Major Shifts in the Gaming Industry: From CDs to Loot Boxes
In recent years, the video game industry has gone through major shifts. One of those shifts concerns their business model—from a fixed price per game, through DLC (downloadable content), to gambling. Today's article discusses these shifts and how game developers monetize gameplay.
• "...the apparent transformation of the games industry from one that seeks to create new things into one that has now begun to exploit people, especially children, to maximise profit." [1]
• Play can be monetised in many different ways, from having to pay for playing (buying a CD that contains the game) or items to play (consoles) to granting free access to the game or location (casino), but playing costs money.
• A major shift came from games as a product (CD) to games as a service (selling downloadable content) or expansion packages.
• Next came microtransactions, where buying in-game items (including loot boxes and battle passes) contains valuable items.
• Loot boxes are heavily critiqued by players, as they contradict some of the cultural norms, such as 'may the best player win' or equality within the gaming society.
"...the apparent transformation of the games industry from one ‘that seeks to create new things’ into one that has now ‘begun to exploit people, especially children, to maximise profit’" [1]
This statement was made in 2017, after the release of Star Wars: Battlefront 2, which made a tremendous shift in the gaming industry visible to the broader audience. Chris Lee, the Hawai'i member in the House of Representatives back in the day, stated that the game was "a Star Wars-themed casino designed to lure kids into spending money."
Following a Hawai'i legislation, many other US states and countries, such as the Netherlands, China, and Belgium, have started to take action against loot boxes. However, loot boxes (spending real-world money to get unpredictable in-game items) are not the only outcome of a shift the gaming industry has gone through in recent years. This shift impacts the development of games on a deep and cultural level, towards gamified monetization practices.
🛝 The Monetization of Play
"One of the greatest challenges for designers of play has always been monetization. How should one secure income in exchange for providing play to consumers?" [1]
This challenge runs through every business. How do you make money as a company? In the early days, board games and specialised equipment for sports were sold to turn a profit by individuals or companies.
"Another solution is renting the space in which play must take place: this is especially appropriate for many sports that require a large and expensive pitch, and is also the model that laser-tag or paintballing companies utilize." [1]
Closely related to this are casinos, where the entrance is free but playing costs money, similar to arcade games or internet cafes. The first big shift came when people could afford personal computers, and companies switched to selling game cassettes or cartridges as a single self-contained product, similar to books, music records, or films. This type of business practice was relatively stable for years, in some cases over a decade.
The next shift came with DLC (Downloadable Content), or "expansion packs," and microtransactions. Now, companies would save the cost of manufacture, packaging, and distribution of physical items (CDs), often leaving them with a higher profit margin and advantages in terms of time and effort.
DLCs also have the advantage of being a small number of large content additions that build on the original game. Meaning, the cost of adding content is marginal and the profit high.
Shifting away from physical items was driven by classic market forces such as inflation (keeping the same price for a game doesn't work for a decade), the oversaturation of the games industry (think about the sheer number of games that exist), and the cultural change in the production of games.
I can't think of a single major company that hasn't been accused of being out of touch with the community and gaming culture. Instead of creating games with the intent to create something players truly love, companies chase the next big thing in profitability.
"We are thus witnessing a shift from the production of a cultural item, which needs to make money to be sustainable, to the production of a monetized product designed to appeal to a particular cultural market." [1]
In microtransactions, the idea of games as a service is inherent. This shift from games as a product to being a service came with a business model called "freemium" (free and premium).
"Freemium is a business model whereby basic game services are provided for free of charge... whilst more advanced features must be paid for." [1]
The idea is simple: play for free but spend money to advance faster in the game. Typically, 5-10% of the paying users keep the system afloat, meaning 90-95% of the players play for free or spend very little money in-game. Game developers learned this trick from casinos: bring in players, offer something for free, keep them playing, engaged, and involved, and monetize them later. The most familiar games everyone probably has heard of are Candy Crush Saga, FarmVille Sage, and Clash of Clans.
One of the psychological principles behind this model is called the "cognitive lock-in." The goal-oriented behavior of players should become automatic (a habit) through the repeated consumption of coins, keys, passes, and other items. These items remove barriers and help players to progress in-game and must be acquired on a constant basis in order to access everything the game has to offer.
In simple terms: if you want to "complete" a game (something you will never achieve, in contrast to games back in the day), you'll have to play every day and potentially spend money (even if it's just for skins).
📦 Loot Boxes
Loot boxes aren't something new. They've always been in video games, but you didn't have to pay for them with real money. For instance, upon completing a challenge, leveling up, or wandering through the digital world, players could get or find treasure chests containing something unpredictable in value. The content of these treasure chests might vary each time the game is played.
"...loot boxes have become controversial due to the potential risk of offering real-money gambling or gambling-esque experiences to young people below legal gambling age." [1]
Another legal issue with loot boxes is the fact that the gambling aspect is embedded in a larger piece of software—the game itself—which does not conform to gambling. Aside from the legal aspects, player backlashes are common too and stem from a proposition that microtransactions in general are contrary to the ideal of equality and "may the best player win." Let me explain.
When buying an item that makes your character stronger only requires a strong card—your (mom's) credit card—it isn't fair to those who don't have the financial resources, making it a pay-to-win system. It kinda rigs the competition.
The argument of inequality stems from the fact that, similar to the real economy, where the rich possess increasingly more assets, those who buy everything in-game set themselves apart from the rest of the (gaming) society.
Have a great week, everyone.
Christian 🙂
