Why the $183 billion video game industry can't quit microtransactions

The two biggest video game makers in America now make most of their money not from people buying games, but on subscriptions and spending within those games. In fact, Electronic Arts and Take Two Interactive both make a staggering 75% of their money from what’s called microtransactions. You’ve seen examples of this revenue generation from top titles like GTA5, NBA 2K and Fortnite. They come in the form of Battle passes, membership programs and virtual currencies. This is all happening despite intense backlash from consumers and critics and as the cost of developing these games reached staggering levels. I just find the trend so tacky and wearisome from toe to tip, but it ain’t going anywhere because it sells. In fact, it has been selling the revenue model. Conversation has generated so much attention that parties are now trading high stakes lawsuits over the issue. Epic Games. Fortnite created its own in game payment system for microtransactions and that caused Apple to remove the mobile app from the App Store, ending in a lawsuit in several for proceedings. Apple now has to give its users access to rival payment systems and app stores in the European Union. There was quite a bit of pushback from especially the the very dedicated gaming community and and rightly so in a lot of cases. You know a lot of those models, the early models, it was tough to get the things you want. So here’s how microtransactions and live services took over the video game industry, and why gamers really can’t do anything to stop it. Microtransactions are any virtual transaction you make inside a video game that costs real money. And take Two’s NBA2K, you can purchase virtual currencies for various prices. Buying the Battle Pass in Fortnite each season, or approximately every three to six months, grants you new skins as well as the ability to purchase its own virtual currency. V Books The highest selling console game of all time, GTA5 allows gamers of GTA Online to purchase AGTA Plus membership for $5.99 a month prior to, say 2012, you’re looking at 98% or more of content spending being done physically. That all began to change when people started to get more connected, and that allowed publishers to do new and different things beyond just selling a disk, including, you know, not just digital downloads but also things like subscription services. In 1971, the video game market was only the computer space arcade game and took in $1 billion in revenue. Fast forward to today and the market’s worth $183 billion with various platforms and thousands of games. Mobile gaming has played a massive part in the expansion of the industry. What’s driven the growth of the gaming market has been the the growth smartphones. Now in 2023, you’ve got 80% of the world’s population using a smartphone. So, you know, we just have, you know, 6 billion plus people with a device that is capable of playing. There’s some kind of game on it. So we’re just able to reach so many more people with games today than back in 2007. The live service models within these mobile games are the cash cows, and now the industry leaders want to bring more and more of that model to console and PC gaming. Live services refers to game publishers work to continuously provide new content throughout the game’s life cycle. Which popular titles like Fortnite, Apex Legends and League of Legends have 80 year old white men who are worth billions are probably not playing mobile games, but their grandkids are. And when their grandkids are are, you know, billionaires, they’ll still be playing mobile games and certain executives are banking on it. Take two interactive President and CEO Karl Slatoff and Strauss Zelnick were paid in total $72 million in 2022 after revising their compensation packages to include for bonuses for hitting microtransaction goals. The microtransaction trend isn’t going anywhere as Electronic Arts brought in $5.6 billion in its latest earning results. Highlighting the resilience of this Evergreen business model incorporating spend opportunities and paid games offends the user because they’re like I already paid 70 bucks for the game. Why do you want to charge me more? This frustration and backlash to in game purchases is nothing new. He brought controversy in Elder Scrolls 4 Oblivion with the infamous horse armor for $2.00 back in 2006 and it still is today. Traditional gamers would say, you know, I want to buy a great game in order to play that game. I don’t want to feel like I’m being nickeled on Dimes, you know, along the way. After negative feedback before Electronic Arts release of Star Wars Battlefront Two in 2017, the company decided against its own iteration of in game purchases, which many labeled as Pay to Win. Gamers who buy games have this code, which is kind of not very well thought through, but it that they hate pay to win. The Battlefront 2 release was also marred by loot boxes, which are packages of content gamers can buy to enhance their experience via costumes or playable characters. Loot boxes weren’t just an issue for gamers. Hawaii’s legislature wrote a bill to ban them from video games in the state. The whole countries have altogether banned loot boxes. They believe the loot box is too many ties to gambling. It’s the chance factor. So they have to very clearly state the odds of getting something good, which is generally between one and 2%, you know? So in other words, something costs a dollar, you have a 1% chance of getting it. You’ll spend $100 to get it. You know that you got to do 100 draws. You might get lucky and spend 20 and get lucky. There are recent games that have bucked the wave of in game purchases, mainly console games with a focus on playing a specific role like IG NS 2023 Game of the Year winner Baldur’s Gate and Playstation’s blockbuster Spider Man series. Several of IG NS Game of the Year winners do not have aspects of in game purchasing outside of downloadable content available for users to buy. However you take a single player game and make it into a multiplayer game, people will spend The backlash towards in game purchases isn’t isolated to just gamers. On Reddit in the UK parliament published a response to a call for evidence in July 2022 detailing exactly how game companies can protect children and adults. Those rules include things like loot boxes should be unavailable to children unless they’re enabled by a parent or guardian, and all players should be aware of spending controls to support safe and responsible gambling. The game industry’s response created the UK Interactive Entertainment to enhance player protections in line with the government’s response showing what the odds are to get the items that you really want, you know are is a really good one. So we still see those mechanics being used quite a bit across the video game industry and there’s just a lot more transparency around it. And of course, you know, very specific markets of outlawed very specific forms of the blue boxes. And so I think the regulations are actually in a pretty good place right now. Several countries have passed laws with varying degrees of regulation. For example, Italy, South Korea and the Netherlands require probability disclosures, while an outright ban against loot boxes exists in Belgium. As a result, gaming companies have modified their transaction model. Over time the industry has really moved to more of a what they call a Battle Pass system or or some kind of packaging of seasonal content and that’s found a lot more in terms of a warm response than the the early days of the loot box. Battle passes are a monetization approach that give gamers the chance to earn skins they normally wouldn’t be able to unlock, but can via real world payments. Fortnite and Call of Duty Warzone excel here. However, these live service games with Battle passes require ongoing maintenance which requires labor and it’s not cheap to produce. At least one major game publisher told UK regulators in 2023 that are single game and a major franchise cost them more than $1 billion to release, including development and marketing expenses. Microtransactions and subscriptions are a way for video game companies to recoup those staggering development costs. Some of the biggest challenges now I think is the the the cost of development is increasing. So if you’re making a large world, a large open world, and you fill that with very detailed characters and you want to have the best performance capture in there, that takes a lot of skilled workers. Or if you’re developing a game, a live game, and you want to update that every day or every week, that again takes a lot of skilled workers. Games like Fortnite and EA’s Ultimate Team require maintenance throughout the course of playing through live services, which are frequent content updates throughout the game’s life cycle. EA’s live services brought in a record $1.71 billion in the quarter ending January 30th. But they’re costly to manage and not all studios are able to bring the live service offerings they had initially planned, like PlayStation. But I’ve still found success with certain games like Hell Divers 2. We’re really talking about a live service, a living, breathing game that continues for years and years. Grand Theft Auto 5 launched in 2013. It’s still one of the most played games eleven years later and in 2025 you know Grand Theft Auto 6 is going to come out and be the biggest entertainment launch in history. The next development to shift the financial footing in gaming is likely to be the shift from owning a copy of the game to being able to use the game through cloud services. Eventually, someday we bake it to the point where cloud enabled devices will provide a good enough experience where people are willing to transition over to cloud based gaming on a more full time basis. So when that happens, when you don’t have the upfront need of a device, then you might see more and more games dropping the premium up front in order to really expand the appeal of the game.