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A Primer on Game Monetization

Despite all of the artistry that goes into making a game, at some point early in the development process the question must be asked, “How are we going to make money?” And with the ever-growing cost of developing modern games, this is no trivial question.

Technology has opened up a litany of new methods for monetizing games; gone are the days where a publisher’s only option was the uniform system of retail sales. Each modern method of monetization has different requirements for what a game must do to be implemented successfully, and these elements need to be intrinsically woven into the fabric of a game to maximize their effectiveness and avoid frustrating or turning off players.

It’s important to understand the nuances of each method, including their pros and cons, to make the choice that best suits you game.

Traditional Sales

Although many new methods of game monetization have been developed in the past few years, a large portion of games still make money through upfront sales.  For a long time, this was the only method of monetization because technology required physical media to get games into the hands of players. But as technology has advanced, so have how games are sold. So while the fundamentals of an upfront sale have stayed the same, digital distribution has radically changed the methodology.

In 2020, digital game sales outpaced physical game sales, and given the fact that the new generation of gaming console each have a digital only version, this trend of cutting out physical media is only going to continue. In addition to the costs saved manufacturing physical media, widespread digital distribution gives developers greater opportunity to update games after publishing. It should be noted though that post-launch updates are generally done without any additional revenue.

One of the benefits of an upfront sales approach is that it monetizes all of a games players, and does so with a generally equal distribution throughout the player base. Publishers are able to modify this with premium and collectors editions of games, but fundamentally all players are paying a roughly equal amount for the game at the time of its launch. The drawback is that this can create a higher barrier of entry than other forms of monetization and some gamers who would otherwise be interested in a game are excluded. Additionally, unless publishers employ a hybrid method, as discussed below, after the initial purchase, the transaction between the player and the publisher ends.

While a traditional sales approach allows for a publisher to get widespread monetization from its player base, it also comes with an upper limit for each player.

Free-to-Play

For those outside of the gaming industry, the free-to-play model is the one that generally requires the most explaining because of its unintuitive nature. For the unfamiliar, its puzzling that some of the most popular games out today, including League of Legends and Call of Duty: Warzone, can simultaneously be extremely profitable and free.

The fundamental model of how a free-to-play game works is that a base version of a game is made available to all players at no cost, while certain features of the game require a payment to be accessed. The most popular method of implementing in-game purchases is through microtransactions which are usually smaller purchases that unlock only a small feature of the game, but can be done multiple times. Microtransactions generally can be divided into two categories: (i) purely cosmetic purchasable items, and (ii) purchases which have an effect on the actual game.

Purely cosmetic items have no effect on how a game plays or its balance, and only affect how the game looks. In Call of Duty: Warzone for example, these cosmetic items take the form of different “skins” (modifications to the player’s character or weapon), and dances/emotes. As the fundamental game of Call of Duty: Warzone is still gunplay focused battle royal, having a different looking character or cool dance to show off doesn’t provide any tactical benefit. A developer may choose to limit in app purchases to cosmetics to maintain competitive balance within a game, and to avoid issues where players who can afford to spend more on the game have an advantage over those who can’t. Cosmetic microtransactions afford players an opportunity for self-expression.


A “Bundle” for sale in Call of Duty: Warzone which contains various cosmetic items

Non-cosmetic microtransactions harken back to the days of arcades where a quarter would get you a certain amount of play time, but today they can take on many forms. What is made available to players for free, and what needs to be purchased depends heavily on the specifics of the game. If too much is made available for free, there is no incentive for players to spend on the game, but if not enough is available, then there is no incentive for non-spending players to become invested. A frequent complaint about games that implement functional microtransactions poorly is that they are “pay to win” because those that spend a lot on the game are afforded such a great advantage over those that spend little or nothing on the game. Games that become “pay to win” risk losing their player base, which will eventually drive away even high spending players because they have no one to play against.

A common method of implementing functional in-game purchases is to make all features (or all non-cosmetic features) available to every player, even those who are playing for free, but allow users the option to purchase items which might otherwise take a long time or a lot of work to obtain. Other examples include limiting free players to a certain amount of time per day with an option to purchase additional or unlimited play time having certain features on a cooldown timer, which can be reduced or eliminated at a cost, or simply by having certain levels or content require payment to access.

