Presentation
The past few months have seen significant announcements in the video game sector, notably with the launches of Google Stadia, GeForce Now, Apple Arcade, and Snap Games. The video game market continues to innovate not only in its products and services but also in its revenue models. In recent years, video game publishers have encouraged developers to integrate new monetization strategies to ensure the long-term profitability of their products.
In this context, the development of the internet and mobile devices has influenced video game business models. The mobile market now represents half of all video game revenue. The technological evolution of mobile games has diversified monetization models, moving from paid downloads – Agry Birds, Plants vs. Zombies, Scrabble – to in-app purchases and freemium models – Candy Crush Saga, Clash of Clans – while also incorporating traditional online content monetization methods, primarily advertising and the use of personal data.
Several established publishers, such as Ubisoft, have massively acquired studios specializing in mobile games in recent years. The economic incentive is significant when a game’s profitability is no longer based on sales figures but on its value throughout its lifecycle. New professions within the sector, such as monetization experts and data analysts, are therefore constantly developing new ways to monetize their games.
Video games: Evolution of the monetization system
Historically focused on adding content to monetize video games after their initial sale, a new economic model has emerged based on one-off purchases made by players to unlock, add, or enhance their gaming experience: microtransactions. A system already known and used in traditional games with demo versions, some applications include “lite” versions, corresponding to a free version of the application with limited features and access to restricted content. To unlock and access the entire software or game, a “full” version with enriched content is required, generally for a fee, accessible through purchasing platforms. These purchases primarily take two forms:
- Downloadable Content (DLC) refers to additional content that can be downloaded and is usually paid for to enhance the original game experience. A precursor to microtransactions, DLC has the advantage of requiring little development time and cost.
- Game as a Service (GaaS) offers optional add-ons that enhance the gameplay experience in the form of cosmetic options and/or virtual items such as skins, loot boxes, and in-game virtual currency. The use of virtual currency has seen considerable growth over the last decade, as developers and publishers strive to retain players and foster their increasing engagement, as well as boost viewership in the case of esports and video game competitions.
Video games & monetization: The example of the Freemium model
Derived from the combination of two usage modes—Free and Premium—this business model relies on a virtuous cycle based on converting some of an application or software’s users into paying for services that enhance their experience. Freemium applications have grown considerably, particularly to penetrate the competitive tablet and smartphone markets.
Technically, the system is based on implementing a free service designed to rapidly increase the number of users and players. This is followed by the offering of paid content intended to optimize the gaming experience in various ways. Depending on the attractiveness of the paid benefits, a portion of users may subscribe to premium offers. The profits generated by this segment of the user base stabilize the business model, as the funding for the free service is guaranteed by the paid service.
The freemium model requires a very large market to ensure sufficient revenue in the event of low conversion rates, guaranteeing business continuity while also keeping the cost of maintaining the free version low. From an economic perspective, video games are thus approaching the casino model, where the majority of profits are generated by a minority of players.
Skin Gambling and Loot Boxes: Dangerous new forms of monetization for video games
With the aim of retaining and building player loyalty, many video games now offer players the opportunity to earn digital items that they can trade within the game without using real money. This monetization and commercialization of in-game content took an unexpected turn when several websites began offering to buy and trade virtual currencies and items outside of the game.
This is where real money comes in, which can be used to purchase these digital goods without any control from the game’s publisher or developer. Several websites, such as Skinpay and OPSkins, use skins as currency and link to online platforms that allow players to exchange skins for money.
Legally, these practices are illegal. The terms and conditions of many video game platforms state that players do not own in-game content and only have a temporary right to use it, making any transfer impossible and illegal.
This distortion of the use of in-game content also has repercussions in terms of money laundering. The European directive of May 30, 2018, on combating money laundering, recently reiterated that “While virtual currencies can often be used as a means of payment, they could also be used for other purposes and find broader applications such as serving as a means of exchange, investment instruments, stores of value, or being used in online casinos.”
