Typing Faster

July 30, 2010

Maybe We Should Just Give It Away: How the Free-to-Play Revolution is Changing the Gaming Industry

Filed under: Future of TV — petertypingfaster @ 8:56 am

So, full disclosure, I’m a gamer. I think pretty much everyone in my generation is to a certain extent, it’s just a question of whether they play browser based games (Farmville, Mafia Wars, etc) or if they’re into full on Massively Multiplayer Online Roleplaying Games (MMOs for the uninitiated). Gaming is a huge business. Properties like World of Warcraft generate $250M annually in subscription fees from North America alone (factor in Europe and China and I don’t even want to know how much money they’re raking in).

The cost of developing a new game is in the same ballpark as shooting a mid-size feature. On their journey from drawing board to market most games will rack up a total cost of about $25 to $75M. The really big ticket games, like the new Star Wars: The Old Republic MMO, have reported budgets in the Hollywood blockbuster range ($200+M).

All of which is to say that the gaming and film business share a lot of the same hurdles and goals. So maybe we can learn something from each other?

One of the more interesting developments in the gaming business over the pas few months has been the shift from subscription based revenue streams to a free-to-play (with microtransactions) revenue stream. In fact, this trend has become so prominent that it’s been written up in the Wall Street Journal.

More videogame companies, angling for larger audiences for big-budget online games, are making their products free to play in the hopes they can make more money by charging players for virtual goods.

Videogame makers in Asia, who years ago figured out how to make money from free services by began charging players for virtual goods on free services, like weapons and outfits. Now that approach is catching on in the U.S., even among makers of big-budget online games.

It’s an approach that’s had a lot of success in browser based games (Farmville being the prime example), but one that up until last year hadn’t caught on with the more expensive games.

The really interesting thing though is why this business model was developed to begin with.

The shift, which game companies in Asia figured out years ago, underscores how broadly a once foreign-seeming approach to business is coming to permeate the games industry.

U.S. games companies are far more dependent on retail sales of software in stores than their counterparts in Korea and China, where rampant software piracy forced local companies to be more inventive about making money through methods like virtual goods sales.

So just how big is the market for “virtual goods” in North America? Are people really going to shell out a bunch of real cash to access some digital pixels?

Total virtual goods sales this year are expected to reach $1.7 billion in the U.S., up from $278 million in 2008, according to ThinkEquity LLC, a research firm. Meanwhile, U.S. retail sales of game software are showing signs of weakness, falling have fallen 15% from a year ago to $531 million in June.

That’s quite the reversal. My next question then is…how can the film and tv business get in on this trend? Is there a way we could release a film for free, then charge people for access to additional content related to the film? Subscription based models have been tried for webisodes, without much success, but is there some other way that we haven’t thought of yet?

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