In the emerging market for virtual goods across many different online platforms, Virtual Greats are the pioneers of pioneers. Launching in June, the company positioned itself in an entirely new niche in the virtual goods space, handling licensing duties for branded virtual goods to be sold in worlds and games that acted as distribution partners. While Virtual Greats may be the first company dealing in branded virtual goods, there is no reason to believe it will be the last. Virtual Goods News engaged Virtual Greats CEO Dan Jansen to discuss how the branded virtual goods market is emerging.
"Brands are 70-80% of retail sales in the real world. In virtual worlds, I don't think we'll get to 70-80% but I think the aspirational role of brands in the real world applies to the virtual worlds. They've asked for all of our artists and brands," said Jansen. "I can't tell you how significant it's going to get, but if you have a $1-2 billion dollar market and brands could account for even a third of that, that's a very meaningful business."
VGN: Virtual Great's last license announcement was with the NBA earlier this week. How's that product launch going?
Jansen: We're launching with hundreds of jerseys, backboards, stuff to wear or things to put on homepages or MySpaces, we're very excited about the initial data we're seeing. It's very positive response.
VGN: How are the NBA goods performing as compared to, say, the celebrity lines announced earlier?
Jansen: We actually have three different product lines. We have Artists' Intellectual Property, so if Justin [Timberlake] starts singing his label is involved, or if it's a character out of a TV show or movie his studio is involved. The third product line is Corporate lines, premium lines, we haven't announced anything with that yet. It will be things like Prada and Chanel, though I stress we don't have any deals announced yet.
The celebrity stuff has gotten the most press. I think in the medium term our IP lines will be much bigger. For the NBA there's 32 teams, 12 players per team, 5 jerseys per player, that's 2000 items alone just from that.
VGN: Back in January Virtual Greats announced a Snoop Dogg/Tila Tequila line for RockYou's Super Pets game. How have those goods performed?
Jansen: They're doing great. We can't talk numbers yet but I can tell you right now their most popular item now is the Paris Hilton chihuahua. Whether it's grills or Snoop Dogg's corn rows, Super Pets is a wonderful partner and we're selling thousands and thousands of items per week. Our premium branded items are some of their most popular. That's what brands represent, people are willing to pay a premium price point to have association with the brand.
VGN: Paris Hilton? So your artist lines are distributed across all platforms?
Jansen: Yes, we've got six clients and we offer our full portfolio of artists and brands to distribution partners. Each world has a different user base, so maybe Gaia doesn't want Raven-Symoné, but WeeWorld loves her. We've only announced our first ten to fifteen artists, but we have thirty to forty more contracts out. With Paris, we have her going into Super Pets which she thought was great, we will have her selling in a couple different virtual worlds in the next few weeks. Our job is to figure out how to monetize effectively these artists and protect their brands.
VGN: In December it was reported that Virtual Greats was looking into licensing Ferris Bueller and that seems to have fallen through. Will Virtual Greats look into more film licenses for its virtual goods in the future?
Jansen: We are in active discussions with several of the studios, and we're very close to announcing one if not two studio relationships. We do two things with the studios, we draft off of current releases and in April there will be a film coming out that we'll have products on shelves in virtual worlds for while the film is in theaters. The other thing, we take their large film library and pick out titles that we want to work with, visually iconic kind of films. The studios love it because it keeps the brand and the franchise alive even if they're not going to make an updated version of the film.
It drives DVD sales and makes 10-20 year old films relevant to twenty-year-olds. The challenge of studio relationships is they're big complex organizations and it takes time, but hopefully we'll be announcing our first studio deal soon. When you look at the number of titles out there, it's tens of thousands we can tap into, and even if it's only a fraction of those we think are relevant, that's hundreds of thousands of titles. Even if it's just one film, a big one, there can be thirty or forty products we could pull out of that one title. With Paris Hilton, we have 34 items we've launched with her just for Super Pets.
One thing that's really neat here is we thought our average unit would sell for a dollar, but our average unit sells for close to twice that. The brand premium, you can buy a dog for a quarter in some worlds, but if you want a Snoop Dogg versio,n it's $2. You can drive sales up with bundles, too. Our consumers are really engaging with the brands and willing to pay brand premiums. Almost all of our artists that we've signed have been asked for by our distribution partners. We've done tests, proved demand, and now we're broadening.
