Games as a service has "tripled the industry's value"

Digital River report finds consumers prefer games with a steady stream of content over a $60 boxed title

A study from monetisation service company Digital River found that games as a service has tripled the industry's value.

The report, Defend Your Kingdom: What Game Publishers Need to Know About Monetization & Fraud, noted that developers of all sizes are benefiting from the "steady stream of in-game content that both serves player expectations and increases their revenue per user."

The report continued: "This does not just apply to free-to-play titles: In 2016, a quarter of all digital revenue from PC games with an upfront cost came from additional content."

Digitalisation has forever changed the economics of the videogame industry, the report says. Consumers are expecting more for less from game developers, an issue which has also plagued indie game developers for some time.

These shifting notions of value in the videogame world have irrevocably altered players' spending habits, the report found.

"Consumers are less willing to pay $60 for a boxed game and instead choose titles with a steady stream of new content," the report said. "Publishers seek to meet these expectations and have adopted a 'games as a service' model, releasing fewer titles over time while keeping players engaged longer with regular updates and add-ons."

According to Digital River, this change from up-front costs to protracted spending means that revenue per user is expected to grow twice as fast than the rest of the market. This is backed up by findings that, on average, PC players in the US wait 21 days after they decide they want content before buying in the hopes they can take advantage of a sale.

As a result, Digital River concluded that "gamers are gaming the games market." This, in turn, leads to creating a space for third-party distributors to meet the growing demand for discounts.

These digital key resellers are prone to fraud, and Digital River noted that third-party sellers buy game keys from publishers using stolen credit card information, then offload the keys onto grey market sites - a practice which is harmful to publishers and players alike.

"When the fraud is detected, publishers who sold the keys are hit with chargeback fees," the report reads. "Game makers can deactivate illegitimate keys, but the players who bought them do not usually know they are part of a scam. Gamers may believe their keys have been deactivated for no reason, and this can cause a negative backlash."

Grey markets have long been the subject of controversy, with digital code marketplace G2A in particular finding itself banned from sponsoring League of Legends tournaments, and TinyBuild Games saying the company "facilitates a black market economy."

The inevitability of an increasingly digital marketplace means that publishers and developers must invest in proper payment safeguards, the report argues.

"This way, they can stop fraud at the point of sale and deprive markets of illegitimate game keys. Publishers should also clearly state which third-party sites are authorized to sell their products, since hardcore gamers are becoming aware of the issues with grey market fraud."

The grey market is especially problematic for publishers, according to the report. Digital River said: "Previously, publishers simply lost revenue from a pirated boxed game. Now, many developers prefer piracy over credit card fraud so they don't end up with negative revenue."

Digital River also offered up some means in which publishers could tackle these issues. It suggested adding safeguards like trade-waiting periods and restrictions on new accounts; investing in proper payment safety measures; being transparent about which third-party sites are authorised to sell their products; and providing safer, more streamlined storefronts.

The full report can be read online here.

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Latest comments (3)

Aleksi Ranta Category Management Project Manager 4 years ago
"Publishers seek to meet these expectations and have adopted a 'games as a service' model..."

Consumers are made to pay for digital content because games are not delivering the full experience for the basic boxed price. I would argue against developers meeting expectations but rather they are driving it in that direction and consumers are somewhat forced to adapt.
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James Batchelor UK Editor, GamesIndustry.biz4 years ago
@Aleksi Ranta: I think that depends on the game. Plenty of service-based games come with as much content as you would expect from a full price boxed game, and then add content on later or charge for aesthetic customisations or temporary boosters that are purely optional. From what I gather, Rainbow Six Siege does a good job of this.

It's when publishers purposefully hold back content and then charge for those who want to add it in later that complaints seem to arise. Or when the charged content is essential to progression, like EA seems to be doing with Star Wars Battlefront II. This still seems to be few and far between, and hopefully consumer outrage will deter publishers from further pushing this strategy.

As the report says "Consumers are less willing to pay $60 for a boxed game and instead choose titles with a steady stream of new content" - and the mobile space has probably had a role to play here. People are still enjoying Clash of Clans and Pokémon Go having not spent a penny on it, or only what they're willing to pay, and that expectation was perhaps inevitably going to bleed into the premium business.

It's not just games, it's all forms of entertainment. How many people have stopped forking out for DVD boxsets because they can binge through TV series on Netflix? How many people are more selective on what they pay to see in cinemas because the big hits are usually available on movie channels after just a few months?
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James Coote Independent Game Developer 4 years ago
A big benefit to F2p is players can spend as little or as much as they want. Whereas with a single box price, people who aren't willing to pay $60 have to wait till the game is on sale, at which point it might not be that interesting / visible as new games have come along in the meantime.

Moreover, the biggest fans of the game, who might be willing to spend a lot more than just $60, are getting a bargain.

The crux of the problem is those biggest fans are the most vocal. They'd kick up an enormous stink if their favourite franchise went f2p, but also if games started costing $80 or $100 (elasticity of demand presumably means those prices are less profitable). Now, the resultant hybrid model of $60 + extras is starting to eat into the biggest fans sense of getting a good deal. That leaves AAA publishers in a tough position. Especially if new, rival franchises come along and are f2p from the start.
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