CEO Letter #1 - Publishing & The Ranchers

Dear Trophy Games Investors,

Our new investor relations initiative from Trophy Games includes a bi-monthly letter from me, CEO Søren Gleie. It will outline and explain part(s) of our strategy and/or business, to allow a better understanding of our company and where it is going. In this letter, the first of its kind, I will highlight our biggest event this year at Trophy Games - the signing of our first publishing deal.

Firstly, the letter will start with a description of what publishing a computer game consists of. After, an explanation of why we signed with The Ranchers and the positives of this decision. Lastly, I will outline some of the opportunities and possibilities it will bring in the future. 

Publishing a computer game is a science in itself. It will typically consist of following elements:

1. Platform presence (App Store Optimization)
2. User acquisition (UA)
   1. Paid media
   2. PR
   3. Streamers
   4. Partners/Featurings
   5. Traditional paid media & conferences
3. Creatives
4. Sub-licensing
5. Merchandise
6. Localization
7. Community engagement

Localizing the game is extremely important, and a wrong or low quality translation of the game can ruin its release in countries that have a very strong sense of nationalism (for example China). A bad translation will typically show in very early reviews of the game, which will in turn discourage future buyers. It is almost always the publishers task to localize the game, and the cost is typically around 0.10 USD per word per language. It is not easy finding the right company for your localization, as many companies will just try to get the translation done as fast as possible to earn their money. If you are a smaller studio, they won’t care for the quality because they don’t expect future business. Being a larger client will typically get you a lot more attention and thus higher quality. 

Support is typically initiated and driven by the publisher, who will support the players directly and forward any technical issues to the developer. This is a relatively small expense.

No matter if a game is good enough to be able to make profit on paid marketing - it needs to have a platform presence. There is a huge science behind platform presence, and it takes a lot of experience getting your game to the right people via App Store, Google Play, and various PC platforms such as Steam, EPIC store and Microsoft Store. Keyword and search word analysis, split-testing creatives, logos, and promoting the right features of the game is crucial. Many small studios do not have resources to allocate a specialist in this - but this alone can make or break your games’ success. The creatives made for the different platforms that the game can be downloaded from, will typically consist of both in-game video footage, cinematic trailers and images. Creating cinematic trailers is typically rather expensive, especially if you do not have the resources in-house. Furthermore, creating a cinematic trailer that further works well in an advertisement related context (capturing the viewer very fast while still communicating the core features of the game), is a highly specialized task alike. Again, smaller studios with less than 10 people will have a very hard time executing this at a high level. Maintaining a good relationship with these platforms also allows for a higher amount/chance of ‘game featuring’, where the game will be pushed by the platforms to its users.

If the game is really good, the creatives will also be used as a foundation for the paid user acquisition. This is where there will typically be a lot of iterations/changes on the already existing creatives. The two main traditional platforms used to then push advertising campaigns are Facebook and Google -  all other platforms are (currently) inferior in their user targeting capabilities.

Some games are also very streamer friendly, which opens up for a whole new channel for user acquisition. Identifying streamers (with the right audience) can be a valuable revenue source for the game.

Merchandise and offline paid media is only for the top 1% most successful games.

Finally the publishing landscape globally is very different from region to region. There is a huge difference between the West, Asia and the Middle East. Thus sub-licencing the rights to publish the game to a regional specialist in Asia or Middle-East is often preferable. In China, for example, you must have a local partner by law.

All of these things are often out of reach for smaller game development studios if they only have a handful of employees. In addition, taking an investment and building these capabilities up inhouse can be time consuming and risky - meaning some companies will be looking for a publisher for their new upcoming game.

Trophy Games has always been self-publishing. Back in 2016 (before the release of Pro 11), we decided to invest further into publishing capabilities. This is now paying off as we currently have specialists and experience in all the above mentioned disciplines - which are needed to get a game out to as many people as possible. We are currently publishing our own 15 games, and more recently we signed with ‘The Ranchers’ developed by Redpilz Studio in France. It is the first publishing contract with a foreign studio we have made.