VGN: So how is Virtual Greats doing? Is the company profitable?
Jansen: We don't announce our performance because we're privately held, but I can say that we're growing very fast and we have exceeded our initial projections. We're very excited about our initial performance. We have a long way to go, but so far so good.
VGN: How have you done with the idea of selling the same virtual good across several platforms?
Jansen: The item is always different because our worlds and social networks because our parnters want to create the look and feel specific to that world. So a Paris Hilton chihuahua is going to look very different in Super Pets than it would in Gaia. So when we say we're saying the same item, we may offer something with the same name in several worlds, but the look and feel is very different and there isn't portability between different worlds.
VGN: Is there any extra production cost because of this?
Jansen: There is some, because one thing we do is that we're very careful to protect our artists, brands, and IPs. They can approve the worlds and they need to approve the products. In that sense, we want our goods to be authentic because we're asking consumers to pay a brand premium. That consumer needs to believe we are responsible to ensure that artist has "touched" that product. Then the fans will pay the premium and be delighted to do so.
VGN: What are Virtual Great's numbers– how do your branded virtual goods sell in relation to unbranded goods in the same outlets?
Jansen: So far the overall virtual goods market is between $1 and $2 billion, but we're one of the first ones we've seen selling branded virtual goods and our share is a fraction of it. What we are seeing in the worlds is that our items are some of the most popular items and are driving the highest profit margins. So even if we're not selling the most units, because we price higher with the branded goods, we get the highest margins. So far we're seeing real engagement with the users, very good units and volume sales at higher price points. That's why we're rolling out a lot more stuff.
One thing I want to be clear on is that it's important that we bring incremental sales to a world, because if we're not converting buyers, then it's not clear that they should work with us. So far all of our partners have been very satisfied.
VGN: Do you experience more success on certain platforms or types of platforms?
Jansen: So far we've been pleased with our results on every platform, since they all pick artists and products customized to their userbase. A mainstream world like WeeWorld and Whyville picks Raven Simone and Paris Hil
ton. They're able to pick out of our portfolio and pick what works for them. Some worlds have much tighter development cycles so we get more product sales. Some do things once a month, and that's okay, because that's how they interact with our users. We've been very pleased and we're adding more worlds and applications in the social networking space.
VGN: What kinds of virtual goods tend to sell best in branded form?
Jansen: What we've found is that visually iconic elements sell better. We don't sell the whole avatar of Snoop Dogg, but we can sell his bling, his cornrows, his chicken and waffles. Things that are larger and appeal to a core niche audience. We're selling Elivs's guitar, pompadour, and white suit. Things that are big and visual really work, and things that are funny and quirky. It's less about just "here's a t-shirt with somebody's face on it"; it's more an element of the artist that allow the user to not really be, say, the Hulk, but have a little piece of the Hulk. One of our most popular items for the Hulk in Gaia is his "impact crater," where your avatar is walking but the ground is crumbling beneath you as if you were the Hulk.
VGN: Are there types of goods that don't sell any better when branded?
Jansen: Certainly some items, it's just the opposite of what I just said. Smaller items, or ones where the branding isn't apparent. We sold some soda for an artist, I won't embarrass him by mentioning his name, but it just looked like a can of soda and it was small and it didn't make sense. The items that are smaller and not apparently branded don't connect with the brand or the artist, and don't have a sense of humor to it. We sell chicken and waffles for Snoop Dogg because it's his favorite food, and the fans know it and it's funny. The kids have fun with it, and it makes sense to them.
VGN: What types of brands and platforms are most attractive to users, in terms of sales? What platforms are most attractive for Virtual Greats to work with?
Jansen: We like to have worlds that are essentially walled gardens so they can provide protection to our IP. You also want to have a world that has a brand-friendly user base, so we can come up with properties that really resonate with that world. We also need to have some monetization capacity, we need to be able to sell our goods and convert into US dollars so I can pay my brands in real money. Obviously we also prefer worlds of some scale, but as long as they can monetize we are delighted.
VGN: Is there an element of fantasy that makes for a successful branded virtual goods?
