Evolution of Monetization

Evolution of Monetization in Gaming

With the most recent announcement from Facebook that Oculus will be launching a subscription service to build an “ecosystem of games, apps, and experiences” we continue to see a shift in video gaming towards more subscriptions. Video gaming content used to be a single point of purchase ($60 for the game) yet transitioned more to a blend of free-to-play (FTP) with in-game purchases or even an entry price with additional microtransactions on top of that.

Today, content platforms like Xbox, PlayStation, Apple Arcade, and now Facebook Oculus, are pursuing an additional platform moat through the bundling of content into the subscription model. For example, you can pay $15/mo for Xbox Game Pass, which gives you access to ~600 games. This eliminates the need to pay the “entry fee” for all of those games yet they compensate for that lost revenue by making money in three ways: 1) in-game microtransactions, 2) an agreed-upon fee from Microsoft (Xbox) for time played per month or 3) an upfront cost.

This model of bundled content in gaming mimics what we have seen in media (Netflix, HBO:GO, Hulu, etc). This transition has also been excellent for smaller game studios who can build a game, release it on a platform, and lower the barrier to entry by having it bundled alongside a larger portfolio of games (i.e. Xbox’s 600 games on Game Pass).

Gaming has gone through some major changes in regards to monetization in recent years. From a market that started with high one-time upfront costs to a model that focused on microtransactions to now a shift into subscriptions, developers have had to adapt. With platforms creating subscriptions, the barrier to try new games is lowered which greatly benefits smaller developers who can’t compete with the marketing and UA budgets of AAA studios.

On the flip side, AAA studios (the creators of the biggest games in the world) are going to have to look at marketing and UA budgets differently than they have in the past. As consumers shift their spending habits from purchasing games to purchasing subscriptions, AAA games will need to focus less on getting consumers to purchase your game once, but instead getting them to play it, keep playing it, and keep spending over a longer period of time.

Playtime didn’t matter as much to a AAA studio’s bottom line when games were sold for $60. Of course they hoped that a thriving ecosystem of players would encourage others to buy as well, but now the “community & longevity” of a player base is becoming paramount. With the proliferation of subscriptions, playtime is how developers will be paid - and they’ll be competing with 100s of other games for those same minutes.

Overall, we expect subscriptions to be great for the gaming community. Consumers will get more value out of each incremental dollar spent, smaller developers will have better access to distribution, and the AAA games will be forced to earn players time instead of earning their one-time entry purchase.