• So how does a publishing contract normally work?

A publishing contract will typically consist of two things; an up-front fee typically used to finish the development of the game and a minimum guarantee to be spent on marketing. The sizes of these two parts can vary quite a lot depending on the game. In most contracts these two fees will be recoupable, meaning the publisher will have the first part of the released games’ revenue returned to cover those expenses. After a game is released the publisher will often do paid user acquisition. In almost all contracts the publisher will additionally have the campaign spend recouped from the game earnings. After these things have been recouped, there is typically a revenue split ranging between 30-70% to the developer depending on other contractual aspects. Most times the games revenue will go into the publishers accounts and the profit share will then be distributed to the developer. The durations of these deals are usually 4+ years.

Being a developer and signing a contract with a publisher is often not risk free. Risk for the developer could include the publisher pursuing goals that do not correlate with the goals of the developer. For example, if the publisher has a series of games on their own platforms - they don’t necessarily need to do a positive return on investment on their user acquisition. Building a user base in their network has a value of its own. Another example could be that the developer has sold the publishing rights too cheaply. Which could end up with the publisher spending a miniscule amount of money on advertising and taking half of the organic sales afterwards. It is therefore very important for the developer to select the right publisher - one that understands the game and will have its success as the sole success criteria of the publishing deal. Trophy Games prefers in most investment cases to do actual equity investments. However, the case of ‘The Ranchers’ was a little different, since the founder of RedPillz Studio had spent the previous 6 years developing a systemic world engine which would have a lot of value in other productions going forward. An investment in this case, would be at a much other valuation than doing a single game deal.

The timing of the publishing deal with ‘The Ranchers’ was very favorable. At the time of signing, Trophy Games business development team had a full pipeline with the ongoing purchases of Tiny Studios and the Sky Haven deals, however, the marketing team had available resources since the shutting down of Pro 11 user acquisition and the delay in scaleup of our Warhammer AoS: Soul Arena game. 

The success of ‘The Ranchers’ could be a highly exciting business opportunity for Trophy Games. Signing the first contract is always the hardest, and ‘The Ranchers’ is already widely known among game developers. A success here could lead to a lot of potential new publishing deals, via outside developers hopefully seeing our track record and portfolio. Similar to Coffee Stain Studios, who could pick and choose from almost everything after their success with ‘Goat Simulator’.

‘The Ranchers’ currently has around 270.000 wishlists on Steam. It is set to be released in early access during the middle of 2023, with a base price of 29.95 USD. Oftentimes there will be discounts and sales, and different regional prices will most likely give an average unit price of 20 USD after VAT. There are, of course, always chances of delays. Right now the game is released in Alpha, having 3000 players playing the game coming with suggestions and reporting bugs. All the higher difficulty technical aspects, such as co-op and the world engine, are already working - which I would consider the release of ‘The Ranchers’ to be relatively safe for a game project.

How much will it actually sell? There is no way of knowing, however one way to get an idea would be to look at other games and their wishlist counts during launch:

Wishlists at launch	Week 1 sales (units)
348,000	45,000
295,954	26,300
Ranchers 275.000 (exp launch july 23)	? full price will be 29,95 €/$
262,028	61,262
238,423	158,828
219,470	67,554
208,181	112,622
185,544	14,947
142,816	36,201
117,529	4,224
105,834	32,839
85,000	3,000
70,848	19,671
63,000	15,500
62,000	15,000
60,426	9,400
54,434	2,200
Avg 157,468	Avg 39,034 (24,8% avg, 23,79% median)

*Steam survey: do wishlists and sales line up meaningfully?

These numbers are of course very uncertain, and there are big outliers both ways. We see games only converting a few percentages, and some converting almost 100%. An average of games sold the first year equals around 3 times in the first week of sales according to the same analysis.