Video gaming is changing at an incredible pace. An industry that was once dominated by a handful of big publishers has suddenly opened up to thousands of independent, self-publishing studios. The rise of casual gaming and the transformation of gaming consoles into entertainment centers are two of the biggest forces changing the way games are sold and consumed today.
We take a look at recent changes in video gaming and how they affect the way games are sold:
The End of Gaming as We Know It
For much of its history, gaming has been a niche activity reserved for a very narrow demographic, typically young adults and adolescents between the age of 8-24. Until the present generation, video gaming consoles were branded as “toys” rather than “entertainment devices.” PC gaming, meanwhile, was the home of hardcore gamers who could afford to keep pace with rapid hardware upgrade cycles. Both these have changed drastically in the last few years, because of the following:
First Wave of Changes: Console Gaming Gets a Makeover
The first winds of change were felt around 2005-06 when the present generation of gaming consoles were launched. Both Microsoft and Sony branded their gaming consoles (Xbox 360 and PS3) as “home entertainment centers’” capable of playing video games, watching Blu-Ray/HD-DVDs, and later, streaming movies on Netflix. Nintendo took things one step further by actively courting previously underserved demographics with its console, the Wii. With its motion-capable gaming controller, friendly graphics and family-oriented titles, Nintendo was able to draw in gamers who had never touched a gaming device before. While Xbox 360 and PS positioned themselves as the go-to console for “serious” gamers, Nintendo advertised itself as a family friendly entertainment device with a focus on collaborative, over competitive, gameplay.
The numbers have been telling: Nintendo has sold 99.7m Wii consoles, while Microsoft and Sony have sold 77.0m and 78.0m consoles each. Premier video game titles today have budgets that rival huge Hollywood blockbusters and gross hundreds of millions of dollars (for example: Call of Duty: Modern Warfare 3 grossed $775m in five days; GTA5, meanwhile, has a budget of $137.5m)
Second Wave: The Rise of Casual, Mobile Gaming
A second, more seismic change in the way games are consumed was to happen three years later with the launch of the Apple App Store for iPhone. The iPhone was the perfect casual gaming device: ubiquitous, affordable, and relatively powerful with a high resolution screen built-in. Developers soon jumped aboard the tremendous “app rush” that was to follow. Innovative titles such as Fruit Ninja, Angry Birds, and Temple Run made full use of the iPhone’s accelerometer and touchscreen features, selling millions of copies in the process (Imangi Studios’ Temple Run, for instance, has been downloaded more than 170m times; Angry Birds, on the other hand, has sold a whopping 1.7 billion games).
More importantly, the mobile revolution democratized the gaming market. “Casual gaming” became a legitimate, multi-billion dollar industry (Angry Birds maker Rovio, for instance, made $195m in revenue in 2013). It introduced women and older audiences to video gaming, which is one of the reasons why mobile gaming is valued at $9b today.
Third Wave: New Consoles, New Changes
Earlier in June, both Microsoft and Sony revealed their new consoles, the Xbox One and Playstation 4 respectively. Both these consoles are being touted as home entertainment devices rather than gaming systems. They can both hook up to the internet and stream videos from YouTube, Hulu or Netflix. You can download and purchase videos, music, and live shows. You can even chat with friends via Kinect/PS4 cam. Once again, the objective is to open the market even further and make gaming as accessible and common as owning a DVD player or an iPod.
How This Changes the Business of Selling Games
Video gaming has been a hardware play for almost 40 years since PONG debuted on arcade machines. Games were traditionally distributed via cassettes, cartridges and discs. But in light of the changes highlighted above, this hardware-centric model is rapidly evolving, led by a slew of factors:
1. Digital Downloads
Direct digital downloads of games was a concept pioneered by Valve with Steam. Since then, Steam has become the de-facto marketplace for video games on the PC. Games sold by Steam are typically priced lower than their physical counterparts. Besides price, players also have the benefit of getting access to a game instantly. This digital download model has been so successful that Microsoft, Sony, and Nintendo have started offering discounted digital games as well.
2. Downloadable Content (DLC)
Downloadable content refers to additional items, upgrades, map packs, and gameplay elements that can be downloaded for free, or for a price. DLC enables developers to extend the shelf life and revenue run for existing titles. Call of Duty: Black Ops, for instance, earned $250m through its downloadable map packs alone. In the context of increasing development costs and decreasing margins, DLC offers a viable source of additional revenue for developers. Further, DLC can also be used to subsidize the initial cost of games, bringing even more gamers into the fold.
3. Casual Gaming
As noted above, mobile gaming is a $9b market. As tablets and phones become increasingly more powerful, this market is expected to grow to $86.6b by 2016, usurping console gaming as the dominant gaming form. Apple and Google are poised to account for a lion’s share of this market.
All mobile games are digital-only. Since they are classified as “casual games,” both the production costs and selling price tend to be much lower than console games. The average price of a mobile game, for instance, is just $0.82 – far lower than the standard $59.99 for console games.
In response to lower prices, developers have adopted the “freemium” approach to maximize revenues. This concept was first pioneered by Zynga with its FarmVille and CityVille games, where one had to pay money to unlock rewards, bonuses, and gameplay elements. Since then, this model has been appropriated by most top grossing games on the Android and iOS store.
The growing popularity of console gaming has also prompted Microsoft and Sony to open their marketplace to independent developers. Starting with the Xbox One and PS4, developers will be able to sell their casual games as digital-only downloads directly to consumers. This will pave the way for further consolidation in the casual gaming market and give developers one more means to make extra cash. In fact, you can cash in on this phenomenon yourself by making games with Construct 2. This free game development course will show you just how to make your own games from scratch.
4. Crowdsourced Hardware Innovations
A number of new crowdsourced hardware startups are changing the way games are consumed and published. Chief among these is Ouya, which sells a $99 Android gaming console. Ouya is bringing the mobile gaming experience to the big screen. The startup successfully raised $8.5m through Kickstarter and inspired a bunch of imitators such as GameStick. Since both Ouya and GameStick run on Android, anyone can publish on these consoles for free and get access to yet another sales platform.
Essentially, these changes imply that the share of gaming dollars will shift even further towards mobile, digital-only games. Buying physical games will be the equivalent of renting DVDs from Blockbuster – slow and out-dated. As smartphones and tablets increase in power, they will account for an even greater share of the gaming market, changing the way games are sold.
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