Freemium Conversion: 2-4% in Gaming

Live Streaming Growth

The live streaming market is projected to grow 19% YoY over the next 5 years (Infoholic Research & Kenneth Research). We believe that micro-streamers (e.g. twitch affiliates, who have 50+ followers) are the gateway keepers for advertisers who are attempting to reach the users leaving traditional mediums of entertainment.

The believability of the advertisement makes all the difference. Similar to many other industries, gamers want to be marketed to by gamers. The Chevy’s “Real Person, Not Actors”, Dove’s “Real Beauty”, and Bumble’s “Most Inspiring Users” are comparable ad campaigns to how we see brands attempting to leverage micro-streamers in the gaming community. We are bullish on the “real person” strategy, which ultimately led us to invest in Opera Event.

Gamer Spending Habits

Free-to-play (FTP) is a key method in which video games generate a faster adoption rate. That said, it has its struggles. For example, Fortnite revenue was ~$100M in September 2019, down from over $300M per month in April, 2018. According to SuperData’s latest report, in-game paid conversion for Fortnite has dropped from 30% to 16% on PC and from 36% to 10% on console. Here a few takeaways from this data:

• Standard vs FTP: Free-to-play is NOT the only path forward for video game monetization. The $30-60 upfront purchase model still has a place in this market.  
• Games are not forever: Fortnite is a great game and still going strong, yet even the biggest games come and go. We’re already starting to see it dip.
• Gamers hate “pay to win”: gamers are wary of in-game monetization that creates a “pay-to-win” or even a “pay-to-fully-enjoy” dynamic. This makes a $60 upfront purchase for the entire game an attractive option for the community.

Similar to the “freemium” model in consumer software, the conversion rate from free to paid is around 2-4% for both SaaS companies and video game titles. It makes sense that consumer behavior is relatively consistent across their various spending habits. Some of the titles below are free games (Fornite, Apex, LoL) while others are paid upfront (CoD, NBA, GTA):

Superdata also mentions a really important aspect to the changes in consumer spending: “Players are growing more and more wary of monetization tactics.” Gamers are continually discussing with the community regarding predatory spending tactics that publishers use and the underlying psychology of such. In some games, the only way to unlock powerful characters or upgrades is to either buy them or spend unprecendented amounts of time. In Battlefront 2 for example, it would take 4.5k hours (188 days) to unlock all of the content.

Twitch stops paying, YouTube benefits

Twitch used to pay pro esports teams (i.e. Cloud9, Faze, TSM) to stream on their platform. Today, they have drastically reduced the amount they pay to teams and in some cases have phased it out completely. This has eliminated a key revenue stream for teams, forcing them to pursue other options… such as a heavier emphasis on YouTube Gaming.

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YouTube Gaming is a key beneficiary of this market shift, as this article on Digiday does a great job of further explaining. Youtube has proven to be in the perfect position to benefit from the live stream revolution without being a popular live stream platform itself. With 2B active users, they are the premier platform for posting gaming content (not live-content). Someone like Ninja would average 44k viewers per stream but pushes 1M views on his Youtube channel. Given that Twitch isn’t paying esports teams anymore, this means more of them will spend their efforts on their YouTube presence.