Video game monetization

Video Game Monetization is the process by which a video game product returns money for those involved in its creation or copyright ownership. Exact methods of monetization may vary between games; with noticeable differences in methodology occurring most often between games of different genres and platforms. Additionally, these methods may affect a game’s development, influencing design decisions based on their likelihood to contribute to the game’s financial success.

Overview

Methodologies

There can be more than 20 ways for the game monetization, and some can be combined to create new business models.^[1] Here are some of the methods based on the general classification.

Retail purchase is the traditional method by which games are sold from brick and mortar stores. Customers pay for a physical copy of the game and any other game related peripheral devices required for play in-store. Retail purchasing has previously made up the bulk of game-related transactions, however in recent years, it has been on the decline in favor of digital downloads.

In-game microtransactions are when aspects of a game’s contents can be purchased by players with the goal of enhancing their experience with the game. These can range from new forms of playable content, in-game currencies, cosmetic options, and otherwise unavailable or restricted gameplay advantages. Traditionally, these purchases tend to be relatively inexpensive but numerous in variety. Microtransactions are often common in social and mobile games where potential customers may be hesitant to purchase a full game, but more at ease with smaller, yet more numerous payments.

Digital download is similar in practice to retail purchasing, but is different in venue. Instead of acquiring a game through a physical store, customers buy their games online and download the game’s data directly to their computer/console/other storage format. Many games sold through digital download are distributed by means of a third-party service that functions in the same way as a physical store; selling a variety of games from many different developers in one location.

Subscription models are when a game requires continuous, ongoing payment from a customer in order for them to play a game. Games that utilize subscriptions often sell access in blocks of one-month increments or in multiples thereof. Once a subscription runs out or is canceled by a customer, their access to the game ceases or is reduced until they re-subscribe. This method is most often associated with games that require an online connection or service that requires capital to operate on the part of the publisher or developer.

Indirect monetization is a broad term that refers to any method of extracting returns from a game that do not directly come from the game’s player. Most frequently, this refers to the placement of advertisements within a game; these may take the form of banner advertisements, commercial breaks in play, or product placement. Games that rely on advertisement for returns usually are free-to-play or are cheaper than other games as their production cost has already been subsidized.^[2]

Effects on Game Development

The specific method by which a company elects to monetize a game may affect its overall design and the manner in which users will interact with the game. Some monetization strategies may have a more noticeable interaction with a game's design than others, but proper consideration of any strategy must be given during the design process. Improper consideration of balance between good game design and effective monetization can lead to either players feeling extorted by the game and its developers or a failure of the game to produce enough revenue for the game to turn a profit. In both scenarios, a game in question is likely to fail once on the market, the difference being whether it fails critically or financially.^[3]

The games industry has continued to explore new business models with increasing frequency; diversifying its methods beyond that of retail purchase, the previous industry standard. Despite the new variety, the digital download model however appears set to become the new standard. Due in part to the democratization of technology, digital downloads made up 52% of all game sales in 2014.^[4] With the rise of digital downloads came a proliferation of “Indie” developers; the simplification of game retail from digital downloads allowing smaller studios to produce and sell games on larger scale than was previously possible through the retail purchase model.

In the case of microtransaction-based monetization, overuse or improper application of microtransactions can make a player base feel forced to pay money too frequently and will discourage play, while oppositely, underuse may lead to too few microtransactions taking place to support the game and its developers, leading to the game’s failure.^[5] Microtransactions have seen a recent rise in popularity as a monetization model in the Massively Multiplayer Online game genre, or MMO. Previous to this development, the majority of MMOs relied on the subscription model, where users paid a monthly fee to the developer for continual access to the game. Some MMOs have had difficulty in turning a profit under this model however, thanks to too few subscriptions to cover operating costs. This has prompted several MMOs to experiment with alternative monetization strategies, ultimately leading to the adoption of microtransactions. While some MMOs continue to operate under the subscription model, many now have moved to microtransactions to ensure financial stability.^[6] With this shift, numerous virtual goods and services in MMOs that may have previously been available through normal play under the subscription model now can only be obtained through real currency transactions and it is expected from current successes under this model that the microtransaction model will continue to be used ^[7]

Indirect monetization has undergone a recent surge in popularity as well; through a combination of the propagation of both smartphones and Indie developers, the mobile games market has flourished. Both due to generally lower development, marketing, and maintenance costs as well a large target audience of players these games are able to survive on a smaller income than most other varieties of games. The process is risky however as mobile games may often be hit or miss in their success; those that pull in large numbers of players do well thanks to their advertisement model, but those that fail to garner wide appeal do not last long on the market. Some have also criticised games implementing the indirect model as many games are made under it that are of low quality, or are non-user friendly with their monetization methods so as to maximize their income at the expense of player enjoyment.^[8]

History

Early age (before 1980)

The tradition of video game monetization can be traced back to the monetization of real life games, before the existence of the computer. A game is usually constructed with players, tools and rules The tools for the game were made by skilled craftsman, usually with valuable materials, in the history. Thus, selling game tools for money became an understandable business long before the video games.