While a game may allow for users to directly purchase the items they want, a common feature is to employ “loot boxes” which are virtual items available for purchase, that are then opened and provide players with a randomized virtual item. This allows developers the ability to create scarcity of certain items by making them less likely to appear, and requires users who desire a specific item to open a potentially large number of loot boxes before opening the one they want. Because of an ongoing debate as to whether loot boxes may constitute gambling, specific legal considerations are required before implementing them into a game.


A pack in Magic the Gathering: Arena containing random cards

Lastly, while free-to-play games may monetize directly through their players, games can also opt to monetize through in-game advertising or sponsorships. This can be done overtly through banner ads, pre-roll/loading screen ads, and pop-ups, but can also be done through product or ad placement within gameplay. While potentially less intrusive than overt advertisements, product placement requires careful consideration to avoid breaking the immersiveness of your game. While players were excited for Godzilla to come to Magic the Gathering, EA Sports received backlash when they included commercials in UFC 4.

Although free-to-play games may only monetize through a small percentage of their players, because of the flexibility and options developers have, there is a much higher ceiling to how much can be earned through your game.

Subscription

Although older than free-to-play model, subscription models have diversified and taken on many different forms in the past few years. Subscription models used to be exclusively for MMO (massively multiplayer online) game, which incurred ongoing costs from maintaining servers and providing regular content updates. But innovation in the model has been spurred on by the growth of free-to-play games, and publishers’ desire to utilize large libraries of older games

A number of free-to-play games have added subscriptions as a form of monetization in addition to microtransactions, commonly in the form a “season pass” or “battle pass.” In free-to-play games, season passes allow for users to pay a fixed cost in exchange for access to certain content to be released during a certain period of time. Season passes often allow for players to access content at a discount which would otherwise cost more through individual microtransactions. Battle passes are generally a tiered system where non-paying players can earn certain rewards for playing the game and reaching certain goals, but additional or higher quality awards are available only to those who reach those same goals, but have purchased the battle pass. Battle passes allow developers the ability to set goals and rewards for non-monetized players, while creating an easy on-ramp for players that are already invested in a game and are looking to get more out of what they are already doing. Subscription models allow for free-to-play games to create regular opportunities for monetization, and develop a consistent stream of revenue.

Subscriptions have also been utilized more recently to give players access to a publisher’s back catalogue of older games, for example Sony’s PlayStation Now and Microsoft’s Xbox Game Pass. These services give access to a library of games frequently from older gaming consoles for a monthly fee, and are akin to a Netflix or Disney+ for games. Despite the strong sense of nostalgia gamers may have for the games of their past, accessing older games has been difficult because of how rapidly technology has evolved in the games space, and how dependent games have been on the technology which they are played on. As few gamers have the space to keep older consoles or the ability to maintain them in working order, these services provide a solution for those who have a desire to play older games without maintaining older systems. The subscription model works for this system, because although new content may not be added at regular intervals, these catalogues are large enough to sustain player interest month after month.


NVIDIA Corporation

Similar to free-to-play games, subscription models allow for a low bar to entry without limiting the amount that can be made. For free-to-play games, a subscription can provide a consistent source of revenue for as long as a developer can create a consistent source of content. For publishers with large catalogues, a subscription allows them to monetize assets that they otherwise wouldn’t be able to.

Conclusion

Although the above descriptions are a good primer to introduce you to the variety of ways in which games may monetize, the truth is modern games generally utilize a hybrid of the methods discussed above. For example, a game may require an upfront purchase, but allow for additional content to be purchased through in-game purchases or a subscription, or a free-to-play game may have the option to access all available content through a single in game purchase akin to an upfront cost.

The key is to find a method of monetization that works for your game and your players. When a game’s monetization method is symbiotic with its gameplay, players are happy to support the games they love. But when a monetization method doesn’t work, players will feel exploited and turned off from otherwise great games. Finding a monetization model that works is a necessary part of creating a game, and one that must be considered and designed around. A game’s monetization model should allow the game’s publisher and developer to be rewarded for their hard work, not create an additional hurdle to be overcome.

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Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 104
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About this Author

Ethan R. Aronson Entertainment litigation attorney Sheppard Mullin Law Firm
Attorney

Ethan R. Aronson is an attorney in the Corporate Practice Group in the firm's New York office.

212.896.0658
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