
Buyer .................. JasonKamaivand
CorP. Informatica Micro
Ph:713-771-6350 . BuYer
Distribution Graphics Media 370AmapolaAve. Suite212 Torrance,CA 90501
99 SE 5th ST. Suite120 Miami,FL 33131 Ph:305-377-1930
StarSoftware Micro
Ph: 310-782-1532 Mark Lewis
6155-GJimmyCarterBlvd. Norcross,GA 30071 Ph:404'M7'1726
9888SW Freeway Houston,TX77074 D. L,amm
President
JayLopatin.............
Ph: 818-968-6798 SueTsai
P.O.Box 1009 Old Bridge,NJ 08857-1009 Ph: 800-836-4276
16605GaleAve. City of Industry,CA9l745
BuYer
2245CaminoVida Roble Suite101 Carlsbad,CA 92009 Ph:619-931-4949
lnc. lntegration Media
StephenBenedict.
2521S.RodeoGulchRd. Soquel,CA 95073 Ph: 408-475-9400 Mike Rynas
Inc. Merisel Ph:310-615-3080
768E 93rdSt. Brooklyn,NY 11236
Victor[re.........
Inc. Magic, Media
BuYer
... Owner
A;;r^li*
Micro United
Savannah, GA 31405
2200E. GoH Rd. DesPlaines,IL 60016
Ph:912-238-4657 William Keith
Vp, Marketing
Ph: 708-297-l2N
National CD-ROM
MicrohceInc.
11005IndianTrail Suite101-A Dallas,TX75229
109S. DuncanRd. Champaign, IL 61821
Ph:800-237-6613
Ph:217-356-1884 UzeePayton
Buyer
Microage Inc. 2fi0 MicroageWay Tempe,AZ 85282
Ph:612-535-8333
Ph:602-968-3168 GaryPalenbaum............ VendorDev. Manager
Micromodem
NlDl Peripherals &Technology Inc.
JackShowalter....... ... Buyer
Mini-Micro Supply Co.Inc. 4900Parick Heory SantaClara,CA 95054
Nimax Inc. 7740KenamarCt. SanDiego,CA 92121
Ms. Kokao............. Buyer
Most Significant Bits
StateRoute629 Guilford Farm Ruckersville,VA 22968
Ph:216-529-1888
Ph:804985-1100
1720W. DetweillerDr. Peoria,IL 61615 Ph: 309-692-1530
Muse Edlnc. 220WashingtonAve.
zq0
....CEO
Buyer
Nimbus Information Systems
37207ColoradoAve. Avon,OH 4401l-1527
Multi-Ad Services
president
Ph:619-566-4800
Ph: 408-327-0388
PatriciaMiller.....
SeniorNational
Ph:206-861-&34
Ph:207-493-3300
SteveFlynn
RickVick........ Buyer
l52W NE 95thSt. Redmond,WA 98052
Route I Caribou,MEM736
Don Robertonson
Navarre Corp. 7m 49thAve.N New Hop., MN 55428
Timara Crabaugh Representative
.. Account
One Source Micro Prducts Inc. 3305LathropSt. Suite200 SouthBend,IN 46628 Ph:219-288-7455 JamesAinsley...
......President
D;.olo;"Cula+o
Tacoma,WA 98401
Inc. Micrc Stop One
Ph: 206-922-9393
524 ProspectAve. Uttle Silver,NJ 07739
WendyCanoll
Ph:908-741-8888 RochelleFirestone
.. Vice President
Inc. SYstem, Computer 0nline 20251CenturyBlvd. Germontown,MD 20874
.......Vice President-Sales
& Fulfillment Products Promotional Distribution 89 Mills Rd. Ajax, ON LIS 7L3 Canada Ph: 800-263-4678
Ph: 301-60t'2405
Corp. Services Distibutor Promotions
lnc. Laser Optical 5862BolsaAve. Suite 103 HuntingtonBeach,CA 92649 Ph:714379'4440 MichaelS. Raab
.....President
lnc. Systems PDP
10303NorrisAve. LosAngeles,CA 91331 Ph:818-834-8800
Communications Ouantum 801W. MineralAve. Littleton,CO 80120-4501 Ph:303-797-9379
2140BeringDr. SanJose,CA 95131
Rick Pinkham
Ph: 408-944-0301
RJ.I.
PFMicro
13533I Circle Omaha,NE 68137
3598CadillacAve. CostaMesa,CA92626
Ph: 800-383-3257 SteveLukowski
Ph:714549-4669
PCWholesale
Inc. Access Random
472Fox Ct. IL 60108 Bloomingdale,
8000E. Iliff Ave. Denver,CO 80231
Ph:708-3U-3636
Ph:303-745-9600
DanielO'Brien
President
.......Vice President
BradleyA. Comer
.....BuYer
. Vice President
DataProducts Precision
RandomSoft
5036FalconView Ave. SE GrandRapids,MI49512
A Divisionof RandomHouseInc. 201E. 50ttrSt. New York,NY 10022
Ph: 616-698-2242 ChuckWiltams
......BuYer
Ph:212-751-2600 RandiBenton....
......New MediaDirector
Sigma PrintNWSix 491820rhSt.E P.O.Box l4l8
zq,l
ASSr^k*
Revelation Products Corp.
