This is the summary of our podcast episode: Episode 3 – Free to Play
Epic Games made USD 3bn in profit in 2018
Is there an inevitable future in which the majority of games will be free to play and rely on microtransactions for funding? With news that Epic Games made a staggering USD 3bn in profit in 2018, largely due to the astronomical success of Fortnite, the concept of free to play games as a business model is more than ever a hot topic.
In stark contrast to Fortnite, 2018 Game of the Year award winner God of War was a heavily story-focused, single-player experience of unrivalled quality, featured no microtransactions or revenue sources past the initial purchase. God of Ear is similar in this regard to other major 2018 release Red Dead Redemption 2 (RDR2) and both games performed well commercially and critically (more than 3 million copies of God of War sold in the first three days while RDR2 shipped 17 million copies in 12 days.). However unlike RDR2, God of War does not feature an additional multiplayer component able to ‘piggyback’ off the critical acclaim and success of its single-player counterpart in order to drive additional revenue from microtransactions.
The question then presents itself: With Epic Games able to generate such an impressive profit from a free-to-play game, why would any sensible and fiscally responsible publisher ever consider devoting time and resources to traditional games without microtransactions? Is the rise and propagation of free to play games heralding a “race to the bottom” for the video games industry, or is there a place for both types of games – those that rely only on the initial transaction of buying the game and those that rely exclusively on the continued and theoretically infinite in-game microtransactions?
All new games cost USD 60
Part of the problem of course lies in the rigid pricing model applied universally by publishers and retailers across all new titles. If you buy a console game at release it will cost USD 60 regardless of how many units are sold or how expensive the game was to make; Grand Theft Auto V (GTAV), thought to have cost a record breaking USD 265m to produce, retailed at the same price in 2013 as Beyond: Two Souls, reported to have cost ‘only’ USD 27m to make. The fact that two games with such vastly different development costs would sell for the same unit price is somewhat bewildering. Of course, to a certain extent the difference is expressed in the number of units sold: For GTAV, the record breaking development budget translated into a record breaking sales performance with over USD 800m in revenue generated within 24 hours of release and 21.3 million copies sold for the PS3 alone – Beyond: Two sales, with approximately a tenth of the production cost, is thought to have sold a total of 2.8m units, roughly a tenth of that of GTAV (notably still making it one of the most sold games for the PS3).
Copied from the mobile games industry
However, for many publishers, this rigid pricing model and the increasing cost of AAA games has brought about the creation of new and additional ways to monetize products. In many ways this business model progression has been copied very simply from the mobile games industry; these games, being relatively cheap to make and to maintain, and also usually costing little or nothing to buy initially, have singularly managed to capture an audience which has previously been missed by console and PC games, commonly referred to as the “casual gamers”.
In an effort to tap into this market, we now see a multitude of additional monetization strategies employed by video game publishers, including so-called “lootboxes”, or gambling, for cosmetic items only (Overwatch by Activision Blizzard), gambling for items which affect gameplay (Star Wars Battlefront II by EA and DICE), direct purchases of cosmetic items only (Far Cry 5 by Ubisoft) and direct purchases to facilitate gameplay or game progression (The Last of Us online by Sony Interactiveand Naughty Dog). These newer models are increasingly replacing the traditional ways in which games were monetized post-launch, such as DLC expansion packs, season passes and monthly subscriptions.
Community backlash to MTX
However as these newer models have become increasingly common, their validity and application are coming under increasing scrutiny from gamers and, more recently, even from national gambling commissioners who are only just starting to realize that lootboxes in video games amount to unregulated gambling. The validity of these new models is especially drawn into question for games which are already sold at full price but which then feature separate content which comes at an additional cost as well.
This global discussion perhaps reached its climax between members of the EA community team (a developer known for its “games as a service” model, rather than games as a product) and disgruntled gamers on Reddit once the extent of the microtransactions and the pay to win mechanics of Star Wars Battlefront II become properly known. The result of this conversation, Reddit’s most downvoted comment of all time (“a sense of pride and achievement”) can be viewed in one of two ways: Either the culmination of the frustration felt by gamers towards publishers continuously increasing the ways in which their games are monetized OR an exceptional and isolated incident of outrage towards the one game which took the model too far in an industry which has otherwise managed to maintain balance and player satisfaction in its monetization strategies.
Regardless, this business model has now progressed to its next logical conclusion: If games which are expensive to buy and which also heavily feature microtransactions are unpalatable to a majority of gamers, then why not just make games with microtransactions which are free to play. This is where Fortnite arrives on the scene – a game which is free to play but which features optional microtransactions.
