COULD BY JESSICA GARDNER. EMILY, A 30-YEAR-OLD ECONOMIST, became

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1 BEHIND THE NEWS

2 COULD CANDY CRUSH SAGA BE A GATEWAY TO GAMBLING? BY JESSICA GARDNER FROM THE AUSTRALIAN FINANCIAL REVIEW PHOTO: GETTY IMAGES EMILY, A 30-YEAR-OLD ECONOMIST, became so addicted to Candy Crush Saga, a free game for Facebook, smartphones and other digital devices, that she would lie awake at 1am imagining her finger swiping across the screen to line up rows of brightly coloured lollies. Three in a row would deliver a satisfying squelch as they September

3 CANDY CRUSH SAGA burst and moved the Australian mother-of-two closer to the next level. Candy Crush Saga is a simple game but the hold it has over its devoted followers is complex and incredibly strong. They are reminiscent of gamblers who can t help but feed another $20 into a poker, or slot, machine. For Emily, the urge to play Candy Crush Saga was so strong that she would drive to work in the morning and before getting out of the car would squeeze in a few games. It had completely taken over my life, says Emily, who asked that her real name not be used. It was taking my mental energy and interrupting my ability to go to sleep. I would be playing instead of interacting with my children. However, her low point was yet to come. Walking along, with her fingers swiping her phone and her gaze fixated on the screen, Emily fell down a flight of stairs. A bruised hip and smashed iphone screen later, she went cold turkey and deleted Candy Crush Saga from her phone. I was pretty horrified, she recalls. I thought, I ve definitely got a problem. Months later, enough time has passed for Emily to see the funny side of her obsession. And there s some small comfort in her knowing she wasn t alone in her enslavement to Candy Crush Saga. Around 93 million people played it in 2013, a staggering number of players only exceeded by the equally Around 93 million people played Candy Crush Saga in 2013, bringing in US$1.46 billion in revenue eye- popping US$1.46 billion in revenue the game generated that year for its developer, King Digital Entertainment. While Candy Crush Saga is free to download, King makes its revenue from users who buy new lives and extra features. Still, most of these game developers are one-hit wonders, which explains the disappointing debuts of such companies as King and Zynga on the Nasdaq Stock Market. Zynga developed the widely popular Facebook game Farmville, where people can pay to tend a virtual farm. Now these developers are being challenged by new entrants into social gaming: poker machine ( pokies ) manufacturers, such as Australian company Aristocrat Leisure and US gaming giant International Gaming Technology (IGT). BILLION-DOLLAR BUSINESS When Aristocrat was founded in 1953 no-one could have imagined THE AUSTRALIAN FINANCIAL REVIEW (APRIL 24-27, 2014) FAIRFAX MEDIA PUBLICATIONS, 48 September 2014

4 PHOTO: GETTY IMAGES that 60 years later the company would earn money from Facebook users. But social gaming is proving a natural extension of the pokies business for those companies that have built billion-dollar empires by hooking in punters. As Aristocrat s head of strategy Craig Billings notes: because it s so new to us we [are] a bit incredulous that somebody would pay to tend a virtual farm or that they would want to play a pokie without winning a prize. But these games are consistent with the needs and desires of completion, competition and engagement. Aristocrat, an AU$2.7 billion company, does not break down what it earns from this new business of social gaming. A good indicator, however, of Sweet deal: Candy Crush Saga mascots take to the floor of the New York Stock Exchange. King Digital Entertainment raised US$500 million in March through the sale of public shares how it might be doing is rival IGT s performance. IGT is the biggest poker machine manufacturer by market share, and it paid US$500 million for Facebook casino game developer DoubleDown in January After adding its pokie games into the DoubleDown platform, IGT s average revenue per user sky-rocketed 60% to US40, says Citi analyst Michael Goltsman. Not to be left behind by IGT, Aristocrat bought a rival Facebook casino game maker Product Madness for AU$10.6 million in late The September

5 CANDY CRUSH SAGA Pay to win: players can pay $3.99 to add powerful coconut wheels to the candy mix (left) or $1.99 for wrapped and striped candies (right) customers play digital versions of the company s famous titles on the social network and still feed in money like they would to a Queen of the Nile machine in their local pub. The crucial difference though is there s no jackpot on offer on these Facebook social casino games. It was a small investment for Aristocrat to buy Product Madness but potentially a big pay-off when you consider that total revenue in the social casino market hit US$2.8 billion in Goltsman expects the market to grow to US$4 billion by RECIPE FOR SWEET SUCCESS Gambling researcher Sally Gainsbury says poker machine makers got into social casino games and smartphone apps because they thought it would be a good marketing tool to encourage more use of their machines in pubs, clubs and casinos. But the result they got was quite different. The experience seen by the industry is that conversion [from social to real world gambling] isn t happening easily, she says. But what has happened is they re generating revenues they had not expected. The companies have already proved that their tried and tested pokies content is better than standard social 50 September 2014