Sirex USA Inc.
1220Valley ForgeRd. P.O.Box 2225 Valley Forge,PA 19482
132-14l lth Ave. CollegePoint,NY 11356 Ph:718-746-7500
Ph:610-933-5875
Norman Ross Publishing 330W. 58thSt. New Yorh t{Y 10019 Ph: 800-648-8850 Maja Lakicevic
Solsource Inc. 401N. lTth St. Suite4 [,as Cruces,NM 88005 Ph:505-523-6789
.......Marketing
Vice president-Sales
StevenMeyer
RTM
Software Services Group
13177RamonaBlvd. Suite7 kwindale,CA 91700
l2l8 EastHartmanAve. Omaha,NE 68110 Ph: 402-453-1699
Ph:818-813-2630 ChristopherChan
BarbK. Kegel ... hesident
Southern Electronics Distributors
SBM Inc.
4916N. RoyalAtlantaDr. Tucker,GA 30085
7U6 PeachreeIndustrialBlvd. Suite200 Norcross,GA 30071
Ph:770-938-4041 GeraldDiamond
Ph: 800-662-8277 JackThorton........
... president
Sega Ozisott
.....CEO
TheDouglas Stewart Co. 2402AdvanceRd. Madison,WI 53704
729 Bay Rd. Mill Valley,CA 94941
Ph:608-221-1155 Jim Hannem
Ph:415-383-1501
Seneca Data Distributors Inc.
Supercom Inc.
19 CorporateCircle EastSyracuse,NY 13057
410S.AbbotAve. Milpitas,CA 95035
Ph:315-433-1160
Ph:408-456-8888
Kevin Conley hesident
.......Vice president
ExecutiveVice
MarkWayler....
......Buyer
Systems Supplies Signet Sales Inc.
P.O.Box 8332 GrandRapids,MI49518
2830CopleyRd. Ahon, OH 4r',321
Ph:616-698-2262
Ph: 216-666-6055 RobertSmith
2qZ
ChuckWilliams president/Buyer
.....Buyer
D;.+lr;,lulaoo
CorP, Data Tech
Distributing VARtek
5350TechDataDr. Clearwater,FL 34620
1785S. MetroPkwY. Dayton,OH 45459 Ph:513-438-3550
Ph: 813-539'7429 BuYer
JerryEngel
........... Bill Richards
Inc. Distributors Technology
Source Vision
605NeponsetSt. Canton,MA 02021
19950Mariner Torrance,CA 90503
Ph:617-575-0357
Ph: 310-214-4299
PatWest.
. President
345FourthSt. SanFrancisco,CA 9410?
Ph:415-28t-4230
Ph:415-777-9876 . President
lnternational America Trans 10-2745thAve. LongIslandCitY,NY11101 Ph:718-786-3366 TomJones......
MMDivision Corp: Warner/Elektra/Atlantic 185Beny St. Suite130 CA 90107 SanFrancisco,
Thinkware
RayBachand.........
BuYer
VP' Multimedia ............... Davidfuchanrbault
Network Interactive Wave St 480Pleasant Suite3 I-ee,MA 01238 Ph:413-243-1600
BuYer
NolanBushnell.
......Director
Wholesalers Computer Transamerican
ComPuters WorldNet
4503lrvingtonAve. Unit 2 Jacksonville,FL 32210
92 fugonaut Suite140 Aliso Viejo, CA92656
Ph: 800-780-9545 Bob D'Augustinis
Ph:714-454-1818 .. BuYer
SimonHarv
CorP. TwixTechnology
lnc. Wynit
Dr. 12005Forestgate Suite100 Dallas,T)K75243
6A 47 Eltocott NY 13A67 EastSyracuse, Ph:315-437-1086
Ph: 214-238-9888 RobertStaples
CorP. Software Value 2849WoodbridgeAve. Suite 6-499 Edison,NJ 08837-3451'
Buyer
BuYer
GeoffreyLewis.....
