The video game industry has now surpassed Hollywood in terms of revenue, and it’s done so by bringing in money in a multitude of different ways. The industry sells games the old fashioned way, but it’s also opened up many, many new revenue streams. Gone are the days where a cartridge or disc cost a set price, and a one-time fee was all it took to access everything a game had to offer until the end of time. Rather, video games now employ a few different tactics to rake in the cash, and I thought it would be interesting to explore a few of them.
But first we will start with the most old fashioned way of selling games, physical box copies. Even as other industries move toward digital downloads, gaming, particularly console gaming, remains firmly fixed as a physical industry. That means $60 per game for brand new titles. The reason being is that a huge used games industry still exists by means of Gamestop. Many gamers often support their gaming habit by selling back their old titles to pay for new ones. To do this requires physical discs, so digital downloads aren’t embraced by a rather large section of gamers as a result.
That doesn’t mean downloads are ignored altogether. With the release of Xbox One and PS4, gaming consoles are more focused than ever on downloadable games for those who don’t care about Gamestop resale value. And in the PC scene, digital downloading has been the norm for years with services like Steam.
Digital downloads offer an advantage for consumers in the sense that games can often be put on sale instantly, with huge savings on older games that even rival used copies. Digital is great for the gamemakers themselves as they get to cut out the middleman of Gamestop and save on physical goods costs like materials and shipping. It’s why many leaders in the industry are pushing for digital adoption to become the norm, and why Downloadable post-game Content (DLC) has become so popular.
This is kind of a fading philosophy over the last few years, but many games actually require a monthly subscription fee to play, kind of like you’d pay for a channel like HBO. It’s mostly MMORPGs that have adopted this revenue philosophy, spearheaded by World of Warcraft.
Because of its subscriptions, World of Warcraft is a hugely profitable game for Activision-Blizzard, and rakes in hundreds of millions in revenue from those who have been subscribing at $15 a month for close to ten years or more. Now, it’s mostly older games that continue with subscription models, because the market is starting to reject the practice in newer titles. Big name MMOs like Star Wars: The Old Republic tried to debut using a subscription model, but ultimately succumbed to being “free-to-play” to attract players. Still, new MMOs like Wildstar and The Elder Scrolls Online are attempting to keep the model alive, but few have succeeded with it the last five years or so. Only the giants of old like EVE Online and World of Warcraft remain.
If games can’t make money through and up front game cost or subscription fees, many resort to “microtransactions.” That’s small amounts of money players can spend in the game for either an advantage in gameplay or digital goods.
The most popular game in the world, League of Legends, uses this model to make money. The game is free, but it charges money for player “skins,” cosmetic outfits for existing characters. You can also by characters themselves, runes and other items. Many games will have a “cash shop” where you can buy upgrades, weapons and items with real-world cash if you want to skip having to grind the game for rewards.
This is one of the more questionable means of making money in games, but one that’s very effective. Nearly all of the top mobile games use this trick to goad players into spending money, from Candy Crush to Clash of Clans. In one game, you can pay to skip a timer when you run out of lives in order to keep playing. In the other, you spend cash to speed up build times on structures in your clan village. Mafia Wars, Farmville, nearly every hugely profitable mobile title has used this form of revenue generation at one point or another. Some view it as a dirty trick and negative reinforcement, but it’s hard to argue with its success. If people will pay to skip arbitrarily inserted wait timers, companies should feel free to charge them for it.
[Photo via Wildstar Online]