The Rise Of Freemium Gaming


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The past few years has seen a shift in how people consume and pay for games. Moving from a cash up front model to a freemium one, free-to-play games appear to be on the rise. So, why this sudden increase and what does this mean for incumbent game producers?

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The Rise Of Freemium Gaming

  1. 1. THE RISE OF FREEMIUM GAMING FREE $7 $7 $7 $7GfK 2012
  2. 2. TECHTALK - FREEMIUM GAMINGThe past few years has seen a shift in how people consume and pay for games. Movingfrom a cash up front model to a freemium one, free-to-play games appear to be onthe rise. So, why this sudden increase and what does this mean for incumbent gameproducers?By Chris CoxOn 14 July 2011, Steam, the popular online game Game producers in Europe and the US have alsodistribution service, launched free-to-play games. noted the huge success of companies in Asia. ForInitially offering five titles, its offer ballooned to these companies, free-to-play has been the norm76 titles in a little over a year, and this number is for some time, driven by multiplayer games withset to increase. Valve, the owners of Steam, even micropayment systems (such as Ragnarok Online).made one of its most popular games of all time - The dream, as expressed by Tim Sweeney , CEOTeam Fortress 2 - a free-to-play product. of Epic Games, is to couple the sophisticated business models from Asia with the productionThe rise of free values available to European and AmericanYet the size of the computer gaming market studios.seems at odds with this free-gaming revolution. In2011, it was estimated the industry had revenuesof US$74 billion (€57 billion), and that figure is GAME PRODUCERSset to rise to US$115 billion (€88 billion) by 2015.In the UK , it is the biggest entertainment sector, IN EUROPE AND THE UShaving recently outpaced even video in terms of HAVE ALSO NOTEDsales while, in the US, video game revenue in2011 was around US$16 billion (€12 billion) . THE HUGE SUCCESS OF COMPANIES IN ASIASo, why the sudden drive toward giving gamesaway for free? There are a range of factors at playhere. PC games have long been subject to piracy, It is also hoped that free-to-play will make inroadswith the industry claiming this has impacted on in the battle to combat piracy. Yves Guillemot,revenues. Meanwhile, gaming on tablets and CEO of Ubisoft, said recently, “The advantage ofsmartphones is still a relatively limited experience F2P is that we can get revenue from countriesmeaning producers cannot rely on large numbers where we couldn’t previously — places where ourbuying their games. products were played but not bought.GfK 2012
  3. 3. TECHTALK - FREEMIUM GAMINGNow with F2P we gain revenue, which helps brands There was also a brief phase of ‘try and buy’last longer. “ Free-to-play games remove barriers games, particularly for casual games on mobileto entry, and micropayments within games are platforms. These games allowed users a smallusually low priced and streamlined, encouraging amount of game time for free before being forcedand enabling purchases. to purchase the game in order to play further. This practice has largely died out in favor of ad-So where does the money come from? supported gaming, with some claiming that ad-Companies are becoming more sophisticated in supported gaming provides three to seven timeshow they monetize both free-to-play games, as more revenue.well as paid games after the point of sale. Someof the most common methods are: The scale of this industry shouldn’t be under- estimated. Research conducted by IHS in January subscriptions - most online multiplayer 2012, found that in-game purchases totaled games allow players to play for free for a set US$970 million (€734 million) last year while period, and then require a monthly fee for predictions indicated this figure could grow to continued gaming. This is uncommon outside US$5.6 billion (€4.3 billion) by 2015 . of multiplayer games. Notable examples: World of Warcraft, EVE Online The risks in-game advertising – ad-supported games Many industry experts have been quick to criticize are primarily found on tablets and smartphone the rise of free-to-play games, arguing that they games. Due to their potentially disruptive will never guarantee large enough revenues to impact on the game experience, they’ve not create so called ‘AAA’ games like Call of Duty. been used significantly in PC gaming. Notable Due to the significant upfront cost of creation, examples: Angry Birds it seems unlikely anyone would risk creating a downloadable content (DLC) – a long-standing free-to-play game of this scale when there is the tradition in both paid and free-to-play games possibility that it could flop. offers players a few hours more gameplay for a relatively small fee. Notable examples: Mass Other commentators say that free-to-play lends Effect 3, Dragon Age II, Forza Motorsport itself primarily to multiplayer online gaming, unlocks/item stores – many games now offer rather than the single player experience enjoyed players opportunities to purchase in-game by many gamers. Within multiplayer games, items (such as additional weapons or characters) enjoyment can be limited by introducing a so direct from an online store. Notable examples: called ‘pay-to-win’ factor, due to the item store . Tribes: Ascend Games like Team Fortress 2 and Tribes: AscendGfK 2012
  4. 4. TECHTALK - FREEMIUM GAMINGhave been on the receiving end of these criticisms, customers, it would represent a major victory forpotentially driving players away from these games. gaming publishers who have always struggled toThere’s also the risk that producers will be deal with piracy. With Team Fortress 2 , Valve alsooverzealous in trying to monetize their games. showed that more money can be made throughThe paid game Mass Effect 3 fell into this trap, free-to-play, with monthly revenue rising by aalienating fans by removing content from the factor of 12 after the game was made free.main game and repackaging it as downloadablecontent, to be sold the same day the main gamecame out. Fans felt they had been cheated out ofcontent which should have been theirs. EVEN IF A SMALLThe rewards PROPORTION COULD BEFree-to-play is undeniably a good trend for CONVERTED INTO PAYINGgamers, at least on the surface; it offers morecontent at an attractive price point. Although CUSTOMERS, IT WOULDthere might be variation in the quality of free REPRESENT A MAJORgames, the play experience of popular games willbe enhanced as more players buy in. VICTORY FOR GAMING PUBLISHERS WHO HAVESmall ‘indie’ gaming studios will be able to share ALWAYS STRUGGLED TOtheir products with a wider audience. As a result,there will be greater opportunities to make DEAL WITH Of course, gaining an audience in the faceof monolithic gaming companies is a significantchallenge. Yet free-to-play has helped smaller Free-to-play gaming is not a nirvana that thecompanies like Zygna build impressive revenues, industry has finally reached; it is a disruptivedespite the relative simplicity of their offering. element within an established industry. ThereAlthough Zygna is now struggling, it shouldn’t be will of course be both winners and losers, yet theforgotten that one of Facebook’s largest sources main winner is likely to be the consumer. Gamingof income is social gaming. companies will have to work harder than ever to define themselves in an increasingly crowdedThe same opportunities also exist for the large marketplace, where ‘free’ is the price point topublishers who increasingly experiment with compete against. free gaming. For them it would be beneficial toconvert pirates into potential customers. Even if For further information, please contact:a small proportion could be converted into paying Chris Cox, chris.cox@gfk.comGfK 2012