. President
Zoltrix 47273FremontBlvd. Fremont,CA 94538 Ph:510-657-1188
Ph: 908-603-7735
zq3
A;y^l:"
zqq
Lu tb*o
&Feld Hauer Strauss, Akin,Bump,
&Cohn Blumenfeld
1333New HamPshireAve.N\il D.C. 20036 Washington,
1726M St.NW DC 20036 Washington,
Ph: 202-887-4000
Ph:202-955-6300
&Kahn Plotkin Fox,Finter, Arent,
&DorrInternational Hale Brobeck
1050ConnecticutAve. NW Washington,D.C. 2Co36'5339 57-6N2 Ph:202-8
1301Ave.of theAmericas New York,NY 10019
&Poiler Arnold 1200New HamPshireAve. NW Washington,D.C. 20036 Ph: 202-872-3736
&McKenzie Baker 2 EmbarcaderoCenter CA 94lll SanFrancisco, Ph:415-576'3000
&Cole Bechtel 1901L St.NW Suite250 D.C. 20036 Washington, Ph: 202-833-4190
&Cook Hergott Dekom, Bloom, 150S. RodeoDrive, 3rd Fl. BeverlyHills, CA902l2 Ph: 310-859-68200 ................Attorney RichardThompson
&MordkolskY Blooston 2120L St. NW Suite300 Washington,DC 20037 Ph:202-659-0830
Ph:212-581-1600
&Kaufman Nieteil Brown, 1920N. St.NW Suite660 Washington,DC 2W36 ! Ph:202-887-0600
Greenberg Rosenbaum Gross Larner Budd 150Houn F. KennedYPkwY ct{ 1000 ShortHills, NJ 07078 Ph:201-379-4800 DonaldJacobs
........Partner
&Graeff Morris Carr, tr20 G. sr. Nw Suite930 Washington,DC 20005 Ph:202-789-1000
&Parke Chadbourne 1101VermontAve.NW Suite900 Washington,DC 20005 Ph:202-289-3000
&Berfield Cohen tl29 20th St. NW Suite507 Washington,DC 20036 Ph:202-466-8565
zqS
Cohn &Marks
Dow Lohnes &Albertson
1333New HampshireAve. Irl\il Suite 600 Washington,DC 20036
125523rdSt. NW Suite500 Washington, DC 20037
Ph:202-293-3860
Ph: 202-857-2732
Cole, Raywid &Braverman
Dunnington Bartholow &Miller
I 919 Pennsylvania Ave. IIW Suite200 Washington,DC 20006
666 3rdAve. New York,NY 10017
Ph:202-659-9750
Cooley Godward 5 PaloAlto Sq. PaloAlto, CA 94306 Ph:415-843-5000
Covington &Burling 1202Pennsylvania Ave. NW Washington,DC 2W44 Ph: 202-662-6000 GerardJ. Waldron
Creative Licensing Corp. 2551S. BundyDr. Los Angeles,CA 900e$ Ph:31G479-6777
Cutner &Ron, LLC 641 l*xington Ave. New York, NY 10022 Ph:212-308-9393
DeSimone Pearson, LC 4330BellrrueSt. Suite10 KansasCity,MO 64lll Ph: 816-753-2823 DavidJ. DeSimone ...............Partner
Dickstein, Shapiro &Morin 2r0l L St. NW Washington,DC 20f,l37 Ph:202-785-9700
Ph:212-682-881I
Farr&Taranto 24/5 M St. NW Suite225 Washington, DC 20037 Ph:202-775-0184
Fenwick &West 2PaloAlto Square Suite800 PaloAlto, CA 9$A6 Ph:415-49+0600 FredM. Greguras
...Partner
Frankfurt, Garbus, Klein &Selz 488MadisonAve. New York,NY 10022 Ph:212-980-0120
Ginsberg, Feldman &Bress 1250ConnecticutAve.NW Washington, DC 20036 Ph:202-637-9191 HenryRivera
..........partner
Gipson, Hoffman &Pancione l90l Avenueof the Stars Los Angeles,CA 90M7 Ph:310-556-4660
hu f;,+*+
&Wright Weiner Godles, Goldberg,
&Sutter Hopkins
1229l9th St. NW Washington,DC 20f.36
888 16thSt.t.IW Washington,DC 20003 Ph:202-835-8098
Ph:202-429-4W0 .Assistant
W. KennethFeree..
lrell&Manella
&Freidenrich Ware Cary, Gray,
1800Avenueof the Stars Lns Angeles,CA 90[f7
400 HamiltonAve. PaloAlto, cA 94301-1825
Ph:310-277-1010
Ph: 415-328-656r
PC &Tannenwald, lruin,Campbell
Mark Radcliffe
.......AttorneY
&Freedman Blask Hurtis, Gurman,
1320l8th St.I.t\M Suite400 Washington,DC 20006 Ph:202-728-0400
1400l6ttr st. I{\il Suite 500 Washington,DC 20f,36 Ph: 202-328-8200
&Potts Bader Haley,
...............Principal Alan C. Campbell...
P.C. &Colfin Jacobson 1565 Ave. New York, NY 10010
4350N. FairfaxDr. Suite 900 fulington,VA22203
Ph:212-691-5630
Ph: 703-841-0606
1999Avenueof the Stars Lns Angeles,CA 90067
&Machtinger Kenoff
&Wood KentFriedman HallDickler
Ph:310-552-0808
909 3 Ave. New Yorlq l.fY 10022
&Ellis Kirkland
Ph 212-339-5400
&Wilder Dean Straul, Hobbs,
655 15thSt.NW Suite 1200 Washington,DC 20005
1819H. ST.l'I\M Suite800 Washington,DC 20006
Ph: 202-879-5176
Ph:202-783-5100
Ave.NW ll50 Connecticut suite 1000 DC 20036 Washington,
& Knight Holland
&Nattalin Koteen
Ave. 2100Pennsylvania Suite 400 Washington,DC 2ffi37
Ph:202-tt67-570f.:.