Regarding Loot Boxes, these random paid bonuses offer tangible advantages over other players, legally placing them close to the definition of gambling and games of chance as defined in Article L322-2 of the French Internal Security Code (CSI). Following condemnations from various countries, including Belgium, the French online gaming regulatory authority (ARJEL) has issued a statement on the matter, proposing three criteria for categorizing loot boxes based on the existence of payment for access, the random nature of the rewards, and the possibility of selling winnings for real money.
Read our article on the regulation of loot boxes by video game publishers.
Advertising. Advertising is now a well-established way to monetize audiovisual content on the internet. It is deployed just as effectively in video games. Advertising or promotion will appear as banner ads around the game or interstitial ads that appear full-screen between levels. In the case of a partnership with the publisher, it will take the form of native content directly integrated into the game.
Analytics tools now show that in-app advertising improves retention, with rewarded video being the most effective format. Playable ads, encouraging users to interact and click on the referral link, are also increasingly common. Several renowned studios, such as Ketchapp, began in the 2010s to create a large group of short-session games designed to move players between different games and thus increase their monetization potential within their portfolio.
Pay-to-win. Given the gameplay of some video games, several developers have been able to offer ways to reduce the difficulty or tedium of the game. Some publishers have implemented systems to facilitate the player experience by requiring payment to advance in the game. Behavioral psychology strategies, through the manipulation of frustration and reward stimuli, allow for the implementation of subtle manipulation strategies that soften the player’s unpleasant reflexes, for example, when they have to pay to continue.
This encourages game publishers, for example, to develop virtual currencies (coins or diamonds) that act as intermediaries between real-world transactions and their in-game consumption, or to deliberately introduce “pain points” to ensure that incentives to pay are effective.
The collection and use of personal data. Finally, it is important to mention the use of collected personal data as a source of revenue. The evolution of video game consumption and its economic model now favors game design, encouraging publishers to document the player experience in order to better adapt and offer attractive content.
The recent legislation concerning personal data, the GDPR, which came into effect in May 2018, imposes significant constraints on publishers and developers regarding their collection of personal data. Given the wide diversity of profiles of video game users, particularly minors, the regulation stipulates that minors’ consent to the collection of their data can only be validly obtained if they are sixteen years of age or older.
Several publishers have implemented procedures aimed at ensuring their compliance, using various methods such as two-factor authentication, recommendations specifically addressed to minors, or, more seriously, a complete disregard for the GDPR.
Find our latest publications on CNIL sanctions related to GDPR:
CNIL & Data Protection: Common GDPR Mistakes
GDPR: The Real Consequences of a Sanction and How to Defend Yourself
The legal framework for microtransactions in video games
The development of new video game monetization methods, primarily through microtransactions, has raised concerns among several industry players regarding the legality of this system in light of the very strict legislation governing online gaming. The main risks concern the digital and financial regulation of such processes, as well as information and awareness campaigns, particularly for minors.
On September 30th, ARJEL, the French online gaming regulatory authority, published a press release intended to shed light on these issues. Expressing concern about the risks arising from the growing confusion between gambling and video games, ARJEL defers to each individual country to define the concept of gambling in order to determine whether or not to implement specific regulations.
Several stakeholders anticipate legislative changes that will expand the powers of the French online gambling regulatory authority (ARJEL), subjecting video game publishers to new regulations or imposing new constraints. The objectives remain similar to those for betting and horse racing: combating addiction, regulating gambling to address player abuse, a potential approval process for all games by ARJEL, and even, in some cases, enforcement of gambling bans for minors.
In light of recent monetization practices, particularly loot boxes, some professionals are concerned about the classification of these systems as lotteries under Article L322-2 of the French Internal Security Code, which defines lotteries as “sales of furniture or goods carried out by chance, or to which prizes or other benefits have been added, even partially due to chance,” including when “the operation relies on the player’s skill.”
Read the full press release.
