The Great Video Game Business and Financial (In)Stability Thread

The quotes from the EA representative sound like they came from an Onion article.

I watched the Inside Gaming round-up of the EA story:

They bring up some good points, one of which is the flip-side of this that these loot-box mechanics are kind of subsidising a lot of the major developers and their $60 price-point, as this price may not entirely make enough of a profit considering the saturated market. I've said before I'm strongly opposed to loot boxes. In the UK (where this hearing took place), our gambling is very lightly regulated, and the bookmakers have been able to build a strong industry, so much so that the top earning boss in the UK works for one of them! It has got worse year on year, with only small changes being made.

One thing Inside Gaming do speculate on is how the EA model is hugely dependent (more so than other developers) on these loot box mechanics, so much so that they predict that FIFA Ultimate Team accounted for roughly ~20% of the overall revenue.

Whereas this was a UK hearing, I'd expect more action in the US if people contacted congress-people, considering our lax laws. Although I'm not sure if the current political feeling on gambling in the US is loosening up to gambling?

Clusks wrote:

One thing Inside Gaming do speculate on is how the EA model is hugely dependent (more so than other developers) on these loot box mechanics, so much so that they predict that FIFA Ultimate Team accounted for roughly ~20% of the overall revenue.

You know who would really be in trouble? Sony. The Playstation division in particular but also Sony, the parent company.

The Playstation division made $21.1 billion in sales in the last fiscal year. That's all inclusive of games, hardware, add-ons, accessories, subscriptions, and so forth. Of that, $9.1 billion was digital add-ons alone. That's more than any other single aspect of their business. 43% of all the money that the Playstation made last fiscal year was digital currencies, loot boxes, and other things.

This number also includes traditional levels and expansions, but those make up a small fraction of the total. Other analyses point toward most of that $9.1 billion coming from just a few games. Currently, that's Fortnite, Apex Legends, and Overwatch.

How much those games depend on "surpise mechanics" varies from game to game, but all of them would be impacted to some degree by new regulations, including a significant number of games outside of those top sellers.

The Playstation could see the biggest pillar of their business indirectly but severely hit by loot box restrictions. How does that impact Sony as a whole? Also significantly, because digital add-on sales are bigger than either their music division or their film division and have significantly higher margins than either.

Other platform holders would be hit to different degrees with Nintendo impacted the least, but Sony would be in deep sh*t.

I'd also say that the numbers you quoted significantly underestimated EA's dependence on loot boxes, especially when you take Apex Legends into account. Ubisoft, Activision-Blizzard, and Take Two also have huge incomes derived from boosters and loot boxes. Regulation of those things could very well kill some of them off, with Ubisoft being by far the most vulnerable.

Ironically, most Japanese publishers wouldn't be as hard hit. Why not? Because most of them have built huge portfolios of literal gambling, mostly pachislot.

On the numbers, Inside Gaming only predicted that ~20% as the FIFA contribution, they actually quote an analyst in the video who predicts that loot boxes, as a whole for the entire EA company, make up roughly half of their revenue.

I was just reminded of this, from a few pages back:

ClockworkHouse wrote:
BadKen wrote:

I'm not so sure that so many players really want the games as a service thing. [...] An awful lot of players are perfectly happy with low fi narrative games.

Literally every indicator on every platform says otherwise.

[followed by great explanation of why that is the case]

I remember reading something years ago that for mobile games, at least, the majority of add-on buys come from a small minority of players. The "whales." Is that still true? Is it true for console and PC games, too? If so, what does that say about where the majority of these companies' income is coming from? Is there an underserved market of minnows, or are whales funding minnow entertainment?

BadKen wrote:

? Is there an underserved market of minnows, or are whales funding minnow entertainment?

That's a complicated question. There are multiple answers, but first, I just want to establish the background of what problem the "core" gamer industry is trying to solve right now. Simply put, there are way too many games being made and not enough buyers. Supply has greatly outstripped demand.

Solutions to that vary. You have so-called "blue ocean" strategies that attempt to appeal to non-traditional gaming demographics and find products to sell to them. That's Nintendo's schtick, and that's what most of the mobile industry is all about. Selling games to all the people that "the games industry" has historically not bothered trying to sell games to.

Then there's upsell on traditional products. There's a broad agreement that games probably shouldn't be priced at $60 for what it costs to produce them, so the push is to use season passes, deluxe/premium/gold editions, and other add-ons to quietly bump up the cost of games. It doesn't cost $10 per copy to add some costumes and a shotgun, but you can hopefully upsell people to a game's deluxe edition using just that.

Then there's free-to-play, which essentially turns every game into a pay-what-you-want project with no floor and no ceiling. By providing the game for free while offering unlimited opportunities to spend money on different features, buyers can spend as little as $0 or as much as $10,000 or more. It's the ultimate price elasticity.

Then, of course, there's just regular ol' price adjustments. Flash sales! Daily deals! Subscriptions! Here's a bucket of ten games for $10 that you wouldn't have bought if they'd been priced at $1 each! The bucket is usually one game you'd spend $5 on and 9 games you'd spend $0 on, but it's a value you won't pass up.

So with all of those things in play, let's go back to your question: are there minnows who aren't being served? Not really. The minnows have the best they've ever had it with basically an all-you-can-eat-and-more buffet of games pretty much throwing themselves at you and begging you to play them. Wait a few months, and even the biggest games will be heavily discounted. Except for increasingly-rare console exclusives, pretty much no one is saying that you have to spend a minimum amount to play a specific game. (But notice that this is what Nintendo does, and they can only get away with charging a minimum of $300 for the first of their games you play because their level of quality is so high.)