Ph:202-955-5550
633W. 5th St. Suite4000 Ins Angeles,CA 90071
&Watkins Latham
Ph:213-485-1234
zn
/,lSr^/:,t
Leventhal, Senter &Lerman
Monison &Foerster
zWA K St. NW Suite600 Washington,DC 20005
nn 6 Ave. New York,NY 10104
Ph:202-429-8970
Lukas, McGowan, Nece &Gutienez 11ll 19thSt.N\il Suite1200 Washington,DC 20036 Ph: 202-857-3500 DavidA. LaFuria...................partner
Lynch Rousin Novack 300E. 42ndSt. New YorlqNY 10104 Ph: 212-682-4001
McBride, Baker &Coles 500 W. Madison 40th Floor Chicago,D- 60661-25ll Ph: 3l2-715-57ffi
Ph:212-468-8000
pC Mullin,Thuyne, Emmons andTopel, 1225ConnecticutAve. NW Suite380 Washington, DC 20036 Ph:202-659-4700 Nathaniel F. Emmons ............Owner
Niron, Hargrave, Devans &Doyle ClintonSquare P.O.Box l05l Rochester, tIY 14603 Ph:716-546-8000
O'Connor &Hannan, LLp l9l9 Pannsylvania Ave.NW Suite800 Washington, DC 20fo6 Ph:202-887-1400
Iarry M. Zanger
McFadden, Evans &Sill 1627Eye St. NW Suite810 Washington,DC 20006
0hana Communications 2338.70 St. New York,NY 10021 Ph:212-737-69A6
Ph:202-659-44N
Paul, Weiss, Rifkind, Wharton &Garrison
Mangum, Smietanka &Johnson
l615 L St.NW Suite1300 Washington, DC 20036
35 E. WackerDr. Chicago,IL 60601 Ph:312-368-8500
pC Meyer, Faller &Weisnam, 44{0/c_ JenniferSt. NW Suite380 Washington,DC 2001s Pb: 202-362-1100
Ph:202-223-7340 PhillipL. Spector ..................partner
Pepper &Corazini 1776K St. t{\il Washington,DC 20006 Ph:202-296-0600 Neal J. Freidman
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Leu t;.u*o
LTD &Kaufman' HailtSchnobdch Popham
&Miller Woods Schwartz,
Meropolitan SquareBuilding 655 FifteenthStreet,N.W., Suite800 Washington,D.C. 20005-5701
Ave.NW 1350Connecticut Suite300 Washington,DC 2Cc36
Ph: 202-82+8000 Fax202-82+8199
Ph:202-833-1700
Alan Melser....
........Partner
Meeds EllisandRouvelas Gates Preston 1735New York Ave. l'ilV Suite500 Washington,DC 20006 Ph:202-628-1700 GregMcCarthY
&McClaY Shaw Smith, Reed, l30l K St.NW SuiteI100 DC 20005-3317 Washington, Ph:202-463'2970
&PolivY Renoul 153216ttrSt.NW Washington,DC 20036 Ph:202-265-1807
&Susman MeYer Rosenfeld, 9601Wilshire Blvd. BeverlyHills, CA 90210 Ph:310-858-7700
&Foster Marsh Ross, 14OlH. St.NW Suite 1000 Washington,DC 20006
lawFirm TheSkornia 160W. SantaClaraSt. Suite 1500 SanJose,CA 95113 Ph:408-280-2820 ThomasA. Skornia................hincipal
&DemPseY Sanders Squire, Ave. SW 1201PennsYlvania Suite500 Washington,DC 2W04 Ph 202-622-66N
&Johnson Steptoe Ave. 1330Connecticut Washington,DC 20036 Ph:202-429'&79
&Lavan Strook Strook 2029CenturePark E. Lns Angeles,CA 9W67 Ph:310-556-5800
&Berlin Swidler 3000K St. l'I\il Suite300 Washington,DC 20007 Ph:202-42+7500 Attorney William B. WilhelmJr. .........Assistant
Ph: 202-822-8888
&Carroccio Smith Santarelli, Ave. I155 Connecticut Suite900 Washington,DC 20036 Ph:202-466-6800
&Swift Tierney lffil22nd St.NW Suite350 DC 20037-1803 Washington, Ph:202-293-7979
A;Sc^l;.u
Wel, Gotshal &Manges 2882SandHill Rd. Menlo Park,CA94025 Ph:415-926-6200
Wiley, Rein &Felding 1776K St. NW Washington,DC 20f,o6 Ph: 202-429-7000 Jim Slattery...........
300
.Partner
Vc+.luoc0a1-"bl f:.o*+
GrouP 21stCentury
Ventures AT&T
Ave. 921 N. Pennsylvania Winter Park,Fl-32789
East Hanover, NJ
Ph:(201)952-148s $80MUnderManagement
Ph: (407) W-7335 Fern Duquette
ManagingPartner
Alessandro Piol
Partners Accel
Venture Atlas
One EmbarcaderoCenter SanFrancisco,CA 94111
Z}ZBerkeleYSreet Boston,MA 02116
Ph: (415)989-5556 email: Jim Breyer,[email protected] www : http://www.accel,com
Ph: (617)859-9290 fa:r: (617) 859-9292
$350MUnderManagement GeneralPartner
JamesBreYer
Partners Accel One PalmerSquare Princeton,NJ 08542 Ph: (609)683-4500 email:Don Gooding,[email protected] www: http://www.accel.com
Partners AVIManagement I First St. Suite12 L,osAltos, CA 94A22 Ph:(415)949-9855 CtruckK. Chan..
