The past few years has seen a shift in how people consume and pay for games. Moving from a cash up front model to a freemium one, free-to-play games appear to be on the rise. So, why this sudden increase and what does this mean for incumbent game producers?

1. GfK 2012
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THE RISE OF FREEMIUM GAMING

2. GfK 2012
On 14 July 2011, Steam, the popular online game
distribution service, launched free-to-play games.
Initially offering five titles, its offer ballooned to
76 titles in a little over a year, and this number is
set to increase. Valve, the owners of Steam, even
made one of its most popular games of all time -
Team Fortress 2 - a free-to-play product.
The rise of free
Yet the size of the computer gaming market
seems at odds with this free-gaming revolution. In
2011, it was estimated the industry had revenues
of US$74 billion (€57 billion), and that figure is
set to rise to US$115 billion (€88 billion) by 2015.
In the UK , it is the biggest entertainment sector,
having recently outpaced even video in terms of
sales while, in the US, video game revenue in
2011 was around US$16 billion (€12 billion) .
So, why the sudden drive toward giving games
away for free? There are a range of factors at play
here. PC games have long been subject to piracy,
with the industry claiming this has impacted on
revenues. Meanwhile, gaming on tablets and
smartphones is still a relatively limited experience
meaning producers cannot rely on large numbers
buying their games.
The past few years has seen a shift in how people consume and pay for games. Moving
from a cash up front model to a freemium one, free-to-play games appear to be on
the rise. So, why this sudden increase and what does this mean for incumbent game
producers?
By Chris Cox
Game producers in Europe and the US have also
noted the huge success of companies in Asia. For
these companies, free-to-play has been the norm
for some time, driven by multiplayer games with
micropayment systems (such as Ragnarok Online).
The dream, as expressed by Tim Sweeney , CEO
of Epic Games, is to couple the sophisticated
business models from Asia with the production
values available to European and American
studios.
It is also hoped that free-to-play will make inroads
in the battle to combat piracy. Yves Guillemot,
CEO of Ubisoft, said recently, “The advantage of
F2P is that we can get revenue from countries
where we couldn’t previously — places where our
products were played but not bought.
TECHTALK - FREEMIUM GAMING
GAME PRODUCERS
IN EUROPE AND THE US
HAVE ALSO NOTED
THE HUGE SUCCESS OF
COMPANIES IN ASIA

3. GfK 2012
There was also a brief phase of ‘try and buy’
games, particularly for casual games on mobile
platforms. These games allowed users a small
amount of game time for free before being forced
to purchase the game in order to play further.
This practice has largely died out in favor of ad-
supported gaming, with some claiming that ad-
supported gaming provides three to seven times
more revenue.
The scale of this industry shouldn’t be under-
estimated. Research conducted by IHS in January
2012, found that in-game purchases totaled
US$970 million (€734 million) last year while
predictions indicated this figure could grow to
US$5.6 billion (€4.3 billion) by 2015 .
The risks
Many industry experts have been quick to criticize
the rise of free-to-play games, arguing that they
will never guarantee large enough revenues to
create so called ‘AAA’ games like Call of Duty.
Due to the significant upfront cost of creation,
it seems unlikely anyone would risk creating a
free-to-play game of this scale when there is the
possibility that it could flop.
Other commentators say that free-to-play lends
itself primarily to multiplayer online gaming,
rather than the single player experience enjoyed
by many gamers. Within multiplayer games,
enjoyment can be limited by introducing a so
called ‘pay-to-win’ factor, due to the item store .
Games like Team Fortress 2 and Tribes: Ascend
Now with F2P we gain revenue, which helps brands
last longer. “ Free-to-play games remove barriers
to entry, and micropayments within games are
usually low priced and streamlined, encouraging
and enabling purchases.
So where does the money come from?
Companies are becoming more sophisticated in
how they monetize both free-to-play games, as
well as paid games after the point of sale. Some
of the most common methods are:
TECHTALK - FREEMIUM GAMING
subscriptions - most online multiplayer
games allow players to play for free for a set
period, and then require a monthly fee for
continued gaming. This is uncommon outside
of multiplayer games. Notable examples: World
of Warcraft, EVE Online
in-game advertising – ad-supported games
are primarily found on tablets and smartphone
games. Due to their potentially disruptive
impact on the game experience, they’ve not
been used significantly in PC gaming. Notable
examples: Angry Birds
downloadable content (DLC) – a long-standing
tradition in both paid and free-to-play games
offers players a few hours more gameplay for
a relatively small fee. Notable examples: Mass
Effect 3, Dragon Age II, Forza Motorsport
unlocks/item stores – many games now offer
players opportunities to purchase in-game
items (such as additional weapons or characters)
direct from an online store. Notable examples:
Tribes: Ascend

4. GfK 2012
customers, it would represent a major victory for
gaming publishers who have always struggled to
deal with piracy. With Team Fortress 2 , Valve also
showed that more money can be made through
free-to-play, with monthly revenue rising by a
factor of 12 after the game was made free.
Free-to-play gaming is not a nirvana that the
industry has finally reached; it is a disruptive
element within an established industry. There
will of course be both winners and losers, yet the
main winner is likely to be the consumer. Gaming
companies will have to work harder than ever to
define themselves in an increasingly crowded
marketplace, where ‘free’ is the price point to
compete against.
For further information, please contact:
Chris Cox, chris.cox@gfk.com
have been on the receiving end of these criticisms,
potentially driving players away from these games.
There’s also the risk that producers will be
overzealous in trying to monetize their games.
The paid game Mass Effect 3 fell into this trap,
alienating fans by removing content from the
main game and repackaging it as downloadable
content, to be sold the same day the main game
came out. Fans felt they had been cheated out of
content which should have been theirs.
The rewards
Free-to-play is undeniably a good trend for
gamers, at least on the surface; it offers more
content at an attractive price point. Although
there might be variation in the quality of free
games, the play experience of popular games will
be enhanced as more players buy in.
Small ‘indie’ gaming studios will be able to share
their products with a wider audience. As a result,
there will be greater opportunities to make
money. Of course, gaining an audience in the face
of monolithic gaming companies is a significant
challenge. Yet free-to-play has helped smaller
companies like Zygna build impressive revenues,
despite the relative simplicity of their offering.
Although Zygna is now struggling, it shouldn’t be
forgotten that one of Facebook’s largest sources
of income is social gaming.
The same opportunities also exist for the large
publishers who increasingly experiment with
free gaming. For them it would be beneficial to
convert pirates into potential customers. Even if
a small proportion could be converted into paying
EVEN IF A SMALL
PROPORTION COULD BE
CONVERTED INTO PAYING
CUSTOMERS, IT WOULD
REPRESENT A MAJOR
VICTORY FOR GAMING
PUBLISHERS WHO HAVE
ALWAYS STRUGGLED TO
DEAL WITH PIRACY.
TECHTALK - FREEMIUM GAMING