Microtransactions consolation prize

August 2011

One of the most lucrative ways that developers could make money in future – microtransactions on console – represents a truly vast commercial opportunity and one that is well suited to the UK games development industry with its long and strong console games development history. However it is an opportunity that is largely untapped and faces some significant hurdles before it can fulfil its enormous potential. This month I want to explore why it is so promising and what is inhibiting it.

Consoles, using a number of metrics, house the most concentrated and valuable collection of gamers in the industry. Every platform (Wii included) contains a sizeable nucleus of hard-core, typically male, players who spend many hundreds per annum on their hobby. An almost identical demographic is playing MMOGs and other online games. While, globally, they don’t spend as much online as console gamers, they are playing in greater numbers with growth being fuelled by microtransaction games not just in Asia but also in North America, and in particular, Europe. As a result, microtransactions have become the standard for almost all new western MMOGs.

But microtransactions do not need an MMOG to be effective. They often work best within freemium and multiplayer games services but neither are necessary. In the very few instances where they have been employed on console, they have been hugely successful. EA’s FIFA Ultimate Team football trading card/management hybrid has been included with the last three FIFA releases and allows in-game currency to be topped up with real money purchases. The game was charged for separately but became free with FIFA 11 and generated revenues of $15m (FIFA09) and $30m (FIFA10) while FIFA11’s free version has dramatically accelerated revenues to $1m - $2.5m/week, during its first 5 months. Given the simplicity and low cost of the game, this strong performance produces remarkable profits for EA.

Another fascinating example of the broader potential of console microtransactions is Sony’s Home service. Home has become a genuinely lively hub for microtransaction gaming, supporting 100+ developers creating virtual items, spaces and games. Not only are the leading games generating 7 figure gross revenues from microtransactions, but they are doing so from what appears to be a noticeably more diverse audience than is found at retail for PS3. The top 10 best-selling virtual items on Home in the USA in the last six months have included an array of casual games related and female fashion items suggesting that on console, microtransactions may not just be confined to the hard-core players.

So, why are there so few examples of console microtransaction games? The single biggest block is that two of the console manufacturers have been wary of microtransactions and freemium. Both Nintendo and Microsoft outright reject the idea of freemium. One console manufacturer’s most senior execs told us at E3 that that microtransactions are “interesting but not suitable for our audience” and that their “publisher partners are simply not interested in providing a game for free”. However these offhand dismissals hide some more profound issues.

Console manufacturers clearly fear the destruction of a consumer value proposition rigidly based on prices guided by the console manufacturers and set by the publishers/retailers. This would be replaced by a value proposition based on consumers setting their own discretionary spending limits. In addition, microtransaction games are typically updated frequently, which console manufacturers may struggle to QA in time. Some of the other features of best practice microtransaction games, like rich customer usage data, analytics, viral recruitment and so on, are also largely lacking. Let’s not understate this, widely supporting microtransactions would necessitate a fundamental change to the way console manufacturers run their businesses.

But microtransaction gaming could also transform the console businesses at a time of decline in the retail channel. Sony is comfortably the most progressive, being partly open to microtransactions, MMOGs and freemium. Yet it has attracted only limited developer interest. Some developers only want to access the installed bases of multiple platforms rather than a single one but we have seen dozens of microtransaction games on other platforms thrive with relatively tiny user bases.

Nintendo will probably remain a dead-end for microtransactions for the foreseeable future but Sony looks like it will lead the way. Foremost of these new microtransaction console games is CCP’s Dust 514, which could kick-start more microtransaction PS3 game releases, and help open Microsoft’s eyes to their commercial potential. In the meantime, EA and Sony have demonstrated that microtransaction console games absolutely do not need MMOG-level investment or design complexity and can attract not only a hard-core and high-paying audiences but even a more casual audience that you probably did not know existed on online console services.