Partners Venture Baccharis
$350MUnderManagement
2420SandHill Rd. Suite100 Menlo Park,CA94025
Partners Alpha
Ph:(415)32+6844
545 Middlefield Rd. Suite1?0 Menlo Park, CA94025
PartnerBank .................... MaryBechmann
CorP. Capital America
Ph: (415)854-7024 WallaceF. Davis..
... GeneralPartner
Investments Strategic American P.O.Box 2941 BeverlyHills, CA 90213
Ph: (415) 622-2230 .. Vice President
BayPartners ... ManagrngDirector
Co. Management Asset 2275E. BayshoreRd. Suite150 PaloAlto, CA 94303
555 CaliforniaSt. Dept.3908 CA 94104 SanFrancisco, Parick J. Topolski
Ph:(213)278-1898 DennisMcCarttry
.....GeneralPartner
10600N. De AnzaBlvd. Orpertino,CA 95014-2031 Ph: (408) 725-2W JohnE. Bosch
GeneralPartner
Ph: (415) 494-74lllu:
901
/,SSc^l:,n
Bechtel Investments Inc. 50 FremontSt. Suite3700 SanFrancisco,CA 94105
Vice president
Mary RuthMoran.....
Drysdale Enterprises
Ph: (415)768-0197 principal ThomasD. Wilardson...........
TheBenefit Capital Companies P.O.Box 49422 Los Angeles,CA 90049
177BovetRoad,Suite600 SanMateo,CA 9#;02 Ph (4ls) 34r-6336 fax: (415) 341-1329
Geocapital Partners
Ph: (213) 440-2296 EdwardM. Bixler
Ph:(415)599-9000 fax: (415) 599-9726
... president
I BridgePlaza Fort ke, NJ 07024 Ph:(201) 46r-9292
Canaan Partners
LawrenceI-epard
105RowaytonAvenue Rowayton,CT 06853
Gerald Klauer Mattison &Co.
Ph: (203)855-0400 fax: (203) 854-9117
5295 Ave. New York,NY 10017
CEO Venture Fund
Ph:212-338-8900
4516HenrySt. Pittsburgh, PA 15213
Grace Sottware Marketing Co.
Ph: (412)687-345r
3091MayfieldRd. Suite320 RockefellerBuilding ClevelandHeights,OH 44118
DeVries &CoInc. 800W. 47th St. KansasCity, MO 64112
Ph: (216)321-2000
Ph: (816)756-0055 RobertJ. De Vries
.. president
Dig itafTechnology Partners World TradeCenterSuite235 SanFrancisco, CA 94lll Ph: (415)249-3995 fax: (415)788-2514
Dillon Read Ventures 535MadisonAve. New York,NY 10017
partners Hambrecht &Quist Venture OneBushSt. SanFrancisco, CA 94104 Ph:(415)576-3300 G. MeadWyman
.... Generalpartner
Hancock Venture Partners Boston,MA Ph:(617)348-3713 Ofer Nemirovsky
Ph:212-X)6-7759
Hummer Winblad Venture Partners
Draper Associates
5900Hollis St. SuiteR Emeryville,CA 94608
400 SeaportCourt,Suite250 RedwoodCity, CA 94063
302
Ph: (510) 652-806r
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Partners lnterwest
Ph: (415)956-1579 fax (415)981-4168
3000SandHill Rd. Building Three Suite255 Menlo Park, CA94025-7ll2
Associates Media New 148Duanest. New York,NY 10013
Ph: (415)854-8585 H. Berry Cash.......
.. GeneralPartner
&BYers Caufield Perkins Kleiner 2750SandHill Road Menlo Parh CA 9'1025
Partners Venture Bridge North 404WymanSreet, Suite365 MA02181 Waltham, Ph: (617)290-0004 Fa:r(617)2n-0999
Ph: (415)233-2750 JohnDoerr.....
Ph:212-349-27W
GeneralPartner
&Smith Ortale LawrenceTyrell 515MadisonAve. New Yorh NY 10022 Ph:212-826-9824
Partners Matrix Boston,MA
Bill Geary
Communications Ohana 233E.70 St. New York, NY 10021 Ph 212-737-6906
Partners Venture Olympic
Ph: (617)345-6740
2420Carillion R. Kirkland,WA 98101
Andrew Marcuvitz
Ph:(206)889-9192
Fund Mayfield 2800 SandHill Road Menlo Park, CA94025 Ph:(415)854-5560 fax (415) 85+5712 Michael l-evinthal
GerardLangeler
Associates Enterprise ONSET 301UniversityAvenue,Suite250 PaloAlto, CA 94301 Ph:(415)327-5470 fax: (415)327-5488
Ventures Menlo
Venture ONSET
PaloAlto, CA Ph: (415)854-85'+0
8920BusinessParkDrive, Suite 140 Austin,T)K78759
Ventures Davidow Mohr,
Ph: (512)349-2255 far (512)349-2258
Menlo Parlc, CA Ph: (415) 854-7236 Jonathan Feiber
Associates NewEnterprise
&Co.Ventures Patdcof 445 ParkAve. New York, NY 10022 Ph:212-753-6300
235 MontgomeryStreet,Suite 1025 SanFrancisco,CA 94104
303
41.;r^k*
ThePhoenix Partners
Sofinnova Inc.
