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Responding to the profit incentive

Trends in the gaming industry such as day one DLC can best be understood as responses to the changing systems of profit incentives operating on the designers and publishers. By understanding the incentives, perhaps we can find better alternatives?

Dan Goodman, Blogger

September 18, 2012

7 Min Read

There has been much discussion recently of what many perceive to be negative trends in the gaming industry, for example attempts to eradicate second-hand gaming, day one DLC, pay-to-win Freemium games. We can best understand these as responses to the changing systems of incentives operating on those designing and publishing games, and perhaps this can help us to find alternatives.

Please note this is my first gamasutra blog, and I'm not a professional developer, just an interested amateur.

The foremost incentive to understand, of course, is profit. Sometimes this works as a positive incentive (because people want more money) and sometimes as a negative incentive, that is people may want to make great games that don't make much money, but they have to eat so they can't ignore it. These two forms of the profit incentive can have different effects.

Broadly speaking, the company point of view (developer or publisher) will largely be the positive incentive, whereas the point of view of an individual, either working within a big company or as an indie, may well be the latter. This won't always be true, some individuals are primarily looking to make money rather than make something they are proud of, but perhaps this attitude is less common among game developers because it's not an obvious road to riches. Most talented programmers, for example, could probably make more money in other areas.

The profit incentive, although it sounds sort of dirty, can be both positive and negative on the quality of the games produced. An independently wealthy game maker who has no need for money, like any other artist in the same position, may occasionally make works of genius, but they may equally make self-indulgent rubbish.

On the negative side, we have things like manipulative game design which actually works against the interests of the player in order to make money. Coin operated arcades were always like this. More recently we have things like day one DLC, designed to extract more money from consumers and to destroy the second hand sales market. We have 'social' games that make us behave antisocially, and competitive games where we can pay to win.

The ideal incentive structure would be one that rewards the creation of high quality games, and since the profit incentive is so important, it should be one where  high quality games make more money than low quality ones. Is this possible, and if so how?

Let's look at some existing concrete ways in which games can be sold. One of them is the traditional boxed retail model. You get a fixed product for a fixed price. This also applies to some downloadable content. This is most similar to something like movies, where if you decide you don't like it after watching (playing) for a while, you can't get your money back. Game demos go some way towards alleviating this: you can find out if you like the game first. How does the profit incentive work in this market? There are several strategies with different outcomes: you can go for the mainstream market, big budget and lots of sales. Alternatively, you can go for smaller games with a lower budget and lower sales. Online distribution made this latter type of approach much more tenable.

More recently, App stores have changed several aspects of this which has changed the feasible approaches. It's still too recent to know for sure what all the feasible approaches are, but a few of the successful approaches so far are:

(1) Free app paid for by advertising. This has many positive aspects for the developer and the consumer. As long as people are playing the game they will see the adverts and possibly click on them, and so the incentive is there to make more people want to play the game and for longer. Unfortunately, it also means annoying the consumer with adverts all the time, and as advertising revenues diminish, the incentive on the developer is to make them more and more unavoidable to maximise the chance that someone will click on them. In addition, there is a strong incentive to collect information about users and pass that on to advertisers, infringing their privacy.

(2) Freemium: free app with paid for extras. This covers a wide range of possibilities, from the most manipulative of designs where you suck people in, get them addicted, and then start charging them, to more benign forms where consumers only pay for superficial aspects like different clothes. Even the more benign form, though, is just a lesser evil. I don't mean that in the moral sense, just in the sense that it is an incentive to make the game worse if you don't pay, and better the more you pay: it doesn't add anything, it only takes away.

(3) Free or paid app with paid for extra levels or episodes. This is most like the shareware model. This is maybe the nicest approach in terms of the incentives to produce high quality games, but it doesn't apply to all types of games and in practice many consumers seem unwilling to pay directly, so indirect approaches like the first two are more successful. The issue for this approach appears to be that if there is a cheaper option available, people will tend to take it rather than paying, even if there are hidden costs to the other option.

The outlook for finding a way to get the incentive to produce profitable games to push towards higher quality games, then, looks bad. However, the enormous and continuing success of Steam provides some hope. It shows that people are willing to pay for a high quality service: easily accessible games, fast downloads, play on multiple computers, etc.

What if an even better such service could be designed that really aimed to make the profit incentive align with the incentive to make better games? I don't know if this can be achieved, but I have one idea that might work, although it may be too naive or have hidden bad incentives.

The idea would be to have a service with a fixed monthly cost that allowed you to play as much of any game on the service as you liked with no additional costs. The platform would track how long you spent playing each of the games, and the profits would be divided up amongst the products in proportion to how long was spent playing them.

If it was well designed, like Steam, it would be very enticing for consumers: they would be able to play many more games and wouldn't lose anything if they didn't like them. In terms of incentives, the more people playing the game and not getting bored of it the more profit you would make. There's also an incentive to provide updates and DLC. These incentives are good for quality.

On the negative side: for the consumer, you would lose access to your games if you stopped paying the monthly charge. However, you could maybe alleviate this by allowing people to purchase some of their games if they cancel their account (and the amount that had gone to the developer already from their monthly spend could count towards the purchase cost). On the negative side for incentives, there is an incentive to make the player play for longer, even if it would be more fun to play for less long. How significant would this be in practice? I'm not sure.

This idea may well be too naive to work in practice, but surely it must be possible to do better than the current model which incentivises developers to make games which manipulate and exploit the player? To do this, we need to understand the incentives on the developers, and make them work for the good of the games.

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Dan Goodman

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Dan Goodman spent over a decade as a game developer for companies like Sega Studios, LucasArts, and High Voltage Software. He started Robotic Arm Software on the belief that giving developers the best possible tools will lead to better games made much more quickly and easily. His company offers consulting and development services to game studios, delivering custom tools that integrate with existing systems.

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