The history of video games leads back to the 70’s and 80’s, when the arcade video games become popular worldwide. Following the same sales model of the electro-mechanical arcade game precedents from the first arcade game to cost a quarter per play, Periscope (arcade game),^[9] from the 60s, most arcade game machines are coin-operated. Players have to insert coins to play for certain time or certain lives. This can be classified as a type of microtransaction, and was highly successful during the golden years of arcade games. One of the most popular and influential arcade games, Taito's Space Invaders was reported to cause a shortage of 100-yen coins in Japan, 1978.^[10] By 1982, the game grossed $2 billion in quarters^[11][12](equivalent to $7.26 billion in 2015), with a net profit of $450 million.^[12] When the Namco released Pac-man in Japan on May 22, 1980, it became immensely popular from its original release to the present day. Later, it came as one of the highest-grossing video games of all time,^[13] having generated more than $2.5 billion in quarters by the 1990s .

1980s

With the development of computer technology, the home computer industry has packed with competitors from 1980. The home computers started to prove their gaming capability not long after they were introduced to the public, since they are able to run multiple game programs, and release the full potential of the hardware. Compare with arcade machine, people are able to switch between games and play at their homes. Although early computers were weak in compatib, lity,the IBM PC compatible platform became statetake overeover the fragmented market and ruling the PC game platform. On the other hand, the Third generation of video game consoles, represented by the famous NES console released in 1983, was able to help the north Amercia game console market recover from the major crash during 1983 to 1985. From the 80s, video games on the market were mostly sell in the way of retail purchase. Although the home computers were not specialinzgaming, but the gaming consoles were, most games had to be sold in physical mediums, such as a ROM cartridge, a floppy disk or even a Compact Cassette. For the game console users, buying the hardware cost extra money, but they had more choices on games and suitable input/output device designed for gameplay.

1990s

While old retail selling kept strong at 1990s, new way of game monetization emerged. The CD-ROM and other optical discs were taking the place of the cartridge, became the major medium of retail games. The development of web technology and bandwidth in the late 90s made many online games possible. The web based game Adventure Games Live revealed the possibility of the game running purely on a webpage, ever free of charge.

The handheld gaming devices were invented long before 1990s, but the Game boy was a milestone on portable game history. The remarkable game innovation^[14] in this decade created a series of game consoles and devices. Handheld game devices with no changeable cartridges were also widely sold. In those cases, buying the hardware and software went together. An example can be the Tamagotchi sold by Bandai from 1996.

2000s

In the first decade of the century, the game monetization was affected by the booming of the e-commerce, as well as hardware, software and other information technology developments. All kinds of online games and multiplayer games were connected through the faster Internet. The craze of MMORPG by made the subscription model a profitable way to support the game developers. Many Browser game became free to play in order to attract more visits. At the early age of smartphones,mobile games were paid to download because there was usually no interface for a smartphone to install a physical copy. Standardization and the ubiquity of mobile platforms that allowed for easy purchases by customers, brought on initially by the iPhone App Store and followed closely by the Android Marketplace and other competitors, resulted in a wide spread move towards microtransactions and indirect monetization. After the social network became a big part of the Internet, more games started to take this platform as a way to sell or promote the game.

2010s

In the second decade of the century, game monetization models using microtransactions and indirect monetization, moved rapidly towards becoming a mature market. Game production moved from focusing purely on monetization models after competition for player attention became more intense. As a result, the industry has widely moved from a direct focus on monetization metrics in game design to focus on metrics such as player retention and daily active users. This can be visibly seen in the decline in valuations of several prominent free-to-play companies, as well as by studying the differences in game design for top free-to-play to games.

Future Trends

Crowdfunding has become an increasingly common source of funding independent gaming.^[15] Game developers might able to raise enough money before the development process started. Another way of crowdsourcing might break down the cost of development by distributing the workload to self-motivated individuals. The social media will play a more important role in the future Internet economy, that the distinguish line between some games and social media might not be clear,^[16] so their profit method can be shared. Digital distribution platforms like the steam are believed to be more influential in online selling and social networking. Some games themselves can even become a platform for other games. Just like some minecraft maps in the Minecraft. Although currently, those extra games are usually free

References