The fundamental problem of MTX in video games
Yet herein lies one of the main dilemmas regarding free to play games. Ultimately, the controversy surrounding Star Wars Battlefront II resulted in EA removing all microtransactions from the game, supposedly until such a time as they could reevaluate how to implement them more reasonably. However, without the microtransactions being available to players, the game flopped massively. Indeed, making money from microtransactions was so important to the business strategy of the game that fundamental design decisions had been made to maximize the significance of these “optional” purchases. Key game assets were locked away from the player, and acquiring them through usual game progress was deliberately made repetitive and slow to encourage players to buy lootboxes. Furthermore, the game locked away in the same fashion upgrades and powerups which made the player significantly more powerful – essentially making the game “pay to win”.
Although this strategy is particularly flagrant in an AAA title sold at full price, it is worth noting that this same issue is present in games which are free to play , i.e., that core gameplay design decisions are made around encouraging players to make microtransactions in the game. This is particularly evident in mobile games, for example, which feature mechanics like timers to limit how far you can progress without making additional purchases.
A game which relies only on the initial purchase for its revenue has essentially one objective: To sell as many copies of the game as possible. Of course a large part of this comes down to the marketing and promotion of the game, however in order to rate well in reviews, to encourage word of mouth recommendations, to build and maintain trust from the players and to limit games quickly becoming available as second hand the main objective is simple: To create an excellent and high quality game which many people will want to play (at least in theory).
Conversely, a game which relies solely on microtransactions for revenue has a different objective: To maximize the amount of microtransactions being made in the game. This difference of objective has an inevitable knock-on effect for the quality and design decisions of the game. Clearly compromises must be made in terms of gameplay design where competing with the aim of making a fun game is the objective to maximize microtransactions.
Put very simplistically, in one scenario the developers are encouraged to make an excellent game and in another developers are encouraged to make a game which sells microtransactions. Naturally, even a free to play game needs to be at least somewhat good, otherwise no one would play it. However the quality requirement is significantly lower than that of a full price game, as there is no monetary investment required from the player. The use of microtransactions and in particular lootboxes is also, as it happens, synergistic with strategies which developers can employ to build a playerbase instead of making a game which is more objectively good: Taking advantage of the dopamine reward system and the addictive qualities of gambling.
Are MTX really optional?
Proponents of microtransactions will often make the seemingly reasonable argument that microtransactions in games are optional and that nothing obligates players to make these additional purchases. However, as explained above, we know that this is only partially true; a game which has been designed around the necessity to sell microtransactions will inevitably require that a player makes microtransactions in order to fully experience and enjoy the game as intended. This can be in very overt and obvious ways, such as in Hearthstone where failing to buy card packs makes winning all but impossible, or in more subtle ways, such as in Fortnite, where a large part of the enjoyment and satisfaction of the game (especially for its primary target audience of children and young adults) comes from the additional outfits and dances. Indeed, a large part of the triumph of Fortnite is not in any way the quality or design of the game, it is rather in how they have succeeded in making the game and its dances and outfits all but ubiquitous, meaning that gamers (especially children) feel left out by not playing and owning additional content in Fortnite.
Ultimately this question boils down to a conflict which is in no way unique to the video games industry. It is expressed in the power balance between the people who make games (developers) and the people who only make money from games. This translates to: “What makes a game good from a publisher’s point of view does not usually make the game good from a gamer’s point of view”.
Developers competing for publishers, not gamers
In an ideal world, as gamers we would not need to concern ourselves too much with these matters; in theory, gamers will “vote with their wallet” and will shun games which fail to properly implement microtransactions in favor of the games which get the balance right. However this assumes that the people who make games are competing only for consumers to buy and spend on their games. In reality, game developers are also, perhaps primarily, competing for investors and for publishers. Publishers who will increasingly require that a game be monetized in ways that fundamentally go against the overall intended design of the game. With it becoming increasingly apparent the potential for microtransactions to generate massive profits in video games, the risk presents itself that in the future, few or no publishers will accept games which do not feature these types of additional purchases. After all, this makes perfect sense if you are making business decisions in the interest of your shareholders and investors, not in the interest of the quality of your games.
In 2018, God of War, a game featuring no microtransactions, won Game of the Year, recognized as a beautifully crafted game with a clear vision and game design. In that same year, Fortnite, featuring a significantly borrowed premise and design, was the single most played game and made $3bn in profit. We wonder for how long will games like God of War continue to be made and be seen as financially viable, and how long will it be before publishers require that Kratos can only fully complete his odyssey if the gamer is prepared to continuously put their hand into their wallet.