Video Game Industry Embraces Internet And New Business Models: Others Should Pay Attention

from the game-theory dept

We talk a great deal around these parts about new business models at both the macro and micro level. Individual experiments and successes, as well as failures, are both interesting and instructive, but a good macro-level look at how entire industries can function in a digital marketplace should be equally useful. With that in mind, Chris Dixon has an absolute must-read post on Medium on the lessons other industries can learn from the PC gaming industry’s success in recent times.

It’s worth noting before we start here that the past five years or so have been chock-full of hand-wringing over every potential danger to the PC gaming industry you could imagine, from casual mobile games to piracy. And, to some extent, I can understand that fear. After all, PC gaming has perhaps lower barriers to entry than other entertainment mediums, making competition more heavy, while the average consumer of PC games is likely going to be more familiar with the ways of piracy and the technical workarounds to DRM than the average music or movie consumer. Too bad for all that fear that, as Dixon’s article notes, the PC gaming industry has enjoyed healthy growth over these past several years (something like 50% revenue growth since 2012). Much of that has to do with the innovative ways gaming companies have found to do business.

Even if you have no interest in video games, if you are interested in media, you should be interested in PC gaming. Over the past decade, PC gaming has, for a variety of reasons, become a hotbed of experimentation. These experiments have resulted in a new practices and business models?—?some of them surprising and counterintuitive?—?that provide valuable lessons for the rest of the media industry.

Those experiments will sound quite familiar to the Techdirt reader. They include free-to-play models, with game extras being sold to gamers. They also include the development of strong and convenient selling platforms, like Steam and The so-called “freemium” model is particularly well done in PC games, in part because many of those games respect gamers enough not to use the model to break the integrity of the game itself.

The PC gaming world has taken the freemium model to the extreme. In contrast to smartphone games like Candy Crush that are “free-to-play,” PC games like Dota 2 are “free-to-win.” You can’t spend money to get better at the game?—?that would be seen as corrupting the spirit of fair competition. (PC gamers, like South Park, generally view the smartphone gaming business model as cynical and manipulative). The things you can buy are mostly cosmetic, like new outfits for your characters or new background soundtracks. League of Legends (the most popular PC game not on Steam) is estimated to have made over $1B last year selling these kinds of cosmetic items.

Medium also goes on to point out PC gaming’s latest foray into money-making in the form of live events. In what will sound familiar to anyone who has read our posts about the music industry, live gaming events are fantastic revenue generators, especially as they’ve become massively popular in the past few years.

Add to all of this the relatively permissive attitude in PC gaming circles that companies have towards mods of their games and you have a recipe for violent adoption and the willingness to buy by the gaming public. Mods make games more attractive to wider audiences, increasing purchases. Some mods indeed become their own games, increasing purchases. Most game companies encourage this modding culture, generating good-will within the consumer-base. No other industry does this as well.

Contrast this to the music industry, which relies on litigation to aggressively stifle remixing and experimentation. Large music labels have effectively become law firms devoted to protecting their back catalog. Sometimes this means suing their peers, and sometimes this means suing communities of users. The end result is a strong chilling effect on new experiments. Almost all new music-related tech products are minor variations of preceding products. It’s too risky and expensive to try something genuinely new.

And finally, there is the embrace of crowd-funding. Crowd-funding has been adopted in virtually all entertainment mediums, but I struggle to see any of them doing crowd-funding as well as the PC gaming industry. From experiments done by household PC gaming names like Tim Schafer, to diverse tiered-rewards for funding, to the willingness of some to forego offers from traditional game publishers to go the crowd-funding route, PC gaming is full of these success stories.

The point of all this is that new and innovative business models can work for other industries as well. There’s nothing unique about the PC gaming industry that won’t translate over to some degree for music, movies, television, etc. They just have to try.