6 READER S DIGEST casino games at monetisation, the process of turning a player who participates for free into someone who will pay for the extras. And there s a lot more upside. There are an estimated 150 million players of web and app games that mimic casino activities without the offer of a prize. Jamie Odell, Aristocrat s chief executive, says Candy Crush Saga might not be operating in the casino segment but it reveals some of the secrets to monetisation. He says it is very sticky or difficult to put down. It s doing a great job driving monetisation for a casual game, says Gainsbury, who is a clinical psychologist and academic at Australia s Southern Cross University in Sydney. She says the most addictive games are simple at first. The game then relies on a trick of psychology, which poker machine makers also rely on, called an intermittent reinforcement schedule. The way they re set up is they get you to chase status. Players win easily at first and that makes them happy. But as they progress, getting to the next level is a bit harder, which makes the payoff even more enjoyable. Emily s description of this feeling is eerily similar to a junkie talking about needing their next hit. At first there s that sense of achievement and it s in quite short bursts, she says. It goes from being easy and fun to quite challenging. It s in that more challenging phase that the addiction is stronger. You want to get that high of getting to the next level. Crucially on Candy Crush Saga, when a player loses all of their playing lives, the game installs a time-based lock, ranging from seven minutes to hours, before they can try again. That is, unless the player is willing to pay a fee to unlock the game. And many do. Emily says when she began playing she did not want to pay. But after a few months she estimates she spent about $20 on new lives. Her experience pales in compari- Players win easily at first and son to the mobile game, that makes them I m MT, sweeping China. The Financial happy. Getting to Times reported in February that the cartoon the next level is harder, which is cow game was earning more enjoyable developer LocoJoy 100 million yuan ($17 million) each month. The way LocoJoy founder Xing Shanhu describes his top players is strikingly similar to descriptions of casino gamblers. Xing says of the game s seven million users, about 700,000 whales a term usually reserved for high rollers who bet hundreds of thousands of dollars per hand on casino baccarat tables generate September

7 CANDY CRUSH SAGA CANDY CRUSH SAGA FACTS M It s the most popular game app available. M It s a freemium game: free to download, but with paid features within the game. M In 2013 it was downloaded more than 500 million times. M Women aged are the keenest players. M King Digital says that 70% of players reach the final level without paying. M Mathematicians describe it as an NP-complete problem these problems get dramatically harder to solve as they get larger. M In mid-june, the game had more than 600 levels. New levels are added roughly every two weeks. M People who beat the game receive a banner that says Congratulations. And that s all. M Level 350 is said to be the most hated level. It s a Jelly level and these are said to be the hardest. M During the last Norwegian elections, now PM Erna Solberg was filmed playing the game to unwind. She recently told local media that she d passed level 300. M The brain chemical dopamine provides the sense of pleasure players gain at completing a level. This same neurochemical teaches us to keep doing things that provide this dopamine reward. Sources: Financial Times, The Guardian, New Scientist, The Wall Street Journal 90% of the revenue from the game. Top-tier players, who play for prizes such as luxury cars in tournaments, spend $10,000 a month on their I m MT habit. This is extraordinary given that in the whole social gaming sector which includes both the casino games and apps like Candy Crush Saga only about 2% of users ever pay any money to play despite the best efforts of developers. APPS AS A STARTER FOR GAMBLING While the social gaming industry has become a somewhat happy accident for poker machine manufacturers, it s raising the hackles of some social policymakers. They are concerned that although social casino games are not gambling, they re just as addictive and increase the prevalence of actual gambling. In August 2013, South Australian Premier Jay Weatherill called for social casino games to be restricted to adults only. Research by AppData shows that 5% of all social casino players are aged under 18. Gainsbury says the industry is, so far, self-regulating and does not target children, a position confirmed by Aristocrat s Odell. But she warns the games are easily accessible and says the bigger concern is the unprecedented affects social casino games could have on potential problem gamblers. Her preliminary research shows that 15% of people who gamble online also 52 September 2014

8 READER S DIGEST play social casino games. What we want to know now is: what is it about social casino games that is appealing to gamblers and which way the directionality occurs? That is, do online gamblers seek out social casino games for extra entertainment? Or are social casino games encouraging people to take up online gambling? She notes a small study from Britain that found among people who have gambling problems there was a group who said the social games actually triggered their urge to gamble. On the other hand, Gainsbury There is concern that social casino games are just as addictive and increase the prevalence of actual gambling comments that some problem gamblers say they play social games to avoid gambling. These games are being used as entertainment or a stress reliever. The rise in popularity of social gaming, however, and the addiction that goes with it doesn t just mean challenges for developers and poker machine manufacturers. They also have to work out how to keep users. In Emily s case, she quit after a bruised hip, smashed phone and because it had stopped making me happy. OFFICER, IT S AN EMERGENCY A man in Lincoln, Nebraska, arrived home one day to find he d been robbed his favourite hookah pipes were missing. When cops arrived: they stumbled upon the pot plants that the man was growing and took him in. A Romanian man called the police to report hearing a strange noise in a house. When cops arrived: they realised the man was in fact burgling the place, so they arrested him. The noise he d heard was made by the homeowner s cat. A woman in Dacula, Georgia, contacted police when her Chevrolet van went missing. Before police could act: the woman called back, saying she d found the van in her yard, hidden behind some weeds. September