Disclaimer: All facts stated in this essay are verifiable and have been researched beforehand.
2013 marked a big year in many aspects for the video game industry, it was a good year for new IPs and (some) sequels if you were a AAA developer. Sony fans may remember being introduced to The Last of Us for the first time as you embarked on a journey as Joel Miller through a post-apocalyptic United States, or if your name was Artyom continued a post-apocalypse Soviet Russian adventure in Metro: Last Light. Reboots were also in affair; Tomb Raider and Devil May Cry made their comebacks with flair and breathed new life into some of gaming's historic franchises. It was also a year that marked the end of certain beloved trilogies with titles such as Bioshock: Infinite and Crysis 3. These were times of big feels, new beginnings, and more importantly: new ideas to create the proverbial ten year cash cows.
You see while all this time you were reminiscing about a heartbroken Joel crying to the tune of Gustavo Santaolalla’s emotional guitar riffs in the background, 2013 was also a year that changed gaming in subtle ways you may not have realized. GTA V made its meteoric rise to the top of the unquenchable stream of revenue in digital media history, meanwhile Valve was setting the stage when it released Dota 2 that was the first ever video game to introduce the concept of a Battle Pass: a name which will live in infamy.
There is a lot to unpack here so we’ll try our best to go in a coherent order. GTA V answered a key question that has been lingering for a long time in the AAA video game business model: can you make games as a service?
Picture yourself tearing down the freeway in the supercar of your dreams, the sun is shining and you are blasting your favourite tunes, to your right is the horizon of a crystal blue pacific ocean, you receive a call from one of your “business partners” about a proposition to earn some tax-free income so you can pay for a superyacht at some point in your career, why? Because crime pays and the fun never ends. Rockstar had perfected the model of what unfettered freedom looks like in a virtual world, and in a genius move, released GTA Online in just two weeks after initial release. Needless to say it was a success, in fact it was more than just that, it became the envy of video game business executives.
The question is often raised and answered, and then forgotten about, and then asked again about why AAA companies don't make one-and-done IPs anymore. At least, very few of them seem to do it.
If $595 million in 2019 from GTA Online alone doesn’t answer the question for you, I don’t know what else will. You see Rockstar didn’t intend for its online component to be as successful as it is. The addictive gameplay loop and highly-detailed compelling world that seduced a large portion of its players (and by extension: the market) was just the elevator pitch. Like any great formula, it needs constant improvement as our old Bethesda buddy Todd Howard always likes to parrot “Great games are played, not made” by that logic then how do you keep a game great then? You keep playing it? How do you keep playing a game? (Well according to Todd its by letting your community of modders finish the game for you)
What Rockstar did was added weekly updates, paid close attention to the needs of its community, had a look at the graphs and noticed only 27% of its players had actually completed the single player campaign (keep in mind this statistic is over 7 years old and may have changed significantly). For the first time GTA broke its tradition by not making expansions for the single player, which is what it was always known for. The Beach Bum update was released for free the following month for GTA Online players and the rest is history. Just kidding GTA Online is releasing a new free game update this December which will expand the playable game world, oh and it's got military submarines and a new plot “a la James Bond”. Seeing the… evolution of what was a game about stealing cars has been an interesting journey so far.
According to gamstat.com and Steam charts, a conservative number of 1.4 million players across PC, PS4, XB1 log-in daily to play GTA Online. The game – even 7 years later – stays consistently in the top 10 of most played games across both consoles.
So this was the Rockstar Games model: forget about single-player because statistically, nobody really cares, let's just focus on our multiplayer because its getting more attention, free updates for everyone to keep them busy, we’ll gradually inflate the fuck out of everything seven years down the line because there’s just gonna be so much content that you’ll need 800 of your real dollars at some point in a recent update if you want to buy all the content, what was that you want to grind for it? Jokes on you, you'll be there forever. This game will be your second job after you come home from your first job, you’ll be too lazy to grind for hours to get a car so why not just buy a shark card? You’re gonna get paid at the end of the month anyways, it's not a big deal.
Well lo and behold, it just works. (Shut up Todd, you’re partly to blame here!)
It is a sound business model, and one that even overshadows Red Dead Redemption 2 which has witnessed a significant dwindling in its online engagement.
In this second part we’ll look at Valves' introduction of the Battle Pass or “Compendium” system in Dota 2 and how 4 years later, it would be adapted and popularized by Epic Games’ Fortnite. Before we dive in, let’s take a little trip to 2004.