10002ndAve. suite 3600 Seattle, WA 98104
OneMarketPlazaSteuartTower,Suite 26iO SanFrancisco, CA 94105 Ph:(415)597-5757 fax (415) 597-5750
Ph: (206) 624-8968 AlessandroPiol
Sorento Associates Inc.
Piper Jaffray
4225ExecutiveSquare Suite1450 SanDiego,CA 92037
l2(-]/c_ 5 Ave. Seattle, WA 98101
Ph:(619)452-ffi
Ph:2M-287-8831
Platinum Venture Partners
Mitchell L. Siegler
. Vice president
OakbrookTerrace,IL
St.PaulVenture Capital, Inc.
Ph: 708-620-5000
8500NormandaleIake Blvd., Suite lg40 Bloomington,MN 55437
Michael Santer
Quaestus Management Milwaukee,WI
Morgan Stanley &Co.
Ph: (414)287-4500
555 CaliforniaSt. SanFrancisco, CA 94104
RichardWeening
Ph:(415)57G2000
Sacher Capital
Summit Partners
375 ParkAve. New Yorh NY 10152
Boston,MA
Ph:212-319-1968
Ph:(415)321-1166
Sage Management Group 23Il WebsterSt. SanFrancisco,CA g4lls
Sutter HillVentures ....hincipal
Sevin Rosen Funds 550 Lynon Avenue,Suite200 PaloAlto, cA 94301 Ph: (415) 326-05s0
Sigma Partners Menlo Park,CA Ph:(415)854-1300 WadeWoodson
30q
WalterKortschak
PaloAlto, CA
Ph: (415)346-4036 CharlesA. Bauer
Ph:(612)830-7474 fax (612)830-7475
Ph:415-493-5600 TenchCoxe
Technology Partners 1550TiburonBlvd., SuiteA Belvedere,CA 94920 Ph:(415)435-1935 fax (415) 435-5921 William Hart........
.. Managingpartner
Vc+.lu+cAytut
LP Capital, Trident
LLC Fund, TheWindgate
2480SandHill Rd. Suite201 Menlo Park, CA94O25
130William St. Suite807 New York,NY 10038
Ph: (415)233-43W
Ph: (2r2) 227-0905
f:.o*o
Corp. Venture Union 445 S. FigueroaSt. Ins Angeles,CA 90071 Ph: (213)236-&92 KentonPanie...... President
....ExecutiveVice
Harris Unterberg 65 E. 55 St. New York, l.IY 10022 Ph:212-888-5600
Associates Venrock 30 RockefellerPlaza,Room5508 New York,NY 10112 Ph: (2r2) 649-5600 RayRothrock.........
Partner
Associates Venrock 755 PageMill Road,SuiteA230 PaloAlto, cA 943M Ph:(415)493-5577
&Co. Welte Volpe I Maritime Plaza San Francisco, CA 941I I P h : 4 1 5 - 9 5 6 -8 1 2 0
Group Walden 750 BatterySt. SanFrancisco,CA 94lll Ph:415-391-7225
Partners Venture &Greer Peck Weiss, 555 CaliforniaStreet,Suitenffi SanFrancisco,CA 94104 Ph: (415) 622-6864
305
Rclt:,"dlar V Prclr4int t:.ono
Media OPtical 3MPrerecorded
Champion Ashby
3M Center St.Paul,MN 55144
43301OsgoodRd. Fremont,CA94539 Ph:510-651-1934
Ph: 612-733-2142 DaveIverson
Manager ..........Production
DuPlication Sottware Acutrack 16592RolandoAve. SanLeandro,CA 94578
Inc. Americas Astraltech 5400BrokenSoundBlvd. BocaRaton,FL33487 Ph:407-995-7011
Ph: 510-278-54r'-l
Center RePlication Sottware AT&T
Inc. ConcePt, Media Advanced
2M3 WarrenvilleRd. Lisle, IL 60532
236W. 27th Sreet NYC, NY IOOI
Ph: 800-772-2M3
Ph:212-229-1348
BigByteMedia
Technologies AlliedDigital 1301Avenueof the Americas 14thFloor New York,NY 10019 Ph:212-757-6800 SteveGranat Marketing
President...........Vice
Inc. Disc Americ 812AnneSt.,SW I-eesburg ,VA22W 5 Ph:703-777-1872 RegionalSales GlennTompkins.................... Manager
18425NapaSt. Northridge,CA 91325 Ph:818-700-2983 Vice President
JackDaly
Inc. Services Media Braun 3800AnnapotsLn. Plymouth,MN 55447 Ph:612-551-3100 RobertOlson
President ..........Vice
Productions Cassette 4910Amelia EarhartDr. SaltLakeCity,UT 84116
Inc. Multimedia American
Ph:801-531-7555
2609TirckerSt. Burlington,NC 27215
(CenTech) Technology Cenna
Ph: 910-229-5554
Inc. ProDigital American
1375W. 8040S WestJordan,UT 84088 Ph: 801-255-3999
P.O.Box 550 NY 13683-0550 Rooseveltown, Ph: 315-769-0034
301
Agculia
Cinram, Inc.
