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Evolving Business Models For The Top Game Brands

How Activision and other publishers are changing the nature of games business one piece at a time

The launch of Call of Duty Online today in China is an interesting milestone - and a signpost - not just for Activision, but for the game industry as a whole. Here we see a glimpse of the future for major game franchises, the changing nature of game design, the fundamental shift in business models for games, and the evolving role of game marketers, all in one announcement. And here you probably thought it was just another game being announced... but that's only the surface reality. Let's peel back the onion a bit and look at the different skins, and try not to shed a tear for the passing of the game-industry-as-we-knew-it.

It's been abundantly clear for years that the marketplace for major console game brands is changing. No, not the shift to new consoles - that's been a regular part of the business for decades, and publishers are all familiar with that change and have learned to deal with it. No, this shift has to do with how publishers are making games and selling them, and how buying patterns are changing.

One of the great reasons that Electronic Arts' major brands Madden NFL Football and FIFA Soccer have generated so much revenue for so long was something that other console games didn't do. The very nature of those licenses meant that a new game needed to come out every year, if for no other reason than to incorporate the last year's worth of stats, roster changes, new players, and other changes that occurred in the sport being simulated. Since (long ago) you couldn't push out updates via download, this meant a new boxed version of the software would ship every year - whether or not the basic engine was updated (sometimes it wasn't, or not very much). This had the pleasant side effect of generating annual massive revenues for Electronic Arts.

"Activision will get reams of data from this game, and learn plenty about what works and what doesn't with this different business model for a venerable franchise"

Of course, this wasn't lost on other publishers. If sports titles made a lot of money with a new version coming out annually, why not other types of games as well? Activision decided to put Call of Duty on an annual release schedule, which eventually meant that not just one studio was developing the game - now there are three fully staffed studios working on different versions of Call of Duty. Now there are annual releases of this core franchise for Activision, yet the sales each year have been declining for the past several years, despite a massive effort by Activision in both development and marketing. Assuming that the issue isn't a decline in the quality of the games or the marketing (which seems unlikely, given this has been steady over several years with games from different studios accompanied by increased marketing budgets), what's causing this?

One likely reason is competition... not from other companies' games, but from earlier versions of Call of Duty. When a new Call of Duty was separated in time by two or three years, and online play and DLC weren't major components of the game, players would be eager for a new version. In three years they had exhausted the possibilities of the game. Now, though, we've got news maps and scenarios coming out quarterly, and a whole new game coming out a year after you paid $60 for one. Perhaps more importantly, online multiplayer is the most important part of the game now - and if you're still having fun with that, why buy a new version? Especially if the new version means learning new maps, new gameplay techniques, and making sure all your buddies have the new version too... it's just easier, and less expensive, to stick with the version you're already playing.

The problem also comes with the price tag. You're asking for $60 up front for the game, plus $15 for each major DLC pack (or $50 for a season pass), not counting extras like a collector's edition or various skins you can get. Those are big chunks of money. Compare this with League of Legends, where you can play the game for free, and extra Champions are around $5, and skins can range from a few dollars up to $10 or more. But it's all optional, and the main map of the game isn't changing - so you can easily play with friends who have paid out nothing, and friends who have spent hundreds of dollars, on an equal basis. Those smaller increments of cash are much easier to spring for than the bigger chunks console games demand.

Activision isn't blind to this, of course, and there's no doubt that one of the reasons behind Call of Duty Online (besides the chance to garner huge revenues from the massive Chinese market) is the opportunity to experiment with an entirely different business model for the Call of Duty franchise, and in a way that won't upset current fans. Activision will get reams of data from this game, and learn plenty about what works and what doesn't with this different business model for a venerable franchise. Sure, there are cultural differences at work that have to be taken into account, but nonetheless Activision should be able to get a pretty clear picture of whether this is the future of Call of Duty, not just in China, but elsewhere in the world.

"Make no mistake, though - Call of Duty Online is the nose of the dragon, and sooner or later the whole damn thing will be in the tent"

You can also see experimentation at work in Destiny, which is combining parts of the FPS market with the MMO market... along with variations on pricing. Note the success of games like Guild Wars 2, with an upfront cost for the game but no subscription charges, with regular content updates and virtual goods for sale as well. Blizzard has being having great success with Hearthstone, and does anyone really expect that Heroes of the Storm and Overwatch won't be some version of free-to-play?

The console game brands need to shift from thinking about the game design and marketing for the brand as "ship a box to retail stores every year" to "what can we provide players on a regular, long-term basis?" That's the kind of question that Rumble Entertainment's Greg Richardson is asking as he aims to build a company to succeed in the game industry as it is evolving. Mobile and online games get the idea that the struggle is to come up with games and implement them so as to create a dedicated audience of fans and keep them happy for years. Fans are already voting with their dollars that they don't like being hit with a $60 charge to enjoy the latest version of their favorite brand every year. The up side is that really dedicated fans can spend hundreds of dollars on a single game, if you give them enough cool content that they want to buy.

Game players are getting used to being able to try out games for free, and having plenty of options on how and where to play - and what to spend money on. Free-to-play isn't just one specific business model - the term encompasses a wide variety of models, and in some cases it's very similar to the old practice of providing free demo versions of a game. The best-performing business models are the ones that are precisely adjusted to fit the nature of the game play, and in so doing deliver an exciting and satisfying experience that keeps players engaged for a long time. That's what Activision and other traditional publishers are experimenting with now, even on the oldest franchises that seem wedded to the physical retail model. (Electronic Arts is trying out FIFA Online in Asia, it should be noted, and Take-Two is no doubt learning plenty by running Grand Theft Auto Online.)

Changes in game design and business models are leading to massive changes in marketing as well. Users are a big part of the marketing strategy, and marketing efforts need to be designed for a long term rather than aiming at one big push to get box sales in November. Everything is changing, while people try to reassure partners that it will be business as usual. Make no mistake, though - Call of Duty Online is the nose of the dragon, and sooner or later the whole damn thing will be in the tent. If we're smart, though, that tent will be expanding to make room for the dragon. The market will be bigger for all once console brands can make the transition to long-term, profitable engagement with a smoother revenue flow.

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Steve Peterson avatar
Steve Peterson: Steve Peterson has been in the game business for 30 years now as a designer (co-designer of the Champions RPG among others), a marketer (for various software companies) and a lecturer. Follow him on Twitter @20thLevel.
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