Sunday, March 31, 2013

Freebie Video Games

From CNBC.

Blizzard Entertainment [recently announced] that it would be giving its next game away for free ...

Free to play games don't make a lot of sense to some investors, who are used to the $60 retail model (and its residual income from downloadable content). The concept of a small percentage of customers paying piecemeal for small items is hard to balance against the upfront revenue ...

But free-to-play titles are fast becoming one of the most lucrative areas in gaming. Driven by the app revolution, where small developers are making hundreds of millions for giving away their games, and Asia, where the model has been flourishing for years, large U.S. publishers are finally coming around.

Electronic Arts has been one of the beneficiaries of the leap of faith to free-to-play. Last quarter, it earned $25 million on iOS devices alone with its app "The Simpsons: Tapped Out". And the model has proven to be a savior for "Star Wars: The Old Republic."

Launched as a "World of Warcraft" killer,"The Old Republic" initially had the same model as most massively multiplayer games—a base cost for the game, followed by a monthly subscription fee ... Developed by one of the industry's most respected developers, it seemed destined to succeed, but developers didn't count on how voraciously fans would chew through the game's content, then leave.

Seeing income fall, EA converted the game to a free-to-play model last November. Since then, the game has seen 2 million new accounts created—with thousands more jumping in every day ...

Video game companies are the latest animation creators who have stumbled on the cold reality: "You don't adapt, you are in peril of death."

Not that it isn't true in other economic sectors that companies need to learn from their mistakes*, but the entertainment industry has always been vulnerable to changing markets: Nickelodeons gave way to big, higher-priced theaters, silent movies were pushed out by talkies, black-and-white films got swept away by color films.

And in the last twenty years, delivery systems have changed willy nilly: broadcast to cable; video cassettes to CDs to streaming video on demand (over high-speed internet!)

Oh, what's a content provider to DO?

In the case of video game companies, it appears the answer is to give the game away without charge, then get a big customer base, then nickel-and-dime that base with add-ons.

... A recent study by Visa subsidiary PlaySpan found that 77 percent of gamers are spending more time with free to play titles these days.

They're paying, too. PlaySpan found that men were three times more likely than women to make in-game purchases, with respective averages of $13.38 and $4.84 per month. And younger players are proving especially receptive to the idea. Men aged 18-24 years old have an average spend of $30.59 per month. ...

No strategy works forever. But it's useful to dump a business model that is causing you to go broke in favor of one that isn't.

* Always excepting, of course, the Big Banks. When you own the Federal Government, you have access to your own mint. So just take the money from the Big Casino and run, good corporate practices be damned!


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