You’re on the computer in the living room of your parents house and you’re playing South Korean based Wizet studio’s MapleStory. You don’t have a console and you’re not allowed to play violent video games because your mom is too strict and also because she’s listening to mainstream media rant on how Halo 2 is making children too violent. So you’re stuck with MapleStory, it’s nothing to speak of graphically because it's a 2D side scrolling RPG, but hey it’s free to play and it's Massively Multiplayer Online so at least it has other real people playing it. While you’re playing it, you’re having fun because you find out you can actually do a variety of things even though it's just an innocent 2D looking game. You can chat, trade things with real players, perhaps even band together in a party and go on quests in MapleWorld. One thing is making you envious though: you can’t stop going back to the Cash shop because of all the dope looking outfits you think would look good on your character, and also because other folks are flexing them in your party. In come the “Gachapon tickets” (now for historical accuracy we’ll pretend you’re an expat living in Japan because at the time it was just a japanese thing), a Gachapon is basically a machine that sells capsules containing little toys in them, what capsule you got after inserting your coin was completely random – remember the word Gachapon as we’ll get to it later – MapleStory in Japan allowed for users to pay just 100 measly yen ($1.00) for a Gachapon ticket so you could buy whatever you wanted at the Cash shop, you convince your mom because it’s cheap and because you somehow convinced her that it was not a scam?
Hooray you can finally impress your party with the new gear you just got! You can continue playing the game to your heart's content.
Little did you know that MapleStory would be the inspiration for a special surprise in your gaming experience which we’ll get to in a moment.
Across Asia in the late noughties, it was the free to play titles that generated a considerable amount of income because of their popularity with internet cafe goers and people who weren’t wealthy enough to afford expensive tech. The games were free, accessible because of the growing mobile market in exchange it offered cheap but optional microtransactions to recoup for its development costs. ZT Online (2007) was a chinese developed game that took full advantage of the free to play model, offering optional microtransactions for its committed players and raked in a reported $15 million per month. The first ever mobile game to hit the $1 billion milestone was Puzzle & Dragons released in 2011. In North America and Europe during the social-network heyday saw Zynga develop free to play mobile games such as FarmVille, Zynga Poker, Words with Friends, etc.
Now it’s been a good few years since you were playing shitty 2D side scrolling games, you want to be a part of the big leagues and play some shooters! The year is 2010 and you’re having the time of your life whooping ass in Team Fortress 2, a pioneer of the “hero shooter” genre. It’s September and you are eating a sandvich (nom) while watching your favorite YouTube gaming channel talk about crates containing random loot that can be accessed by purchasing keys, it’s exciting! You’re old enough and mature by your moms standards to be playing TF2 so you use your pocket money allowance to buy these keys so you can later brag to your school friends or online forums. You also learn that Valve is transitioning the game to free-to-play so that it can attract more users. (Are you noticing the pattern here?)
Valve has always been ahead of the curve when it comes to monetization in video games and it’s remarkable how they achieve this, because if you were following the news at the time you’ll remember that when Valve made Team Fortress 2 free-to-play, it dominated the Steam charts f2p list for a reasonable time. 3 years after it became free-to-play, TF2 was reported making $139 million per year alongside Counter Strike which is also a beefy 9-figure earner for the company. This is notwithstanding the fact that Valve has the monopoly on the PC gaming market with Steam which takes a 30% cut of every video-game sale. You really cannot stop the Gaben.
During the time that Valve were transitioning to the free-to-play model they hired Greek-Australian economist and former Greek finance minister, Yanis Varoufakis to research virtual economies. What occurred a few years later was a growing trend of MMOs and MOBAs transitioning to a free-to-play model, starting in 2011 with popular games such as Star Trek Online and Lord Of The Rings Online, adding microtransactions as a means to stay sustainable.
The TF2 crates and keys were another way of interpreting the Gachapon philosophy, get a key to open your “capsule” but leave it to RNG to decide the fate of your purchase.
Valve were the first of the AAA gaming industry to popularize this practice but also to have perfected the art of recurrent user spending, of course what we also saw was a decline in release of new games but we’ll get to that in a bit. Now other video game publishers took notice of Lord Gaben’s business savvy and decided to find their own ways to create additional revenue streams.
Electronic Arts, the founders of “surprise mechanics” decided to monetize FIFA Ultimate Team in 2010 by offering players the opportunity to purchase virtual trading cards as a means to generate extra revenue on a reliable IP with a loyal fanbase. This worked predictably in EA’s favour as of recent 2020 financial reports they have generated $1.49 billion in revenue from FUT alone.
