Monument Valley: Artistic Success and Business Model Failure

(Source: ustwo)

On April 3, 2014, the design studio ustwo released a much anticipated paid puzzle game called Monument Valley (MV) for iOS Apple app stores worldwide.

“Ecstatic” is the best word I can think of to describe the response to the game’s visuals.

But, based on initial download and revenue ranking data provided app store data analytics company App Annie, I believe that the game will not generate enough app store revenue to be profitable.

As a result of the wide gap between the game’s critical and financial success, I question ustwo’s choice of a paid, rather than a tasteful freemium, business model. In fact, I question why any mobile game developer today still would use a paid business model over a free-to-play (ftp) with in-app purchases.

When ustwo began development of the game 10 months ago, the choice between paid and ftp for a mobile game might have been a debatable question. But, since a widely quoted App Annie and IDC report that came out in March 2014, the debate seems over. They found that in 2013 in-app purchases based on a ftp model accounted for 92% of purchases, while 4% came from paid apps and 4% from a blend of ftp and paid.

A blog post by the lead designer and visionary, Ken Wong, in the weeks before release of Monument Valley communicated clearly the design aesthetics behind the game:

“My hope for Monument Valley is that it might contribute to the argument that the medium of entertainment we call video games is in fact art.

What does it mean for video games to be described as art? It means recognizing games as a medium of expression, a medium through which we can deliver moving experiences and convey ideas to each another. It means games have cultural significance – that through them we can understand some small part of what it means to be a living, loving, dying, feeling, and thinking being.”

Even MV’s tag line smacked of high art:

An illusionary adventure of impossible architecture and forgiveness

The game has been an overwhelming critical success. The influential Wired magazine blog said:

“The easiest way to describe Monument Valley released today on iOS for $4.00 (with an Android version coming soon) is as something like an interactive version of an M.C. Escher print.”

“The temples are bedecked with arcades, corridors, parapets and onion domes. They’re beautiful, like a good piece of graphic design, and exquisitely constructed, like a Swiss watch. It’s a case where the aesthetic pleasure of how the game looks and the visceral feeling of how it operates are not just in perfect agreement but one in the same.”

The trailer for this game on YouTube quickly registered over 200,000 views with glowing comments.

There was a 5 star rating and game of the week by TouchArcade; Polygon gave it a 9/10; PocketGamer gave it 9/10 and Gold Award. There were glowing write-ups in The Verge, Tech Crunch, Buzzfeed, Kotaku and more.

The game even elicited an approving nod from my favorite Big Picture blogger, venture capitalist Benedict Evans of a16z.

The only serious criticism of the game was that the full run-time experience was too short at 1 to 1 1/2 hours.

In April, I wrote several articles for Seeking Alpha on the financial prospects of King Digital (KING) and Glu Mobile (GLUU) based on App Annie download and revenue ranking data. Given MV’s pre-release hype, I thought I would be interesting to do a post-release follow-up look at how it did according to App Annie.

For about a year now, there has been publicly available data provided by App Annie that track daily app store downloads and in-app purchases of mobile gaming companies. (Disclosure: I have not received any remuneration from App Annie.)

With a free account, you cannot download any data. But, you can take screenshots of graphs of daily rankings (1-1000) of mobile games by downloads and revenue where revenue is the sum of download revenue + in-app purchases. These graphs can be filtered by app store – Apple Store, Google Play, and Amazon – by mobile game type, and by country.

App store data does not include revenue from advertising. But, mobile games created by professional studios tend to be paid or free-to-play (ftp) with monetization via in-app purchases of addicted players. Hit Indie games created by individuals like Dong Nguyen’s Flappy Bird or Wen Zeng’s Piano Tiles still tend to be ad supported. But I noticed that even ad=supported Piano Tiles offered a simple opt-out-of-ads option for $.99.

App Annie tracks 400,000+ apps, mostly mobile games, for developers who allow their app store data to be tracked. The graph between revenue (Y-axis) and App Annie revenue ranking (X-axis) is a very, very long tail.

