With the surge of AI, valuing one’s data and exploiting it is on everyone's mind. But what concrete uses can a video game studio put it to?  

As evidenced by mobile video game studios and publishers, data is a game-changer in relation to marketing efforts and overall business strategy. Data is increasingly used to gain insights into various aspects of the company’s business and help make data-driven decisions (to optimize marketing campaigns, improve player retention, enhance overall player experience, assist the CFO in the financial management of the studio…). 

 

NUMEROUS USES FOR DATA IN A GAME’S MARKETING

Interpretation of weak signals has always been at the core of a game’s marketing. Prompted by a fierce competition (in Feb. 2023 Google reported a new app appearing on their platform every 30 seconds!), mobile video games publishers have been the first in turning the art of selling a game into the “science” of acquiring users. The process has become so mature that some startups have started emerging to optimize user acquisition… ambitioning to replace the not-so-old user acquisition managers! 

Although suffering from a much more difficult access to market data, studios operating on other platforms can leverage their data in a similar way. 

Popular use cases include:

• Targeted marketing campaigns: although restrictions may apply in certain regions (such as Europe), player data can be used to identify specific demographics, behavior patterns, and preferences. It allows creating targeted marketing campaigns that resonate with the studio’s audience, leading to higher engagement and conversion rates.

• Player segmentation: player base can be divided into different segments based on their behaviors, interests, and engagement levels. This segmentation can help tailor specific marketing efforts for each group more effectively.

• Churn prediction and retention strategies: analysis of player data to identify potential churn indicators. By predicting churn in advance, a studio can implement targeted retention strategies, such as personalized offers, rewards, or in-game events, to encourage players to stay and continue playing. 

• Game improvement and updates: player feedback and gameplay data permit identifying areas where a game can be improved or updated. Regular updates and improvements will keep players engaged and attract new ones through positive word-of-mouth.

• In-game analytics and player behavior: monitoring player behavior within the game helps understand which features are popular, what keeps players engaged, and what might need improvement. It is a way to optimize the game design and mechanics to keep players invested.

• A/B testing: conducting A/B tests for various marketing strategies, such as different ad creatives, promotions, or messaging, allows the studio to measure the impact of different approaches and refine marketing tactics accordingly.

• Social media and influencer marketing: tracking social media interactions related to the company’s games permits gauging their popularity and discovering influential players or content creators. 

• Feedback and support: player feedback and support data can be utilized to address player concerns and improve customer satisfaction. Happy players are more likely to share positive experiences, which can attract new players through word-of-mouth marketing.

 

FROM PLAYERS TO REVENUES

Data can thus prove invaluable in getting a good grasp of the evolution of the player base of a video game. 

Translating these insights into revenues implies to correlate the number of players with the actual revenues earned by the studio. Average revenues drawn from a given player are called life-time value (LTV). 

Depending on the business model of the studio, LTV consists of the game’s purchase price, in-game purchases, revenues from the display of advertisement to the player, fees charged for NFT trading, etc.

Once determined, LTV will allow a studio to set a limit for its user acquisition expenses. Studios with higher LTV can afford to pay more for each player they recruit. At the other end of the scope, mobile studios developing hyper-casual games must demonstrate the utmost rigor in their user acquisition. Even so, they may be prevented from carrying out marketing campaigns by market conditions, when advertisement costs are too high, such as in the months preceding year-end festivities.   

Efficiency of a given marketing campaign is assessed through another indicator: the Return on Ad Spend (RoAS). For a marketing campaign to recoup its costs, RoAS must be at least 100%. 

Short of specific arrangements, user acquisition must be paid for upfront. Therefore, the speed at which revenues generate is very important too. It is measured through variations around the RoAS concept. For example, “RoAS 120%” is the time necessary for a marketing campaign to generate revenues equal to 120% of the cost incurred; “RoAS 30d” measures the revenues generated during the 30 days following the marketing campaign.

 

UNLOCKING VIDEO GAME FINANCING THROUGH DATA

These indicators and their variation over time are an invaluable help in the treasury management of the company by the chief financial officer of any video game studio. Speed of revenue generation is key in one’s funding strategy. Are revenues still a distant prospect for a studio in the middle of its first AA game’s production? The CFO is likely to favor equity and subsidies. Conversely, if RoAS 100% is a matter of weeks, as it used to be for hyper-casual games, the CFO should be on the lookout for short-term funding solutions. 

However, financing is a dance for two. The fund provider, be it a venture capitalist (VC), a fintech or a bank, will need to share the studio’s view. This alignment implies trusting the data and interpreting it in a similar way. 

VCs have been the first to adapt. With relatively small teams, they aim at doing a limited number deals every year. Even if each opportunity is assessed thoroughly, their business model implies a high level of risk acceptance, set against the high rewards success entails (an uncapped share in the company’s future profits).

Data scientists will generally be hired in the context of the initial due diligence, to build a reliable dataset and draw insights from its analysis. Interpretation will be done hand-in-hand with the sectorial expert of the fund. It is worth noting that the analysis of mobile video games is made easier by the possibility to access data from the top few thousands games on the Appstore and on Google Play. Comparison to peers is more difficult for games on the other platforms, for which no centralized database exists. 

As compiled in Indie Plaza’s directory, a large number of VC funds specialized in gaming exist. Raising equity at an early stage can thus prove a very actionable option for studios in search of long-term funding.

However, welcoming new shareholders in a company implies accepting a reduction of the stakes of existing shareholders (dilution). Consequences in terms of loss of control and of rebalancing of profits sharing must thus be weighted cautiously by a studio’s owners.

Depending on the context, debt can be preferable to equity. 

However, securing a loan lay prove more challenging. The business model of a lender is very different from the business model of an equity investor. The rewards that can potentially be drawn from a loan are fixed (they usually consist in an interest and/or a fixed fee). Therefore, a lender needs a higher degree of confidence on the repayment of the moneys lent. This lower risk acceptance entails a conservative loan sizing. 

A lender’s remuneration mode also makes it necessary to play a volume game, as recouping costs imposes serving a large number of clients. Lenders are thus prone to developing a one-size-fits-all type of approach.

Data-driven lenders thus leverage accounting and banking data, which are data that all companies have. 

For large markets (such as e-commerce), sector-specific data can be exploited as well. 

Some experiments have started in the mobile video game industry, where the wealth of data and its ease of access through powerful APIs make real-time prediction of future revenues a reality. This is just the beginning, but it's a very encouraging sign for the financing prospects of video game studios and publishers, no matter the platform they develop for.

In a nutshell, data can already contribute a lot to the value of a video game studio, if only through marketing and business insights. Future holds a lot more in store and the trend of data-driven decisioning seems firmly established. Data is definitely a subject that indie studios should consider seriously.