Gainesville, VA 22Ms
660White PlainsRd. Thrrytown,NY 10591
Ph:703-347-2lll
Ph:914-631-2800
Denon Digital Industries
Commercial Documentation Services
1380MonticelloRd. Madison,GA 30650
266t S. Pacific H*y. Medford,OR 97501
Ph:706-342-3032
Ph:503-773-7575
Design ToDistribution
Coptech West
5429LBJ Freeway Dallas,TX752l8
249HumboltCt. Sunnyvale,CA 94089-I 300
Ph: 800-336-6066
Ph: 408-727-&27
Digital Audio Disc Corp
Creative Digitaf Research
1800N. FruitAve. Tene Haute,IN 47804
7291CoronadoDr. SanJose,CA 95129
Ph: 8l2-462-8lD
Digital Magnetics Inc.
Ph:408-255-0999 PaulLing
Creative Sound Corp. 25429Malibu Rd. Malibu, Ca90265 Ph: 310-456-5482
Crest National 1000N. HighlandAvenue Hollywood,CA 90038 Ph: 800-309-DISC
cyberdisk 69 BrunswickExit Moosup,CT 06354 Ph: 860-5&-6610
Data NWSeattle 120BelmontAve. E Seattle,WA 98102-5ffi3 Ph: 206-633-0524
dataDisc Route3, Box ll08
309
.hesident
801JupiterRd. Suite102 Plano,TX 7 5074 Ph:214-578-7664
Digitech Inc. P.O.Box 25177 Greenville,SC 29616 Ph:803-676-9917
Disc Makers 7905N. Rt. 130 Pennsauken, NJ 08110 Ph:800-468-9353 I-any Ballen
..........president
Disc Manufacturing Inc. l40g Foulk Rd. Wilmington,DE 19803 Ph: 302-479-25001 RustyCapers
president .........Vice
V Prclreginf flo*o
Ph:203-759-0574
Disctronics
.hesident
JeffWeiss.............
2800 SummitAve. Plano,TX75074
Eva-Tone
Ph:214-881-8800 CD-ROMSales DavidK. Williamson.............VP'
4801UlmertonRd. FL 34618 Clearwater,
Computer Dolphin
Ph:813-572-7WA
532GreatRd. Acton,MA 01720
Inc. Services Packaging GRA
Ph:508-635-5308
3800MonroeAve. Pittsford,NY 14534
Inc. Electronics Douglas
Ph:716-385-2060
9777AlvaradoSt. Sankandro, CA 94577
Manager ..........Production
GrouP Manulacturing Hauppauge
Ph:510-483-8770
Inc. Services Data Echo
15 Gilpin Ave. NY 11788 Hauppauge, Ph: 516-234-0200
560TrestlePl. Downingtown,PA 19335
SYstems Management lmage
Ph:610-873-6000 JohnLat2.......
DonnaJones
Manager .........Account
239W. 15 St. New York,NY 10011
EDSCO
Ph:212-741-8765
PO Box 2250 WestPeabody,MA 90068
Inc, Source lmage
Ph:508-535-8500
(USA) EMIManufacturing I CapitolWay Jacksonville,IL 62650
36 PondSt. Suite104 Franklin,MA 02038 Ph:508-520-4202
lnc. Technology IMPAC
Ph:217-245-9631
CorP. Technology Encryption 171Lock Dr. Marlborough,MA 01752
180GordonDr. Suite107 Exton,PA 19342 Ph:610-594-8500 Freed...... James
......hesident
Ph:508-229-8500 KevinMoriarity Marketing
Sales& ..........VP,
Inc. Solutions Archives Eternal 6l Holmes Ave Suite B Waterbury, CT 06710
Products JVCInformation 17811MitchellAve. Irvine,CA927l4 Ph:714-261-1292
A;Sc*lix
JVCDisc America
National Data Conversion Institute
2 JVC Rd. Ttrscaloosa, AL 35405
5 E l6th St. New York, NY 10003
Ph:800-677-5518
Ph:212-463-7511
KaoInfosystems Co.
.........President
NationalTape &Disc Corp.
40 GrissonRd. Plymouth,MA 02360
ll05 16Ave.S. Nashville,TN37212
Ph: 508-747-5520 John8rush.....
MichaelDaniec
.........Executive Vp
Ph:615-320-9025
KAO Optical Products
National Video Industries, Inc,
128WanenSt. Lowell,MA 01852
15WestlTth St. New York,IfY 10011
Ph:508-458-9788
Ph:212-691-1300
Klarity Kassette
Nimbus CDInternational
PostOffice SquareMain St. Waterville,ME 04901
StateRoute629, Guilford Farm Ruckersville,VA 22968
Ph: 800-458-6405
Magnetech Corp. 3941SW 47 Ave. Ft. Lauderdale,FL 33314
Ph:8M-985-1100 LyndonFaulkner
Noble House
Ph: 317-870-5700
2l7M Devonshire Suite330 Ctratsworttr, CA 9l3ll
Memcon Corp.
Ph:818-709-5053
2430S. 156Cir. Omaha,NE 68130 Ph:402-333-3100
Northeastern Digital 2 HiddenMeadowlane Southboro,MA 01772
Metatec Corp.