Below is our first attempt at estimating this relation based on pairing 4Q2014 disclosures by King Digital and Glu Mobile of individual game revenue against App Annie revenue rankings during the same quarter.

Below are screen shots of the App Annie charts for Monument Valley on iOS Apple store in the U.S, the dominant market for the game. Similar charts for other countries, some better some worse, could be shown, but no country other than Japan could offset any result from the US.

The game was released on April 3, 2014 and for the first 3 days, the results were great. So, much so that Gamasutra titled a blog on April 10th Designing the Surprise Mobile Game Hit: Monument Valley.

But the game’s stats quickly faded. Monument Valley was the #1 downloaded game on April 3rd, 2014, but fell during the month and sits at #82 on April 28th. As far as revenue ranking–via paid only at time of download — the game debuted at #30, but, fell in parallel with downloads and now sits at #293.

(Source: App Annie)

For comparison purposes, I would like to present the charts of two other games, one paid and one ftp with in-app purchases. The chart of the paid game, which was also a critical success, show the same quick decline in revenue ranking as MV. The ftp game with an-app purchases has enduring strength in revenue ranking — 6 months and counting – due to an addictive design even as new downloads show a pattern of decline similar to paid games.

In April 2014, Square Enix released a paid ($4.99) mobile game Hitman GO, named after the Western console “stealth action” franchise Hitman. The game was produced by SE’s Eidos- Montreal studio. Rather than a watered down version of an action console game, the studio created a “diorama-style turn-based strategy” game, perfectly suited for mobile.

Here are the App Annie iOS Apple Store – U.S. charts.

Hitman Go was the #8 most downloaded game on release day April 17, 2014, but has steadily fallen since and sits at #56 on April 28th. As far as revenue – only paid at time of download like MV—the game debuted at #55, but has fallen in parallel to downloads and now sits at #168.

(Source: App Annie)

As a contrast to the chart of the two paid game presented above, we present the chart for a hit game with a ftp + in-app purchases business model. The game is The Hobbit: The Kingdoms of Middle-earth, a strategy/RPG, developed by the U.S. start-up Kabam in partnership with Warner Bros. Interactive Entertainment, whose parent company owns the film rights for the J.R.R. Tolkien works.

The game has never been a download hit, reaching its highest download rank of #372 on December 16th, 2013 and now stands at #796.

But, what an addictive game! The in-app purchases have kept the game’s revenue rank for a full six months between #10 and #15. Glu Mobile disclosed that it’s first person shooter release Deer Hunter – 2014 with a similar revenue ranking contributed $25M in 4Q2013. So we, believe that Kabam’s revenue for The Hobbit has been the same — $25M a quarter now for 2 quarters and counting.

(Source: App Annie)

But, there is a long tail relation between revenue and App Annie revenue ranking. We have estimated that an App Annie ranking of #10-15 is associated with $25M for the quarter but MV’s #298 revenue ranking one month after release probably means that this critically acclaimed game will not exceed $1M in revenue for the quarter.

Furthermore, we estimate ustwo’s development costs –direct labor+benefits+overhead application rate– for MV to be around $2M based on reports of a development team of 8 highly paid engineers working 10 months.

The game is been a failure financially for ustwo.

In responds to criticism that the game is too short, the company has stated that they are developing additional levels.

This is not the first time ustwo has released a game that was a critical hit but a financial failure. In October, 2011 they released children’s game Whale Tale which went on to garner 3.68 Million downloads but only broke even financially with $455,000 USD in revenue according to TechCrunch report. The company has been looking to leverage the now established brand “Willows, the flying whale” via an e-book and children’s TV show.

Would designing in-app purchases into Monument Valley kill its mission of creating “an illusionary adventure of impossible architecture and forgiveness.” Can you produce an “ecstatic” experience and still make money?

If any mobile gaming company can successfully mesh art with commerce, we think it is ustwo. We are rooting for them.