EA being EA wanted to further inflate their sense of pride and accomplishment by using the Gachapon philosophy (a philosophy which worked with free-to-play titles for reasonable causes) by creating their first loot-boxes, now because they’re EA, didn’t bother to transition their games to the free-to-play model, that idea probably got laughed at during a board meeting. These motherfuckers literally decided to have their cake and eat it for all the public to see.
2 years later in 2012 at the release of Mass Effect 3, EA implemented loot boxes into the multiplayer component of the game, in fact they did so with all of their multiplayer IPs: Battlefront, Battlefield. The reason why loot-boxes is a perverted version of the Gachapon ticket (and sorry if I use this word a lot) is because it contains cut content that allow for in game advantages so the gamers ™ have no other option but to gamble their money for something that is not even guaranteed they’ll have because grinding for it will take some ridiculous hundreds of hours of your time.
EA popularized the loot-box which I like to keep separate from Gachapon because the two are fundamentally different. Loot-boxes are gameplay/XP modifiers you have to pay for on top of the full retail price of the game you already bought. Gachapon tickets is a means to support a developer that made a base game free-to-play.
What happened following the increase in quarterly earnings for Electronic Arts after their loot-box boom were a bunch of other companies copying the exact same thing ad nauseam but putting their own “creative” spin on it: Counter Strike: GO did it with weapon cases, Battlepacks for Battlefield 4, COD: AW with Supply Drops.
Overwatch went as far as including loot-boxes to be part of its meta in 2016, other core AAA games following suit, COD, Halo 5, LoL, you name it it probably has it. Fast forward to 2017 and EA are in legal battles with governments about loot boxes and the industry is now getting cold feet. Fortnite becomes the latest trailblazing success. Which is where Valve were once again: ahead of the curve.
You remember at the beginning of this case study where Valve were the first to come up with the concept of a Battle Pass? So in 2013, Dota 2 devised what they called “The Compendium” a business model based on the Season pass or Season ticket used in sports for NFL or Baseball. The models are basically identical: you pay a one time fee for access to an event that typically lasts 3 months. This model works far better than the loot box because it incentivizes players to grind for content they know are guaranteed to get. The player only pays a one-time fee (usually in the $10 price point) giving them a sense of getting their money's worth, I fall for this myself because it is marketed incredibly effectively.
Furthermore the seasonal model “drip-feeds” content, so these may be gameplay modifiers, XP enhancements, unique limited edition content (weapons, shaders, armours) so the more you progress, the greater the benefits.
Now Dota 2 uses the proceeds of Battle Pass sales towards the seasonal tournaments prize pool. For other companies like Bungie it is most likely towards development of new seasonal content or Eververse items.
So during the whole loot-box orgy that lasted a good 5-6 years. Valve were profiting from the seasonal model, Epic Games took note and decided it would use the same thing for their new shooter. In Summer of 2017, Fortnite broke records as one of the highest-grossing free-to-play battle royale titles of the decade, having been downloaded a recorded 350 million times and generating $1.8 billion in revenue in its first year. It was clear at that point the free-to-play model with a season pass and microtransactions store guaranteed a stable platform. 3 years later, Fortnite is projected to make $5 billion at the end of this fiscal year, and has registered 3.2 billion hours of playtime. Now this is important because it took GTA V seven years to break through $6 billion and GTA V (for now) still remains the highest-grossing video game of all time.
We can see Call of Duty Warzone made its Battle Royale mode free-to-play as a direct response to the trend. Bungie followed suit after their recent move to make Destiny 2 a free-to-play model with a seasonal pass built-in to last until 2022.
It’s only a matter of time whether we see more companies and AAA titles decide to do the same for it to determine the “games a service model” will be the dominant market trend. We can safely assess Microsoft is emulating this with its Game Pass Ultimate program which acts as a “Netflix for video games” having recently merged with EA Access expanding its library of “free-to-play” games at the cost of a monthly installment.
If you have made it this far, you are a mad lad. I thought I’d take some time to illuminate the direction in which the video game industry seems to be heading by highlighting the patterns. This is also in an attempt to answer the question of: why are video games the way they are in 2020? It wasn’t easy to write but I hope it was easy for you to read. Once again thank you for taking the time of your day, now what are you waiting for? Go play some video games!
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