Part I: Money
This dichotomy leaves game writers with a conundrum. They are the bridge between the gamer and the developer, and while they have opinions on matters, it is necessary that they be impartial. An article from The Economist wondered “Given the huge cost of developing the most advanced video games, however, the new model seems unlikely to push aside the traditional model of selling games on disc (or as paid downloads) any time soon. But as gaming reaches out to new audiences, there may be more scope for new business models based on advertising and micropayments.” The biggest problem when talking about F2P from a business standpoint is that so little data exists from gaming in the West. In truth all things being equal, only the markets in Asia have any real data to correlate an opinion from. Because of the relative newness of the model in the West there is little hard data to try and postulate the outcome for companies and gamers alike in the F2P switch.
Many markets such as China are fairly stagnant for any foreign made game, but that is not so for other markets. In addition with a rising middle class and population explosions in some Asian countries on the horizon, long term planning dictates getting into the market now. It is possible even, probable that with the explosion of the market in Southeast Asia, one could see a bid to try to gain ground in the Western markets. Video game companies that are already old hats at the F2P business in South East Asia could foreseeably push more established Western gaming companies aside; for example NCSoft and Nexon. While large companies like Blizzard have had success in the Mecca of online gaming South Korea with games like Diablo 3 (Blizzard’s Diablo 3 sold somewhere in the vicinity of 10% of its 10 million boxes sold worldwide, in South Korea), the fact of the matter is that there is untapped market potential for quality titles coming from the West.
It might have been fine for Blizzard to say that it owns its properties and money was not to be made outside of itself, but those days are long gone. Companies are not simply charging a monthly fee, a time honored tradition. New rules and regulations are going to be necessary to prevent fraud, theft, and ruinous spending habits. Gaming companies should look to the gambling industry as a preventative against public outcry and regulation. While news of hacking is not likely to go away for years to come, it would behoove game companies to get better security now rather than when it inevitably bites them in the backside. Sony’s PSN fiasco of 2011 is estimated to have cost them one Billion dollars in lost revenue.
According to a recent Forbes article Lisa Cosmas Hanson, managing partner of Niko Partners is quoted as saying: “We see a risk in monetization because so many companies are putting out really great browser-based and mobile games, that the gamers can switch between one fun game and another three options easily, before getting to the point in the game where paying for it would make it even more fun for them.. So game companies need to be sure the monetizing starts early on in the game, or risk the loss of the gamer based on the easy switch to one of so many more options in this highly competitive field.” The move to F2P can be a dangerous one for video game companies in the West. F2P works in Asia by having a large number of players, consider League of Legends.
Riot Games LOL had ‘over 15 million registered players, with 3.6 million monthly active users and over 1.4 million playing daily. The company also revealed its peak concurrency (number of those LoLing at the same time) as over half a million players’ according to an article from Joystiq in the middle of 2011. By the end of 2011 according to LoL’s own website the game had 32.5 million players signed, with 11.5 million gamers playing monthly, 4.2 million gamers playing daily, and 1.3 million gamers playing concurrently worldwide. Yet in May of 2012 Tencent Holdings Ltd. (700), China’s biggest Internet company and parent company of Riot Games, posted a record quarterly profit of 2.95 billion yuan or right about 467 Million US Dollars according to Bloomberg after having made 4.5 Billion in revenue and 1.6 Billion in net revenue for 2011 up 45%. Contrast that with Blizzard making Activision net revenues at $1.08 billion for the second quarter of 2012, even before its latest expansion Mists of Pandaria dropped. Even allowing for sales from games other than World of Warcraft, like Call of Duty and Diablo III, the number of gamers needed to make a comparable profit to a subscription game in markedly higher.
There is money to be made using F2P in the MMO market, but it is not a magic wand. Not only does it mean higher populations, it means bigger and better server tech and that is not cheap. While there are indeed benefits from the F2P model there are many pitfalls as well. Unless companies are ready to hit the ground running they’re likely to be swallowed up. Times are changing and the slow, powerful behemoths are a thing of the past. Without the agility to move with the flowing trends, F2P will just be an early trip to the grave.