Why they die
A closer look at the recent gaming sites massacre
by Rendelius - published 2001-02-18

When you look at the gaming sites situation one year ago and now, you can only but wonder what went wrong. Saying that "only the strong survive" would do the situation no justice. It has been the strongest and largest networks that died. Why?

One reason is the drop in advertising revenues. It was easy to get 3 dollars per 1000 ad impressions at the beginning of 2000, it was impossible to get more than 10 cents 2001 so far. Gaming networks heavily rely on ad revenues. But to say that was the only cause for them to die would be wrong.

Two other things killed them: Expenses and the loss of investors money. Very few of those companies were profitable in the first hand. They burnt venture capital in a way you’d call mad. They had enormous staff, large offices. Earning more than they spent wasn’t their main goal. They considered themselves to be startups, and they tried to secured a larger market share regardless of costs.

Working that way works out when investors believe that you will become profitable one day. It crashes you very quickly when they don’t. You receive no more money. And you are in a desperate situation. Networks will give affiliates the boot, in order to reduce their costs. Kicking them means reducing page impressions, which will result in a loss of advertising money, which will result in more losses, which will… you figure it out.

Let’s have a look at some numbers I recently saw: These is the financial report of eUniverse. EUniverse owns Gamers’ Alliance and is a network for many other affiliate sites. Well, it was. They kicked most of them out – and here is why:

December 31, 2000 (unaudited)
Cash & Cash Equivalents: $294,543
Accounts Receivable: $2,790,624
Total Current Assets: $5,141,159
Accounts Payable: $2,859,991
Accrued Liabilities: $5,124,268
Notes Payable: $4,905,662
Deferred Revenue: $458,370
Total Current Liabilities: $13,348,291
Long-Term Liabilities: $940,000

March 31, 2000
Cash & Cash Equivalents: $2,323,087
Accounts Receivable: $994,364
Total Current Assets: $6,252,924
Accounts Payable: $2,273,672
Accrued Liabilities: $2,104,688
Notes Payable: $0
Deferred Revenue: $2,653,412
Total Current Liabilities: $7,039,930
Long-Term Liabilities: $0

Have a look at those numbers. They simply say they are at the brink of bankruptcy if they don’t receive venture capital. In March, they looked like any other startup on the internet. Way off from a solid base, but alive and waiting for more money to come in. In December, they are brain dead. One thing you’ll have to remember: If your expenses are three times the amount of your income, that can be bad. That is bad, in fact, for eUniverse. Without venture capital, they will be gone within weeks or months.

As a little sidestep: Have you ever asked yourself WHY ad revenues dropped that dramatically? I suspect two reasons: first, e-commerce isn’t the big thing yet. The return on advertising investment isn’t too good on the short run. Second, the ad networks and the gaming networks ruined the market themselves, because they grew too big. It was hard to do good targeted advertising for the customers. They switched from CPM to CPC, paying only per click or CPA (per action). Now, while this may sound clever, it really isn’t. Why? Because companies found out that, if you make a banner that isn’t likely to be clicked, and if you put this banner into a CPC campaign, you get a lot of impressions for little money. Nobody then wanted to do CPM campaigns again. Thus CPM prices degraded the way they did.

CPC is a bad idea from a publisher’s point of view. If you present an ad well, you should be paid for showing it to the public, not for how it works. You have no influence on how the ad is done, so it’s out of your reach how well it does. Webmasters should only accept CPM campaigns, but I understand that in this situation, you take what you can get.

How does RPGDot survive? Our situation is like the situation of other sites: expenses are three times higher than income. We are losing money. But not big time, sionce we don’t spend money big time.

I’ll do something very few sites do: I’ll give you actual numbers. You might be surprised how small we are compared to the big ones out there, but then again: I am surprised how big some of the big ones are. BTW: I only know one other larger RPG site revealing actual numbers, and this is GA-RPG.

Here are the facts: RPGDot is visited by about 1300-1500 unique IP’s a day, generating about 4.500 pageviews (not counting reloads). This is about 50-60% of the numbers GA-RPG generates, but of course only a fraction of what you would suspect from sites like Voodooextreme.

As you may notice, we are running no paid banner ads at all. This is simply because there isn’t a single CPM ad network that would take gaming sites right now. As I said, we refuse to run CPC banners, although we did for some time at RPGSites. This turned out as wasting bandwidth. Where we make our income (app. 30$ a month, well, if you call that income) are our search boxes.

Our expenses? Now, this is where we can call ourselves lucky. We had startup costs of about 1000$ when we changed the server. This includes scripts and miscellaneous things (like getting more RAM). Our monthly costs are 99$. Our complete staff is unpaid, so no more expenses here. We were lucky to find a dedicated server with a lot of bandwidth for that price. We are nowhere near the limit, but too much growth could cause trouble.

So, taking away the startup costs, we lose about 70 dollars a month – something that isn’t fun, but we can easily bear that. And that is why I think the ones to win this game are fan sites. They do what they do out of passion, not for money. Noone ever said gaming sites must be commercial endeavours. Noone ever said those sites must have a paid staff and paid writers. Granted, we can’t produce the amount of features other large gaming sites have, but since we moved to our server, we had a feature every day, and we will keep up this pace and have at least three or four of them every week. And regarding the quality of our news coverage: I think this is something we can be proud of.

To summarize: Big gaming networks didn’t die because of the ad crisis alone. The ad crisis in fact had nothing to do with it but to scare away investors. They die because they burn money on a much larger scale than fan projects do. They will continue to die, unless they find money somewhere. Some will try to be subscription based, but then again: why would you pay for something you can get for free? They will have to ad some value if they plan to do that, and this again will cost money. Money they don’t have.

One one hand, these developments are something that should sadden us. We are losing great sites with great content. We are losing diversity and places where talents grew. On the other hand, things are put back into the hands of those who really drive the gaming business: the fans. Let’s see where this will take us over the next year…

Bernhard "Rendelius" Rems

Senior Editor localhost/rpgdot.rpgwatch.com/httpdocs

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