Jansen: What is "brand?" In the real world, brand premiums are around 40-60%, and in the virtual world it's 3-5x. People want to be associated with something luxurious or to be touching a little bit one of their favorite stars. I think there's an aspirational element here. I think for older users there is more of an escapist element, but for younger users it's more social and more about hanging out.
When I was growing up it was visiting the mall, but for some kids now it's going to the virtual worlds. So they want to look different and have something aspirational while they wander around the world. We noticed teenager girls change outfits for their avatars numerous times per day, even changing their skin color and hair. They may adopt a more athletic body shape before going into somewhere that involves physical activity in the virtual world.
VGN: You interviewed with Always On a few weeks ago and mentioned that the future of virtual goods is in brands, even though sales in the category are now "nearly zero." If that's true, why should we believe you– what makes it obvious that brands are the way to go in virtual goods?
Jansen: I think brands are going to be an important part of the virtual goods sales, but it is mathematically and effectively zero now. I think it relates to what your last question was about. Brands are 70-80% of retail sales in the real world. In virtual worlds, I don't think we'll get to 70-80%, but I think the aspirational role of brands in the real world apply to the virtual worlds. They've asked for all of our artists and brands. I can't tell you how significant it's going to get, but if you have a $1-2 billion dollar market and brands could account for even a third of that, that's a very meaningful business.
We monitor the secondary markets so we can see how prices appreciate and how they're traded. Their value is going up. To me that says people engage and value the brand.
VGN: If it's true that branded virtual goods sell at 3 to 5 times the price of an unbranded good, and I'm sure it is, why are branded virtual goods sales "nearly zero" now? Why isn't everyone already into this?
Jansen: Well, we just started doing this a few monthgs ago, and we're the first ones to do it. I expect more people to enter. Every world we talk to is really excited about this and it's a big part of their overall virtual goods society. I think we're at the front edge of a big wave, we're at the beginning.
This is such a nascent state, we don't know what goods will do yet. We can't do the big up front for our artists, but we will give them control and run with it. Most of them are interested. Some say, "Come back in a year when you can give me better numbers."
VGN: What's on the horizon for Virtual Greats? What kinds of licensing deals are you looking to close in the future, which virtual worlds and games can we next expect to see you in?
Jansen: Over the coming year you're going to hear tens if not hundreds of new brands licensed. We have 30-40 artists in the pipeline, you'll hear that, and it may be close to 100 in a year or two. The NBA deal is just the front edge, we're talking to other IP holders. We're also going to do the premium brands. You're going to hear all kinds of artists and IPs from us.
The other thing we're focusing on is distribution. We have six worlds and more contracts out now, so a whole bunch more virtual worlds. We want more social networking sites and many more social app developers. We want to be on leading social networks around the world.
But what we do is we monetize brands and IP into online communities. So our third channel is going to be iPhone applications and working with brands and artists to create those apps and casual gaming opportunities. Why not have a T-Pain grill on the face of your player in a casual game or a MMORPG?
VGN: When Virtual Greats launched back in June there was talk of 60 partners, and right now you have six. Is there a hesitance among distributors to embrance Virtual Greats as a licensor?
Jansen: I think generally most of the worlds are interested in working with us. There's been one or two who said "hey that's not our focus right now," but that's fine. There's 150 out there.
Also a couple have said, "Hey, don't we just call up Justin Timberlake and do a deal?" And I would say, "Knock yourself out." And then they call back later and say, "How do we find him, how do we become a priority for him?"
Because he has tens of deals he gets offered every week. And the part that's really hard is lining up product creation and the approvals and the promotion, and we do that by having dedicated resources for artist and brand managers. It's that merchandising that's really hard.
VG
N: Branded virtual goods seem to show up primarily in more "social" virtual avenues thus far. We haven't seen them fully make the transition into online gaming or MMOs yet. Can you envision that happening?
Jansen: We're in active discussion with online casual gaming companies right now, very much like what we do in virtual worlds. In this game, you have a player you can customize and interact with the environment as you play the game, and just like you may want your avatar to have a particular tattoo, you can also have that on your player in your game. We're also in negotiations with an MMO company that's talking about doing something similar. We just have to make sure it's an appropriate environment for our artists and our brands, and have the ability to monetize. I think we'll have announcements over the next few months.
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