In-Game Spending: Revolutionizing Video Game Revenues
By John Patrick Lee, CFA, Product Manager
Who could have predicted that a free game would make more money than any other video game in a single year? That’s exactly what Fortnite did in 2018, when it brought in about $2.4B. It is a prominent example of how in-game spending has revolutionized the video game ecosystem.
In the traditional business model, known as “game as a product”, a game publisher develops a game and then sells it to the consumer for a single, revenue-generating fee. After the consumer buys the game, the video game publisher has to develop another video game or add-on to generate additional revenues from that consumer.
In the mid-2000s, video game publishers began testing the “game as a service” model. In this model, the consumer may bypass the initial cost of purchasing the game, and then pay ongoing fees to continue playing the game and accessing content. There are a number of different ways the game publisher can generate revenues under this model, including game subscriptions, microtransactions and season passes. While transactions in the service model may entail smaller amounts, the publisher opens the door to an indefinite purchasing lifespan from each consumer, which can increase the total revenues generated from a single game
This business model serves three key purposes from the publisher’s perspective. It extends the lifecycle of games being played by consumers, increases the maximum revenue potential from a single consumer and lowers the hurdle for new potential paying customers to try the game before deciding to spend. Publishers are embracing this new model as a way to drive revenue growth. However, different publishers are tailoring their in-game spending strategy depending on their specific product lineup.
MVIS Global Video Gaming & eSports Index
Source: MV Index Solutions. Data as of 31 October 2020.
John Patrick Lee joined VanEck in 2014 and is currently an ETF Product Manager focusing on video gaming, esports and international equities. His Responsibilities include business management of the existing ETF lineup, market strategy and positioning and product development. Prior to joining VanEck, John Patrick served as an Investment Advisor Representative with Dorsey Wright Money Management. He received a bachelor’s degree in English Literature from the College of William and Mary and holds a Chartered Financial Analyst® designation.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.