Ph: 508-481-9322
7001MetatecBlvd. Dublin,OH 43017
NSPAN Corp.
Ph:800-637-3472 Ph:614766-3104
.......CEO
DawnH. Powell........................Marketing Manager
16038Vickery Suite280 Houston,T){77032
Microboards lnc.
I-elandCostley...
Ph:713-985-3lll P.O.Box 846 Chanhassen, MN 55317-0846 Ph: 612-448-9800
310
.........General Manager
k{ictlla+. V Prclrtgln1f *no
Corp. Resources OMN|
Diskette Princeton
50 HoweAve. Millbury MA 01527
1101RichmondAve. Beach,NJ 08742 PointPleasant Ph:800-426-9800
Ph: 508-865-45r C.J.Anand.............
Sales .VicePresident-
Inc. OneSource, 8-10W. l9th St. New York,NY 10011 Ph: 212-727-1010 Fax:212-727-zlM
International Media Optical
Sigma PrintNWSix 491820thSt.E P.O.Box 1418 Tacoma,WA 98401 Ph: 206-922-9393
PSIIndustries 135 Ludlow Ave. Northvale, NJ 07647
180KnowlesDr. l,os Gatos,CA 95030
Ph: 201-768-8007
Ph: 800-347-2664 Fx: 408-376-3519
Service Data Publishers
DiscInc. Optimax 3420PomonaBlvd. Pomona,CA 91768 Ph:909-598-3887
Works Sound Pacilic Coast 8455BeverlyBlvd. Suite500 WestHollywood,CA 90048 Ph:213-655-4771
PilzAmerica 54 Conchester Rd. Concordville, PA 19331
Dr. I LowerRagsdale Monterey,CA 93940 Ph:408-372-2812
Inc. Systems Data Quality 2450CentralAve. SuiteB-2 Boulder,CO 80301 Ph: 303-444-1257
Corp. Products Revelation 1220ValleyForgeRd. P.O.Box 2225 ValleyForge,PA 19482 Ph:610-933-5875
Ph: 610-459-5035
Ricoh Corp.
Micro Pinnacle
5 Dedrick Pl. West Caldwell, NJ 07006
19Technology hvine, CA927l8 Ph:800-553-7070 Ph: 714-7274304
Disc Polygram Mfg.and PO Box 400 Grover,NC 28073
Ph: 201-882-2000 Claudia Jones Manager
........Pub1icRelations
Rimage Corp. Ave.S 7725Washington Minneapolis,MN 55439 Ph:612-944-8144
Ph:7W734-4265
311
Seattle Support Group
Tapette Corp.
2M20 84 Ave. S. Kent, WA 98032
15702ProducerLn. HuntingtonBeach,CA926/;9
Ph:206-395-1484
Ph:7l+638-7960
Sottware Services Group
Technicolor Optical Media Services
l2l8 EastHartmanAve. Omaha,NE 68110
3301E. MissionOaksBlvd. Camarillo,CA 93012
Ph: 402-453-1699
Ph:805-445-3U7
Sonopress
, RamNomula
1540Broadway New York,NY 10019
TechniDisc
..........President
Ph 212-418-9439
2250Meijer Dr. Tioy,MI48084
SonyElectronic Publishing
Ph:81G352-5353
9 W. 57 St. New Yorh NY 10019
20251SealpointCircle Suite104 HuntingtonBeach,CAgzffi
Ph:212-418-9439
Ph:714-536-N25
Speciality Records Corp. 1400E. LackawannAve. Olyphant,PA 184r';7
RonBalousek.........
Todd Enterprises
Ph:717-383-3535
31 WaterMill Ln. GreatNeck,t{Y I l02l
Spectra Tek
Ph:718-343-l04/J. Jay Singer
1508CotnerAve. Los Angeles,CA 90025 Ph: 310-473-4966
UNIK Micros
Star-Byte Inc.
P.O.Box 204/;91 Austin,1){7872UM91 Ph:512-251-8181
2880BergeyRd. Hatfield,PA 19440 Ph: 215-997-2470 WalterFriedrick
..........Vice President
Unisys Corp., Custom Software Manufacturing 13250HaggertyRd. N Building 4 Plymouth, MI48170
Starpak Inc. 23722ndSt. Greeley,CO 80631
Ph:313-451-4888
Ph: 303-352-6800 BrentCox........
.......Sales Manager
USOptical Disc I EagleDr. Sanford,ME 04073 Ph:207-32+1124
312
President
k;lictlia+.
V Pdr4i^g
fio*+
CorP. Development Vertical OneVertical Dr. PA 15317 Canonsburg, Ph:412-7464247 ChuckKellar Manager
Sales ..........Regtonal
West Video 1065W. North Temple Saltl-akeCity, UT 84116 Ph:801-575-W
Manufacturing WEA 278 Fulton St. North Babylon,t{Y I l7M Ph:516-253-0337 3601W. Olive Ave. Suite210 Bnrbank"CA 91505 Ph:818-953-294r
Media New Windsor 8 W. 38thSt. New York, hfY 10018 Ph:212-94$9090 Faxz212-8450217
Lab Picture Motion WRS 1000NaporBlvd. Pittsburgh,PA 15205 Ph:412-937-77W
313
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