- Total videogame content (non-hardware) sales totaled $16 billion in 2010, ~25% new digital categories such as downloads and subscriptions
- New digital categories growing steadily, and will likely be the majority of the gaming market within 5-10 years
- Subscription businesses are a significant opportunity for publishers, however, they must manage this passionate and vocal consumer segment carefully
With the videogame industry turning the big 4-0 this year (the first videogame Computer Space launched in 1971), publishers are becoming full-fledged media companies. Part of this maturation has been moving from a single sales window and physical channel dependency to multiple revenue streams and digital distribution platforms. Another increasingly important component is the shift from single purchase customer relationships to more complex customer management via subscription businesses — the future of multiplayer gaming.
Digital consumer behavior driving the evolution of videogame business models
The growing “anywhere, anytime” consumer media usage across new mobile devices and apps is extending to all forms of media – music, videos, written content and games. Consumers are increasingly expecting to be able to research, shop, compare, download, use and share their preferred media experience on-demand, and future digital native generations will not be able to conceive of any other way of living. These new digital behaviors accounted for ~25% of total videogame sales in 2010 (ESA, June 2011), and helped offset declining physical software sales, which totaled $16 billion across all gaming content (software, subscriptions, downloads, etc.) in the U.S. (NPD Group, January 2011).
Videogame subscription models are not new, having been around for almost 15 years, and are currently dominated by massively multiplayer games (MMOGs) like Activision/Blizzard’s World of Warcraft, where millions of consumers pay a monthly fee to play with thousands of other players simultaneously. However, the next wave of subscription businesses are expanding beyond MMOGs to include premium multiplayer services and digital platforms including retail distribution and cloud-based gaming. Activision’s Call of Duty Elite is a paid multiplayer service for the multi-billion dollar Call of Duty franchise with additional in- and around-game content and features. New digital platform efforts include Electronic Art’s Origin which expands upon Valve Software’s highly successful Steam retail platform model with additional membership benefits. Finally, with U.S. broadband speeds slowly increasing, cloud-based gaming services like OnLive are becoming viable and offer considerable consumer and publisher value. For consumers, cloud-based gaming is a lower cost high-end gaming experience, due to simple remote operation technology which streams the video feed from the games running on the company’s servers to the consumer’s TV. For content owners like videogame publishers, cloud-based platforms are an end-game solution offering: recurring billing, upselling additional content directly to consumers via digital distribution, advertising, and DRM.
Videogame publishers winning is not a zero-sum game for consumers
The upside for publishers are clearly the revenue opportunities from drawing consumers deeper into the brand halo of major franchises. However, this particular consumer segment is among the most passionate and engaged brand consumers of any media. This includes a very vocal minority that that are resistant to anything that affects their perception of how games and the medium should evolve. For example, there was considerable pushback when Xbox Live’s pricing was announced in 2002, and now nearly half of Xbox Live’s 30 million subscribers are paid subscribers, not to mention the over ten million people pay to play World of Warcraft each month. What this means is that any paid service targeting a franchise’s most active players will require publishers to be even more responsive, as these consumers are paying an additional amount to be closer to their favorite game and will feel even more entitled. This quasi-freemium model requires standard gameplay to be accessible to all after an inital purchase, and ancillary benefits should be part of the upsell; special community, better competition with serious gamers, access to additional related content, higher chance to participate in testing the game, special status indicators, integrated capabilities for tracking game stats, and group/guild management tools.
Developing a paid multiplayer subscription service is no small challenge, this can’t just be a fancier website with some extra screenshots and logos. Publishers will have to continue to innovate — these are arguably the most savvy and rabid fans in existence and they have never shied away from making their opinions known.
