Looking for articles/books on: How do games make money? What models do they use?

Question

I'm trying to research the ways in which games make money. I want to know more about the models they use (free/premium, trial/subscription, free-to-play with micro-transactions, etc.). In addition, I want information on which models work for which games, what models are best for which age groups, etc.

I've tried my best to find information, and Google hasn't turned anything up at all. I think I'll stop by my University's library and see if there's anything there.

This may seem like a broad question, but I'm looking for links and titles of books, not typed-out answers.

Answer 1

The main models I can think of are:

• Charge per copy - the traditional "software licensing" model, you charge your customers a retail price to "buy" a copy of the software and the subsequent right to install or play it. This is still a dominant model for software of all kinds including PC, console and mobile device games, even after the introduction of other feasible models. Games of all genres from FPS to MMO to arcade and puzzle games use this model to great effect, but it's probably the least accessible method to the average one-man dev house.

• Monthly subscription - The next most popular licensing model, regardless of what the software initially costs the user, they sign up for access to dynamic content on a monthly basis. This can be combined with an initial software price. MMOs are the foremost genre that benefits from this and there are a lot of examples; however, there are a lot of MMOs that do NOT charge a monthly subscription fee. Guild Wars is the one that comes to mind, because I played it specifically because it wasn't WoW.

• Microtransactions - This is a relatively new model, first seen in MMOs and then spread to "social apps" a la Facebook. The idea is that the program may be free to install, free to play, but to get the "most" out of your game experience (or to progress quickly within the game) you can spend real money to buy in-game objects. The first I heard of this kind of thing, it was underground; Diablo 2 and WoW players would "grind" through dungeons constantly, acquiring rare items, that they'd then sell on eBay for real money with the trade consummated in-game. Blizzard cracks down on trades for real money between players pretty hard, but other game devs have embraced the concept for their own gain. Entropia allows users to deposit and withdraw money from the virtual world, and people actually make a living in the real world by running in-game businesses. Even Blizzard allows you to buy in-game gold with real money (but you can't "cash out" like in Entropia, and there are certain things that you'd be hard-pressed to spend any amount of gold to buy). Similarly, Facebook apps are a HUGE cash cow, with companies like Zynga and Maxis offering titles like Farmville and Sims Social where normal play is free, but you can pay for virtual objects to spruce up your little corner of the game (often, paying real money is the only way to acquire certain highly-desirable items).

• Pay-per-play - Very point-of-sale-based gaming. Your customers pay you for a finite unit of play. Obviously arcade games are the first thing that comes to mind, but the model generally holds for online casinos, video poker machines, etc. However those are the main genres of games that use this model effectively; most users would balk at a game they download to their phone or XBox that charges their account based on the number of times they play it. However, pay-per-use is a valid model for certain other mobile device apps, such as for navigation, song identification, etc etc.

• Ad-based - A lot of mobile device games are monetized using this model. Free to install, free to play, but the game display features product placement for which advertisers pay the rights holders. This can be straight up ad displays along the top or bottom of the screen, or it can be more subtly integrated into the game; an MMO based in the present-day or near-future might put real ads on "billboards" and charge advertisers for the online billboard space much like a real-world billboard owner would do. Basically any game with "real estate" that can be devoted to ads without disrupting gameplay would benefit from it. It's really taken off with mobile devices, as previously mentioned, because you as a game dev can put your work in the app store free for the downloading, but still make money. Certain genres like FPSes are less effective with an in-game ad model, as a dedicated place in the "HUD" for ads must be out of the way by necessity, and players are focused more on other players than background elements like an ad banner as a texture on a wall in the map. But, things like loading screens become a natural place for ads, because the user is just watching and waiting and so is a pretty captive audience for a full-screen ad panel.

• Provider billing - You can make money from a game by selling it not to an end user, but to a provider who will then offer it to the end user using their own model (usually pay-per-play, but they may absorb the cost). Usually this is in the form of an arcade game that you sell to a business owner, who will drop it into their store as a change-catcher. However, the model may also work as a "drop-in" to an online website (as an embedded object, most likely a very simple puzzle game), by charging people who host game servers (beyond the cost of a license for the game server) or as a "benny" for subscribed users of some other service (sign up for Dish Network and get unlimited access to our MMO from your TV or a PC with an Internet connection). This would generally work for dynamic-content games like MMOs, and also for very simple "applets" that web portal companies can drop into their site as an amusement for a nominal per-play fee, or for free. However, there has also been money made in charging by the hour for access to retail games, with multiplayer environments hosted on private servers.

These are the models most suited to game development that allow you to profit from the game itself. However, there are other ways to profit from the IP of that game:

• Merchandising - Doom, Quake, Mario, Zelda, Donkey Kong, Sonic, Sephiroth, even the Angry Birds are available on T-shirts, action figures, plushies, and in myriad other forms besides. Regardless of who makes the product, the owner of the IP is compensated for every item made in which the IP has been used.

• Code Licensing - Valve Ltd got its start by buying rights to use the Quake II game engine from Id Software, then programming Half-Life around it. Valve now has their own engine (with the embedded Havoc physics engine licensed from another dev house) and are where Id was a decade ago, licensing use of the Source engine to developers who've used it for everything from other FPSes to arcade games to racing simulations. This is the primary way to monetize computer code other than licensing its end-use as a game program.

• Sponsorships - Sponsored play events such as mass demos and tournaments are yet another way that money can be made from a game. The IP holders of the game(s) played during the event are, of course, entitled to a substantial cut of sponsor dollars. Usually, this is secondary to selling the game itself; the event is either a promo for the game prior to or at its release, or an incentive for people to buy and play the game (to get good so they can win the tourney). The majority of money made by the IP holder is thus made before or after such an event.

Answer 2

For some actual stats, here is a detailed survey conducted on Flash games in 2009: http://wiki.mochimedia.com/w/page/15156195/Flash%20Games%20Market%20Survey

You' probably be only interested in some of the slides like below though (slide 18).

Answer 3

Although it is meant for software selling in general and not just only games, I found this book very useful and clear (and it's free!): Don't just roll the dice, by Neil Davidson (He also has other free books which may be worth reading).

Answer 4

I'm not sure about books on this but, there are plenty of MMORPGs that have gone from a pay to play model to a free to play model and have tripled even quadrupled the number of players they have on the game. I'm sure if you could find the games that have gone from P2P to F2P they will have numbers somewhere on their site of their success.

Here is the only list I could find of games gone from P2P to F2P(keep in mind it is a bit oudated and there are many more games that have done this):

http://mmohuts.com/editorials/pay-to-play-gone-free-to-play

As for age ranges it's pretty much self explanatory that F2P audiences are going to generally be a bit younger than P2P based on the fact that children don't have income. Again no real evidence on this.

I know Aion is an mmorpg that was P2P and is going F2P on April 11, 2012.

Games like Maple Story were very successful with micro transactions. Solely based on the ratio of P2P games to F2P games, F2P seems the more successful. Like I said the only real way to back this up is to look at the increase of subscribers games get when they go F2P.