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Comments on “Video Game Industry Embraces Internet And New Business Models: Others Should Pay Attention”

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DavidMxx (profile) says:

Steam is a disaster, at least on the Mac. I installed Steam on my daughter’s MacBook Air. It made numerous changes to the point that the program could not be turned off or disabled. Tried to uninstall it and the process literally destroyed the system. The computer would no longer start. Had to reinstall the system from the recovery partition.

Never again with Steam.

Max says:

There is one other “entertainment sector” that is also well and truly embracing crowd-funding: free-to-view webcomics. By now pretty much everyone with any audience to speak of is on Patreon trying to make a buck and some of them even make a rather nice living off it, each month, while the comic gets updated regularly and stays free for anyone else to view.

Personally, I see that as the only acceptable future for all creative work – interested parties should make sure the creator gets to do his thing, and the result should be free to share (and guess what reality already proves wrong those saying nobody would then bother to contribute). People with an actual job have to keep working every day if they want to keep eating – neither musicians, writers nor any other artist should expect a lifelong rent for something they once did – and their “estate” even less so!

MrTroy (profile) says:

Re: Re:

Not to dispute the rest of your comment, but your statement “By now pretty much everyone with any audience to speak of is on Patreon trying to make a buck” doesn’t seem to hold water.

Non-syndicated comics I don’t see on that list (non-exhaustive):
* Penny Arcade
* Sluggy Freelance
* xkcd

There also doesn’t seem to be much overlap with this list of comics or this one.

Anonymous Coward says:

Re: Re:

And yet people are clearly willing to pay that price. Which isn’t really a surprise: if you think $n is an acceptable price for a game, you’re likely to retain that across delivery methods… and if you aren’t, then at least in Steam’s case you can take advantage of the frequent sales.

The reduced value of a game tied to an app store evidently doesn’t register to most people. Perhaps it’s made up for by the integration with what I’ll call “game services” platforms that provide boring common things like the signalling for setting up multiplayer sessions. Those do have concrete value, and they’re part of how you get the console-like “It just works” behaviour, which isn’t to be sneezed at.

PaulT (profile) says:

Re: Re: Re:

Exactly. It’s disappointing that digital hasn’t brought the price of an average new release game down significantly. But, almost every major platform has sales and regular discounts, often those that would be impossible to achieve with physical distribution.

Sure, you might not be able to save a huge amount on a new release AAA title – but who honestly claimed this was guaranteed to happen in the first place?

PaulT (profile) says:

Re: Re: Re:2 Re:

Hey believe me, being from the UK and living in Europe I’m used to getting ripped off just on the exchange rate. I just don’t see much difference with digital. Regional bullshit stops me from being able to import from the UK as often as I do with physical media to try and save some money, but larger saving seem to crop up more often as well. But, I’m not the sort of gamer who cares too much about having a game brand new or playing multiplayer so your experience might vary.

AJ says:

Path of Exile is a good example. The game is free. They make their money from micro transactions on cosmetic items. It’s not pay to win, you can’t buy a GG item from the in game store, but you can buy a weapon skin for one you’ve acquired in game.

Funny; It’s a really good game, and they KNOW it’s a really good game. They don’t need to hit you with a crazy upfront cost because the game is good enough that once you start playing, and find your into it (if it’s your thing, you will become part of their community and want to contribute.

When you’ve created something that’s good enough that you can give it away, knowing your customer base will want to give you money, you’ve really created something special.

chilling farts says:


Dota 2 is a “free to win”? NO, is a “pay to fail”: delayed prizes from Compendium, impunity against scammers, paywalls for friendlists due to second issue, ranking broken due to zero moderation at point of many people is claiming for a fee to enter the game… (all this taking count the paid area of Dota 2 is related to cosmetics)

The “freemium model” is not only broken, evolved to a thing even worse, pay to get screwed. Other startups like Nutaku are following the same scheme

Paul (profile) says:

Buy The Game Once!

One thing I despise about the gaming industry these days is the “add on” model where you buy the game but then you have to pay for updates and add ons. I would rather pay slightly more for a game and get every future update or add on free. You do not see Windows charging everytime there is a Microsoft update and I believe that games should be the same.

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