But there's another way of answering your question, at least with regard to free-to-play multiplayer games: there are no minnows. Which is to say, the game isn't being sold to the minnows; the minnows are part of the game being sold to the whales. You want to get your whales to buy cosmetics to deck themselves out with, new guns to shoot, new characters to play as, new powers to use, but all of those things are useless without people to shoot, enemies to fight, and an audience to bear witness to your sweet blingy emotes.

Free-to-play games are free so that the people who pay money for them have someone to play them with. What's the old adage? If you're not buying the product, you are the product. That's just as true here. If you're not a whale, then your purpose is to fill servers to give the whales something to do so that they keep spending money. You only enjoy it as much as is needed to keep you from leaving, but you're not the business.

So from that stance, the whales aren't subsidizing the minnows. The minnows are cannon fodder to keep the whales spending.

I suddenly feel like a Westworld host.

Great summary Clock!

For those of us involved in long term fisheries, those whales surface to see what's new and shiny, but all too often then migrate or dive deep, leaving us with schools of dolphins ... smarter, more agile and more adept at flitting from trawler to trawler, and dancing just off our bows.

ClockworkHouse wrote:

good stuff

That is the best overview of the current gaming market I've ever read. Seriously.

ClockworkHouse wrote:

So from that stance, the whales aren't subsidizing the minnows. The minnows are cannon fodder to keep the whales spending.

So, if I just view playing the 99 OVR teams in MUT with my 83 OVR team like it is Dark Souls, it is all good. The ultimate video game football challenge. In that way, whales are a feature.

Mostly, I don't care. I do get my butt stomped when I face most of those whales, but there are plenty of minnows playing, too. And this year, Madden added Solo Battles. You play a variety of real MUT teams created by real people, with OVR's ranging from the 70s to the mid 90s, but are run by the CPU. You get 12 games a week, and the rewards are pretty high if you play them all. They are all single attempt games, and you can choose what difficulty you want, with the higher the difficulty the more Gold you earn. And that is in addition to the hundreds and continuously updated, Solo Challenges, which are playing out scenarios. If you don't want to play online, you can play MUT and still have plenty to do, and you never have to spend a dime on packs.

You really don't have to spend money to enjoy MUT, EA just knows that enough folks will that they have made it easy to play without spending money. Because, I am fodder. Those guys buying pack after pack? For that to make sense, they have to sell the cards in the auction house. So once I earn some gold, I find upgrades to my roster, which might be players too lowly rated for the 99 OVR team guy, but work out great for me in the 80s. I can't find specific players I want unless someone is buying a lot of packs. They can't sell them unless others are avoiding buying packs.

Great summary, Clock.

Game prices have actually gone down compared to inflation while game development budgets have gone way, way up.

One thing that I think has been missed in the past few pages is the degree to which cosmetics are both a big part of the revenue and a significant part of the gambling problem for minors.

NBA2k19 has recently introduced unskippable adverts.

Do wonder if this will become more common in full-priced games in the future. Can easily see it happening in sports games like this, anyway.

I read that and wondered if it’s platform specific, as I haven’t come across any of those on the steam version.

Wow that’s...pretty rubbish.

Page not found?

Works ok for me, it's just a kotaku article

charlemagne wrote:

Page not found?

Didn't work for me either, might be redirecting us to the Australian version of the site and breaking things.

I can access this article which I assume is the one in question.

Ah, many thanks

Gremlin wrote:

Great summary, Clock.

Game prices have actually gone down compared to inflation while game development budgets have gone way, way up.

One thing that I think has been missed in the past few pages is the degree to which cosmetics are both a big part of the revenue and a significant part of the gambling problem for minors.

On inflation: that $60 game from 1999 costs $93 in 2019 dollars. I'd be very comfortable with more transparent pricing. It will never come back though.

On minors: this is a big part of why I've not introduced my kids to gaming. Might be for awhile too.

Honestly, I've never been much into the Steam sale meta-games in general but I tried reading the info page for the Grand Prix thing and my eyes just glazed over. I was going to ignore it completely until I saw somebody say you could use it to get coupons for games so I made an earnest effort to figure out how but I gave up. Not surprised to hear people are confused by it.

In all honesty, it feels like the same thinking that went into Artifact and that game is dead in the water.

Got to say that the personal stories part got to me.

That's a very worthwhile watch. Thanks for the share. It shines a light where many journalists and commentators will not, or cannot.

I can say that I have been guilty of thinking that "whales" are but those with excessive disposable income. I should have known better. The term "whale" helps to dehumanize where "collector" and "impulsive" would not. I've saw first hand whilst behind the counter with physical media for video games, to close proximity with comics, that those with poor impulse control, or a collection mindset, under the weight of missing out will spend their last to secure what they feel they need.

It remained somewhat of a blind spot within games, for me, as I always saw loot boxes and cosmetics as optional nonsense. I remember before they existed and thus that they are not integral. I saw no scarcity other than artificial due to the digital nature, which is disgusting and should never be entertained. If anything it drove me away from select games due to the imbalance it could create, and the cliques it could form.

That's one of the best videos I've saw from Jim Sterling. Credit where it is due.

Man, I wish he had dialed the rantyness back a bit. I'd really like to show this video to my grade school age kids, but the language is just a little too far over the line. It's got a really valuable message and a lot of good information, but the presentation just detracts from what he's trying to say.

polq37 wrote:

Man, I wish he had dialed the rantyness back a bit.

Jim Sterling will never do that. Never.

polq37 wrote:

It's got a really valuable message and a lot of good information, but the presentation just detracts from what he's trying to say.

Yup, he's usually got good insight, but his shtick is horrible.