Social gaming is "absolutely not" in a bubble

Mind Candy CEO Michael Acton Smith has said that social gaming is "absolutely not" in a bubble, pointing out key differences between companies like Playfish and ones that experienced rapid growth during the dot.com era.

"The reason Club Penguin and Playfish went for such multiples is because they are profitable businesses generating substantial revenue," said Acton Smith. "I was involved in the first dot.com boom back in the 1990s and companies were valued at crazy amounts on multiples of users. This time it's multiples of revenue and that is not bubble - that is solid hard fact. So I think we've got a long way to go."

Speaking to GamesIndustry.biz at a party held by Mind Candy to celebrate reaching 15 million registered users in its rapidly-growing online kids game Moshi Monsters, Acton Smith added that the virtual goods business in the Far East is turning over more than $5 billion annually, with the biggest online gaming company there valued at several billion dollars.

"Why on earth are you not seeing that in the West? We're seeing huge amounts of growth and we're still in the very early days," he pointed out.

"This free-to-play model is incredibly powerful," he continued. "[Players] can sign up and pay for as much as they want either through micro-transactions or through a subscription.

"There are no costs involved because it's all digital content. So we welcome with open arms new players signing up and if one per cent sign up to pay - great. If 10 per cent or 20 per cent sign up - even better. And for these games, because they're so, relatively, cheap to run, you only need a couple of per cent to pay for it to be wildly profitable.

"It's a really amazing business. We have gross margins of about 90 per cent, we deal directly with the end consumer. There's no retailers, there's no distributors, there's no money paid to be listed in a store - all these things the traditional boxed videogame industry suffers. It's an incredibly wonderful, efficient business and it's working very well for us so far."

Acton Smith added that he thinks online gaming will continue to grow going forward to eventually take over as the prevalent method of game delivery. "It's gaming as a service rather than out of the box," he said.

"This is how most of our kid and teenage and older audiences want to consume entertainment content, so I think that the consoles and traditional gaming companies are going to find it tough going forward unless they rethink their business models and put online right at the forefront of their strategy. And, of course, many are trying, but it's a bit of a tricky transition period."

And while he doesn't predict the imminent demise of the console business, he does say that the industry is driven by the consumer, and that consumer is looking increasingly unhappy with spending hundreds of pounds on a games consoles then up to £50 for a game when there are cheaper, simpler, more sociable gaming experiences available for free online.

"Graphics may not be as amazing, the experiences - gaming-wise - might not be as high-fidelity, but they can have more fun - and ultimately that's the most important thing, that's what people will pay for," he said.

Going forward, Moshi Monsters will continue to expand with a move onto portable devices, said Acton Smith.

Mind Candy is chatting to companies at the moment about a DS game, he said, and in the process of working on an iPhone and iPad version for its users.

You can read the full interview with Acton Smith, in which he also talks about the challenges in creating a social game for the pre-teen audience, and the differences between this new generation of gamers and older generations, here.