New slots on the block: Part 2

2 May 2019

In the second part of iGaming Business’ roundtable of the challenges facing new slot studios as they attempt to gain traction in a competitive market, we discuss content aggregation platforms, innovation and M&A. Read part one here.

How important are content aggregation platforms to smaller games developers - have these helped you gain access to larger operators? Or do they simply increase costs for you, considering how many games you are still competing against?
Andy Harris, Design Works Gaming (AH):
With a lot of operators, it is either the aggregation route or no route at all, so many studios depend on them to get their content out because a direct integration isn’t an option. There are some objectives you have to consider before choosing what aggregator platforms to go for though. For example, the integration road map, you want your content out sooner rather than later. Also, what are the preferred aggregators for your customers? Aggregators are important but they do increase cost. There are also so many suppliers with so much content on these platforms that it can be difficult to get your voice heard. We will most likely combine aggregator platforms with direct integrations with operators. 

Stuart McCarthy, Yggdrasil (SM) : If you are a brand-new studio, having to build a new RGI and develop your own tools, as well as deal with a minefield of regulatory issues, that’s an extremely difficult position to be in. I’d go so far as to say it’s a near impossible task to breakthrough without at least starting with an aggregation platform.

If you look at the heavy lifting that must be done now to get into European regulated markets, it requires a huge amount of compliance and systems work as well as significant overheads and investment.

Ollie Castleman, OneTouch (OC): Aggregators are sometimes the only pathway into some serious brands as they don’t often accept direct integrations. Having a good relationship with certain staff at aggregators certainly leads to a successful and mutually beneficial partnership.

Would you say you’re limited in how you can innovate with your products? Ie, can you take risks such as developing titles that do away with the standard reel format, or does that potentially risk putting time and money into something that will fall flat?
SM:
If you‘re a small studio it’s a high-risk approach to break out in a radical way from the traditional slots model. If you have strong innovative idea, then you absolutely should invest in it but my advice would be to spread your risk. Iterate out from a proven model and learn from your successes and failures then once you hit on something special go for it for all your worth. And above all pick the right partner to get your games to market with a bang.

Simon Hammon, Relax Gaming (SH): Risk is inherent in any move to innovate on market trends, but it is integral for providers looking to set themselves apart and capture player imagination.

With such a competitive landscape it is essential to constantly innovate while not alienating players with a totally bizarre concept. To be successful, players need to be able to grasp new mechanics quickly and easily, while understanding the added entertainment they bring.

OC: You must carefully control innovation. Many successful innovators have either brought together several technologies simply and effectively, or they have accurately identified where they need to be innovative and where they need to follow industry standards and norms.

When it comes to slots, innovation with reel format and game features can often be dictated by the target market for the game. Investment in highly innovative games is risky because a good deal of slots that every company produces will fail to perform, therefore it’s arguably more important to find a balance between volume of game releases and experimentation.

Do you feel there is still scope for suppliers to be acquired by larger peers, or would you say the larger studios and service providers are less keen on consolidation today?
AH:
I don’t think we will see many more suppliers acquired by larger peers in the near future – we have seen this happen on a number of occasions in previous years and I’m not sure how beneficial those have been to the acquiring parties.

Moving forward, I believe we will see casualties in the supplier market. It is tough to imagine that the plethora of content providers we currently see will last in the long run. The commercial opportunity has changed hugely in recent years. This has been as a result of a number of factors, not least an increasingly competitive market place, which in turn has been one of the factors driving decreasing revenue share rates, which will ultimately impact quality and lead to less innovation and less choice in the market. A disparate and increasingly onerous regulatory environment hasn’t helped either.

SM: This is still happening today but in a different, and arguably more strategic and subtle way. The days of large suppliers acquiring multiple large studios are fading fast. Instead, we’re seeing large providers take a different approach by investing substantial equity stakes in smaller, more innovative, independent studios. They then remain ‘independent’ but as part of a larger portfolio and under a large supplier’s control. I predict we’ll see this happen more often.

SH: There is always consistent scope for this. In an increasingly saturated marketplace I would envisage the continuation of supplier M&A activity. In a game of tightening margins, M&A driven scale is an answer studios will continue to turn to, for a variety of reasons. These range from acquiring the minds of a few key people, enhancing studio capacity for development, cost-sharing core functions such as compliance, taking on regional or market-specific portfolios and even distribution networks in some cases.